2017 (11) TMI 509 - AT - Income Tax

Tribunal reconsiders service charges classification & interest nexus with business loans

Income Tax Officer 8 (2) (3), Mumbai Versus Niyman Mall Management Co. Pvt. Ltd. And Vice-Versa

The Tribunal directed the Assessing Officer to reconsider the classification of business center service charges and interest on fixed deposits. The ... Nature of income - Business Centre Service charges - treated as “Business Income” or “Income from house Property” - Held that:- Hon’ble Supreme Court in the case of Raj Dadarkar & Associates vs ACIT [2015 (5) TMI 46 - SUPREME COURT] held that wherever there is an income from leasing out of premises and collecting rent, normally such an income is to be treated as income from house property, in case provisions of Section 22 of the Act are satisfied with primary ingredient that the assessee is the owner of the said building or lands appurtenant thereto. Section 22 of the Act makes ‘annual value’ of such a property as income chargeable to tax under this head. How annual value is to be determined is provided in Section 23 of the Act. ‘Owner of the house property’ is defined in Section 27 of the Act which includes certain situations where a person not actually the owner shall be treated as deemed owner of a building or part thereof. In the present case, the appellant is held to be “deemed owner” of the property in question by virtue of Section 27(iiib) of the Act. On the other hand, under certain circumstances, where the income may have been derived from letting out of the premises, it can still be treated as business income if letting out of the premises itself is the business of the assessee. In view of the above the learned Sr. DR requested for setting aside of these three appeals to the file to the AO to deciding the issue on the receipts earned by assessee whether the same is business income or income from house property. In view of the above facts and circumstances, we are of the considered view that let the matter be restored back to the file of the AO for deciding the issue in term of the decision of Hon’ble Supreme Court in the case of Raj Dadarkar & Associates (supra). The AO will examine the factual aspects of the case and will decide the issue after considering this judgment and other judgments as cited by assessee if any. Accordingly, this issue of the Revenue’s appeal is allowed for statistical purposes. Treatment of interest on FDR earned by the assessee - Held that:- The assessee had procured loan from DHFL for its business purpose. For procuring the loan, the assessee had to compulsorily keep fixed deposit as margin money with the bank. The assessee’s bankers insisted that the assessee should keep sufficient amounts with them so as to enable them to disburse the loan to the assessee against the security of the said deposits. Thus, it is out of business compulsions that the assessee had to deposit money in fixed deposit and incidentally, earn interest thereon. According to assessee, the sole and exclusive purpose was to meet compelling business requirement. The interest income had direct and proximate connection with the business of the assessee. We find that this argument made by the learned Counsel for the assessee has neither been examined by AO nor by CIT(A) and this is not examined whether this FDRs has any nexus with loan taken for the purpose of business. Accordingly, we restore this matter back to the file of the AO to give finding on the submissions of the assessee. This issue of Revenue’s appeal is set aside to AO and consequently, allowed for statistical purposes. Issues Involved:1. Classification of Business Centre Service Charges as Business Income vs. Income from House Property.2. Classification of Interest on Fixed Deposits as Business Income vs. Income from Other Sources.3. Timeliness and admissibility of the assessee's Cross Objection.Issue-Wise Detailed Analysis:1. Classification of Business Centre Service Charges:The primary issue was whether the receipts from the business center and service charges should be classified as business income or income from house property. The Assessing Officer (AO) classified these receipts as income from house property, while the Commissioner of Income Tax (Appeals) [CIT(A)] held them as business income. The CIT(A) relied on the Supreme Court decision in Shambhu Investment (P) Ltd. vs. CIT, which differentiates between rental income and business income based on the intention behind letting out the property. The CIT(A) observed that the appellant's primary objective was to exploit the property through complex commercial activities, thus treating the property as a business asset. The Tribunal, however, decided to restore the matter to the AO for reconsideration in light of the Supreme Court's judgment in Raj Dadarkar & Associates vs. ACIT, which emphasizes that income from leasing out premises should generally be treated as income from house property unless the letting out itself constitutes the business of the assessee. The AO was directed to re-examine the factual aspects and decide accordingly.2. Classification of Interest on Fixed Deposits:The second issue pertained to whether the interest earned on fixed deposits should be treated as business income or income from other sources. The AO classified the interest as income from other sources, arguing that it had no immediate nexus with the assessee's business. The CIT(A), however, treated it as business income, noting that the fixed deposits were kept as margin money for obtaining loans used for business purposes. The Tribunal found that neither the AO nor the CIT(A) had thoroughly examined the nexus between the fixed deposits and the business loans. Consequently, the Tribunal restored the matter to the AO to ascertain whether the fixed deposits were indeed linked to the business loans and to decide the classification of the interest income accordingly.3. Timeliness and Admissibility of Cross Objection:The assessee's Cross Objection was filed 1132 days late. The assessee provided reasons for the delay, including the disarray of records, turnover of employees, and misplacement of appeal papers. However, the Tribunal found that the reasons provided did not constitute a reasonable cause for the delay. The Tribunal emphasized that the essence of all cited case laws is the presence of a reasonable cause for delay, which was not evident in this case. Therefore, the Cross Objection was dismissed as inadmissible.Conclusion:The Tribunal allowed the appeals of the Revenue for statistical purposes, directing the AO to re-examine the classification of both the business center service charges and the interest on fixed deposits. The assessee's Cross Objection was dismissed due to the lack of a reasonable cause for the delay in filing. The order was pronounced in the open court on 11-10-2017.