Income derived from property leasing is business income if leasing forms part of the business operation, not classified as income from house property.

1. Heard Shri Akhilesh Kumar Gupta, learned counsel for the appellant and Shri Smarajit Roychowdhury learned counsel for the Income Tax Department/respondents.

2. This appeal arises from the order dated 23.07.2010 in ITA No.330 (Kol) of 2008 [assessment year 2005-06]: Income Tax Officer / Ward-6(3), Kolkata v. M/s. Oberoi Building & Investment (P) Ltd., Kolkata passed by the Income Tax Appellate Tribunal, 'C' Bench, Kolkata.

Vide order dated 04.10.2010, this Court framed the following substantial questions of law:-

I. Whether on the facts and circumstances of the case and on a true and proper interpretation of the agreement, the income arising from sub-licensing of shops and establishment along with the various services which are rendered to the sub-licensed shopkeepers can be treated as income liable to be assessed under Section 22 of the Act or the said income being composite income arising from part exploitation of shops and establishment which are sub-leased as commercial assets and the services which are rendered to the shopkeepers can be treated as income arising from business falling under Section 28 of the Act? II. Whether on the facts and in the circumstances of the case, the licence agreement dated 25th April 1972 could be construed so as to constitute transfer within the meaning of Section 269UA (f) and the assessee could be treated as deemed owner under Section 27 (iiib) of the Income Tax Act? Facts:

3. Briefly stated facts of the present case are that the assessee is a Private Limited Company incorporated on 14.03.1972. It is a subsidiary of M/s East India Hotels Limited, now renamed as EIH Limited (hereinafter referred to in short EIH) The assessee-company entered into a leave and lisence agreement with EIH dated 25.04.1972 for 5665 sft. of Office space for a period of 50 years in Oberoi Sheraton Hotel at Bombay, on certain terms and conditions as mentioned in the said agreement. As per the said agreement, the assesse-company is to pay compensation for each month on or before the 10th day of the month following the month for which it is due. As per clause 2(xiv) of the said agreement, the leave & licence granted to the assessee company is irrevocable for the period mentioned. The assessee-company had sub-let/sub licenced the said space to different persons on certain terms and conditions. As per sub- lisencing agreement, the assesse-company has given the space from 28.09.1991 till 31.12.2022 for carrying on the business of jems, jewellery and gift articles on a fixed fee. The assesse-company has shown the total contribution received from letting out shops of Rs. 13,90,260/- against which it has claimed expenses of Rs. 10,60,560/- towards contribution for licence fee and other charges.

The assesse-company has shown receipts and the expenses under the head “business income”. The Assessing Officer has observed that the assesse is having irrevocable right for 50 years over the shopping space and considering the decision of the Apex Court in the case of CIT vs. Poddar Cements Ltd. (1997) 226 ITR 625 (SC) and Section 27 (iiib) of the Income Tax Act, the income derived by the assesse from letting out shopping space is to be assessed under the head “income from house property” and not as “income from business”.

4. Aggrieved with the assessment order, the appellant assessee had filed an appeal before the Commissioner of Income Tax (Appeal) which was allowed, holding that the income derived by the appellant assessee from letting o