KEYARAM DEVELOPERS AND HOTELS P LTD.,CHENNAI vs. ACIT, CHENNAI

The Assessing Officer, after considering the activity of the 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 income from business. Against this order of the CIT(Appeals), for the assessment year 2003-04, the Revenue has filed the appeal.

Coming to the assessment years 2010-11, 2006-07 and 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.

Shri S. Sridhar, the Ld.counsel for the assessee, submitted 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 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.

Referring to the judgments of Madras High Court in the assessee's own case for assessment year 2001-02 and for assessment years 2004-05, 2005-06, 2007-08 and 2008-09, the Ld.counsel submitted that the basis for the judgments of Madras High Court is the judgment of Division Bench in Chennai Properties 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.

On the contrary, Sh. P. Radhakrishnan, the Ld. Departmental 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 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 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.

Referring to the assessee’s appeals for assessment years 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.

We have considered the rival submissions on either side and 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.

The Madras High Court, as rightly submitted by the Ld.counsel 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 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.

We have considered the facts of the case in the light of the 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.

While confirming the order of the CIT(Appeals) for 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 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.

In the result, is dismissed. However, I.T.A. No.1095/Mds/2014 and I.T.A. Nos.2215 & 2216/Mds/2016 are allowed.