KAVITA MARKETING P.LTD,MUMBAI vs. ITO WD 5(2)(2), MUMBAI

The captioned appeal filed by the assessee pertaining to assessment year 2010-11 is directed against an order passed by CIT(A)- 7, Mumbai dated 21/11/2014, which in turn arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) dated 19/03/2013.

“6. We have carefully considered the rival submissions. Quite clearly, there can be no dispute to the proposition that income derived from mere letting out of property is liable to be assessed only under the head “income from house property”. Thus, there is no dispute between assessee and the Revenue with regard to the rental receipts of Rs.13,80,000/-, which have been received for letting out the property. So however, the position canvassed by the assessee is that apart from letting out of property, it is also rendering certain services to the tenant by providing specific services on account of house-keeping, security, etc. Assessee has also pointed out that the ‘facility service charges’ earned by it also require outgoings also inasmuch as it had hired services providers for the same. Quite clearly, the providing of such services do not show that the income by way of ‘facility service charges’ can be said to be derived from mere ownership of the property. For this reason, the stand of the assessee is that income from such services is liable to be treated as ‘business income’. In this connection, it would be relevant to refer to the judgment of the Hon’ble Gujarat High Court in the case of Sarabhai (P) Ltd., which lays down that if the owner of a property carries on upon the property some activities which results in profits and gains arising, not from the ownership but from use thereof, such profit and gains would be chargeable to tax as ‘business income’ and not income under the head income from House Property’. In fact, in the case before Hon’ble Gujarat High Court, assessee was owner of the property, which was let out to the tenants. Apart from letting out, assessee was also rendering certain services by providing various amenities for which amount was being separately earned. The Hon’ble High Court held that amount received from the tenants as ‘rent’ for letting of the property was assessable under section 22 of the Act as “income from house property” and the other receipts in respect of the services rendered to the tenants was liable to be assessed under section 28 of the Act as ‘business profits’. In our view, the ratio laid down by the Hon’ble Gujarat High Court in the case of Sarabhai (P) Ltd.(supra) covers the instant situation. Undisputedly, the ‘facility service charges’ are being received by the assessee in return of providing specific services like house-keeping, security, etc. To the similar effect is also the judgment of the Hon’ble Madras High Court in the case of A.K.Complex (supra), which was relied upon by the assessee before us. The argument of the Revenue that services rendered by the assessee are not of special nature, and they are of routine nature expected to be provided by the Landlord, is of no consequence to decide the controversy in question. This is for the reason that factually it has not been disputed by the Revenue that services by way of house-keeping, security, etc. have been rendered by the assessee. Moreover, it has to be deciphered on the basis of terms and conditions in each case as to the nature of the services that may be provided by the owner of property to its tenants to decide as to whether they are distinct from an activity which is merely because of ownership of the property. In the present case, it is quite evident that the said services are distinct from letting out of the property and, therefore, assessee is justified in asserting that the same be taxed as ‘business income’. Thus, on this aspect, we set-aside the order of the CIT(A) and direct the Assessing Officer to recompute the income in view of the aforesaid directions. In the result, on this ground assessee succeeds.”

4.1 Following the aforesaid precedent, which has been rendered under identical circumstances, in this year too, the Assessing Officer is directed to recompute the income by treating the facility charges received of Rs.9.60 lacs as income from business and profession.

10. We have carefully considered the rival submissions. At pages 58 - 64 of the Paper Book, copies of Balance sheet and P&L Account for the year under consideration have been placed. Schedule –8 of the P&L Account pertaining to administrative expenses reveal that various expenses on account of repairs and maintenance, filing fee, post and telegraph, bank charges, accounting charges, audit fee, etc. have been debited apart from expenses incurred on house-keeping and security charges, with which we have dealt with in the earlier part of this order. In our view, the Assessing Officer has mechanically disallowed the entire expenditure without appreciating that certain bare minimum expenses are liable to be incurred by the assessee company in order to maintain its status of a corporate body, as noted by our Co- ordinate Bench in the case of Preimus Investment & Finance Ltd. (supra) based on the judgment of Hon’ble Allahabad High Court in the case .of Rampur Timber & Turnery Co.Ltd. Therefore, we deem it fit and proper to restore the matter back to the file of Assessing Officer in order to examine the allowability of expenditure afresh in the aforesaid light and thereafter recompute the income of the assessee. Thus, on this issue the assessee succeeds for statistical purposes.

5.1 Following the aforesaid precedent, in this year too, the Assessing Officer is directed to examine the allowability of expenditure afresh in the light of the directions of the Tribunal dated 15/06/2016 (supra).