Tribunal rules on income bifurcation: 60% house property, 40% business income. Service charges are business income. Rental income is house property income. Temporary shed cost included.

The Tribunal upheld the Commissioner of Income Tax (Appeals) decision to bifurcate the income from letting out a business center into 60% as income from house property and 40% as business income. The Tribunal also agreed with the treatment of service charges as business income and rental income as income from house property. Additionally, the Tribunal allowed the inclusion of the cost of a temporary shed as part of the project cost, dismissing the revenue's appeals and partly allowing the assessee's cross objections.

---

---

Issues Involved:
1. Treatment of income from letting out the business centre as business income or income from house property.
2. Bifurcation of receipts from the business centre into service charges and lease rental.
3. Ad-hoc reduction of disallowed expenses.
4. Consideration of the cost of the temporary shed as part of the project cost.

Detailed Analysis:

1. Treatment of Income from Letting Out the Business Centre:
The primary issue is whether the income from the business centre should be treated as business income or income from house property. The Assessing Officer (AO) contended that the income should be considered as income from house property, relying on the Supreme Court's decision in M/s Shambhu Investment Pvt. Ltd. and East India Housing and Land Development Trust Ltd. The assessee argued that the property was held as stock in trade for real estate development and should be treated as business income, citing the Gujarat High Court decision in Commissioner of Income-tax v. Neha Builders P. Ltd.

2. Bifurcation of Receipts:
The Commissioner of Income Tax (Appeals) [CIT(A)] decided to bifurcate the receipts from the business centre into 60% as income from house property and 40% as business income. This bifurcation was based on the nature of services provided by the assessee, which included amenities and facilities beyond mere rental income. The CIT(A) noted that the assessee was not the full owner of the entire property and differentiated between the portions owned and leased by the assessee.

3. Ad-hoc Reduction of Disallowed Expenses:
The CIT(A) reduced the disallowance of various expenses from Rs. 3,31,856/- to Rs. 2,00,000/- on an ad-hoc basis. The assessee contested this reduction, arguing for the deletion of the entire addition.

4. Cost of Temporary Shed as Project Cost:
The assessee raised an additional ground, arguing that the cost of the temporary shed should be treated as part of the project cost. The CIT(A) did not specifically adjudicate this alternate submission, leading to its inclusion as an additional ground in the appeal.

Judgment Summary:

Treatment of Income:
The Tribunal upheld the CIT(A)'s decision to bifurcate the income into 60% as income from house property and 40% as business income. It was noted that the rental income from the property owned by the assessee should be treated as income from house property, while the service charges for additional amenities provided should be treated as business income. The Tribunal referenced the Supreme Court's decision in Sultan Brothers vs CIT, highlighting that rental income from letting out property should be assessed as income from house property unless it involves inseparable letting of machinery, plant, or furniture.

Bifurcation of Receipts:
The Tribunal found no reason to interfere with the CIT(A)'s bifurcation of receipts. It was agreed that the facilities provided by the assessee were separable from the rental income and should be treated as business income. The ratio of 60:40 for bifurcating the receipts was deemed just and proper.

Ad-hoc Reduction of Disallowed Expenses:
The Tribunal did not specifically address the ad-hoc reduction of disallowed expenses in detail but upheld the CIT(A)'s overall approach to bifurcating the income and allowing proportionate expenses against business income.

Cost of Temporary Shed:
The Tribunal admitted the additional ground regarding the cost of the temporary shed and found merit in the assessee's claim. It was ruled that the cost of the temporary shed should be treated as part of the project cost carried by the assessee for future purposes.

Conclusion:
The appeals filed by the revenue were dismissed, and the cross objections of the assessee were partly allowed. The Tribunal upheld the CIT(A)'s bifurcation of income and allowed the additional ground regarding the cost of the temporary shed.

---