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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI G.S. PANNU, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 12.12.2014 passed by the Commissioner of Income Tax (Appeals) -17, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2011- 12.
The revenue has raised the following grounds: - "1 "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the rental receipts as Business Receipts without considering that the assessee has received the rent for allowing user of the A.Y.2011-12 property and not for carrying out any systematic activity which is the precondition for business, 2 "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the rental receipts as Business Receipts without considering that the assessee was providing security system, cleaning and maintenance, lighting, repair and maintenance of lifts, provision and management of parking space, firefighting equipment and insurance of the property as per Annexure A of the rent agreement, which represent running and maintenance expenses for the property and regular amenities and facilities for occupants including tenants/1 3 "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the rental receipts as Business Receipts by relying on the decision of the Bombay High Court in the case of CIT Vs. Renewal Developers Pvt, Ltd. without appreciating that in the case cited supra, business conducting fees and business facility charges from the occupants were treated as rent and held taxable under the head income from house property and hence, the reliance is misplaced. 4 'Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the rental receipts as Business Receipts by relying on the decision of the ITAT in the case of M/s. Krishna Land Developers Pvt, Ltd. without appreciating that the facts of the said case are completely distinguishable from the facts of the present case as in that case the issue was whether rental receipts of STP are eligible for deduction u/s.80IA(4)(iii) of the act 5 "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the rental income from the business income by referring to the s specifications of the structure and amenities without appreciating that such amenities have been provided by the assessee as the gilding is a commercial complex which is being commercially exploited by the tenant and not by the assessee. 6 "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the interest paid on amount borrowed from the purpose of motor car without appreciating that the Department has not accepted the Ld. CIT(A) decision to treat the income received from ITA No. 1247/M/2015 A.Y.2011-12 letting out of property as business income and therefore, no deduction of interest paid on amount borrowed for motor car can be allowed. 7 Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding interest on fixed deposits kept with the bank as business receipts without appreciating that the interest receipt on fixed deposits have no immediate nexus with the assessee’s business.”
3. The brief facts of the case are that the assessee filed its return of income on 29.09.2011 declaring loss to the tune of Rs.27,37,177/- under the normal provision of the Act and Book profit to the tune of Rs.4,12,674/- u/s 115JB of the Act. The return was processed u/s 143(1) of the I.T. Act, 1961. Thereafter, the case was selected for scrutiny and notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company was engaged in providing premises on lease rental in the relevant assessment year. The assessee company continued to the Lessor for commercial premises known as Nucleus located at Pune, Leased to Shoppers’ Stop Limited. The assessee received the lease rent to the tune of Rs.2,63,83,812/- and claimed as business income. The assessee also claimed the depreciation and various other expenses. The Assessing Officer treated the said rental income as income from house property and assessed the income of the assessee to the tune of Rs.55,00932/-. Feeling aggrieved, the assessee an appeal before the CIT(A) who treated the said income as business income, therefore, the revenue has filed the present appeal before us.
4. All the issues are in connection with treatment of the income of the assessee as business income by the CIT(A). The Ld. Representative of the A.Y.2011-12 revenue has argued that the assessee derived his income from leasing out of his property, therefore, the Assessing Officer has rightly treated the income from house property which has wrongly treated by the CIT(A) as income from business. Therefore, in the said circumstances, the finding of the CIT(A) is liable to be set aside. However, on the other hand, the Ld. Representative of the assessee has refuted the said contention. On appraisal of the finding of the CIT(A), we noticed that the CIT(A) has allowed the claim of the assessee on the basis of the decision delivered by his predecessor in the earlier assessment year of the assessee i.e. for the A.Y. 2010-11. The relevant finding has been given in below.:-
“ 1.3. I have carefully considered the submissions and contention of the Ld. AR of the appellant and also carefully gone through the facts and records. I find that similar issue arose for the consideration of my Ld. Predecessor in the earlier years who vide his order No. CIT(A)/IT-44 & 47/2012-13, date 07.01.2013 allowed the ground of appeal
. The Ld AO has followed his earlier orders and facts remaining same, I find no reason to differ from the material finding given by my Ld. Predecessor. Respectfully following the orders of my Ld. Predecessors in the appellant’s own case, the Ld. AO is directed to allow the claim of the appellant. This ground of appeal is thus allowed.”
5. It is also contended by Ld. Representative of the assessee that the matter of controversy has been adjudicated by the Hon’ble ITAT in the assessee’s own case for the different assessment year. However, finally the matter has been adjudicated by the ITAT in the assessee’s own case for the A.Y. 2010-11 in dated 13.11.2017, therefore, in the said circumstances, the appeal of the revenue is liable to be dismissed. Before going further, we deemed it necessary to advert the finding of the Hon’ble ITAT in the assessee’s own case for the A.Y. 2010-11 dated 13.11.2017.:-
ITA No. 1247/M/2015 A.Y.2011-12 “We have considered the submissions of the Ld. A.R of the assessee and perused the order of co-ordinate Bench of the Tribunal for A.Y. 2006-07 to 2009-10 in 1990 & 1991/Mum/2013 dated 23.09.2015 in assessee’s its own case. The coordinate bench of the Tribunal has passed the following order:- “6. We have heard the rival contentions and have also gone through the records. We find that the Ld. CIT(A) has discussed in detail the nature of activities of the assessee and thereafter has examined the facts of the case of the assessee in the light of the various judicial decisions of the higher authorities as reproduced above. He has rightly observed that it was not a simple case of letting out of the property. The premises in question was specially designed to be operated as a commercial complex with lot of amenities and facilities attached to it, which activity was a part of the objects of the assessee company as provided in the memorandum of association of the company. The Ld. CIT(A) has observed that the main intention of the assessee in this case was to exploit the property by way of complex commercial activities. The assessee had been offering complex services by way of providing amenities such as infrastructure facilities, excalators, power back- up, central Air- conditioning, lifts, maintenance of the common area and maintenance of a whole lot of other facilities. The Ld. CIT(A) has listed the various facilities and amenities offered by the assessee to the occupants in the relevant part of his order as reproduced above.. The Ld. CIT(A) has also observed that the amount towards maintenance of the premises and the facilities was paid in advance by the assessee and in fact had made contribution to the corpus of the maintenance of the fund. After analyzing the entire lease agreement and the details of the services and amenities offered by the assessee he arrived at a conclusion that the entire activity was carried out by the assessee in an organized manner as business venture with many day to day activities being carried out by the assessee. The intention of the assessee was to exploit the commercial asset and not the property alone. The services and amenities provided by the assessee company were inseparable.
It has been time and again held by the various judicial authorities that merely because income was attached to a property it could not be a sole factor for assessing such income as income from house property. It has to be seen that whether it was the primary objective of the assessee to exploit the property in a ITA No. 1247/M/2015 A.Y.2011-12 simple manner or to exploit it commercially by way of complex commercial activities to generate income. The assessee in this case has developed the shopping mall and has let out the same by providing host of services/facilities/amenities and the basic intention of the assessee has been to commercially exploit the property. Therefore, the income derived from the shopping mall is liable to be assessed as business income. It is an undisputed fact that in the memorandum of association of company, some of the main objects of the company inter alia are to purchase, acquire, take on lease etc. an area, land, building structure and to develop and maintain the same as markets or other buildings, residential and commercial or convinces, drainage facility, electric, telephonic, television installations and to deal with the same in any manner whatsoever, to construct, erect, build, let out building structures, high tech parks, houses, apartments, hospitals etc. It is also mentioned in the main objects of the company to carry on the business of the builder to develop the properties by construction of multistoried commercial complex and to grant the same on lease or license or to sale or otherwise dispose of the properties so constructed and also to manage and maintain the properties so constructed. When as per the memorandum of association of the company the main object of the company was to to purchase and acquire and develop the property and to give the same on lease or license basis along with complex commercial activities then the company was justified in declaring its income from such property as business income. The intention of the assessee was to commercially exploit the property by way of complex activities as per its main objects. The otherwise undisputed facts of the case are that the assessee the rental income from leasing of the premises include substantial income from providing amenities and facilities. Such facilities are not the basic facilities required for occupation or renting of a building or premises, but these are the special facilities for running of the multiplex/ shopping mall etc. and are meant to attract the customers and provide comfort of shopping to them. These facilities can not be said to be basic/normal facilities required for occupation of the premises. Not only the cost of common facilities has been embedded in the lease rentals but also the substantial amount on account of providing amenities/facilities to the occupants/tenants. The assessee’s activity thus can not be said to be mere letting of the building owned by it but its activity is a business activity of construction of mall, maintaining it, leasing the shops/ area for the purpose of commercial exploitation of the A.Y.2011-12 asset, arrange and provide the facilities and amenities not only to the occupants/lessees but also to provide and maintain facilities and amenities in the common areas for the attraction, convenience and comfort of the customers/visitors. In our view, as per the modern day trends of retail business and customer preferences, not only the quantum of rent/income from the multiplex but also the very letting of the premises depends upon the provisions of facilities and amenities provided taking into consideration not only the need and requirements of the business entities/occupants but also the comfort zone of the customers/visitors. The Ld. A.R. of the assessee in this respect has explained that the rental income received by the assessee from letting out the commercial complex along with amenities was very high in comparison to the ordinary letting off of any building. He has explained that for an investment of about Rs.25 crores the assessee was getting the rental income of Rs.2.5 crores which was much more than the income that can be failed from ordinary letting of the building. The assessee had made high investments for equipments and infrastructure for providing the amenities. He has further explained that in the case of the sister concern of the assessee M/s. Khandelwal Estate Pvt. Ltd., under similar circumstances, the rental income has been held to be as business income by the Tribunal vide order dated 07.02.2014 passed in ITA No.2692/M/2010. He has further invited our attention to the balance sheet of the assessee to show that the assessee had borrowed huge funds for the construction and development of the commercial complex which activity was not like that of an ordinary owner of the property who lets out the same for earning rental income but the same was an organized, planned activity to construct the shopping mall, provide the infrastructure and related amenities and to exploit the same commercially. In an ordinary letting no one will borrow such a huge amount just to let out the property for earning rental income which generally does not give appropriate returns as compared to the investments. In this case, the assessee had taken huge risk of borrowings and loss which was tempted by the expectations of high returns and the same cannot be said to be ordinary letting of the house property. The activity of construction o multiplex its maintenance and providing amenities and facilities therein, thus can not be said to be mere letting out of the property but in our view is a composite business activity.
ITA No. 1247/M/2015 A.Y.2011-12
The Honble Supreme Court in the case of Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 has laid down the precise tests that are necessary to determine whether the services rendered by an assessee to its tenants/recipients of service, are in the nature of business activities and income generated therefrom assessable as business income, or not. The Hon’ble supreme Court has expressed the view that if the services rendered by the assessee are the results of its activities carried on continuously in an organized manner, with a set purpose and with a view to earn profits, those activities would constitute business activities and the income arising therefrom would be assessable as business income under section 28 of the Act. The activities of the assessee in this case in providing the various services/facilities/amenities meet all the aforesaid four requirements laid down by Honble Supreme Court to qualify as business activities.
In a very recent judgment, the Hon’ble Supreme Court in the case of ‘Chennai Properties & Investment Ltd.’ [2015] 373 ITR 673(SC) has noted that in its (Supreme court) earlier Judgment in the case of ‘Karanpura Development Co. Ltd. Vs. CIT’’ 44 ITR 362 (SC), the position of law on this issue has been summed up in the following words: - As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The diving line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned. & quot; The Hon'ble Supreme Court thus has emphasized the professed objects and the manner of activities carried out by an assessee. It has also been pointed out that the nature of dealings with the property would also be factor to determine whether the activities fall for consideration under the head business income; or quot house property income The Hon’ble Supreme Court thus noticed the aforesaid principle and applied the same to the facts of the case before it. The facts of the case before the Hon’ble Supreme Court were that as per the memorandum of association, the main objects of the appellant company was to acquire and hold the A.Y.2011-12 properties known as “Chennai House” and “Firhavin Estate” both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other properties or any interest therein. In the return that was filed, the entire income which accrued and was assessed in the said return was from letting out of those properties. The Hon’ble Supreme Court while relying upon its the various other decisions held that in such a case the irresistible conclusion would be that the letting of the properties was in fact the business of the assessee and the income arising therefrom was to be treated under the head “Income from Business” and that it cannot be treated as income from House Property. What the Hon’ble Supreme Court emphasized upon was that the holding the aforesaid properties and earning income by letting out those properties was the main objective of the company. The facts of the case of the assessee before us are on better footings. The assessee’s objects are not in respect of letting of any particular property, but it has the main objects of acquiring, constructing, operating and maintaining of the multiplexes, business center, I.T. Parks, software zones, commercial & residential complexes and to grant the same on lease/license also. The very object is the commercially exploitation of the properties. Besides that the assessee is also providing hosts of amenities and facilities, as discussed above, which amounts to composite business activity. Thus the issue is squarely covered in favour of the assessee by the above noted decisions of the Hon’ble Supreme Court. We therefore hold that the income/loss from the multiplex is liable to be assessed as ‘business income/loss and not as income from house property. The assessee consequently is also entitled to the claim of deductions in respect of expenditure incurred and depreciation on assets etc. in relation to such income. Hence, we do not find any reason to deviate from the findings recorded by the Ld. CIT(A) on this issue.” 2.2. Considering the decision of the Coordinate Bench of the Tribunal in assessee’s own case for Assessment Years 2006-07 to 2009-10, order dated 23/09/2015, we find that the issue raised by the Revenue is squarely covered in favour of the assessee. The objection raised by ld DR has already been dealt with by the coordinate bench of the Tribunal. Hence, respectfully following the order of the Tribunal, grounds raised by the Revenue, is dismissed.
ITA No. 1247/M/2015 A.Y.2011-12
The Hon’ble ITAT has already adjudicated the matter of controversy for the earlier year in the assessee’s own case in which the income of the assessee has been treated as income from the business. The facts are not distinguishable at this stage also. The objects and business of the assessee is also the same. Therefore, in the said circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, these issues are decided in favour of the assessee against the revenue.