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2010 DIGILAW 328 (KAR)

Commissioner of Income Tax v. Khoday India Ltd.

2010-03-15

H.S.KEMPANNA, K.L.MANJUNATH

body2010
JUDGMENT K.L. Manjunath, J.—Aggrieved by the concurrent findings of the order passed by the Commissioner (Appeals), Bangalore, which has been confirmed by the Tribunal, Bangalore, in ITA No. 631/Bang/2001, dated 22-10-2002, the revenue has preferred this appeal raising the following substantial question of law: Whether the Tribunal recorded a perverse finding by interfering with the conclusion recorded by the lower authorities without any basis-material that the higher rate of rent paid to M/s Khoday Breweries Ltd. and M/s United Glass Bottle Manufacturing Company being sister concerns of the Assessee from Rs. 3 lakhs and Rs. 1 lakh per month respectively during the assessment year 1996-97 to Rs. 14 lakhs and Rs. 12 lakhs per month respectively during the current assessment year was not commensurate with the market value or any other criteria for such an increase and therefore, the parties being covered under Section 40A(2)(b) of the Act, the said increase in rent was correctly disallowed ? 2. We have heard the learned Counsel for the parties. 3. In order to consider the question of law, we are of the opinion that the facts of this case have to be narrated. Accordingly, we narrate the facts involved in the present case. The Respondent-Assessee had taken two companies on lease from M/s Khoday Breweries Ltd. and United Glass Bottle Manufacturing Company on a monthly rent of rupees three lakhs and rupees one lakh per month. The lease initially was for a period of eleven months and after expiry of eleven months the lease has been renewed on a monthly rent of rupees fourteen lakhs and rupees twelve lakhs respectively. The rent paid by the Assessee has not been considered as an allowable deduction and the assessing officer held that in view of Section 40A(2)(b) of the Income Tax Act, the increase in rent was unnecessary and it is disproportionate and accordingly, the same was disallowed. Aggrieved by the same, the Assessee filed an appeal before the Commissioner (Appeals), Bangalore, which appeal also came to be dismissed. Thereafter, the Assessee being furdier aggrieved, filed appeal before the Tribunal, Bangalore. The Tribunal considering the extent of land leased to the Assessee and the type of plant and machineries leased to it by the two companies, came to the conclusion that the renewal on a higher rent cannot be stated to be on a higher side. Thereafter, the Assessee being furdier aggrieved, filed appeal before the Tribunal, Bangalore. The Tribunal considering the extent of land leased to the Assessee and the type of plant and machineries leased to it by the two companies, came to the conclusion that the renewal on a higher rent cannot be stated to be on a higher side. Accordingly, allowed the appeal and granted relief to the Assessee. Being aggrieved by the same, this appeal is filed by the revenue. 4. Mr. Seshachala, learned Counsel for the revenue, contends that since the lessors are the sister concerns of the Assessee, in order to favour its own sister concerns lease rent has been enhanced enormously without there being any additions made to the running factories. He further contends that the Tribunal has committed an error in granting relief to the Assessee. In the circumstances, he contends that disallowing of the excess rent paid by the Assessee by the assessing officer was justified. 5. Per contra, Mr. Kulkarni, learned Counsel for the Assessee, contends that two companies were leased to the Assessee by two different companies and one of the companies was manufacturing different varieties of beer which was in demand in the market and another company was indulging in manufacturing of bottles which were required for filling up of beer and other IMFL. Therefore, he contends that the lessors had leased the property initially for eleven months on a trial basis on a lesser rent without considering the market value. After the business was established by the Assessee, considering the extent of land leased by the lessors and the facilities given by the lessors, rent was fixed less than the actual market value. Therefore, he requests this Court to dismiss the appeal. 6. Having heard the counsel for the parties, we are of the opinion that the assessing officer has proceeded without considering the total extent of land and building leased out to the Assessee by its lessors and other companies given to it. The learned Counsel for the revenue fairly concedes that two running factories were taken on lease by the Assessee. When two running concerns were taken on lease by the Assessee, it was for the assessing officer to assess what would be the fair market rent payable by the lessee to the lessor. The learned Counsel for the revenue fairly concedes that two running factories were taken on lease by the Assessee. When two running concerns were taken on lease by the Assessee, it was for the assessing officer to assess what would be the fair market rent payable by the lessee to the lessor. This aspect of the matter has not at all been examined by the assessing officer or by the Commissioner (Appeals). But, the Tribunal has considered that the bottlirig manufacturing company is established in an area of 30 acres of land and the factory which is manufacturing beer is established in an area measuring 78 acres, in all both the companies are situated in an area of 108 acres, with buildings which were required for the manufacture of beer including fermentation, cold room, bright beer tank, filtration room, new demineralising water treatment plant, brew house etc., with all ready-to-use facilities boiler room, power house, store room, workshop, godown, administration block, car shed facilities, security quarters, canteen, etc. and also machineries which are not only used for manufacturing of beer, but also water and effluent treatment plant, bottling plant, two boilers, power house, furnace oil, etc. It has also come to the conclusion that along with licence, lease has been granted. Therefore, the Tribunal was of the opinion that the assessing officer has not considered the rent payable in the market under such circumstance. Considering the detailed discussion of the Tribunal and considering its finding, we are of the opinion on facts that, the Tribunal has come to the conclusion that renewal of the lease on a higher rent cannot be stated to be on a higher side. Therefore, on facts, we too have to answer the question of law against the revenue and in favour of the Assessee. 7. Accordingly, the appeal is dismissed.