2017 (5) TMI 586 - SC - Income Tax

Appellant deemed owner under Section 27(iiib) for shopping center income taxation despite leasehold rights

The SC upheld the tribunal's decision against the assessee regarding taxation of income from a shopping center. The appellant, who acquired leasehold ... Taxation of Income Earned - Income earned from the shopping center - legal owner - “income from House Property” or “Profits and Gains from the Business or Profession” - Ownership of the Shopping Center - within the meaning of Section 22 read with Section 27 - Held that:- It is not in dispute that having regard to the terms and conditions on which the leasehold rights were taken by the appellant in auction, constructed the market area thereupon and gave the same to various persons on sub-licensing basis, the appellant would be treated as deemed owner of these premises in terms of Section 27(iiib) of the Act. Before us, apart from relying upon the clause in the partnership deed to show its objective, the learned counsel for the appellant has not produced or referred to any material. The ITAT being the last forum insofar as factual determination is concerned, these findings have attained finality. In any case, as mentioned above, the learned counsel for the appellant did not argue on this aspect and did not make any efforts to show as to how the aforesaid findings were perverse. It was for the appellant to produce sufficient material on record to show that its entire income or substantial income was from letting out of the property which was the principal business activity of the appellant. No such effort was made. Tribunal was correct in holding that the appellant was owner of the shopping centre within the meaning of Section 22 read with Section 27 of the Income Tax Act, 1961 - Decided against assessee. Issues Involved:1. Whether the Tribunal erred in holding that the appellant was the owner of the shopping center within the meaning of Section 22 read with Section 27 of the Income Tax Act, 1961.2. Whether the Tribunal was right in holding that the income earned by the appellant from the shopping center was required to be taxed under the head 'income from House Property' instead of 'Profits and Gains from the Business or Profession.'3. Whether the Tribunal's order was perverse, based on surmises, conjectures, and suspicions while ignoring relevant materials and considerations.Issue-wise Detailed Analysis:1. Ownership of the Shopping Center:The Tribunal and High Court held that the appellant was the deemed owner of the shopping center under Section 27(iiib) of the Income Tax Act, 1961. The appellant had acquired leasehold rights in the land for more than 12 years, making it a deemed owner. The High Court noted the provisions of Section 27(iiib) and Section 269UA(f) of the Act, which define the conditions under which a person is considered a deemed owner. The appellant's rights in the property, acquired through auction and subsequent construction, met these criteria.2. Taxation of Income Earned:The Tribunal and High Court concluded that the income earned from the shopping center should be taxed under the head 'income from House Property' rather than 'Profits and Gains from Business or Profession.' The appellant argued that sub-letting the premises was its main business activity, and therefore, the income should be treated as business income. However, the Tribunal found that the appellant's activities did not constitute a systematic or organized business activity. The ITAT noted that the appellant collected rent and service charges for minor repairs, maintenance, water, and electricity, which were inseparable from the basic rent. The Tribunal applied the decision in Shambu Investment Pvt. Ltd., 263 ITR 143, and concluded that the income from letting out shops/stalls was income from house property.3. Tribunal's Order and Relevant Considerations:The appellant contended that the Tribunal's order was perverse and based on incorrect, irrelevant, and extraneous considerations while ignoring relevant materials. However, the Supreme Court found that the Tribunal had specifically addressed the issue and recorded findings based on the facts presented. The appellant did not produce sufficient material to show that its principal business activity was letting out properties. The Supreme Court upheld the Tribunal's findings, noting that the appellant's reliance on the object clause in the partnership deed was not conclusive. The Court emphasized that each case must be examined based on its facts, as held in Sultan Bros. (P) Ltd. v. CIT, (1964) 5 SCR 807.Conclusion:The Supreme Court dismissed the appeals, agreeing with the High Court and Tribunal that the appellant was the deemed owner of the shopping center and that the income earned from it should be taxed as income from house property. The Court found no merit in the appellant's arguments and upheld the Tribunal's findings as final and conclusive. The appeals were dismissed with costs.