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[2008] 171 Taxman 141 (Karnataka)/[2009] 309 ITR 149 (Karnataka)/[2008] 217 CTR 198 (Karnataka) [2008] 171 TAXMAN 141 (KAR.) HIGH COURT OF KARNATAKA East West Hotels Ltd. v. Deputy Commissioner of Income-tax* , Special Range-I, Bangalore K.L. MANJUNATH AND A.S. BOPANNA, JJ. IT APPEAL NO. 180 OF 2003 JANUARY 18, 2008 Section 56, read with section 28(i), of the Income-tax Act, 1961 - Income from other sources - Chargeable as - Assessment year 1989-90 - Assessee- company, engaged in hotel business, gave its hotel to another hotel company 'I' under an agreement for a period of 33 years which could be extended to 99 years - Assessee claimed that amount received by it from 'I' had to be treated as its business income - Whether since transaction between assessee and 'I' was in nature of lease and not a licence and intention of assessee was not to revive/restart business, amount received by it from 'I' had to be treated as an income from other sources and not as business income - Held, yes FACTS The assessee-company, engaged in the hotel business, gave its hotel to another hotel company 'I' under an agreement for an initial period of 33 years with an option to 'I' to renew the same for a further period of 33 years. During the assessment proceedings, the assessee contended that the amount received by it from 'I' had to be treated as its business income. The Assessing Officer rejected said contention on the ground that the assessee had leased out the hotel in I's favour and any amount received by it from 'I' had to be treated as the income from other sources and not as business income. On appeal, the assessee contended that since 'I' was managing the hotel, such transaction could not be treated as a lease transaction. The Commissioner (Appeals) rejected said contention and confirmed the impugned order. On further appeal, the Tribunal also dismissed the assessee's appeal. On appeal : HELD It was not in dispute that from many decades, the assessee was running the hotel in question. It was also not in dispute that the hotel was closed over a period of 17 months and, thereafter, the assessee had entered into an agreement on 1-6-1997 with 'I' for a period of 33 years. The…

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