TaxTMI 
TaxTMI 
2017 (8) TMI 1290
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....edings, the AO noticed that the assessee is owner of property situated at Plot No.63, Street No.13, MIDC, Andheri (E), Mumbai-400 093 consisting of 1st & 2nd Floor having total built up area of 18,954 sq.ft. and aforesaid property was leased to M/s Fullerton India Credit Company Ltd under a lease agreement dated 09-01-2008. The assessee has entered into two lease agreements, one for leasing of premises and another for providing amenities to the building. The assessee has treated rental receipts under the head "Income from house property" whereas compensation received towards providing amenities has been considered under the head "Income from business". Therefore, the AO asked the assessee to explain as to why compensation received on amenities shown under the head 'business income' should not be taxed under 'Income from house property'. In reply, assessee submitted that it has entered into leave & licence agreement with the tenant for the said building along with furniture and other facilities including car parking, benefit of sanitary fittings, water supply, additional electricity supply for which separate agreement has been entered into, which has been considered under the head "....
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....l before the CIT(A). Before CIT(A), the assessee reiterated its submissions made before the AO. The assessee further submitted that as per the provisions of section 23 of the Income-tax Act, 1961, the annual letting value of the premises is the amount for which the property might reasonably be expected to let out from year to year or the actual rent received or receivable, whichever is more. Therefore, for computation of annual value, only the rental income has to be considered and not the service charges for providing extra facilities and services. The assessee, referring to the decision of Hon'ble Supreme Court in the case of CIT vs National Storage Pvt Ltd (1967) 66 ITR 596 (SC) submitted before CIT(A) that income derived from rendering services in addition to letting out of the property was income derived from carrying on an adventure in the nature of trade, therefore, compensation received from the tenant for providing additional services, which are not connected to the letting out of premises has been rightly assessed under the head, "Income from business". The AO, without appreciating the facts, has simply considered amenity charges under the head "Income from house property....
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....of his argument, the Ld.AR relied upon the decision of Hon'ble Supreme Court in the case of Rayala Corporation Ltd vs ACIT 2016) 386 ITR 500 (SC) and also ITAT Mumbai Bench decision in the case of Kavita Marketing Pvt Ltd vs ITO (2016) 47 CHH 228 (Mum Trib). 7. The Ld.DR, on the other hand, supported the orders of authorities below and submitted that the issue has been already considered by the ITAT, in assessee's own case in the earlier years and observed that the receipts towards amenities are to be considered as part of rental income. The Ld.DR further submitted that the assessee has earned compensation for providing amenity charges to the same tenant, who occupied the premises by splitting rental agreement into two parts which is evident from the fact that the tenant has deducted tax at source u/s 194-I of the Income-tax Act, 1961 on total payments including compensation paid for providing amenities. Therefore, the AO has rightly assessed compensation received under the head "Income from house property and his order should be upheld. In support of his argument, he relied upon the decision of the Hon'ble Supreme Court in the case of Shambhu Investment (P) Ltd vs. CIT (2003) 263....
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....d of electricity supply and other related services for which it has separately charged the tenant against which the assessee has incurred expenses. Therefore, the said activities come under the head "Income from business". 9. The question to be resolved here is whether on the facts and in the circumstances of the case, the compensation received by the assessee for providing amenities to the tenant, who occupied the premises of the assssee, is assessable under the head "Income from house property" or "Income from business". A similar issue has been considered by the ITAT, SMC Bench, Mumbai in assessee's own case for AY 2008-09 in ITA No.349/um/2015 dated 22-06-2016. The co-ordinate bench of this Tribunal, under similar facts, has held that receipts towards amenities are to be considered as part of rental income. However, the expenses incurred towards security service and pantry services are not connected to the rental income and hence, they should be deducted from the receipts from amenities. The relevant pat of the order of the co-ordinate bench is extracted below:- "6. I further notice that the assessee has let out the two storey building to only one tenant. The nature of ameni....
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....ration is deductions towards expenses claimed against compensation receipts. The assessee has claimed various expenditures against compensation receipts while computing income under the head "Income from business". According to the assessee, it has incurred huge expenditure for electricity charges which is included in the receipts received towards providing amenity services. The assessee further clarified that it has incurred various expenses such as security charges, rates & taxes, etc. in connection with providing services to the tenant. The AO disallowed expenditure claimed by the assessee on the ground that the amount of compensation received by the assessee is assessable under the head "Income from house property" against which only standard deduction provided u/s 24 is allowable. 11. Having heard both the sides and considered material available on record, we find that the AO has disallowed total expenditure claimed by the assessee against business receipts on the sole ground that compensation received for providing amenities is assessable under the head "Income from house property". However, the AO has allowed standard deduction u/s 24 while computing "Income from house prop....