TaxTMI 
TaxTMI 
2007 (5) TMI 258
X X X X Extracts X X X X
X X X X Extracts X X X X
....cted against the order of the learned Commissioner of Income-tax, Kolkata-III, passed under section 263 of the Act for the assessment year 2001-02. All the grounds originally taken by the assessee are in respect of cancellation of the assessment under section 263, and issuance of direction to assess the income of Rs. 1,75,20,000 under the head of " Income from house property" . Subsequently the assessee had taken an additional ground challenging the assumption of jurisdiction under section 263 of the Act by the learned Commissioner of Income-tax. We shall take up the original grounds first, which are as under : "(1) For that on the facts and in the circumstances of the case, the learned Commissioner of Income-tax, Kolkata-III erred in cancelling the assessment framed by the Assessing Officer holding the same to be erroneous and prejudicial to the interests of the Revenue. (2) For that the learned Commissioner of Income-tax, Kolkata-III erred in holding that the mall management/business centre charges, which was offered and assessed to tax as business income, was tax able under the head ' Income from house property' . (3) For that the learned Commi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n assessed as property income. 4. The learned Commissioner of Income-tax relied upon the decision of the hon'ble Supreme Court in the case of Shambhu Investment (P.) Ltd. v. CIT [2003] 263 ITR 143. 5. Learned counsel for the assessee submitted that the case was selected for scrutiny and the assessment was completed after due scrutiny. The Assessing Officer had observed that in the order of assessment that the return of income was accompanied by audited profit and loss account, balance-sheet etc., as well as audit report in Form No. 3CA. At the hearing stage the assessee produced books of account, i.e., cash book/bank book, ledger, purchase/sales register etc. along with bills. The assessee had also furnished details of various expenses. These documents were examined by the Assessing Officer with a view to ascertain the veracity of the claim made by the assessee for allowance of deduction of various expenses debited to the profit and loss account. Only thereafter he completed the assessment. Thus it can be said that the assessee had furnished the requisite information/evidences, and the Assessing Officer after considering the records before him and satisfying himself about....
X X X X Extracts X X X X
X X X X Extracts X X X X
....surance of property B. Other amenities : 1. Providing tiled flooring 2. Providing rolling shutters 3. Electrical connected load 4. Air handling units 5. Telephone lines 6. Fax lines 7. Signage boxes 8. Computers 9. Internet lines 7. A perusal of the agreements would show that the activities involved in providing the above services/facilities/amenities meet all the aforesaid four requirements laid down by the hon'ble Supreme Court to qualify as business activities. To elaborate further, the assessee has taken up a project for establishing a retail chain at various metros of India and already shopping malls started functioning at Mumbai, Ahmedabad and Kolkata. So all these activities constitute ingredients of an organised business venture. The agreements with the users have been made operative for a period of 6 to 10 years, thus signifying that the services are being rendered continuously during the said period. For acquisition/construction of the shopping malls/ business centres the assessee had taken loans from banks. For providing the various services as stated above, it had to arrange....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion. Besides, he argued that the rental income presupposes existence of an owner-tenant relationship between the receiver and the payer of the rent. One of the principal characteristics of such relationship is that the tenant must enjoy tenancy rights, which he acquires the moment he becomes a tenant. Section 55(2)(a) of the Act even speaks of the cost of acquisition of such tenancy rights for the purpose of computation of capital gains on transfer thereof. In the agreements that the assessee-company entered with the aforesaid three companies it has been specifically provided that the user of the services provided by the owner shall not have any tenancy rights. The relevant clause in the agreements states as under : "The benefits granted to the user of availing of the services pro vided as set out in this agreement shall not be construed as creating or vesting any right or title or interest of any kind whatsoever in the user to any of the said services aforesaid or any machinery or equipment or articles in the business centre. The said business centre and all machinery equipment and articles therein belong exclusively to the owner and are in sole control and possession of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng mall and a hotel. Both malls and hotels constitute building or group of buildings providing accommodation for commercial use thereof. Just as utilisation of accommodation for providing customers with board and lodging is a commercial activity utilisation of space for providing shopping facilities to customers is also an out and out commercial activity. In the management of both shopping mall and hotel the predominant activity consists in commercial exploitation of the property, either directly by its owner or through some other person. So, the income arising therefrom has necessarily to be assessed as business income. He further submitted that the question as to whether income from a business centre should be treated as business or property income was resolved with reference to the facts in Asst. CIT v. Saptarshi Services Ltd. [2004] 265 ITR 379 (Guj) where it was found after review of the various case laws on the subject, that the income from developing the property as a business centre and providing various services like provision of lift, services as those of receptionist besides secretarial services, data processing conference room, etc. with many facilities, has necessarily....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n to the decision of the hon'ble Calcutta High Court in the case of the said assessee reported in CIT v. Shambhu Investment (P.) Ltd. [2001] 249 ITR 47 which has been affirmed by the hon'ble Supreme Court in the aforesaid judgment. He submitted that in the said case the assessee had let out the furnished office to the occupants on a monthly rental which was inclusive of all charges to the assessee. The entire cost of the property let out to the occupants had been recovered as and by way of interest-free advance by the assessee. Therefore, the court held, that it could not be said that the assessee was exploiting the property for its commercial business activities. Learned counsel argued that apparently one of the principal factors that persuaded the court to hold that the receipts in Shambhu Investment (P.) Ltd.' s case were assessable as rental income is that the entire cost of the said property was recovered from the occupants by way of interest-free advance. He submitted that in the appellant' s case investment in shopping malls/business centres were made by borrowing of funds from banks. Besides he pointed out that in Shambhu Investment (P.) Ltd.' s case the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the assessee has done is to grab the opportunity in both hands like a prudent businessman and embark on a new commercial venture that held promise for higher profits in less time. That was the primary object of the assessee in exploiting the immovable properties. So the income arising from such commercial exploitation of the assets concerned can only be assessed as business income. Learned counsel contended that in the facts and circumstances of the case, the ratio of the Calcutta High Court decision (subsequently affirmed by the hon'ble Supreme Court) in the case of CIT v. Shambhu Investment (P.) Ltd. [2001] 249 ITR 47 (Cal) is of little help to the Department and actually supports the stand of the assessee. 11. The learned senior Departmental representative, on the other hand, strongly supported the order under section 263 passed by the learned Commissioner of Income-tax, cancelling the assessment made under section 143(3) and directing the Assessing Officer to assess the income from shopping malls/business centres under the head of " Income from house property" . He submitted that the claim of so-called commercial activity of the assessee is only a facade to disguise ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....visitors within the said building. As per the agreements the users are not permitted to allow any person to sleep or stay in any part of the building nor to use the same for residential purposes. The agreements specifically stipulate that the user is only granted permissive use of the services and facilities provided in the premises by the assessee. The user would not be vested with or enjoy any right, title or interest of any kind in the services and facilities provided by the assessee, any machinery, equipments and articles in the business centre or any part or portion of the building. The agreements also provide that any right contemplated by any statute in future is also deemed to have been waived by the user. Thus the users do not enjoy even any tenancy right as per the agreements. The service charges payable by the users have been determined at a fixed rate. Failure to make payments of service charges in time would attract charge of interest at a steep rate (21 per cent. and 24 per cent. compounded quarterly). The fixed service charges do not include charges for telephone and FAX facilities and electricity charges or charges for any other similar facilities provided by the ow....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to be considered as business activities." 14. Applying the above test to the facts of the present case we find that the assessee has directed all its activities in an organised manner for the purpose of developing the properties as shopping malls/business centres. From the agreements it is apparent that the management and administration of the shopping malls is the sole responsibility of the assessee. Obviously the assessee is required to employ a good number of personnel on a permanent basis to discharge such responsibility. The various arrangements that the assessee has to make on a daily basis, to ensure availability of the services and amenities to the users in accordance with the agreements, reflect a clear manifestation of organised activity. The duration of the agreements and various legal and other commitments that each party to the agreement(s) are required to honour, indisputably show that the activities are continuous. So clearly the activities of the assessee that generated the income from shopping malls/business centres can be categorized as continuous organised activities for a set purpose. There is also no doubt that the assessee engaged in such activities with a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y temporarily cause it to be exploited by another person against payment of consideration and for this purpose may also execute a lease for a fixed period even with clauses of option to renew. (3) But in order that the income derived from the lease may be tax able under section 10 it must be shown that the lessor' s intention was that during the period of the lease the asset leased out must remain and be treated as a commercial asset and exploited as such. (4) This intention of the lessor referred to above has to be ascertained from the cumulative effect of all the terms of the lease and other material circumstances." 18. We agree with learned counsel for the appellant that there are a lot of similarities in both the purpose as well as the activities concerning the running of a hotel and that of shopping mall. Indeed both malls and hotels constitute building or group of buildings providing accommodation for commercial use thereof. In the management of both hotels and shopping malls the predominant activity is commercial exploitation of the property. We feel that there is a lot of sense in the contention of learned counsel for the appellant that just as util....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reme Court in the case of Shambhu Investment (P.) Ltd. v. CIT [2003] 263 ITR 143. The said judgment consists only of the operative portion, affirming the decision of the hon'ble Calcutta High Court in CIT v. Shambhu Investment (P.) Ltd. [2001] 249 ITR 47. In the said decision the Calcutta High Court observed (page 52) : "Taking a sum total of the aforesaid decisions it clearly appears that merely because income is attached to any immovable property that cannot be the sole factor for assessment of such income as income from property. What has to be seen is what was the primary object of the assessee while exploiting the property. If it is found applying such test that the main intention is for letting out the property or any portion thereof the same must be considered as rental income or income from property. In case it is found that the main intention is to exploit the immovable property by way of complex commercial activities in that event it must be held as business income." 22. Clearly, in the instant case the primary object of the assessee is to earn income by commercial exploitation of the property. From the planning stage and arranging finance for its investme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....kata-III erred in wrongly assuming jurisdiction under section 263 of the Income-tax Act, 1961, and hence, the order passed by him under the said section is bad in law and a nullity." 25. The learned Departmental representative did not seriously oppose the admission of the additional ground. Clearly the additional ground relates to a legal issue that has arisen from the facts, which are on record. Keeping in view the provisions of rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 and the decision of the hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383, we deem it proper to admit this ground. 26. As may be noticed, in the additional ground the appellant has challenged the legal validity of the assumption of jurisdiction by the Commissioner of Income-tax under section 263 of the Act. Learned counsel for the assessee submitted that if on any issue two views are possible, the Commissioner cannot substitute the view of the Assessing Officer by imposing his own through assumption of jurisdiction under section 263, merely because the view taken by the Assessing Officer would result in loss of revenue. Unless there is infirmit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Income-tax Appellate Tribunal, Chennai in the case of First Leasing Co. of India Ltd. v. Asst. CIT [2001] 250 ITR (AT) 1 [SB] and the Gujarat High Court in the case of CIT v. Mehsana District Co-operative Milk Producers Union Ltd. [2003] 263 ITR 645 in this connection. Relying on the judgment of the hon'ble Gauhati High Court, in the case of Bongaigaon Refinery and Petrochemicals Ltd. v. Union of India [2006] 287 ITR 120 he contended that the jurisdiction exercisable under section 263 of the Act being supervisory in nature, permitting suo motu review of any assessment already made, the statutorily enjoined sanctions circumscribing it have to be rigorously construed. Learned counsel further submitted that the assessment order would reveal that in the instant case the assessee furnished all the relevant documents and did give necessary explanation regarding its claim that income from shopping malls/business centres is assessable as business income. By its letter dated September 30, 2003, the assessee explained to the Assessing Officer that during the relevant year of account it shifted its bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... would not have the power to exercise revisionary jurisdiction under section 263. 28. We have carefully considered the relevant facts, the arguments advanced and the decisions cited. In our view, the hon'ble Supreme Court very succinctly enunciated the principles of law on this issue in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83. The court observed (headnote) : "A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous ; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error....