GULMOHAR PARK MALL PVT. LTD.,,AHMEDABAD vs. THE DY.CIT, CIRCLE-4,, AHMEDABAD

Per Pramod Kumar, Vice President:

“1.0 The CIT(A) erred in upholding computation of income at Rs.15,37,872/- as against loss of Rs. 7,63,06,820/- returned by the appellant. The appellant submits that computation of the loss returned by the appellant was in consonance with the provisions of law and the facts in the case of the appellant. The appellant submits that it be so held now.

2.0 The Commissioner of Income tax (Appeals) erred in upholding that Rs.9,28,81,991/- was assessable under the head income from house property as against under the head profit and gains of business returned by the appellant.

ITA Nos. 3559 & 3560/Ahd/2015 Gulmohar Park Mall Pvt Ltd Vs. DCIT Assessment Year: 2010-11 & 2011-12 Page 2 of 8 2.1 The assessing officer ought to have assessed income of Rs. 9,28,81,991/- under the head profit and gains of business. Rs. 9,28,81,991/- be assessed under the head profit and gain of business.

3.0 The appellant without prejudice to above submits that it had let on hire machinery, plant etc. and letting of the building is inseparable from letting of the machinery, plant etc. The CIT(A) therefore ought to have held that income of Rs. 9,28,81,991/- was chargeable to tax under the head income from other sources under provisions of section 57(2)(iii). The CIT(A) further ought to have allowed deductions for expenses and depreciation u/s 57. The appellant submits that it be so held.

4.0 The appellant submits that each and every expenditure debited to the Profit and Loss account and considered in computation of the total income was incurred wholly and exclusively for the purpose of the business. The assessing officer ought to have allowed deduction in respect of each and every expenses and also in respect of depreciation as per the provisions of law. The appellant submits that it be so held now.

5.0 The assessing officer erred in restricting deduction to Rs. 6,33,86,149/- being interest on borrowed funds. The appellant submits that expenditure of Rs.7,87,11,753/- was incurred by the appellant by way of interest on the borrowed funds which were utilized for constructing the house property and acquiring plants and machinery and equipments wherefrom income was derived. The assessing officer ought to have allowed deduction of Rs.7,87,11,753/- in computation of the total income. The appellant submits that it be so held now.

6.0 The assessing officer erred in not allowing deduction in respect of various expenses incurred wholly and exclusively for the purpose of the business and depreciation on the fixed assets against income from business operations of Rs. 15,37,872/- computed by him. The appellant submits that each and every expenditure was incurred wholly and exclusively for the purpose of the business and the fixed assets were used for the purpose of the business of the appellant. The appellant submits that the assessing officer ought to have allowed deduction in respect of various expenses and also depreciation on plant and machinery, machinery equipments etc. wherefrom income from business was derived. The appellant submits that it be so held now.

7.0 The assessing officer erred in raising demand of Rs. 5,64,482/-. The appellant submits that the demand is erroneous and contrary to the facts and not enforceable in the eyes of law. The demand be quashed. 7.1 The appellant without prejudice to above further submits that the assessing officer has committed an error in computing the demand of Rs.5,64,482/-. The assessing officer be directed to make correct computation of the tax and he be directed to allow credit in respect of each and every payment of tax. The appellant submits that interest if any charged by the assessing officer be quashed.”

ITA Nos. 3559 & 3560/Ahd/2015 Gulmohar Park Mall Pvt Ltd Vs. DCIT Assessment Year: 2010-11 & 2011-12 Page 3 of 8 4. Briefly stated, the relevant material facts are like this. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has shown the receipts from various let-out properties located in Ahmedabad in the name of Navratna S.G. Highway Properties Pvt Ltd. The income is classified in two different heads, i.e. (i) Mall Operating Revenue and (ii) Common Area Maintenance Revenue. The assessee has also claimed all the business expenditure against such income. The Assessing Officer noted that the assessee has taken deposit from all the parties to whom the areas were leased out in the mall premises. It was in this backdrop that the Assessing Officer required the assessee to show-cause as to why the income from business should not be treated as income from house property. The assessee made elaborate submissions in response to the show-cause notice and, inter alia, pointed out that the income has been derived not only from leasing out of the properties simpliciter, but also on account of complex integrated services which have generated the revenue in question. He also pointed out that, in a mall, apart from providing the place for operating business, various services such as security, cleanliness, housekeeping, repairs and maintenance, electrification, maintenance of the elevators, security to building round the clock, vehicle parking services and other services are to be provided. Assessee has also relied upon series of judicial precedents. None of these submissions, however, impressed the Assessing Officer. He proceeded to treat the entire income as income from house property. His line of reasoning is as follows:- “4. The assessee’s reply is duly considered but not found acceptable in view of the following:

4.1 The assessee derives income from leasing various spaces in the mall. Further, the assessee has also collected deposits from various tenants to whom the premises are given on lease. The assessee in its reply dated 03.01.2013 stated that it has provided certain incidental services such as maintenance of the building, maintaining the inner areas given on lease, maintaining elevators, provision of security service etc. The assessee claims depreciation on the assets and claims interest costs under the head of ‘Profit & Gains of business or Profession’. In fact, the assessee’s income in having the nature of House Property and not business income in consideration of the facts and circumstances of the case. The assessee derives its major part of income from giving on lease the mall premises. It has collected deposit from the tenants while leasing out the various space/area of the mall premises and collects rent regularly from these tenants as per the agreement. The above ingredients of the transactions took place during the year under assessmtn brings its nature of income in the form of ‘Income from House Property’.

4.2 The assessee claimed during the assessment proceeding that in the Audit Report issued by the auditor in Form 3CD the income is derived from development and maintenance of immovable properties and mall management. The plea of the assessee on the basis of this aspect only cannot be accepted where its very basic nature of income is falling under the head ‘Income from House Property’. It is also apparent from the facts of the case that merely stating the above in Form No. 3 CD does not bring the Income of the assessee under the head 'Profit & Gains from Business or Profession'

ITA Nos. 3559 & 3560/Ahd/2015 Gulmohar Park Mall Pvt Ltd Vs. DCIT Assessment Year: 2010-11 & 2011-12 Page 4 of 8 4.3 On verification of the details of legal and professional charges submitted by the assessee vide submission dated 24/12/2012, Annexure 16 the TDS deducted by various parties of Rs.80,760/- under the provision of section 194 I of the Act which deals with TDS on Rent from letting out property. This TDS made by various parties also confirms the fact that the assessee derived the Rent income which is liable to be treated under the head of House Property only and can be bring to tax under the head of Business Income.

4.4. The assessee stated in its reply dated 13.03.2013 that it puts reliance on the decision K.Dev Co. Ltd Vs. CIT reported at 44 ITR 362 (SC) and in case of Sheetal Khurana Food Ltd. Vs. ITAT reported at 11 Taxman.com 68 wherein Hon’ble Punjab & Haryana High Court held that where the transactions of leasing is involving the business operations the income falls under the head business income and one has to consider all the factors for the purpose of deriving whether it is business operations or not. The assessee further stated that it has provided several services and business facilities to the lessees and all the business activities namely leasing of the units and providing other various services are inseparable and under the circumstances each and every revenue is business trading recept and has been considered accordingly. The assessee further relied upon the principle settled by the Hon’ble Supreme Court in the case of Sultan Bros. Pvt Ltd. Vs. CIT reported at 51 ITR 353. The assessee put reliance on the following case laws:

(a) Mazagaon Dock Ltd vs. CIT 34 ITR 368 (SC) (b) B P Ray vs. ITO 129 295 (SC) (c) S.V. Mercantile Corpo (P) Ltd vs. CIT, 83 ITR 700 (SC) (d) CIT vs. Khostla India Ltd , 700 (SC) (e) Universal Plant Ltd, 237 ITR 454 (SC) (f) CIT Vs. Vikram Cotton Mills Ltd, 169 ITR 597 (SC) (g) Balaji Enterprises vs. CIT 225 ITR 471 (Kerala) (h) PFH Mall & Retails Mgt. Ltd. Vs. Asst, CIT 16 GOT 83 (Kolkata lTAT).

The above case laws are duly considered but the same are not found acceptable in view of the facts and circumstances of the assessee's case. The assessee’s ease is a clear case which involves wrong treatment of the basic nature of income and by which claiming the deductions/expenses which are not allowable as per the law. Reliance is put on the following legal decisions relevant to the present case:

(a) East India Housing & Land Development Trust Ltd. Vs. Commissioner of Income tax (42 ITR 49 [SC] 1961):

Income received from tenants from shops and staffs by an assessee company formed with an object of developing landed properties is liable to be taxed as property income and not as business income. Further, in this case it was also held that income from tenants of shops and stalls is income from property irrespective of the fact that it is received by a company formed with the object of developing and setting up markets and the occupants are not permanent.

ITA Nos. 3559 & 3560/Ahd/2015 Gulmohar Park Mall Pvt Ltd Vs. DCIT Assessment Year: 2010-11 & 2011-12 Page 5 of 8 (b) Further reliance is also placed on :

- Shambhu Investment (P) Ltd vs. CIT (2003) 263 ITR 143 (SC) - CIT vs. New Bharat Engineering (Jam) Pvt Ltd (1992) 203 ITR 678 (Guj) - ITO v. Shri Dwarkadhis Estate (1992) 203 ITR 678 (Guj) - CIT vs. New India Industries Ltd (1993) 201 ITR 208 (Bom) - Parekh Traders vs. CIT (1984) 150 ITR 310 (Bom) - Scindia Potteries (P) Ltd vs. CIT (2001) 171 CTR 457 (Del) - CIT vs. Chennai Properties & Investments Ltd (2004) 266 ITR 685 (Mad) - AR Complex vs. ITO (2007) 292 ITR 615 (Mad.)

The above referred case laws emphasize the fact that income from letting-out the space and the property which is shown as business assets/stock in trade in the balance sheet and which is given on rent does not change the nature of income. Thus, in view of the above the fact is leading to treat the income of the assessee to be considered as Income from house property. In view of the facts mentioned above, I am satisfied that the assessee has furnished inaccurate particulars of its income and hence penalty proceedings u/s. 271(1)(c) of the Act is initiated separately for furnishing inaccurate particulars on this count.”

ITA Nos. 3559 & 3560/Ahd/2015 Gulmohar Park Mall Pvt Ltd Vs. DCIT Assessment Year: 2010-11 & 2011-12 Page 6 of 8 facts pertaining to the services offered by mall to, and for, those occupying the business premises on such mall. Once the Assessing Officer himself comes to the conclusion that given the complexity of these services and all these facts being taken as integrated wholly the income in question is to be taxed as business income, it would not at all appropriate for the Assessing Officer to deviate from such a stand, without any material change in the facts and circumstances in a subsequent year. In any event, the maintenance charge for common area maintenance is only one of the segments of services provided to the unit holders in the mall. The common area maintenance is one aspect where costs are shared but that does not mean that all other services and amenities essential to smooth functioning and conducive to business, can be ignored for the purpose of ascertaining the nature of business model. It, therefore, cannot be said, on the facts and circumstances that all the services which have been provided to the unit holders have been separately taxed as business income. The fact remains that even though common area maintenance services are charged for certain services, there are larger number of services such as round-the-clock security, electrification, cleanliness, parking services and most of other services which are integrated and essential for successful operation of mall, consideration for which is included in the charges received from unit holders. The fact that these unit holders treat these charges as rent simpliciter and tax deducted at source under section 194-I cannot determine the question of taxability in the hands of the recipient. In the business model embedded by the operation of the shopping mall, as we have pointed out earlier, a complex web of integrated services are to be provided and the consideration received from those occupying the business premises is not simply as such rent for the premises. As we hold so, we find support from Hon’ble Supreme Court’s judgment in the case of CIT vs. E City Real Estate (P.) Ltd., [2018] 100 taxmann.com 94 (SC), wherein Their Lordships has, inter alia, observed as follows:-

“14. In the present case, the facts are otherwise. The substantive income of the Assessee is from leasing out the shop/stalls. 15. The Tribunal in its Judgment, while appreciating the facts, has observed that the various malls are built by Assessee and are operated from the year 2001. The operational income received from the said activity, in the form of rent, and other service charges was consistently offered to tax as its business income in the earlier years and the same was accepted by the Department as a business income. After demerger, both the Assessee Companies took over the assets and liabilities of the demerged Company and continued the same business of operating and running the malls. The Tribunal has considered the nature of the business activities of the Assessee Company, as well as, terms and conditions of the relevant agreements, under which the commercial space in the mall was given on hire by the Assessee Companies to the concerned parties. It also considered the various services provided by the Assessing Companies during the course of operation and running of the Family Entertainment Centre-cum-malls. On appreciation of facts, the Commissioner (Appeals) and the Tribunal have concurrently arrived at a conclusion that the intention of the Assessing Companies was to commercially exploit the property by way of complex commercial activities and it was not a case of letting out the property simplicitor. The rental income and the service charges thus were received by the Assessee Company as business income during the

ITA Nos. 3559 & 3560/Ahd/2015 Gulmohar Park Mall Pvt Ltd Vs. DCIT Assessment Year: 2010-11 & 2011-12 Page 7 of 8 course of business carried out by them of operating and running a Mall as a commercial activity. The facts of the present case are much similar to the case of Chennai Properties and Investments Ltd. (referred to supra). 16. We find that the appreciation of evidence by the Commissioner (Appeals) and Tribunal is not perverse and the finding arrived at by them is plausible one.”

“27. In the instant case, it is not a letting out of property simpliciter, without anything more. A host of services are being provided by the assessee at the shopping mall. The assessee is engaged in a complex set of activities at the shopping mall. Management of the shopping mall is done by the assessee. The basic purpose is commercial exploitation of the property. The assessee has earned the income not merely by letting out the shop rooms but also by providing amenities and facilities at the shopping mall. Such amenities and facilities are not the basic facilities required for occupation of a shop room by a tenant. They are the special facilities for running the shopping mall and are meant to attract the customers and provide them the comfort and convenience of shopping. In cases where the income received is not from the bare letting out the property but on account of the facilities and services rendered, the operations involved in such letting out is in the nature of business and the income derived therefrom has to be treated as business income and not income from property. The income derived by the assessee cannot be regarded as simply from the exercise of property right. Where the assessee company has developed the shopping mall and let out the same by providing a variety of services, facilities and amenities in the mall, it can be found that the primary intention of the assessee was commercial exploitation of the property and where it has derived substantial part of its income by such activity, which constitutes its main business, the income so derived would be business income of the assessee. We, therefore, agree with the view of the Tribunal that the income derived by the assessee by letting out the shops in the mall has to be assessed as income from business and not as income from house property. 28. On the basis of the discussion above, we find that the amount received by the assessee company on letting out the shop rooms in the mall constructed by it has to be treated as business income and it has to be assessed to tax under the head "profits and gains of business" and not under the head "income from house property". The substantial question of law is answered in favour of the assessee and against the revenue.”

ITA Nos. 3559 & 3560/Ahd/2015 Gulmohar Park Mall Pvt Ltd Vs. DCIT Assessment Year: 2010-11 & 2011-12 Page 8 of 8 the mall to various persons as income from house property. We vacate the action of the authorities below and direct that the said income be treated as profits and gains from business or profession. As this core issue has been decided by us in favour of the assessee, all other issues are rendered academic and infructuous. The appeal of the assessee is thus allowed.

Sd/- Sd/-

Justice P P Bhatt Pramod Kumar (President) (Vice President) Ahmedabad, dated the 27th day of August, 2019 Bt*

Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) DR (6) Guard File

By order