Aloke Chakrabarti, J.:— This appeal was filed under section 260A of the Income-tax Act, 1961, against the judgment and order of the Income-tax Appellate Tribunal in respect of the three assessment years, namely, 1978-79, 1979-80 and 1981-82.
2. The facts relevant for the present appeal are that the petitioner, a public limited company, is engaged in the business of manufacture and sale of sugar in the sugar mills of the petitioner situated at Motihari. The petitioner operated the said factory which was mortgated to the Bihar State Financial Corporation and to the Industrial Financial Corporation of India. In view of the losses suffered by the petitioner-company, the petitioner leased out the said factory to the lessee, M/s. Gobind Sugar Mills Ltd., by a lease agreement dated May 1, 1969, for a period of five years under the terms and conditions recorded in the lease deed. The rent payable under the said lease were to go to the financial corporations to liquidate their respective dues from the petitioner. On an expiry of the said period another lease was executed on April 19, 1974, followed by a third lease deed dated April 30, 1979. Subsequent lease deeds again were executed for further periods which do not govern the subject periods. In respect of each assessment year, the lease rent received by the petitioner was shown by it under the head “Profits and gains of business”. The income-tax authorities accepted the said income under the said head from the assessment year 1969-70 till 1977-78. But for the assessment year 1978-79, the said contention of the assessee has been rejected and the said lease rent income has been treated by the income-tax authorities as income from other sources. Similar finding was recorded for the assessment years 1979-80 and 1981-82. In respect of the assessment year 1980-81, the Tribunal accepted the contention of the assessee and decided in its favour. The prayer for transmitting statement of facts with reference to this court, was rejected by the Tribunal. The application before the High Court for direction upon the Tribunal for making a reference on the said point, was also not accepted though rule was issued in respect of other questions.
3. With regard to the assessment year 1988-89 also the Tribunal held in favour of the assessee in regard to the said question and the appeal filed by the Revenue was dismissed by another Division Bench of this court.
4. Further in respect of the assessment year 1990-91, after the Tribunal held in favour of the assessee on the said question, the appeal filed by the Revenue before this court, is pending.
5. Heard Mr. R.N Bajoria assisted by Mr. J.P Khaitan, learned counsel for the appellant, and Mr. D.K Som, learned counsel for the respondent-Revenue.
6. The contention of the appellant is that the appellant was all along using the factory including all its assets as commercial assets and the lease rent income earned therefrom has to be treated as business income as the intention of the assessee all through is not to part with the factory and its assets finally and those were let out temporarily to meet the financial crisis and was let out for being run as sugar factory.
7. For showing the intention of the present assessee reference was made to various lease deeds executed from time to time and to the directors' report of all relevant years showing the intention of the persons concerned at the relevant point of time.
8. It is further contended on behalf of the appellant that the intention of the parties in the present case in respect of executing the lease deeds has to be ascertained as it was at the time of executing each lease deed. Therefore, once the intention of the assessee in granting the lease by one lease deed, is held to be not parting with the assets finally and for using it as commercial assets, for the continuing period of the same lease deed, no different finding can be reached. It is contended that though the principle of res judicata strictly does not apply in respect of income-tax matters and each assessment year has to be treated as a separate unit once an Assessment Officer comes to a finding in respect of the facts of the particular assessee for one particular year, for subsequent assessment years for the same aspect the same finding should ordinarily be reached unless the facts are found to be different and in case a different finding is reached, appropriate reasons therefor are to be recorded.
9. It is further contended that when in respect of the periods covered by similar lease deeds in respect of the earlier periods from 1969-70 till 1977-78 and for subsequent periods including 1988-89, the income-tax authorities accepted the lease rent income of the assessee as business income, then treating the similar income for intermediate three periods as income from other sources without there being any special reason nor any difference in circumstances, will lead only to inconsistency.
10. The further contention of the appellant-assessee is that the approach of the authorities concerned in the present matter is contrary to the settled principles of law and the intention of the assessee while executing the lease deeds covering the concerned periods, cannot be assessed taking the total periods of lease.
11. Various clauses containing the terms of agreement have also been relied on by learned counsel for the assessee for showing that on each occasion the lease agreement was only for five years and there was no clause for renewal of lease indicating that at no point of time the assessee had any intention of creating a long lease and the directors' report for all relevant periods shows consistently that the matter was being assessed from time to time for exercising the right to terminate the lease prematurely in terms of the power granted in the lease deed.
12. Reliance was placed on behalf of the appellant on the judgment in the case of New Savan Sugar and Gur Refining Co. Ltd. v. CIT (1969) 74 ITR 7 (SC); Universal Plast Ltd. v. Commissioner Of Income Tax, Calcutta (1999) 237 ITR 454 (SC); Commissioner Of Income-Tax v. Hindusthan Motors Ltd. (1991) 192 ITR 619 (Cal) and Radhasoami Satsang v. CIT (1992) 193 ITR 321 (SC).
13. On behalf of the respondent-Revenue, Mr. Som, learned counsel, contended that the principle of res judicata does not apply in income-tax matters. It is further contended that the directors' reports relied on by the assessee though speak much on the control over the business by the assessee-company even after the lease is granted but no such clause is available in any of the lease deeds and the finding recorded by the authorities shows that the assessee had no control over the business in the hands of the lessee.
14. It is contended on behalf of the authorities that though there was no renewal clause in fact lease is being continued for a long period of 34 years starting from the year 1969 and therefore, there is no irregularity in taking the entire length of continuous lease for finding out the intention of the assessee which admittedly has to be assessed from the attending circumstances.
15. The further contention of the Revenue is that the law decided in the case of Universal Plast Ltd. [1999] 237 ITR 454 (SC), which was relied on in the impugned judgment, was not even taken into consideration by the Division Bench when refusing the application filed by the Revenue for directing the Tribunal to make a reference in respect of the assessment year 1980-81 and therefore, the Tribunal in the impugned judgment relying on the same took a correct decision.
16. Reliance was placed by learned counsel for the Revenue on the judgment in the case of Instalment Supply (Pvt.) Ltd. v. Union of India [1961] 12 STC 489 (SC) : AIR 1962 SC 53 and Additional Commissioner Of Income-Tax v. Sagoon Builders (P.) Ltd. [2001] 250 ITR 868 (Delhi).
17. Considering the aforesaid contentions, we find that the facts involved in the case are more or less admitted. Law also is settled for a long time that in the case of such grant of lease in respect of the assets of the assessee in favour of a lessee, whether the rent income is business income or income from other sources, has to be ascertained from the attending circumstances for ascertaining the intention of the assessee as to whether the assets have been given on lease on temporary basis to meet some situation not within the control of the assessee or for finally parting with the property.
18. The said aspect was considered by the apex court in the case of New Savon Sugar and Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7 wherein various cases relating to the above question were considered by the apex court and it was held that (page 16): “no general principle can be laid down which would be applicable to all cases and each case must be decided in the setting and background of its own facts.” In the said case the facts were considered including the terms of the lease deed and on scrutiny of those it was held that the intention of the assessee was to part with the entire machinery of the factory and the premises with the obvious purpose of earning rental income. It appears from the judgment that the terms and conditions of the lease which weighed with the learned judges provided that the lease was for a term of five years with an option to continue for a further term of five years and thereafter two further options of five years in each case.
19. In the case of Universal Plast Ltd. [1999] 237 ITR 454 (SC), the assessee entered into an agreement styled as “leave and license agreement” for a period of seven years with further terms of a renewal clause giving option to the licensee to renew it for a further period of three years. There was an option for the licensee to purchase the licensed premises. Considering such terms and conditions, the apex court held that the rent income has to be treated as income from other sources. In the case of Baijnath Brijmohan & Sons P. Ltd. v. Commissioner Of Income-Tax [1986] 161 ITR 234, the Division Bench of the Bombay High Court has not held that particular income of the assessee as business income and this finding was reached considering the facts involved in the said case holding that the activity, as found, cannot be said to be business activity.
20. Therefore, in the present case also we are required to find out the intention of the parties from the attending circumstances of this case. For this purpose, the materials which were relied on by the petitioners are the lease deeds executed from time to time and the directors' reports for the concerned years. The directors' reports show the reason why the lease had to be granted and the reason is financial difficulties faced by the company. The directors' reports also show that the directors of the assessee will continue to be associated with the management of the factory in advisory capacity and maintain day-to-day contacts with the activity of the factory. The said reason of financial difficulties for granting the lease has been also incorporated in the deeds of lease executed from time to time. But the intention, that the directors of the assessee to remain associated with the management of the factory, even after the lease, has neither been incorporated in the lease deeds nor has been shown to be implemented.
21. The first lease deed dated September 1, 1969 (annexure A to the petition in the appeal), shows the terms and conditions under which the lease had been granted. The subsequent lease deeds were also on substantially the same terms and conditions. It appears from each of the deeds that the part of the lease rent was to be paid to the Industrial Financial Corporation of India to the extent the amount was payable by the assessee to the said Financial Corporation. The lessor also enjoyed the power to inspect, supervise and advise in respect of maintenance of the building and machinery. The lessee was to contribute during the period of lease all contributions and charges to Sri Hanuman Sugar Employees Provident Fund and Employees State Insurance contribution payable for the workmen of the factory and to maintain such staff for the said factory as may be required. The lessee was also under obligation to continue to utilise the same selling agent on the same terms as that of the assessee. Under the agreement upon the expiry of the lease, the lessor is to take over the staff and workmen then in employment in the said factory and also to take over all useable stocks of stores, spare parts and the raw materials. The lessor has kept the option to determine the lease by giving the lessee three months prior notice in writing.
22. The aforesaid facts all taken together go to indicate that the assessee had no intention of parting with the factory finally and it was a temporary arrangement with the lessee without keeping any option for the lessee to renew the lease.
23. We find from the facts that the lease was renewed by the subsequent lease deeds after the expiry of the prior lease and that too was done upon recording that financial, stringency continuing, the lease arrangement was thought to be continued.
24. It is true that ultimately the lease continued without break for a period more than 30 years and in an appropriate case, it may be decided by the authorities that all the facts together lead to the conclusion that the assessee finally parted with the factory for rental income. But in the present case for the three assessment years under consideration such conclusion could not be reached in our opinion. The assessment years 1978-79 and 1979-80 were governed by lease deed dated April 19, 1974. The other assessment year 1981-82 is covered by subsequent lease dated April 30, 1979. Several periods covered by these two lease deeds have been already held to be indicating the mind of the lessor assessee that it was not finally parting with the factory and was a temporary arrangement entitling the assessee to get the rent income treated as business income. If the particular lease deed has been found to have been executed with intention of making a temporary arrangement not a final parting with the factory, another year covered by the same deed, cannot be treated separately. Therefore, we are of the opinion that for the three assessment years presently under consideration, income of the assessee has to be accepted as business income. But we make it clear that in subsequent years if on materials available, the authorities concerned come to a finding on then available facts that arrangement of lease by the assessee does not depict any intention of temporary arrangement and in fact it was a final parting with the factory, appropriate decision can be taken on such finding by the authorities. Such finding will not be hit by the principles of res judicata as argued by the Revenue in the present appeal. With regard to such principle of res judicata, we find that the said principle does not apply in income-tax matters but for coming to separate conclusion in two different years, there must be separate facts leading to such different conclusion. On identical facts separate conclusions by the Revenue authorities are not desired. The judgment in this connection as decided in the cases of Radhasoami Satsang [1992] 193 ITR 321 (SC); Baijnath Brijmohan and Sons P. Ltd. [1986] 161 ITR 234 (Bom) and Hindusthan Motors Ltd. [1991] 192 ITR 619 (Cal) support such view. In view of the aforesaid findings, the appeal is allowed and the income in respect of the three assessment years under consideration is held as business income of the assessee.
S.K Gupta, J.:— I agree.
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