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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)
The assessee has filed this appeal challenging the order dated 01-10-2014 passed by Ld CIT(A)-9, Mumbai and it relates to the assessment year 2008-09. The assessee is aggrieved by the decision of Ld CIT(A) in upholding the action of the AO in assessing the income received towards provision of amenities under the head Income from house property.
The assessee owned a two storey building at MIDC, Andheri and the same has been let out to Fullerton India Ltd on leave and licence basis. The assessee entered into two agreements with its tenant, one for letting out the premises and the other one for providing various amenities, such as security services, car parking, pantry service, maintenance of building, incurring electricity expenses and receiving reimbursement of the same. The assessee offered rental income under the head Income from House property and the income received towards amenities as Business income. The AO assessed the income received towards
2 M/s. Star Gold Pvt. Ltd. amenities also under the head Income from house property. The Ld CIT(A) confirmed the same and hence the assessee has filed this appeal.
The Ld A.R submitted that the return of income pertaining to AY 2009-10 was taken up for scrutiny and the assessing officer has disallowed only the depreciation claimed on the building. He submitted that the AO did not disturb the business income declared by the assessee. He submitted that the same treatment was accepted in AY 2010-11 and 2011-12 also. He submitted that the AO has disturbed the return of income of the assessee in respect of receipts towards amenities in AY 2008-09 only. He submitted that under the principle of consistency, the AO should have assessed the receipts towards amenities as business income. He submitted that the assessee has been providing various amenities to its tenant and hence the receipts towards amenities should be assessed as business income.
On the contrary, the ld D.R submitted that the assessee has let out entire building to only one company. He submitted that the assessee has only split the rental agreement into two different agreements. He submitted that the amenities that have been claimed to have been provided is only usual one attached with every building. He submitted that the Ld CIT(A) has followed the decision rendered by the Hon’ble Supreme Court in the case of National Storate (66 ITR 596) and Shambu Investments Pvt Ltd (116 Taxmann 795) to decide this issue against the assessee. He further submitted that the principles of res- judicata shall not be applicable to Income tax proceedings and hence the view taken by the AO in AY 2009-10 to 2011-12 shall not be binding on him, particularly when he is following the decision rendered by the Hon’ble Supreme Court.
3 M/s. Star Gold Pvt. Ltd.
I have heard rival contentions and perused the record. I notice that the Ld CIT(A) has considered this issue and has decided as under:-
Ground Nos. 1 & 2 are regarding the treatment of income of rent from the immoveable 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 along with some furniture and fixtures 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 amenities be treated as business income and only part income of rent be treated as income from house property. Therefore, it was pleaded that at least the income from the amenities etc. should be held as business income. After considering the rival submission, I do not agree with the contention of the appellant, primarily because throughout the year the premises was let out to other parties. It is, therefore, seen that the entire income earned by the appellant from the properties in question during the year under consideration have come from exploitation of the immovable property of the appellant, which cannot he 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 Investments 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 Hon'ble Supreme Court in the instant case, it is noted that during the year the appellant has simply let out the property to other parties without involving himself in any complex commercial activities, therefore, under these circumstances, the AO has correctly taxed the income under the head house property. It is immaterial if the property was rented out as a bare property or it also include some furniture and fixtures along with the property so that it can fetch higher rent. It is also immaterial if the appellant has shown rental income in one head or separate heads i.e. rent for property and amenity. Since the primary object is to earn rent by exploitation of property with some assets in form of furniture and fixtures, the AO has correctly axed in as income from house property. The action of the A.O. is confirmed.
I further notice that the assessee has let out the two storey building to only one tenant. The nature of amenities claimed to have been provided consisted of security services, building maintenance, car parking facility, pantry
4 M/s. Star Gold Pvt. Ltd. services. The electricity expenses incurred by the assessee are being reimbursed by the tenant. I notice that the security services and pantry services are not germane to the letting of building, but other services are part and parcel of letting of building. Hence the decision rendered by the Hon’ble Supreme court in the case of Shambu Investments (supra) shall squarely apply to the assessee. I also agree with the Ld D.R that the principle of res-judicata shall not apply to income tax proceedings.
Accordingly I am of the view that the predominantly, the receipts towards amenities are to be considered as part of rental income only. However, as stated earlier, the expenses incurred towards security services and pantry services are not connected to the rental income and hence they should be deducted from the receipts towards amenities. Accordingly the only net receipts after deduction of above said income should be considered as part of rental receipts. I order accordingly.