DCIT, CHENNAI vs. KEYARAM HOTEL PVT. LTD., CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

I.T.A. No.402/Mds/2013 is filed by the Revenue for the

assessment year 2003-04 and other appeals, viz. I.T.A.

No.1095/Mds/2014, I.T.A. Nos.2215 & 2216/Mds/2015 are filed by

the assessee for assessment years 2010-11, 2006-07 and 2009-10.

Since common issue arises for consideration in all these appeals,

we heard these appeals together and disposing of the same by this

common order.

that the assessee-company is a joint owner of a commercial

complex. According to the Ld. counsel, the assessee let out the

commercial complex along with amenities to various persons and

received rental income and charges for amenities. In the earlier

assessment year, the assessee claimed the entire income as

income from business. However, the Assessing Officer classified

the entire rental income as income from house property. On further

appeal, the same was also confirmed by this Tribunal and the High

Court. In fact, for the assessment year 2001-02, the Madras High

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Court in Keyaram Hotels P. Ltd. v. ACIT (2008) 300 ITR 118

confirmed the order of this Tribunal by holding that the entire rental

income is income from house property. The Madras High Court

placed its reliance on the earlier Division Bench judgment in CIT v.

Chennai Properties and Investments Ltd. (2004) 266 ITR 685. For

the assessment years 2004-05, 2005-06, 2007-08 and 2008-09, the

matter again came before the High Court in Keyaram Hotels Pvt.

Ltd. v. DCIT (2015) 373 ITR 494 and by placing reliance on Chennai

Properties and Investments Ltd. (supra) and on the assessee's own

case for assessment year 2001-02 (supra), the High Court

confirmed the order of this Tribunal by holding that the entire rental

income has to be assessed as income from house property.

According to the Ld. counsel, the basis for the High Court‘s

judgment for earlier assessment year in the assessee's own case is

the judgment of Division Bench of Madras High Court in Chennai

Properties and Investments Ltd. (supra). Now, the Apex Court in

Chennai Properties and Investments Ltd. v. CIT (2015) 373 ITR 673

reversed the judgment of Madras High Court in Chennai Properties

and Investments Ltd. (supra). Therefore, the judgment of Madras

High Court is not applicable to the facts of the case. For the

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assessment year 2003-04, when the matter came before this

Tribunal, it was remitted back to the file of the Assessing Officer for

consideration of activity of the assessee with regard to other

services, namely, maintenance of the building, day-to-day

requirements, maintenance of lift, common facilities, security, etc.

This Tribunal placed its reliance on the judgment of Kerala High

Court in Attukal Shopping Complex P. Ltd. v. CIT (2003) 259 ITR

assessee, again found that the income has to be assessed as

income from house property. On appeal before the CIT(Appeals),

the CIT(Appeals) found that the assessee has not just let out the

property, but undertaken to maintain the same by providing

indispensable amenities. Therefore, the assessee has to make

compulsory expenditure in day-to-day maintenance of amenities

provided and security system, etc. The CIT(Appeals) further found

that the assessee itself accepted 75% of the total rental income as

income from house property and the balance 25% was claimed as

income from business. Accordingly, the CIT(Appeals) for the

assessment year 2003-04 found that 75% of the rental receipt as

income from house property and the balance 25% was claimed as

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income from business. Against this order of the CIT(Appeals), for

the assessment year 2003-04, the Revenue has filed the appeal.

2009-10, the CIT(Appeals) confirmed the order of the Assessing

Officer holding that the rental income from letting out the

commercial complex, including the amenities, is assessable under

the head “income from house property” and not under the head

“business income”. Against these orders of the CIT(Appeals), the

assessee has also filed appeals.

that the assessee let out a luxurious commercial complex along with

several amenities. Referring to the copies of the lease deed, the

Ld.counsel submitted that the assessee has not only provided lift to

the building but it also has to maintain the lift. The assessee is

providing internal security to the building, regulating the car parking

and also taking care of day-to-day maintenance. Therefore, apart

from letting out the building, the assessee has to be systematically

engaged in managing the amenities such as security services,

common area maintenance, lift operation, maintenance of meeting

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room, reading room and waiting room, etc. These facilities are to be

undertaken in a systematic manner, therefore, according to the Ld.

counsel, part of the rental income has to be considered as income

from business. Without providing these services in a systematic

and routine manner, the tenants would not have taken the building

on lease. The expenditure claimed by the assessee on day-to-day

maintenance in a systematic manner cannot be considered as part

of the rental income. Therefore, the CIT(Appeals) for the

assessment year 2003-04, rightly accepted the case of the

assessee that 75% of the rental income is from house property and

the balance 25% of the rental income as income from business.

Therefore, according to the Ld. counsel, the CIT(Appeals), for the

assessment year 2010-11, 2006-07 and 2009-10, is not correct in

holding that the entire rental income is income from house property.

assessee's own case for assessment year 2001-02 and for

assessment years 2004-05, 2005-06, 2007-08 and 2008-09, the

Ld.counsel submitted that the basis for the judgments of Madras

High Court is the judgment of Division Bench in Chennai Properties

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and Investments Ltd. (supra). The Apex Court examined the

correctness of the judgment of Madras High Court in Chennai

Properties and Investments Ltd. v. CIT (2015) 373 ITR 673 and

found that the deciding factor is not the ownership of the land or

leases but the nature of the activity of the assessee and the nature

of the operations in relation to them. After referring to the

judgments of Privy Council and the judgment of Apex Court in

Karanpura Development Co. Ltd. v. CIT (1962) 44 ITR 362, the

Apex Court found that income from letting out the commercial

complex was the business of the assessee. Therefore, the rental

income has to be assessed as income from business. In view of

this judgment of Apex Court, according to the Ld. counsel, the

earlier judgments of Madras High Court in the assessee's own case

for assessment year 2001-02 and 2004-05, 2005-06, 2007-08 and

2008-09 are not applicable to the facts of this case.

Representative, submitted that the assessee let out the commercial

complex to various persons and receiving rental income. The

assessee claimed in the earlier assessment year the entire rental

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income as income from business. The Assessing Officer, however,

rejected the claim of the assessee and found that the entire rental

income has to be assessed as income from house property. The

decision of the Assessing Officer was confirmed by the Tribunal and

the High Court for the assessment year 2001-02. The order of this

Tribunal for assessment year 2001-02 was also further confirmed by

the Madras High Court. Similarly, for assessment years 2004-05,

2005-06, 2007-08 and 2008-09, the Madras High Court confirmed

the decision of this Tribunal, holding that the entire rental income

has to be assessed as income from house property. For the

assessment year 2003-04, this Tribunal, however, found that the

assessee, apart from letting out the property and collecting rent,

provides services such as general public refreshments,

maintenance of waiting room, reading room, meeting room and

other conveniences, internal security, maintenance of common area

and lift operation. Therefore, by placing reliance on the judgment of

Kerala High Court in Attukal Shopping Complex P. Ltd. (supra), the

Tribunal remanded back the issue to the file of the Assessing Officer for de novo examination of the actual operations carried on

by the assessee. The Assessing Officer, after examining the entire

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activities of the assessee, found that the rental income has to be

assessed as income from house property and not as income from

business. When the matter came before the CIT(Appeals) for the

assessment year 2003-04, the assessee claimed that 25% of the

rental income was attributable to the services rendered for

maintaining the common area, waiting room, reading room, sundry

services and lift room, therefore, the 25% of rental income has to be

assessed as income from business. The assessee had appealed

before the CIT(Appeals) that the balance 75% of rental income has

to be assessed as income from house property. This claim of the

assessee was accepted by the CIT(Appeals) for assessment year

2003-04. Since the judgments of Madras High Court for

assessment year 2001-02 and for the assessment years 2004-05,

2005-06, 2007-08 and 2008-09, were against the assessee by

holding that the entire rental income was to be treated as income

from house property, the Revenue filed the appeal before this

Tribunal for assessment year 2003-04 contending that the entire

rental income has to be assessed as income from house property.

Therefore, the bifurcation made by the CIT(Appeals) that 75% of the

rental income has to be assessed as income from house property

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and the balance 25% of the rental income has to be treated as

income from business, is not justified.

2010-11, 2006-07 and 2009-10, the Ld. Departmental

Representative submitted that the CIT(Appeals) has rightly

confirmed the orders of the Assessing Officer by holding that the

rental income has to be assessed as income from house property

by placing reliance on the judgment of Madras High Court in

Chennai Properties and Investments Ltd. (supra). The

CIT(Appeals) has also placed reliance on the judgment of Madras

High Court in the assessee's own case for the assessment years

2004-05, 2005-06, 2007-08 and 2008-09. Therefore, no

interference is called for.

perused the relevant material available on record. The only issue

arises for consideration is with regard to classification of rental

income received by the assessee from the commercial complex.

For the assessment years 2001-02, 2004-05, 2005-06, 2007-08 and

2008-09, the issue travelled upto Madras High Court and the

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Madras High Court found that the entire rental income has to be

assessed as income from house property. For the assessment year

2003-04, this Tribunal found that the activities carried on by the

assessee were not considered by the authorities below, therefore,

the matter was remitted back to the file of the Assessing Officer.

The Assessing Officer, after examining the activities of the

assessee, found that the rental income received by the assessee

has to be assessed as income from house property. When the

matter was appealed before the CIT(Appeals) by the assessee, the

CIT(Appeals) found that the activities carried on by the assessee for

maintenance of lift operation, providing security, maintenance of

waiting hall, reading hall, etc. amount to service, therefore, part of

the rent has to be classified as income from business. Accordingly,

the CIT(Appeals) found that 25% of the rental income has to be

treated as income from business and 75% has to be assessed as

income from house property. Therefore, the Revenue filed appeal

before this Tribunal for assessment year 2003-04. For other

assessment years, namely, 2010-11, 2006-07 and 2009-10, the

CIT(Appeals) confirmed the orders of the Assessing Officer holding

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that the rental income has to be treated as income from house

property.

High Court in the assessee's own case for assessment year 2001-

02 and for assessment years 2004-05, 2005-06, 2007-08 and 2008-

for the assessee, placed reliance mainly on its judgment in Chennai

Properties and Investments Ltd. (supra). The Madras High Court

has also placed its reliance on the judgment of Apex Court in East

India Housing and Land Development Trust Ltd. v. CIT (1961) 42

ITR 49. As rightly submitted by the Ld.counsel for the assessee,

the Apex Court considered the correctness of the judgment of the

Madras High Court in Chennai Properties and Investments Ltd.

(supra). The Apex Court found that the ownership of land or leases

cannot be a deciding factor but the nature of activities of the

assessee and nature of operation in relation to them would be the

deciding factor. After referring to the judgment of Privy Council and

House of Lords in England and the judgment of Apex Court in

Karanpura Development Co. Ltd. (supra), the Apex Court found that

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the facts of the case in Chennai Properties and Investments Ltd.

(supra) squarely falls within the judgment in Karanpura

Development Co. Ltd. (supra). Accordingly, the judgment of Madras

High Court in Chennai Properties and Investments Ltd. (supra) was

set aside and the decision of this Tribunal was restored holding that

the rental income has to be assessed as income from business. In

view of this judgment of Apex Court, this Tribunal is of the

considered opinion that the matter needs to be examined in the light

of the activities and operation carried on by the assessee. Since, in

the earlier judgment in assessee's own case, the Madras High Court

decided based upon its judgment in Chennai Properties and

Investments Ltd. (supra) and the same was reversed by the Apex

Court, this Tribunal is of the considered opinion that the judgment of

Madras High Court in the assessee's own case for earlier

assessment years may not be applicable to the facts of the case.

The law laid down by the Apex Court is binding on all the authorities

including the Tribunal under Article 141 of the Constitution of India.

Therefore, this Tribunal is expected to follow the judgment of Apex

Court in Chennai Properties and Investments Ltd. (supra) rather

than the judgment of Madras High Court in the assessee's own case

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for the assessment years 2001-02, 2004-05, 2005-06, 2007-08 and

2008-09.

judgment of Apex Court in Chennai Properties and Investments Ltd.

(supra). It is not in dispute that apart from letting out the property,

the assessee is maintaining common area, lift operation, providing

security, maintenance of waiting hall, meeting hall, etc. These

activities are carried on in a systematic and regular manner.

Therefore, the service provided by the assessee in a systematic and

regular manner would amount to business activity. The rental

agreement entered into by the assessee does not bifurcate the rent

for the services provided and letting out the property. However, for

the assessment year 2003-04, the assessee appears to have

claimed before the Assessing Officer that 75% of the rental income

has to be assessed as income from house property and 25% is

allotted to providing services, which has to be treated as income

from business. This claim of the assessee was accepted by the

CIT(Appeals) for assessment year 2003-04. This Tribunal is of the

considered opinion that in view of the law laid down by the Apex

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Court in Chennai Properties and Investments Ltd. (supra), part of

the rental income received by the assessee for providing services

has to be classified as income from business. Since the assessee

itself claims 75% of rental income has to be classified as income

from house property, the CIT(Appeals) has rightly found that 75% of

the rental income for assessment year 2003-04 as income from

house property. Therefore, this Tribunal is of the considered

opinion that the CIT(Appeals) has rightly found that 75% of the

rental income has to be assessed as income from house property

and the balance 25% as income from business. By respectfully

following the law laid down by the Apex Court in Chennai Properties

and Investments Ltd. (supra), we hold that the rental income has to

be bifurcated and 75% of the same has to be classified as income

from house property and 25% has to be classified as income from

business.

assessment year 2003-04, the orders of the lower authorities for

assessment years 2010-11, 2006-07 and 2009-10 are set aside and

the Assessing Officer is directed to assess 75% of the rental income

16 I.T.A. No.402/Mds/13 I.T.A. No.1095/Mds/14 I.T.A. Nos.2215 & 2216/Mds/15

received by the assessee as income from house property and 25% as income from business after allowing all applicable expenditure as per the provisions of law.

Order pronounced on 1st June, 2016 at Chennai.

sd/- sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 1st June, 2016.

Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. �नधा�रती /Assessee 2. Assessing Officer 3. आयकर आयु�त (अपील)/CIT(A)-II, Coimbatore 4. आयकर आयु�त (अपील)/CIT(A)-II, Chennai 5. Principal CIT, Chennai-4, Chennai 6. आयकर आयु�त/CIT-II, Chennai 7. �वभागीय ��त�न�ध/DR 8. गाड� फाईल/GF.