Intention of the parties to be considered to decide if lease/rental income is to be treated as HP income or business income
IN THE ITAT COCHIN BENCH
Assistant Commissioner of Income-tax
Versus
Palmshore Hotels (P.) Ltd.
IT APPEAL NO. 249 (COCH.) OF 2011
[ASSESSMENT YEAR 2005-06]
SEPTEMBER 14, 2012
ORDER
B.R. Baskaran, Accountant Member
The appeal of the revenue is directed against the order dated 27-01-2011 passed by the Ld. CIT(A)-I, Trivandrum and it relates to the assessment year 2005-06.
2. The solitary issue urged in this appeal is whether the Ld. CIT(A) is justified in holding that the lease rent received by the assessee should be assessed as business income and not as income from house property.
3. The facts relating to the issue are stated in brief. The assessee herein constructed and operated a hotel by name “Hotel Palmshore” with a capacity of 35 rooms and two cottages. Since it was incurring losses, the assessee decided to give the hotel along with furnishings and equipments on license basis. Accordingly, the assessee entered into an “Agreement of License” on 11th December, 2000 with M/s. Abad Motels and Resorts (P) Ltd., who are experienced in the field of operating and managing hotels. As per the terms and conditions of the said agreement, the hotel along with the furniture, furnishings and other related items was given to the licensee for a period of 7 years. The assessee is described as “licensor” and M/s. Abad Motels and Resorts (P) Ltd. is described as “licensee”. The compensation for the giving the the management of the hotel has been fixed as per Article VIII of the agreement as under:-
“Article VIII
LICENCE FEE
In consideration of the LICENSOR permitting the LICENCEE to operate the HOTEL fully or partially the LICENCEE shall pay the LICENSOR the following Licence Fee and furnish an interest free security deposit of Rs. 20 lakhs (Rupees Twenty Lakhs). The said security deposit of Rs. 20.00 Lakhs (Rupees Twenty Lakhs) will be retained by the LICENSOR and returned to the LICENCEE on the expiry or termination of this AGREEMENT.
The LICENCEE will pay the LICENSOR the following as Licence Fee.
