TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 1562
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.... for the sake of convenience, have been taken from ITA No.2750/M/2013 for A.Y. 2007-08. 2. The common issue involved in the appeals filed by the Revenue is as to whether the rental income earned by the assessee from leased premises is to be assessed as income from 'House property' or as 'Business income'. 3. The brief facts of the case are that the assessee is a Pvt. Ltd. company and is engaged in the business inter alia to acquire, develop, dispose of and maintain the properties and to build high-tech ports, industrial estates, townships, markets or other buildings, residential and commercial or conveniences and to deal with them in any manner including letting out etc. of the same. The source of income of the assessee company includes rental income from letting off of premises to M/s. Shoppers Stop Ltd., Pune which has been a part and parcel of the main activities of the assessee company. The assessee had shown the rental income from the leasing of the premises of M/s. Shoppers Stop Ltd. as business income and claimed depreciation and other expenses upon it. The return of income filed by the assessee was processed under section 143(1) of the Act. However, later on, the assessme....
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.... In this clause it can been seen that the builders have agreed to hand over possession of the said premises to the said lessees for necessary fit out works and also had agreed to provide various amenities and facilities out of the said premises more particularly described in the mode. Therefore, it can be seen from the above that the appellant has only taken on transfer from the builders the preleased property to Shoppers Stop. The said property was already handed over to Shoppers Stop for fit out even before the appellant purchased it from the builders. The fittings, etc. for which the appellant entered into a separate agreement were already a part thereof. 5.6 The Ld. CIT(A) has, in appellant's own case for AY 2006-07, decided the issue, ex-parte against the appellant by relying on the order of M.S. Luvish Infotech Projects Pvt. Ltd. for AY 2005-06. 5.7 I have perused the order of the CIT (A)-V, Hyderabad in the case of M.S. Luvish Infotech Projects Pvt. Ltd. for A.Y. 2005-06. The only difference between the two cases is that M.S. Luvish Infotech Projects Pvt. Ltd. had acquired in similar modus operandi a building called Marisoft II which is an IT Park and in the present case....
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....from the persons to whom the premises are let out and also from the persons to whom the premises were sold are attributable to conducting the business activity of running the Mall and therefore, the amount of maintenance charges received were business receipts assessable under the head 'business income' cannot be faulted. 12. In the result, we see no merit in the appeals and the some are hereby dismissed with no order as to costs." 5.10 Similarly, the Hon'ble ITAT has held in various cases as under: "In the case of ITO vs. Shanaya Enterprises (ITA no.3648/Mum/2010 for AY 2006-07 order dated June 30, 2011) the assessee let out its studio to production houses for shooting TV serials etc and offered the hire charges to tax as "business income". The AO relied on Sultan Brothers vs. CIT 51 ITR 353 (SC) & CIT vs. Shambhu Investments 263 ITR 143 (SC) and held that as the "main intention" was letting out of property, the hire charges was assessable as "Income from house property". The AO noted that TDS on the hire charges was assessable as "Income from house property". The AO noted that TDS on the hire charges was deducted u/s 194-I. On appeal, the CIT(A) reversed the AO on t....
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.... a building braced up with various amenities in the case of CIT. Bombay City 1 v. Notional Storage Pvt. Ltd. reported in 66 ITR 596 (SC) wherein after analyzing the issue at length, the Hon'ble Court had visualized that - 9.2.1. Further, an identical issue to that of the present one had cropped up before the earlier Hon'ble Bangalore Bench in the case of Global Tech Pork (P) Ltd. v. ACIT - reported in (2008) 119 7TJ (Bang) 421 - wherein it was observed that- "The assessee having been incorporated with the sole intention of developing Technology Pork for which it obtained leasehold land from ICIOC and also obtained loan from bank for constructing superstructure thereon, it could not be considered as having mode investment in a property for earning rental income only. The lease of the property was shown as part of the business activity, thus, the income received there from cannot be said as income received as a land owner but as a trader...................The activity was done by the assessee as a business venture and was in accordance with the main object of the company. The intention of any prudent businessman is to earn; profit at a maximum level and investment mode in....
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....income showing losses for which the AO completed the assessments making minor adjustments in computing the losses. The CIT initiated suo motto proceedings u/s 263 and after such proceedings directed the AO to make fresh assessments computing the income from rentals received from the commercial complex under the head "Income from house property." On an appeal by the assessee, the Tribunal held that the income derived by the assessee could have been assessed only as income from business and not under the head "Income from house property". According to the Tribunal, since the land over which the property had been built is a leasehold land, the assessee cannot be treated as the owner of the land which is a condition precedent for treating the income as income from house property under section 22 of the Act. The Han'ble Court, taking cue from the ruling of the Hon'ble Supreme court in the case of CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625, had held that the income derived by the company from shops and stalls is income received from property and falls under the specific head described in section 9. 92.4. We would like to point out that the case law relied on by the Re....
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....P to feed a special purpose. Letting out of a building in a STP is incidental whereas the fact in the case of Sambhu Investment was rather predominant and, thus, Sambhu Investment case cannot, at any stretch of imagination, be equated with that of the present assessee. 9.4. Taking into account the facts and circumstances of the issue, we are, therefore, of the firm view that the case laws on which the Revenue placed reliance cannot come to its rescue." 5.12 The Honble ITAT, 'A' Bench Mumbai in the case of Krishna Land Developers Private Limited vs. ACIT -2(1) Mumbai in ITA no. 5045/Mum./2011 for AY 2006-07 has held on August 8, 2012 as under: "2. At the outset, the learned Counsel for the assessee submitted before us that all the grounds of appeal are covered in favour of the assessee by the co-ordinate bench decision being ITA no.1057/Mum./2010, vide order dated 12th August 2011, in assessee's own case for assessment year 2005- 06, a copy of which is placed on record. 3. On the other hand, the learned Departmental Representative fairly conceded with the submissions by the learned Counsel for the assessee. 4. After going through the orders of the authorities b....
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....timately bears such expenditure for the services and undertakes to provide such services. The facilities are made available by the assessee to the person occupying the premises. Coming to the case laws in Saptorshi Services Ltd. (supra), the Hon'ble Gujarat High Court held that the income earned from business centre is to be assessed under the head 'Income from Business & Profession'. The Special Leave Petition filed by the Revenue against this judgment was rejected by the Hon'ble Supreme Court which is reported as 264 ITR (St.) 36. Coming to the decision of the Mumbai Bench of the Tribunal in Harvindarpal Mehto (supra), the Tribunal, in this decision, after considering the judgment in Shambhu Investments P. Ltd., held that the income earned from business centre is to be assessed under the head "Income from Business & Profession". The decision of Mumbai Bench of the Tribunal in Shanayo Enterprises (supra) held that when the property is used for specific purposes and in the nature of providing complex services, the income is taxable under the head "Income from Business & Profession". Applying the propositions laid down in these case lows, we hold that the property ca....
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....Provision of chilled water and AHUs in the area as per HVAC layout and specifications. * 100% power back up. * Central Air conditioning plant-supply and installation of central air-conditioning plant of adequate capacity to cover the premises including storerooms etc. Actual tonnage requirement to be calculated so as to maintain uniform temperature of 22+, - degrees Celsius inside the premises and fresh air opening for AHU locations. To provide the air-conditioning plant and control panels, air-handling units, fan coil units and other equipment required for operation of the air-condition plant. Air conditioning plants would be of reciprocal type/screw type/blue star/carrier or similar make. Chilled water lines upto AHU/fan coils units in each floor level. Common areas of the complex to be used by the public shall be fully air-conditioned. * Complete flooring wall painting, false ceiling, wiring upto one point of the premises and other works for development/finishing in respect of all the common areas of the complex. *Commissioning of air-conditioning plants and supplying of air-conditioning within the premises." 5.24 It is also pertinent to see clause 5 and 6 of the purch....
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....ration referred in the clause 2(ii) above." (emphasis supplied) 5.25 The above emphasized portion shows that the amount toward maintenance of the premises and the facilities was paid in advance by the appellant and in fact has made contribution to the corpus of the maintenance fund. 5.26 The fourth Schedule mentioned in the agreement wherein the specifications have been mentioned as under: "THE FOURTH SCHEDULE ABOVE REFERRED TO * Office/shop No.G-1 (Part No.2), on the Ground Floor (including area of balcony if applicable) (with adjoining terrace -if applicable and if marked on the plan annexed hereto) Built-up Area admeasuring 3648.03 sq.ft. i.e. 338.91 sq.mtrs, carpet area (un-plastered wall to un-plastered wall) 3172.15 sq.ft i.e. 294.70 sq.mtrs. * Office/Shop no. F-1 (Part No.2) on the First floor (including area of balcony if applicable) (with adjoining terrace if applicable and if marked on the plan annexed hereto) built-up area admeasuring 4221.10 sq.ft. i.e. 392.15 sq. mtrs. Carpet area (un-plastered wall to un-plastered wall) 3670.52 sq.ft. i.e. 341 sq.mtrs. * Office/Shop No.S-1 (Part-2) on the second floor (including area of balcony if applicable) (with adjoini....
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....s per HVAC layout and specification of lessee. * Lessor to provide on lift-VVF type with stainless steel cage interiors (minimum 15 passengers). * Lift interiors including flooring, ceiling, handrail and lighting etc. as per manufacturers specifications. * 100% power back up is to be provided by lessor to lessee. * Elevation design as per lessors architecht's design for building elevations. * Suitable building elevations as designed by the lessors architect * To make structural provision for installation of signages on the building elevation. To put in proper size in mutually accepted location on the elevation as per the lessee's requirements. * To provide show windows with opening and fixed glazng on show windows as per Architectural Design. * Central Air-conditioning plant-supply and installation of central air-conditioning plant of adequate capacity to cover the specified premises including storerooms etc. Actual tonnage requirements to be calculated so as to maintain uniform temperature of 22+, - DEGREES Celsius inside the specified premises and fresh air opening for AHU locations. To provide the air- conditioning plant with control panels, air-handing u....
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....1 (MP) - Rice Mill and Theatre both leased out - rentals are chargeable to business income. (vi) 284 ITR 229 (Born) - Leasing of Hotels with Fittings & Fixtures was held to be business income. (vii) 283 ITR 162 (MP) - Bidi manufacturing activities and let out some of its godown - assessable as business income. (viii) 114 ITR 779 (Kol) - Everest Hotels - The entire hotel business under the name and style Hotel Mount Everest - Rs. 7500/- leasehold rent per annum for a period of 5 years. The Court held that rental income derived from lease should be taxed u/s. 10 of the Income Tax Act, 1922. If the appellant is taxed u/s. 12(4), it loses certain other allowances u/s. 10 by reason of depreciation. In that case the Hon'ble High Court referred to the decision in 51 ITR 353. Sec. 9 of the Income Tax Act, 1922 referred to Income from House Property. Sec. 10 Profit and gain of business - terms and conditions are identical. (ix) 282 ITR 61 (All) - Income from letting out of House Property and in addition had lease rent from letting out of Workshop, Cold Storage, Motor Garage, Raj Oil and Interest income and Misc. income - receipt of rental - business income. In that case decision....
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....whether the intention of the assessee is to go out of business altogether or to come back and restart the same. (4) If only a few of the business assets are let out temporarily, while the assessee is carrying out his other business activities, then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets will cease to be business assets and the transaction will only be exploitation of property by owner thereof, but not exploitation of business assets." 5.31 In the case of Mohiddin Hotels P Ltd, referred supra, the assessee therein constructed a hotel and let it out on a fixed annual amount, from the day one when it was ready for commissioning, in the facts of the said case, the Hon'ble Bombay High Court found that there were enough materials in the record to find the intention of the parties and further they suggested that the assessee therein actually intended to exploit the hotel as its business assets, as held by Hon'bie Supreme Court in the case of Mohidding Hotels P Ltd, referred supra. Unde....
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....t, therefore, be assessed as income from business. The apex court directed the said income to be assessed accordingly. 5.36 To decide such an issue the apex court gave a guideline that to come to t conclusion one has to find out the answer on three issues namely: (a) Was it the intention in making the lease - and it matters not whether there is one -lease or two, i.e., separate leases in respect of the furniture and the - that the two should be enjoyed together? (b) Was the intention to make the letting of the two practically one letting? (c) Would one have been let alone, and a lease of it accepted, without the other? if the answers to the first two questions are in the affirmative and the last in the negative, then it has to be held that the lettings would be inseparable. 5.37 The Hon'ble High Court, alternatively, applied the tests prescribed by the Hon'ble Supreme Court on the facts prevailing in the case of Shambu Investments Pvt. The relevant observations made by the High Court are extracted below:- "Let us approach the problem from another angle by applying the test suggested by the five judges' Bench in the case of Sultan Brothers Pvt. Ltd. (1964....
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....ourt is reported in 263 ITR 143. 5.33 In the instant case, the three questions framed by the apex court are applied in the instant case as follows: (A) Was it the intention in making the lease -and it matters not whether there is one lease or two, i.e. separate leases in respect of the furniture and the building - that the two should be enjoyed together? In the instant case there is no separate agreement for the furniture and fixtures or for providing security and other amenities. The only intention was to let out the premises to the occupant. Hence, the intention was to allow the occupant to use the space. There was no intention that the two should be enjoyed together. Hence, this question should be answered in the negative. (B) Was it the intention to make the letting of the two practically one Jetting? From a plain reading of the agreement it appears that the intention of the parties to the lease agreement was to exploit the commercial asset and not the property alone. Hence, this question should be answered in the negative. (C) Would one have been let alone, and a least of it accepted, without the other? The appellant had let out the premises and as per the direct....
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....t the entire activity was carried out by the assessee in an organized manner as business venture with many day to day activities being carried out by the assessee. The intention of the assessee was to exploit the commercial asset and not the property alone. The services and amenities provided by the assessee company were inseparable. 7. It has been time and again held by the various judicial authorities that merely because income was attached to a property it could not be a sole factor for assessing such income as income from house property. It has to be seen that whether it was the primary objective of the assessee to exploit the property in a simple manner or to exploit it commercially by way of complex commercial activities to generate income. The assessee in this case has developed the shopping mall and has let out the same by providing host of services/facilities/amenities and the basic intention of the assessee has been to commercially exploit the property. Therefore, the income derived from the shopping mall is liable to be assessed as business income. It is an undisputed fact that in the memorandum of association of company, some of the main objects of the company inter al....
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....comfort of the customers/visitors. In our view, as per the modern day trends of retail business and customer preferences, not only the quantum of rent/income from the multiplex but also the very letting of the premises depends upon the provisions of facilities and amenities provided taking into consideration not only the need and requirements of the business entities/occupants but also the comfort zone of the customers/visitors. The Ld. A.R. of the assessee in this respect has explained that the rental income received by the assessee from letting out the commercial complex along with amenities was very high in comparison to the ordinary letting off of any building. He has explained that for an investment of about Rs. 25 crores the assessee was getting the rental income of Rs. 2.5 crores which was much more than the income that can be failed from ordinary letting of the building. The assessee had made high investments for equipments and infrastructure for providing the amenities. He has further explained that in the case of the sister concern of the assessee M/s. Khandelwal Estate Pvt. Ltd., under similar circumstances, the rental income has been held to be as business income by th....
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.... this issue has been summed up in the following words:- "As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The diving line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned." The Hon'ble Supreme Court thus has emphasized the professed objects and the manner of activities carried out by an assessee. It has also been pointed out that the nature of dealings with the property would also be factor to determine whether the activities fall for consideration under the head "business income" or "house property income". The Hon'ble Supreme Court thus noticed the aforesaid principle and applied the same to the facts of the case before it. The facts of the case before the Hon'ble Supreme Court were that as per the memorandum of association, the main objects of the appell....
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....said to be business activity of the assessee. We do not agree with the finding of the Ld. CIT(A) that since the income from the letting out of the commercial complex has been treated as business income then the interest from FDRs is also to be treated as business income. The interest on FDRs has no relation with the business of letting out of the property of the assessee. This issue is accordingly decided against the assessee and in favour of the Revenue. Ground No.6 of the Revenue is therefore treated as allowed. 11. The identical issues taken by the revenue in all the appeals are therefore decided accordingly. 12. Now coming to the appeals filed by the assessee. The assessee in his appeal for A.Y. 2006-07 has raised the first issue as to the treatment of income from letting of the commercial complex. In view of our observations made above, the income from the letting out of the commercial complex is held as business income of the assessee. This issue is decided accordingly. 13. The next issue raised in this appeal is relating to the treatment of interest income as to whether the same is to be assessed as 'business income' or 'income from other sources'. In view of our observat....