ACIT (OSD) CORPORATE CIRCLE 4(2), CHENNAI vs. KKA BUILDTECH PRIVATE LIMITED, CHENNAI

आयकर अपीलीय अिधकरण, ‘ए’ �ायपीठ, चे�ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHENNAI �ी वी दुगा� राव, �ाियक सद� एवं �ी जी मंजूनाथा, लेखा सद� के सम$ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.1159/Chny/2019 िनधा�रण वष� /Assessment Year: 2014-15

The Asst. Commissioner of M/s. KKA Buildtech Pvt. Ltd., Income Tax(OSD), No. A-7 & 8, Thiru Vi Ka Industrial Corporate Circle-4(2), Vs. Estate, Guindy, Chennai. Chennai – 600 032. [PAN: AADCK 1427F] (&'थ(/Respondent) (अपीलाथ�/Appellant) अपीलाथ( की ओर से/ Appellant by : Mr. Suresh Periasamy, JCIT &'थ( की ओर से /Respondent by : Mr. R. Sricharan, C.A सुनवाई की तारीख/Date of Hearing : 28.07.2021 घोषणा की तारीख /Date of Pronouncement : 08.10.2021 आदेश / O R D E R Per V. Durga Rao, Judicial Member: This appeal filed by the Revenue is directed against the order of the learned Commissioner of Income Tax (Appeals)-8, Chennai in I.T.A No.190 & 366/16-17 dated 31.01.2017 relevant to the Assessment Year 2014-15.

I.T.A No.1159/Chny/2019 :- 2 -: 2. The Revenue has raised the following grounds:

“1. The order of the Id. CIT(A) is contrary to law and facts of the case. 2. The Ld.CIT(A) erred in holding that rental receipts should be assessed under the head business income. 2.1 The Id.CIT(A) erred in deleting the addition made by the AO by placing reliance on the decision of the Apex Court in the case of Chennai Properties without appreciating that the facts of assessee's case is distinguishable from the said case. 2.2 The Id.CIT(A) has failed to observe that the MOA of the assessee's case is clearly distinguishable from that of Chennai Properties MOA. 2.3 The Ld. CIT(A) erred in not applying the rationale of the Decision of the Apex Court in the case of Raj Dadarkar & Associates VS. ACITJ2017] (394 ITR 592) (SC). 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.”

constructed a commercial property on Khadar Nawaz Khan Road of

Nungambakkam area and has given shops on lease to various

persons. The assessee has admitted the lease income received by the

assessee as a business income. According to the A.O, the assessee

has let out only shops and the income has to be offered under the

income from house property by observing as under:

“The submissions of the assesee were carefully perused and came to the opinion that the rent received in the case of Chennai properties and investment ltd., was held by the Hon'ble Supreme Court that the MOA was stated "To acquire the properties in the city of Chennai (Earlier named as Madras) and to let out those properties". However the MOA of assessee state the main object was not very specific to renting of immovable in the case of assessee Company. It is slated as "To Purchase, own or otherwise acquire by way of mortgage, lease, license in India or elsewhere, any right, title and interest in real

I.T.A No.1159/Chny/2019 :- 3 -: estates of all kinds and deal in the same by sale, lease, trade or otherwise on such terms as may be deemed fit . As compare to the Chennai properties MOA and the MOA of the assesse company has different modus operandi to do the business. As per the Income tax Act, section 22 provides that rental income from property, being building or land appurtenant thereto, of which the taxpayer is the owner is charged to tax under, the head "Income from house property". It will not make any difference whether the property held by the owner as stock in trade or otherwise. Thus, in respect of property held as stock in trade or in case of a person engaged in the business of buying and selling of properties (as mentioned in the MOA of assessee), rental income from property will be charged to tax under the head "Income from house property. Hence, the assesses has earned income from the renting of shops developed by it wax to be held to be taxed under income from house property. Considering the facts of the case tn our considerate view, rental income earned should be taxed under the head income from house property and the receipts from other amenities should be taxed under the income from other source. Accordingly the assessment is completed and the rental receipts from letting out of the shops are computed as under.”

Memorandum of Association, the main object of the company is to

acquire and hold the properties and let out those properties is the

business of the assessee therefore, the lease rental income received

by the assessee has to be treated as a business income and he also

relied on the judgment of the Hon’ble Supreme Court in the case of

Chennai Properties & Investments Ltd. v. CIT, Central-III, Tamil

Nadu [2015] 373 ITR 673 (SC) and submitted that the issue is squarely

covered. The Ld. CIT(A) by considering the submissions of the

assessee and the judgment of Hon’ble Supreme Court in the case of

Chennai Properties & Investments Ltd. v. CIT (supra), he has

I.T.A No.1159/Chny/2019 :- 4 -: observed that the assessee-company is fully entitled to show its income

under the head business income and claim corresponding expenses

thereon. The action of the A.O in bringing the income for taxation

under the head house property is rejected and the income shall

continue to be taxed under the head business as declared by the

assessee.

Tribunal.

CIT(A) has followed the decision of the Hon’ble Supreme Court in the

case of Chennai Properties & Investments Ltd. v. CIT (supra),

without considering the subsequent judgment of Hon’ble Supreme

Court in the case of Raj Dadarkar & Associates Vs. ACIT [2017] 394

ITR 592 (SC) and strongly supported the order passed by the A.O.

submitted that the assessee-company incorporated in August, 2007,

under the provisions of Companies Act, 1956 with its first object being

to purchase, own or otherwise acquire by way of mortgage, lease,

license in India or elsewhere, any right, title and interest in real estates

of all kinds and deal in the same by sale, lease, trade or otherwise on

I.T.A No.1159/Chny/2019 :- 5 -: such terms as may deem fit. In pursuance of the aforesaid main object,

the assessee-company has constructed a 30,000 Sq. ft. commercial

complex and let out shops on lease and provides various amenities and

facilities and submitted that the intention of the assessee is only to

exploit the property for a business purpose therefore, the income

arising out of the exploitation of the property has to be treated as

income from business.

decision of Hon’ble Supreme Court in the case of Chennai Properties

& Investments Ltd. v. CIT (supra), and strongly supported the order

passed by the Ld. CIT(A). The ld. Counsel for the assessee further

relied on the following case laws:

1) Rayala Corporation (P.) Ltd. v. ACIT [2016] 386 ITR 500 (SC), 2) M/s. PSTS Heavy Lift and Shift Ltd., vs. DCIT in Tax Case Appeal Nos.2193 to 2195 of 2008 & 979 of 2009 (Mad.). 3) CIT v. Thiruvananthapuram v. Oberon Edifices & Estates (P.) Ltd. [2019] 103.taxmann.com 413 (Ker.) 4) PCIT, Pune v. Krome Planet Interiors (P.) Ltd. [2020] 423 ITR 62 (Bom.)

5) PCIT v. City Centre Mall Nashik (P.) Ltd. [2020] 424 ITR 85 (Bom.)

record and gone through the orders of the authorities below. The

assessee is a private limited company incorporated in August, 2007

I.T.A No.1159/Chny/2019 :- 6 -: under the provisions of the Companies Act, 1956. The main objects of

the company are 1) To purchase, own or otherwise acquire by way of

mortgage, lease, license in India or elsewhere, any right, title and

interest in real estates of all kinds and deal in the same by sale, lease,

trade or otherwise on such terms as may deem fit. 2) To acquire,

promote, co-promote, design, construct, develop, demolish, furnish, re-

erect, refurbish, rebuild, renovate, modify or maintain in India or

elsewhere all types of properties including flats, public residential

complexes, homes, residences, bungalows, apartments, condominiums

offices, office space, commercial space, shopping malls, shopping

complexes, auditoriums, factories, tenements, parks, townships,

infrastructure projects, multiplexes, tech parks, IT parks, parks, Special

Economic Zones (SEZ), hotels, resorts, restaurants, casinos, clubs,

inns, taverns, golf courses, factory, warehouse, godowns and quarters,

3) To carry on the business of advising, dealing, broking, consulting,

managing, marketing, housekeeping, investing in India or elsewhere in

all kinds of properties including flats, public residential complexes,

homes, residences, bungalows, apartments, condominiums, offices,

office space, commercial space, shopping malls, shopping complexes,

auditoriums, factories, tenements, parks, townships, Infrastructure

Projects, multiplexes, tech parks, IT parks, parks, Special Economic

I.T.A No.1159/Chny/2019 :- 7 -: Zones(SEZ), hotels, resorts, restaurants, casinos, clubs, inns, taverns,

golf courses, factory, warehouse, godowns and quarters.

attainment of main objects, which is at Sr. No.12 & 19 of Memorandum

of Association are as under:

“12. To acquire property and rights which the Company may think necessary or convenient for the purposes of its business or otherwise and in particular to build, construct, purchase, alter, enlarge, dismantle, maintain, remove or replace and to work, manage, hire and control, any land, buildings, offices, factories, shops, machinery engines, railway sidings and other works and conveniences and to sell, let on lease or otherwise dispose off or grant rights over any property belonging to the Company.

objects, constructed a 30,000 Sq. ft. complex and has let out various

shops to various lessees. The assessee has pointed out from the

paper book page Nos.67 to 88, which is a lease agreement, entered by

the assessee with Louis Vuitton India Pvt. Ltd. on 06.06.2012 and also

submitted that the assessee has entered similar agreement with other

lessees also. As per the lease agreement, the assessee lessor

responsible for cleaniness and maintenance of the mall as per Clause-

charges relating to common area expenses for security, cleaning,

I.T.A No.1159/Chny/2019 :- 8 -: electricity, maintenance of sanitary, plumbing, common equipments,

housekeeping, repair and AMC of the lifts/Generators, maintenance

and repair and insurance of building etc. and the lessor submitted a

complete audit document of all charges collected. From the above, it is

very clear that the assessee has not simply let out the shops to

lessees. It is the obligation of the assessee-company to maintain entire

shop including security, cleaning, electricity, sanitary, plumbing,

housekeeping, repairs and AMC of the lifts/generators, maintenance of

repair and insurance of building etc. From the above, it is very clear

that the assessee is exploiting shopping mall as a business in a

systematic and organized manger therefore, the activities carried by the

assessee are in the nature of commercial activity. Therefore, the

income arising out of systematic activity of the assessee has to be

treated as business income. In the assessment order, the A.O has

noted that the assessee from the incorporation i.e., in the year 2007 to

till date, the assessee has constructed only one commercial building

with the amount borrowed from its Directors let out the same to the

various tenants. He also observed that to decide whether the income

from property is a business income or house property income, the

important criteria is how the property is exploited to earn the income. In

this case, the commercial building was exploited to earn the rental

income. Moreover, if any income clearly be charged to any head, it

I.T.A No.1159/Chny/2019 :- 9 -: should be taxed under that head of income only. If any income is not

able to charge to any particular head, then it should be charged under

the head income from other sources as it is residuary head of incomes.

From the above, the opinion of the A.O is that the assessee has

constructed only one building and let out the same to the various

tenants. Therefore, as per s. 22 of the Income Tax, 1961, it has to be

taxed as income from house property. The A.O in fact has ignored the

main object of the company and also various services and facilities

provided by the assessee. By considering the entire facts of this case,

we are of the opinion that the income earned by the assessee in this

case has to be taxed income from business and the issue is squarely

covered by the decision of the Hon’ble Supreme Court in the case of

Chennai Properties & Investments Ltd. v. CIT (supra). In so far as the

case law relied on by the Ld. D.R in the case of Raj Dadarkar &

Associates Vs. ACIT (supra) is concerned, the Hon’ble Jurisdiction

Madras High Court has considered the very same judgment in the case

of M/s. PSTS Heavy Lift and Shift Ltd. (supra), wherein the Hon’ble

High Court elaborately discussed the issue which is reproduced as

under:

“15. Similarly, in Raj Dadarkar & Associates v. Assistant Commissioner of Income Tax [(2017) 394 ITR 592 (SC)], the same position was re-iterated in the following manner: "14) There may be instances where a particular income may appear to fall in more than one head. These kind of cases of overlapping have frequently arisen under the two heads with

I.T.A No.1159/Chny/2019 :- 10 -: which we are concerned in the instant case as well, namely, income from the house property on the one hand and profits and gains from business on the other hand. On the facts of a particular case, income has to be either treated as income from the house property or as the business income. Tests which are to be applied for determining the real nature of income are laid down in judicial decisions, on the interpretation of the provisions of these two heads. Wherever there is an income from leasing out of premises and collecting rent, normally such an income is to be treated as income from house property, in case provisions of Section 22 of the Act are satisfied with primary ingredient that the assessee is the owner of the said building or lands appurtenant thereto. Section 22 of the Act makes ‘annual value’ of such a property as income chargeable to tax under this head. How annual value is to be determined is provided in Section 23 of the Act. ‘Owner of the house property’ is defined in Section 27 of the Act which includes certain situations where a person not actually the owner shall be treated as deemed owner of a building or part thereof. In the present case, the appellant is held to be “deemed owner” of the property in question by virtue of Section 27(iiib) of the Act. On the other hand, under certain circumstances, where the income may have been derived from letting out of the premises, it can still be treated as business income if letting out of the premises itself is the business of the assessee.

15) What is the test which has to be applied to determine whether the income would be chargeable under the head “income from the house property” or it would be chargeable under the head “Profits and gains from business or profession”, is the question. It may be mentioned, in the first instance, that merely because there is an entry in the object clause of the business showing a particular object, would not be the determinative factor to arrive at a conclusion that the income is to be treated as income from business. Such a question would depend upon the circumstances of each case. It is so held by the Constitution Bench of this Court in Sultan Bros. (P) Ltd. v. CIT, (1964) 5 SCR 807." (emphasis supplied).

I.T.A No.1159/Chny/2019 :- 11 -: 17. We are of the clear opinion that once the property in question is used as business asset and the exclusive business of the assessee company or firm is to earn income by way of rental or lease money, then such rental income can be treated only as the 'Business Income of the Assessee' and not as 'Income from House Property'. The Heads of Income is divided in various six heads, including 'Income from House Property', which defines the specific source of earning such incomes. The income from house property is intended to be taxed under that head mainly if such income is earned out of idle property, which could earn the rental income by user thereof from the lessees. But, where the income from the same property in the form of lease rentals is the main source of business of the Assessee, which has its business exclusively or substantially in the form of earning of the rentals only from the Business Assets in the form of such landed properties, then, in our opinion, the more appropriate Head of Income applicable in such cases would be 'Income from Business'.”

of the constitutional Bench of the Hon’ble Supreme Court in the case of

Sultans Brothers (P.) Ltd. v. CIT [1964] 51 ITR 353 (SC) and

observed that where the income may have been derived from letting

out of the premises, it can be treated as business income, if letting out

of the premises itself is the business of the assessee. It is further

observed that whether the income from house property or business

income, it has to be decided based on the facts and circumstances of

each case. It is further observed that whether the income from same

property in the form of lease rentals, is the main source of business of

the assessee, which has its business exclusively or substantially in the

form of earning of the rental only from the business assets in the form

of such landed properties, then, in our opinion, the more appropriate

I.T.A No.1159/Chny/2019 :- 12 -: head of income applicable in such cases would be ‘income of

business’.

buildings and leased out the same for the purpose of business

therefore, the main object of the assessee itself is to carry the

business, the income arising out of such an activity has to be treated as

a business income.

Ltd. v. CIT (supra), has considered by the Hon’ble Jurisdiction High

Court in the above judgment and observed that where particular

income has to be determined whether it is income from house property

or business income it is depend upon the facts and circumstances of

the each case. In the present case, by considering the objects of the

assessee and also various other facilities provided by the assessee, we

are of the opinion that the income of the assessee has to be treated as

income from business and the decision of the Hon’ble Supreme Court

in the case of Raj Dadarkar & Associates Vs. ACIT (supra), has no

application to the facts of the present case.

Thiruvananthapuram v. Oberon Edifices & Estates (P.) Ltd.

I.T.A No.1159/Chny/2019 :- 13 -: (supra), has held that where primary intention of the assessee for

letting out the shops in a mall was commercial exploitation of the

property, income derived from the sale would be assessed as ‘income

from business’ not as ‘income from house property’.

Planet Interiors (P.) Ltd. (supra), has held that where the assessee

leased out shops in a mall along with various other facilities and

amenities, in view of the fact that it was not a case of giving shops on

rent simplicitor rather the assessee desired to enter into a business of

renting out commercial space to interested individuals and business

houses, amount received by the assessee from said activity was to be

brought to tax as a business income.

City Centre Mall Nashik (P.) Ltd. (supra), has held that where the

assessee leased out shops in a mall along with various other facilities

and amenities. In view of the fact that the assessee did not merely

intended to give shops on rent rather the assessee has intended to do

business of renting out commercial space to interested parties amount

received by the assessee was to brought to tax as a business income.

I.T.A No.1159/Chny/2019 :- 14 -: 18. We, therefore respectfully following the above judicial precedence and also by considering the facts and circumstances of the case, we are of the opinion that the income earned by the assessee by constructing the shopping mall and letting out the same by providing various facilities are amounting to business activity of the assessee and the income earned out of such an activity has to be treated as a business income. Further, the judgment of the Hon’ble Supreme Court in the case of Chennai Properties & Investments Ltd. v. CIT (supra), squarely applies to the facts of this case and the Ld. CIT(A) has rightly followed the same. Hence, we find no infirmity in the order passed by the Ld. CIT(A). Thus, the appeal filed by the Revenue is dismissed.

Order pronounced on 08th October, 2021 in Chennai.

Sd/- Sd/- (�ी जी मंजूनाथा) (वी दुगा� राव) (G. MANJUNATHA) (V. DURGA RAO) लेखा सद�/ACCOUNTANT MEMBER �ाियक सद�/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 08th October, 2021. EDN/- आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF