2012 (3) TMI 466 - AT - Income Tax

Classification of lease rental income as 'business income' upheld in recent case.

The issue in this case revolved around whether lease rental income from leasing out a building should be classified as 'business income' or 'income from ... - Issues Involved:1. Classification of lease rental income as 'business income' vs. 'income from house property'.Summary:Issue 1: Classification of Lease Rental IncomeThe primary issue in these appeals was whether the lease rental income received by the assessee from leasing out a building should be assessed as 'business income' or 'income from house property'. The assessee, engaged in developing an I.T Park and rendering services, claimed the income as 'business income'. However, the Assessing Officers (AOs) treated it as 'income from house property' for the assessment years 2003-04 to 2006-07, resulting in consequential disallowances.The CIT (A) extensively analyzed various judicial rulings, including the Hon'ble Supreme Court decisions in 66 ITR 596 (SC) and 83 ITR 700 (SC), and observed that the characteristics to determine whether the income is from letting out property or commercial exploitation include:(A) Bare letting of property is assessed as 'income from house property'.(B) Income obtained due to services rendered and facilities provided is not for letting of property.(C) Services or facilities provided should not be merely incidental to letting out the house.(D) Services should be elaborate and complex.(E) Services and facilities must be an organized activity with the primary intent of commercial exploitation.The CIT (A) found that the assessee provided numerous services and facilities, such as a common reception area, maintenance of lifts, furniture and fixtures with electricity, telecom, and internet connections, repairs and maintenance, parking facilities, sanitary works, sewage treatment, landscaping, security, housekeeping, central air conditioning, 24-hour electricity supply, telecom and internet services, water supply, canteen, and amphitheatre. These services were elaborate, complex, and organized with the primary intent of commercial exploitation of the property, indicating a business activity rather than mere letting out of property.Placing reliance on the judgment of the Hon'ble Supreme Court in Karnani Properties Ltd v. CIT [82 ITR 547 (SC)], the CIT (A) concluded that the activity of providing services and amenities in an organized manner constitutes a business activity, and the income should be assessed under 'Profits and gains of business or profession'. The CIT (A) distinguished this case from Bhoopalam Commercial Complex & Industries Private Ltd, where no additional facilities and services were provided.The CIT (A) also considered the decision in Global Tech Park Private Limited v. ACIT, where similar facts led to the income being assessed as business income. The CIT (A) directed the AO to treat the entire income as 'profits and gains of business or profession', and the consequent disallowances were deleted.The Revenue appealed, arguing that the CIT (A) failed to appreciate that the assessee collected rent for the building premises and not as composite rent for premises and facilities. The CIT (A) was also argued to have erred in not segregating rent received for the building as 'income from house property'.The Tribunal, after careful consideration, upheld the CIT (A)'s decision, emphasizing that the assessee's activities were part of a complex commercial activity of setting up a software technology park with various amenities, aligning with the Supreme Court's distinction in CIT v. National Storage Pvt. Ltd and the Tribunal's decision in Global Tech Park (P) Ltd v. ACIT. The Tribunal dismissed the Revenue's appeals, affirming that the lease rental income should be categorized as 'business income'.Order pronounced in the open court on 30th day of March, 2012.