TaxTMI 
TaxTMI 
2019 (5) TMI 1875
X X X X Extracts X X X X
X X X X Extracts X X X X
....uired to furnish certain information and the assessee complied with the same. After perusal of the relevant information, the Assessing Officer observed that the assessee is engaged in the business of development of commercial property and letting them out on rental basis and that during the year, assessee has earned rental income of Rs. 17,85,27,914/- from such properties. He observed that assessee has offered this income as 'income from house property' and has claimed the benefit of deduction u/s. 24(a) of the Act. He also observed that apart from the income from house property, the assessee also claimed business loss of Rs. 1,51,03,227/-. The assessee was therefore asked to explain as to why the rental income should not be treated as 'Income from business' as assessee was carrying on the business of leasing of premises during the relevant assessment year. Vide reply dt. 07-11-2016, the assessee stated that the their company is engaged in the business of construction of residential and commercial complexes and letting out of the same on rentals and that during the year, assessee has received income from house property, income from business, income from capital gains and income fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ature of business. 6. The Ld. CIT(A) ought to have appreciated the fact that the assessee company just letting out the constructed space area and as there is no venture or business activity involved in the same, the rent derived from letting out of property held is to be assessable as income from house property. 7. The Ld. CIT (A) erred in not appreciating the provisions laid down u/s 22 of the Income Tax Act, 1961. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income- tax, shall be chargeable to income- tax under the head Income from house property. 8. The Ld.CIT(A) ought to have appreciated that it was a case where assessee had earned rental income by exploiting property as a capital asset and it was not a case where letting out was to be perceived as an adventure in nature of trade or business; therefore, such rental income was liable to be assessed as income from house property. 9. The Ld. CIT (A) ought to h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Pvt. Ltd., in ITA No. 5944/Mum/2012 and others, dt. 30-10-2018 in support of his contentions that since the assessee does not carry on business of letting out of property, Section 28 cannot be invoked and the income received cannot be treated as profits of business. He also placed reliance upon the decision of the Hon'ble Apex Court in the case of Raj Dadarkar & Associates Vs. ACIT [394 ITR 592] (SC), wherein it was held that - The assessee acquired leasehold rights in a property, constructed various shops and stalls on the said property and gave same to various persons on sub-licensing basis - He submitted that in the case before us, since the assessee was not engaged in the systematic activity of providing service to tenents, it was to be brought to tax as 'income from house property' and not as 'business income'. ii. Intention to rent property is not for temporary basis and thus cannot be taxed under the head 'income from business' or 'profession': Ld. Counsel for the assessee submitted that as per various rental agreements entered into by the assessee with its lessees, the lease period is nearly for nine years. He placed reliance on the decision of Hon'ble High....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the assessee except the income from letting out of the said properties, which was the business of the assessee. On those facts, this Court came to the conclusion that judgment of this Court in Karanpura Development Co. Ltd. V. CIT [1962] 44 ITR 362(SC) was applicable and the judgment of this Court in East India Housing & Land development Trust Ltd., Vs. CIT [1961] 42 ITR 49 (SC) was held to be distinguishable. In the present case, we find that situation is just the reverse. The judgment in east India Housing and Land Development Trust Ltd. (supra) which would be applicable which is discussed in para 8 of Chennai properties & investment Ltd., (supra) and the reproduction thereof would bring home the point we are canvassing; 8. With this background, we first refer to the judgement of this Court East India Housing and Land Developent Trust Ltd., (supra) which has been relied upon by the High Court. That was a case where the company was incorporated with the object of buying and developing landed properties and promoting and developing markets. Thus, the main objective of the company was to develop the landed properties into markets. Thus, the main objecte of the company was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Act was challenged by the assessee before the ITAT, wherein the ITAT vide order dt 31.10.2017 in ITA No. 689/Hyd/2017 had modified the directions and had directed the Assessing Officer to determine the nature of income by having regard to case law on the issue. It is submitted that the order consequent to the directions of ITAT is yet to be passed by the Assessing Officer. However, according to him, the Principles of Consistency and Uniformity requires that the head of income under which the assessee has been offering rental income should not be changed in the subsequent assessment years. The Ld. Counsel for the assessee relied on the following case law in support of his argument that where the tribunal had accepted income from letting out as 'income from house property' in the earlier assessment years, it is not open for the A.O to treat it as business income in the subsequent years:- 1) CIT Vs. Haryana Tourism Corporation, reported in 327 ITR 26 (P&H); and 2) CIT Vs. Neo Poly Pack (P.) Ltd., reported in 112 taxman 363 (Delhi). Therefore, he prayed that the income from house property as offered by the assessee be accepted. 6. Ld.DR, on the other hand, reiterated the submi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d it was for the first time in AY. 2012-13 that there is a change of stand by the Revenue that too pursuant to the order passed by the CIT u/s. 263 of the Act. It is seen that the ITAT has upheld the initiation of proceedings u/s. 263 of the Act, and has directed the Assessing Officer to consider the nature of transaction in line with the case laws on the subject. Thus, it cannot be said that the stand of the Revenue that the income is to be treated as 'business income' has been upheld by the ITAT. Thus, the case laws relied upon by the assessee are not applicable to the case before us. 7.1 The main reason for treating rental income as 'business income of the assessee' by the A.O, is the admission of the assessee itself in its letters addressed to the A.O that its business was also of leasing or letting out of its properties. The Assessing Officer had relied upon the judgment of the Hon'ble Supreme Court in the case of Sultan Brothers (P.) Ltd., Vs. CIT (supra), wherein it was held that 'the intention or the primary object of the assessee while exploiting the property forms the nucleus of the issue'. He held that in the case before us, the primary intention was to commercial....
X X X X Extracts X X X X
X X X X Extracts X X X X
....real estate agents and constrictors for construction or demolition work of any kind, and to purchase or otherwise acquire lands, houses, offices, workshops, buildings and premises for the purpose of that business. 7.2 Thus, from a literal reading of clause (4) of para III, it is clear that the assessee's business is to purchase, sell, develop, take in exchange or on lease, hire or otherwise acquire the properties and to carryon business as proprietors of lands and buildings and to-let on lease (emphasis given by us) or otherwise apartments therein and to provide for the conveniences commonly provided in flats, suits and residential business quarters. Therefore, the main business of the assessee is to develop the properties and also to let out the properties on lease. In the case of Chennai properties, the said company had two properties known as 'Chennai House Esplanade' Madras and 'Fishayen Estate' at South beach road, Madras which were let out. We find that the objects of 'Chennai properties' was only to develop and let out those two to enjoy the rental income while in the case of the assessee, it is to develop the properties and also let out the properties on rent. Therefore,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee, during the first 6 months from the date such interior, fitting and fixture work is completed an certified by the Lessor. 7.3 We have also noticed that the lease rental is to be paid to the lessor only after the lessor i.e assessee herein, completes all the interior, fittings and furniture works and has provided the infrastructural facilities and materials to the lessees as per Annexure - A to the agreement. Therefore, it is not mere bare structure that is provided by the assessee to the tenant on rent but it is with furniture and fixtures along with power back up and AC facility. The Ld. Counsel for the assessee has relied upon various decisions in favour of his arguments let us therefore examine the applicability of the said decisions to facts of the case before us. i) The judgement of the Hon'ble Supreme Court in the case of Raj Dadarkar and associates (supra); In this case, we find that the Hon'ble Supreme Court was dealing with an assessee who was allotted, premises which was a bare structure i.e pillar / column, Sans even four walls. In terms of the allotment the assessee had to make entire premises fit to be used as market including construction of walls, cons....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ourt as reported in [2017] 77 taxmann.com 288(SC). iv) The Hon'ble Punjab & Haryana High Court in the case of Batra Palace (P.) Ltd. Vs. CIT, reported in [2017] 79 taxmann.com 324 (P&H), held that where it is not shown that the intention was to let out the properties for a temporary period, it was the intention of the assessee to enjoy the rental income from the letting out the property and hence it was to be treated as income from house property. v) The Hon'ble Apex Court in the case of Sultan Brothers (P) Ltd., reported in [1964] 51 ITR 353 (SC) has held that where property has been let out fully equipped and furnished for running a hotel, it could not be said that letting of building amounts to doing business and rental income could not be assessed as business income u/s 10 of 1922 Act. 7.4 By applying the rationale of the above decisions, we find that the fact that the property let out is a commercial complex is not sufficient to treat the rental income therefrom as 'Business Income'. The tests to be applied are; 1) the tenure of the lease, 2) the objects of the company; 3) the intention of the company; and 4) the services provided or activities carried on ....