TaxTMI 
TaxTMI 
2022 (11) TMI 1464
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....s taken as a lead case. 2. The Revenue has raised the following grounds of appeal are as under: "1. Whether on the facts and circumstances of the case Ld. CIT(A) erred in law in holding that income derived by the company from leasing out properties in the mall falls under the head income from business and not under the head from income from house property, relying on Hon'ble Apex Court's decision in the cases of M/s. Rayala Corporation Pvt. Ltd. vs. ACIT (2016) 386 ITR 500 (SC) and M/s. Chennai Properties & Investments Ltd. vs. CIT (2015) 373 ITR 673 (SC) which are in respect of the assessee company involved in earning of rental income from letting out of properties only and are distinguishable on facts & circumstances of the present case and the decision of Shambhau Investment relied on by the AO is neither discussed nor over ruled. 2. Whether on the facts and circumstances of the case Ld. CIT(A) erred in law in deleting the addition made under head income from house property of Rs. 4,69,34,191/- after considering that the provisions of section 22 of the I.T. Act, 1961 and held that the income from leasing out of profession u/s. 28 without appreciating the fact that the pres....
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....ing written submission and relevant documentary evidences from time to time. The assessment was finalized under Section 143(3) of the Act on 29.03.2014 by determining the total income of the assessee at Rs. 4,71,42,454/-. Further that the Ld. AO re-characterised the income from operation of the mall as shown by the assessee in its computation of income under the head "Income from Business Profession" to the head "Income From House Properties" and estimated rental income as against the same shown by the assessee in its books of account. 5. The Ld. CIT(A) in appeal held that running and operating of the shopping mall is predominant object of the assessee company in terms of the Memorandum & Articles of Association and the entire income derived by the assessee company from leasing out properties in the malls falls under the head "Income from Business". The other two additions were also deleted by the Ld. CIT(A). Hence, the instant appeal before us. 6. We have heard the rival submissions made by the respective parties, and we have also perused the relevant materials available on record. The assessee also filed a written notes of submissions on 30.05.2022. 7. Ground Nos. 1 & 2 are in....
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....carrying out systematic, organized, synchronized and recurring activities of the nature of trade and venture, the assessee company, while furnishing its return of income, regarded the lease income as its income from carrying out the business [kindly refer Computation of total income and Profit & Loss Account respectively at PB Page No. 48 & 74]. 3.01 ASSESSEE CARRIED OUT COMPLEX SERIES OF ACTIVITIES In the instant case, the assessee company has not merely constructed a super structure and leased it out. In contrast, the assessee company envisaged construction of a huge Multiplex-cum-commercial Complex and made the construction by observing all the rules and regulations prescribed specifically by the local authorities for a commercial shopping mall. The assessee equipped its Mall with all the facilities such as provisions of parking, elevators, escalators, fire fighting systems, common toilets, electromechanical maintenance, etc. The assessee had also deputed man power for housekeeping, cleaning, securing the entire Mall premises and ensuring systematic parking. The provision of all such basic amenities and facilities are interlinked and are integral part of the assessee's ....
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....CTIVITY The assessee company has been carrying out a systematic business activity with an intent to earn profit by providing host of services to the lessees of the Mall and by employing large number of permanent staff to carry out such activities on day to day basis. In such a situation, it has to be necessarily held that the activities of the assessee company fall in the category of carrying out the business of running the Mall and consequently, income is to be assessed only under the head 'Income from Business or Profession', under s.28 of the Income-Tax Act, 1961. For such proposition, we wish to place reliance on the judicial pronouncement of the Hon'ble Apex Court in the case of Karnani Properties Ltd. vs. CIT (1971) 82 ITR 0547 (SC) [kindly refer Judgments Compilation Book (JCB) Page No. 26 to 30]. 5.00 CASE OF CHENNAI PROPERTIES - HON'BLE SUPREME COURT The Hon'ble Apex Court in the case of Chennai Properties and Investments Ltd. vs. CIT (2015) 373 ITR 673 (SC) [kindly refer JCB Page No. 1 to 4] has held that where an income has been derived by an assessee from the commercial exploitation of the properties and in lieu of its professed objects, then....
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....ire income was from letting out of property which was principal business activity of the assessee. In Chennai Properties, the Hon'ble Court, at para 5, held that the main object of the assessee in its MOA : was to acquire & hold properties and to let out such properties. Further, at para 11, it has been held that since the letting of properties is the business of the assessee, the income will be classified under the head 'Income from business'. In Rayala Corporation. at para 10, the Court held that the rent should be the main source of income or the purpose for which the company is incorporated should be to earn income from rent so as to make the rental income to be taxable under the head 'Income / from business'. The facts of the case of assessee company are identical to that of Chennai Properties & Rayala Corporation. The assessee company has been incorporated with the main object to construct, run, hire-out shopping mall and the main source of income of the assessee is also from leasing out of the units in shopping mall. Important Points to be considered Shambhu Investment: i) Mere letting out of the immovable property ii) Primary object/ Intention of ....
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.....04 Your Honours, the Hon'ble ITAT Ahmedabad, constituting the then Hon'ble President Justice P P Bhatt, as the Judicial Member and the Hon'ble Vice President Shri Pramod Kumar, as the Accountant Member, in the case of Gulmohar P Mall Pvt. Ltd. vs. ITO 2019 (8) TM 1431 (ITAT Ahd) has held that the income of the assessee engaged in the development and maintenance of immovable properties and mall management, is to be treated under the head profits and gains from business or profession. A copy of the decision of the Hon'ble ITAT is being" enclosed herewith, as Exhibit -P/4. 9.00 In view of the facts and circumstances and as also, on view of the judicial pronouncements, the income of the assessee company would be classified only under the head 'income from business' and not under the head 'income from house property'." 11. Thus, it appears that the Mall is also equipped with other facilities like provisions of parking, elevators, escalators, fire fighting systems, common toilets, electromechanical maintenance in rendering the smooth activities of the Mall and had deputed man power for housekeeping, cleaning, securing the entire Mall premises and ensur....
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....nt through rent agreements. Even accretion to the rate of rent at regular intervals was found embedded in the agreements. Thus, no element of risk or uncertainty was involved. ii) As per settled position of law, the Memorandum of Association of a company, by itself is not a conclusive factor for determining the nature of income derived by a company. iii) All the infrastructure and amenities provided by the assessee in the mall are for sole purpose of making its letable value more and more attractive so that it can fetch maximum rent. Thus, providing of these facilities cannot alter the rental income character of the property. iv) The rent agreements themselves are calling the receipts as 'Rent'. Further, various clauses of the rent agreements makes it undoubtedly clear that the assessee lets out the spaces in the mall and there was no business activity involved in it. v) The main object of the assessee company was to earn rental income from leasing out different units of the mall to various tenants who in turn were free either to do business activity there from or to sublet to any other person. Further, providing of other common facilities were ancillary objects of ....
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....rganized way for earning profit and not particularly letting out the property on rental basis. Considering that particular aspect of the matter the First Appellate Authority accepted the categorization of the income derived from such Shopping Mall of the assessee under head income from "Income from Business" under Section 28 of the Act. 15. In fact, accepting the claim of the assessee in regard to the head of 'income under business or profession', Ld. CIT(A) deleted the addition with the following observation: "4.3 The appellant company has been incorporated, as a private limited company, under the Companies Act, 1956, with the main object of carrying out the business of constructing, owning, acquiring, developing, managing, running, hiring, letting out, selling or leasing, multiplex, cineplex, cinema halls, theatres, shops, shopping malls, etc. Such objects have been found stated as predominant objectives of the appellant company in its Memorandum 65 Articles of Association, a copy whereof was filed at Page no. 84 of the Paper Book During :he previous year relevant to the assessment ear under consideration, construction of a portion of the Mall was completed and the appellant e....
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....s not mere letting out of the properties. This being so, any income from leasing/letting out properties in such mall are essentially required- to be computed only as 'Income from-Business' under section 28 of the Act and cannot be treated as income from house property. 4.4 The Hon'ble Supreme Court in the case of Karnani Properties Ltd, vs. CIT (1971) 82 ITR 0547 (SC) has held that income derived by an assessee, the owner of flats and shops, from services rendered in an organized and systematic manner, with the help of large staff has to be computed as business income. Recently, the Hon'ble Supreme Court in the case of & Investments Ltd. vs. CIT (2015) 373 ITR 673 (SC) has the letting out of the property is the main object of a company, its income is to be computed under the head income from business it cannot be treated as the income from house property. The Hon'ble Supreme Court has observed as under: Before we refer to the Constitution Bench judgment in the case of Sultan Brothers (P) Ltd., we would be well advised to discuss the law laid down authoritatively and; succinctly by this Court in 'Karanpura Development Co. Ltd. v. Commissioner of Income Tax, West ....
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....usiness and not as income from house property. We are of the opinion that the aforesaid judgment in Karanpura Development Co. Ltd.'s case squarely applies to the facts of the present case. No doubt in Sultan Brothers (P) Ltd.'s case, Constitution Bench judgment of this Court has clarified that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be treated as income from business and such a question would depend upon the circumstances of each case, viz., whether a particular business is letting or not. This is so stated in the following words: - "We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade....
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.... the instant case, the determination of income of the appellant is not based upon the entries made by it in its books of account. 4.5.2 The Assessing Officer has also relied upon the decision of Hon'ble Allahabad High Court in the case of CIT vs. Goel Builders (2011) 331 ITR 344 (All) where the Assessing Officer has distinguished the case of the appellant from that of the decision of Goel Builders supra. I find that the facts of the case of Goel Builders are in fact supportive of the stand of the appellant. In this case the Hon'ble High Court has held that the purpose of assessment under the head "Profit and gains of business or profession", it shall be necessary that the property acquired and used is for commercial purpose under business activity and the owner must have acquired the property with the intention to earn profit under commercial activity. The Assessing Officer has placed reliance on an initial Memorandum of Understanding between the appellant and M/s. M2K Infrastructure Pvt. Ltd. for leasing out the entire Mall to the aforesaid company against receipt of lease rent. However, as the said agreement did not materialize the appellant itself undertook the operati....
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....me is to be treated as income from business. The Hon'ble Court being conscious of the aforesaid dicta laid down in the Constitution Bench judgment arrived at the conclusion that the letting out of the properties is business of the assessee as holding the aforesaid properties arid earning income by letting out those properties is the main objective of the company. 4.6.1 The appellant is running and operating the mall in a systematic and Organized manner by carrying out series of activities by maintaining staff and establishment. The appellant is also engaged in organizing various events and shows for maximizing the footfalls in the Mall. The various units in the Mall have been let out to big MNC brands for setting up their outlets and not to any person for establishing its office and in such a case, it is clear that the appellant was carrying out a systematic series of activities to maximize the popularity of the Mall and getting the best tariffs for its units in the Mall. In view of the facts of the case and the recent decisions of Hon'ble Supreme Court in Chennai Properties and Investments Private Limited and Rayala Corporation Private Limited (Supra) the rental income of the ap....
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....ex Court. The Hon'ble Kerala High Court in the case of CIT vs. Oberon Edifices and Estates Pvt. Ltd., reported in (2019) (3) TMI 1468 (Ker) on an identical facts and circumstances of the case has been pleased to hold that income derived by the assessee by letting out of the shops in the Mall has to be assessed as income from business and not income from house property. It is relevant to mention that the judgment passed by the Hon'ble Apex Court in the case of Shambhu Investment Pvt. Ltd. (supra) as relied upon by the Ld. DR has been distinguished by the Hon'ble Court on the basis of the facts available therein as already discussed above. 18. Considering the object of constructing, running and hiring of the Shopping Mall as the main object and the business of the assessee company the income derived from the Shopping Mall as has been categorized as income from business or profession is clearly applicable to the case in hand. We would also like to mention that upon considering this particular aspect of the matter the Hon'ble ITAT Ahmedabad Bench in the case of Gulmohar Park Mall Pvt. Ltd. has been pleased to hold that the income of the assessee engaged in the development and maintena....
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.... 1,32,000/-, and from Idea Cellular Mobile Tower at only Rs. 36,000/- during the year under consideration. This minuscule amount of rent shown was not found acceptable. It was observed from the agreement for equipments dated 26/04/2010 between the Assessee Company and Bharti Airtel Ltd. that (i) One time lump sum rental amount of Rs. 96,000/- for the month of April 2008 to Nov. 2010 was agreed to be paid by Bharti Airtel Ltd. (ii) Monthly consideration of Rs. 9,0007- pert month from Dec. 2010 was agreed to be paid by Bharti Airtel Ltd. (iii) Electricity charges on the temporary basis of unit count of sub meter attached to the electricity connection @ 6.5 per unit was agreed to be paid by Bharti Airtel Ltd. (iv) The assessee company agreed to ensure safety and security of the equipments and to maintain surrounding area sufficiently clean, lighted and in good condition to ensure the smooth operation of the equipments. However, amount received on account of electricity charges and common area maintenance charges were not found accounted for in the books of account of the assessee. Further, it was observed from the lease agreement dated 16/05/2008 between the Assessee Company and Idea ....
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.....; in that case also, no difference would be there; since then, that portion of interest would be admissible as business expense.) However, depreciation claimed on building at Rs. 76,46,466/- would be inadmissible, since there is no provision in the Income Tax Act to claim depreciation under the head 'income from house property'. As such, the assessee's income from house property is hereby determined as under - Particulars Amount Rs. Amount Rs. Total rental income 7,92,90,780/- Less: (i) Deduction u/s 24(a) @ 30% 2,37,87,234/- (ii) Deduction u/s 24(b) 85,69,355/- 3,23,56,589/- Income from house property 4,69,34,191/- 5.2 Since, the assessee has furnished inaccurate particulars of its income and concealed income, penalty proceedings u/s 271(l)(c) of the Income Tax Act, 1961 are initiated in the matter." 27. Before the Ld. CIT(A) the main contention of the assessee was as under: "5.01 Without prejudice to the above, it is submitted that even if the rental income of the appellant is computed under Chapter IV-C of the Act being under the head 'Income from House Property', then it has to be computed in accord....
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....ance on the following judicial pronouncements : i) ACIT vs. Dr. Prabha Sanghi (2013) 35 CCH 0002 (DelTrib) ii) Premsudha Exports (P) Ltd. vs. ACIT (2008) UOITD0158 Copies of the above referred decisions are being submitted herewith for kind perusal and ready reference of Your Honour, as Annexure A-17,01 & A-17.02 IPB Page No. 272 to 2901 5.01 Your Honour, it is a settled law that the annual value of any house property should be governed by the standard rent or fair rent. The Hon'ble Apex Court in the case of Dewan Daulat Rai Kapoor vs. New Delhi Municipal Committee & Anr. (1980) 122 ITR 700 (SC) has held that 4Le actual rent, in normal circumstances, afford a reliable evidence of when and lord might reasonably expect to get from a hypothetical tenant. The Hon'ble Supreme Court further held that the annual value of o building whether lei out or self-occupied must be limited by measure of standard rent determinable under the relevant Act. 5.02 Your Honour the Hon'ble High Court of Madras in the case of CIT vs. Parasmai Chordia (3998) 233 ITR 147 (Mad.) has held that where in case of a let out property, if the actual rent received is more than the standard rent, the ....
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....o. 3 and ground nos. 4fa) to 4(f) of the appellant are allowed." 29. Admittedly, the AO has made estimation of rent on ALV upon invocation of provisions of Section 23 of the Act which can only be invoked if the income is computed under Section 22 of the Act. As we have already seen in the earlier ground that the income from leasing out of properties in the mall has been held to be chargeable to tax under the head "Income from Business or Profession" under Section 28 of the Act which has also been confirmed by us, the rental income estimated under the provision of Section 23 of the Act by the Ld. AO is bad in law and thus liable to be quashed in the present facts and circumstances of the case. Hence, the order passed by the Ld. CIT(A) as above is according to us is just and proper so as to warrant interference. With the above observations, we conclude that the Grounds Nos. 1 to 3 filed by the Revenue are found to be devoid of any merit and thus, dismissed. 30. Ground No.4:- Restricting depreciation on fixed assets at Rs. 74,63,469/- as against Rs. 1,55,95,905/- claimed by the assessee is under challenge before us. 31. The assessee has shown the entire income under the head "Incom....
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....ea as 6615 : 65585 only. 2. Right of Leasing 17,81,250 6,23,437 11,57,813 The depreciation cannot be allowed on the entire constructed building but it has to be restricted to the occupancy level. Accordingly, based upon occupancy level of 35% depreciation has been restricted. 3 Other Assets (Furniture & Fixtures Plant & Machineries and Computers) 61,68,189 61,51,850 16,339 No reason assigned Total 1,55,95,905 74,63,469 81,32,436 2.00 As regard to the short-allowance of depreciation on building, it is submitted as under: i) First of all, the appellant claims that its entire building was used by it for the purpose of business of leasing out and therefore, its entire income is liable to be computed under the head 'Income from business or profession' only. Accordingly, it was eligible for claim of depreciation on the entire portion of the constructed building. ii) Even if the stand of the learned AO to the effect that the rental income and common area maintenance charges received by the appellant are respectively assessed under the head 'Income from house property' and 'Income from business' is accepted, then the depreciation a....