DCIT 3 (1)(1), MUMBAI vs. BANZAI ESTATES PVT. LTD., MUMBAI

Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in treating the rental income derived from letting out properties taken on lease from others as income assessable under the head "Income from House Property", without appreciating the fact that the assessee is following the business module of taking 3 properties on rent and sub-letting the same after furnishing & providing entire gamut of facilities associated with such properties to various parties which is nothing but a business venture and is assessable under the head "Income from Business"?

Briefly stated facts are that the assessee is engaged in the business of hiring and leasing of properties. The assessee declared the income from self-owned property situated at MBC Tower TTK road, Chennai as rental income at Rs 5,27,76,383/-. Apart from the above the assessee also declared rental income of Rs 4,24,83,179/- in respect of sub- letting of properties at (a) Chettiar Hall, TTK Road, Chennai (b) Ambature Anna Nagar, Chennai & (c) Creative Enclave, L.C. Road, Chennai, (d) Perungudi, Chennai at Rs. 5,27,76,383/- as profit and gains from business or profession and assessed under the same head. Whereas assessee declared the income from self-owned property situated at MBC Tower TTK road, Chennai as rental income under the head income from house property 5 as against the same the AO assessed this rental income under the head profits or gains from business or profession. The assessee preferred the appeal before CIT(A).

The CIT(A) after considering the facts of the case, confirmed the action of the AO in assessing the same as business receipts by observing in Para 3.2 to 3.4 as under. - “The facts of the case have been considered The appellant has shown rental income of Rs. 5,27,76,383/- in r/o the various premises (at MBC Towers, Chennai) given to various parties as per the Annexure 'A' enclosed. It has also shown the amenities charges from these various parties amounting to Rs. 1,69,86,453/- as per details in the Annexure 'A' During the course of appellate proceedings, the appellant was asked to produce the fixed assets register in r/o furniture and fixtures, Air Conditioners, electrical installations provided to the various parties as mentioned in Annexure 'A' enclosed. However, the appellant has failed to produce the fixed assets register. The appellant has also failed to produce the list of furniture and fixture, ACs, electrical installations provided to the respective various parties against which the amenities charges have been received the 6 basis of calculating the amenities charges separately Without prejudice, in fact, the premises given to various parties in the aforesaid building are being run basically as call centres for which composite services by way of furniture and fixtures, AC, electrical installations are required over and above the premises given. It is apparent that composite receipt has been divided under Sham Agreements as Rental charges and Amenities charges. By dividing the composite charges as Rental charges and Amenities charges; under the Sham Agreements -the appellant is able to claim Statutory allowance u/s 24 under the Head 'Income from House property' over and above the routine business expenses debited to P&L A/c.”

We have heard the rival contentions and gone through the facts and circumstances of the case. Admittedly, the assessee is the owner of the property situated at MBC Tower TTK road, Chennai. The assessee has declared rental income from this house property under the head “Income from House Property”. The Assessee consistently offering the income from this property as rental income under the head income from house property and in earlier years the Revenue was accepting the same as income from house property. The assessee before us filed copies of assessment order in assessee’s own case framed under section 143(3) of the Act for AY 2005-06, 2006-07 and 2007-08 wherein, the return declared under the head income from the 8 house property has been accepted as it is. The assessee before the AO explained that it is showing rental income in respect to self-owned property situated at MBC Tower TTK road, Chennai under the head income from house property and in respect to the properties taken on sub-lease or sub-letting other, in those cases the above properties from which the assessee is offering income from business being property on lease. The AO was not convinced and he assessed the income under the head property and gains from business or profession instead of income from housing property. We find that consistently Revenue is accepted the income from this property i.e. MBC Tower TTK road, Chennai as income from house property. But suddenly, in these three assessment years, now before us the Revenue has changed the head of income from income from house property to income from profits or gains from business or profession without any valid reason. We find that now, Hon’ble Supreme Court in the case of Raj Dadarkar & Associates vs. ACIT [2017] 81 taxmann.com 193 (SC) has clearly held that in case the provisions of Section 22 are applicable the property is to be assessed as income from house property.

Hon’ble Supreme Court has also validated the decision of Shambu Investment Pvt. Ltd. vs. CIT

In the given facts and circumstances and the decision of Hon’ble Supreme Court in the case of Raj Dadarkar & Associates (supra), respectfully following the same, we allow the claim of the assessee and direct the AO to assessee the rental income situated at MBC Tower TTK road, Chennai as income from house property, and consequential deductions in respect to interest on borrowed capital, building insurance, Municipal Tax and repair maintenance charges is to be allowed. The AO is directed accordingly.