MEGA VENTURE DEVELOPERS P.LTD,MUMBAI vs. DCIT 5(2), MUMBAI

The facts of the case are that the assessee filed its return of income on 30.9.2011 declaring total income of Rs.94,86,773/-. Thereafter the case of the assessee was selected under CASS and statutory notices under section 143(2) and 142(1) were issued and served upon the assessee. The assessee was carrying on the business of real estate including that of leasing out its properties besides having a consultancy division. The assessee received income from house properties to the tune of Rs.2,22,61,129/- comprising rental from premises, car parking and Rs. 91,01,461/- as income by way of lease from amenities and infrastructure provided in the premises and were accordingly shown as income from “house Property “ and from “business” respectively in the return of income filed in consonance with earlier years. The AO vide order sheet entry dated 15.1.2014 asked the assessee to explain as to why the income from amenities and infrastructure should not be taxed under the head “income from house property” in place of business income which was replied by the assessee vide letter dated 20.1.2014. The AO was not satisfied with the explanation of the assessee and treated the income from amenities and infrastructure as income from house property by noting that the assessee might have entered into separate agreements for showing receipt of income from property and amenities separately but that did not change the character of these receipts. Accordingly to the AO there was no business exploitation in providing amenities and infrastructure and consequently disallowed the claim of depreciation by framing assessment under section 3 143(3) of the Act assessing the total income at Rs.143,08,570/-. In arriving at this conclusion the assessing officer placed reliance on the decision of Hon’ble Apex Court in the case of Shambhu Investment Ltd V/s CIT reported in 273 ITR 143(SC).

Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A), who after considering the relevant contentions and on perusal of the record available before him upheld the action of the AO by observing and holding as under (para 5.1): “5.1 I have carefully considered the facts and circumstances of the case, statement of facts, relevant assessment order, written submission, relied upon case laws and the arguments made by the LAR before the undersigned. The only substantive issue in this appeal is regarding the treatment of income of rent from the property of the appellant company. The AO has treated the same as income from house property on the ground that during the year under consideration the appellant has earned income only from letting out its property to other persons, therefore, the income earned by it is taxable under the head income from house property. On the other hand, it is the claim of the appellant that the income from the amenities an infrastructure etc. should be held as business income. After considering the rival submission, I do not agree with the contention of the appellant, primarily because the facts of the case under consideration shows that the income earned by the appellant from the property during the year under consideration have come primarily from exploitation of the property of the appellant , which cannot be held as business income of the appellant, in view of the decisions of the Hon’ble Apex Court in the case of National Storage 66 ITR 596 (SC) as well as in the case of M/s Shambhu Investment Pvt Ltd 116 Taxmann 795 (Cal), wherein it was held that when the primary object of the assessee is exploitation of the property by letting it out to others, then income earned will be taxable as income from house property. Income from letting out of the property can only be held as business income if the immovable property is exploited by way of complex commercial activities. If we apply the aforesaid test laid down by the Hori'ble Supreme Court in the instant case, it is noted 4 ITA No.2381/Mum2015 that during the year the appellant has simply let out the property alongwith some furniture and fixtures etc. to other parties without involving himself in any complex commercial activities, therefore, under these circumstances, the AO has correctly taxed the entire income under the head house property.“

Aggrieved by the order of the ld.CIT(A) the assessee is in appeal before this Tribunal. Before us the ld.AR submitted that the lower authorities have miserably failed to appreciate the facts in correct perspective as the assessee was in the business of real estate including letting out properties and other items of furniture and plant & machinery and accordingly entered into separate agreements for letting out of premises as well as letting out other amenities and infrastructures. The income from letting properties was shown as income from house property whereas the income from letting out amenities and infrastructures was shown as income from business after claiming the deduction of depreciation. The ld. AR submitted before us that in the earlier years the income has been accepted by the department as returned by the assessee in variance to the stand of the revenue in the current assessment year. During the year, the ld.AR took us through the list of amenities and facilities which interalia included CC TV Cameras with DVR and recording systems, cabin furniture, workstation (tables) conference table, EPBA Box and condition system. In defense of his arguments, the ld.AR placed reliance in the case of Chennai Properties & Investments Ltd vs. CIT (Supreme Court) reported in [2015] 373 ITR 673 (SC) and prayed that the actions of the lower authorities should be reversed and the AO should be

On the other hand, the ld. DR, while objecting the arguments of the ld.AR submitted that the assessee in order to circumvent various provisions of law entered into two separate agreements in order to show the income under different heads viz income from house property and income from from business. The DR submitted that the AO rightly treated the said income as income from property and rightly confirmed by FAA. Finally he requested the bench to uphold the orders of FAA.

We have carefully considered the rival contentions and perused the material placed before us including the orders of the authorities below and the case laws relied upon by the rival parties. We find that the assessee has entered into two separate agreements. One for renting out the premises and another for leasing the infrastructure and amenities which included the air conditioners, plant and machinery and furniture etc, the income from which was shown as business income after claiming depreciation on the said items and expenses connected therewith. The reliance was placed by the AO in the case of M/s Shambhu Investment Pvt Ltd (supra) for supporting his treatment by rejecting the contention of the assessee and treated the same as income from house property which was also upheld by the FAA whereas the ld.AR vehemently submitted that the income has been assessed under separate heads in the earlier years also 6 and the stand of the department is against the principle of consistency. In our opinion, the order of the ld. CIT(A) in upholding the assessment order appears to be incorrect as the assessee’s business was to lease out its properties and to deal in real estates assets.In our opinion, the income from infrastructures which interalia included CC TV Cameras with DVR and recording systems, cabin furniture, workstation (tables) conference table, EPBA Box and condition system should be treated as income from business and not from property. The case of the assessee also finds support from the decision in the case of Chennai Properties & Investments Ltd vs. CIT(supra), wherein the Hon’ble Supreme Court has held as under:

11. We are conscious of the aforesaid dicta laid down in the Constitution Bench judgment. It is for this reason, we have, at the beginning of this judgment, stated the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee. The assessee therefore, rightly disclosed the income under the Head Income from Business. It cannot be treated as 'income from the house property'. We, accordingly, allow this appeal and set aside the judgment of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as to costs.