2016 (11) TMI 1598 - AT - Income Tax

Income from leave & license charges deemed business income over house property by Tribunal

Income Tax Officer – 12 (1) (3) Mumbai Versus M/s Balwas Realty Infrastructure P Ltd.

The Tribunal dismissed the Revenue's appeal against the CIT (A)'s decision to treat leave and license charges and service charges as income from business ... Correct head of income - Leave and license charges and service charge - Addition under the head income from house property or income from business - assessee entered into leave and license agreement and service agreement separately in respect of leasing out of industrial premises and for providing services - Held that:- The assessee company has given its two industrial buildings i.e. Indiplex-I and Indiplex-II on lease and received license fee and service charges which was shown as business income. We find from the objects of the company as mentioned in the Memorandum of Association, the main objects of the Company was to acquire properties and construct and hold the property. During this process assessee earned these leave and license charges as well as service charges. We find that this issue is covered in favour of assessee and against Revenue by the decision of Hon’ble Supreme Court in the case of Chennai Properties and Investments Ltd. Vs. CIT [2015 (5) TMI 46 - SUPREME COURT] the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee. The assessee therefore, rightly disclosed the income under the Head Income from Business. It cannot be treated as 'income from the house property' - Decided in favour of assessee. Issues:Appeal against CIT (A)'s order deleting addition made by AO under income from business as against declared by assessee.Analysis:1. The Revenue appealed against the CIT (A)'s decision to delete the addition made by the Assessing Officer under the head income from business. The Revenue raised two grounds challenging the deletion of the addition.2. The assessee had entered into leave and license agreement and service agreement separately for leasing out industrial premises and providing services. The company's main objects, as per the Memorandum of Association, included acquiring properties and holding them. The assessee earned income from leave and license charges and service charges related to two industrial buildings.3. The assessee provided details regarding the income from house property, stating that the premises were developed for industrial use, with infrastructure like crane, pulley, lifts, and various services provided to licensees. The directors were also actively involved in the day-to-day operations. The CIT (A) allowed the claim in favor of the assessee, citing the decision of the Supreme Court in a similar case.4. The CIT (A) observed that the assessee's business involved leasing premises of a special nature tailored to clients' needs, not merely earning rental income. The Supreme Court's decision in a comparable case supported treating the income as business income rather than income from house property. The CIT (A) upheld the assessee's claim, and the Tribunal dismissed the Revenue's appeal.5. The Tribunal concluded that the CIT (A) correctly treated the leave and license charges and service charges as income from business. Therefore, the Revenue's appeal was dismissed.This detailed analysis provides insight into the issues raised, the arguments presented, and the Tribunal's decision based on legal principles and precedents cited during the proceedings.