2018 (10) TMI 1636 - AT - Income Tax

Income from letting out buildings and service charges treated as 'Income from Business' by ITAT

ITO-12 (1) (3) Mumbai Versus M/s. Balwas Realty and Infrastructure Pvt. Ltd.

The ITAT upheld the CIT(A)'s decision, treating income from letting out buildings and service charges as 'Income from Business.' The ITAT found the income ... Correct head of income - income earned from letting out the building - chargeable under the head 'Income from Business' OR 'income from House property' - Held that:- 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'. CIT(A) has rightly allowed the claim of the assessee and considered the income from leave and license charges and service charges as income from business. Accordingly, we decide these issues in favour of the assessee against the revenue Issues Involved:1. Classification of income from letting out buildings as 'Income from Business' vs. 'Income from House Property.'2. Treatment of income from leave and license fees.3. Treatment of income from service charges.4. Reliance on the Supreme Court decision in the case of Chennai Properties and Investments Ltd.Detailed Analysis:1. Classification of Income from Letting Out Buildings:The primary issue revolves around whether the income earned from letting out buildings should be classified under 'Income from Business' or 'Income from House Property.' The assessee claimed that the income from letting out two industrial buildings, Indiplex-I and Indiplex-II, should be treated as business income. The Assessing Officer (AO) disagreed, treating the income as income from house property. The CIT(A) ruled in favor of the assessee, leading to the revenue's appeal.2. Treatment of Income from Leave and License Fees:The revenue argued that the CIT(A) erred in treating the leave and license income of Rs. 2,52,59,282/- as business income. The CIT(A) held that the income was derived from the business activity of letting out properties, which included providing specialized infrastructure and services to tenants, thus qualifying as business income. This decision was supported by the Supreme Court ruling in Chennai Properties and Investments Ltd. vs. CIT, where income from letting properties was deemed business income if it aligned with the main objective of the company as per its Memorandum of Association.3. Treatment of Income from Service Charges:Similarly, the revenue contested the classification of Rs. 1,68,39,526/- from service charges as business income. The CIT(A) noted that the assessee provided various services, including maintenance, security, and specialized infrastructure, making the income part of the business operations. The CIT(A) directed the AO to compute the income considering these service charges as business income and allow related expenditures accordingly.4. Reliance on Supreme Court Decision:The CIT(A) relied on the Supreme Court's decision in Chennai Properties and Investments Ltd. vs. CIT, which held that income from letting out properties should be treated as business income if it aligns with the company's main objective. The CIT(A) found the facts of the present case similar to those in Chennai Properties, where the company’s main objective was to acquire properties and earn income by letting them out.Findings and Conclusion:The ITAT upheld the CIT(A)'s decision, noting that the assessee's business involved developing and leasing specialized industrial buildings with additional services, aligning with the company's main objective. The ITAT referenced its own previous ruling in the assessee's favor for the A.Y. 2010-11, which supported treating the income from leave and license fees and service charges as business income.The ITAT concluded that the CIT(A) had judiciously and correctly decided the matter, and there was no basis for interference at the appellate stage. Consequently, the appeal filed by the revenue was dismissed.Judgment:The appeal filed by the revenue was dismissed, and the order of the CIT(A) treating the income from letting out buildings and service charges as 'Income from Business' was upheld. The ITAT directed the AO to compute the income accordingly and allow related expenditures. The decision was pronounced in the open court on 03.10.2018.