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2008 (4) TMI 532 - AT - Income TaxLet out Immovable property - Income from house property OR business income? - Receipt being rent of Infrastructure Facilities installed in the property Let Out - Property let out to its group companies on fixed monthly rent basis - HELD THAT - The activity of letting out the immovable property is always assessable under the head Income from house property even though the object of the assessee is to carry on the business of real estate inasmuch as separate and specific head is provided for computing such income. The word business connotes some real substantial and systematic or organised course of activity or conduct with a set purpose as held by the Hon ble Supreme Court in the case of Narain Swadeshi Wvg. Mills v. CEPT 1954 (10) TMI 11 - SUPREME COURT . If this test is satisfied then income earned would be computed as business income. In the present case the assessee has failed to prove that any business activity was carried on by the assessee. Mere statement of the assessee that it was running a business centre is not enough. No facility or services were provided by the assessee. It is mere case of letting out of furnished accommodation on long-term basis. In case of business centre the purpose is to provide space to business people on short-term basis for holding conferences exhibitions etc. which is missing in the present case. The case of the assessee is akin to the case before the Apex Court in the case of Shambhu Investment (P.) Ltd. 2003 (1) TMI 99 - SC ORDER and therefore income from letting out was rightly assessed as income from house property . The order of the CIT(A) is therefore upheld. In the result the appeal is dismissed.
Issues Involved:
1. Classification of income from property use charges: Whether it should be assessed under 'Income from house property' or 'Profits and gains from business or profession'. Detailed Analysis: 1. Classification of Income from Property Use Charges: Facts and Background: The assessee, owner of an immovable property at Pedder Road, Mumbai, initially used it for textile business. Post discontinuation, the property was allowed for use by group companies with facilities like telephone, as per a resolution dated 15-12-1993. Agreements were executed with these companies from 1-4-1994, charging a fixed monthly fee. For the year under consideration, the assessee declared an income of Rs. 52,575 under 'Business income'. The Assessing Officer (AO) processed the return under section 143(1) of the Income-tax Act, 1961, but later issued a notice under section 148, suggesting the income should be under 'Income from house property'. The AO treated the charges as rent and assessed the income from house property at Rs. 5,23,226. The CIT(A) upheld this, referencing the Supreme Court judgment in Shambhu Investment (P.) Ltd. v. CIT [2003] 263 ITR 143. Assessee's Arguments: The assessee argued that post textile business closure, the property was exploited as a business center, supported by a Board resolution and agreements indicating use of facilities like office equipment, telephones, and vehicles. They cited the Gujarat High Court decision in Asstt. CIT v. Saptarshi Services Ltd. [2004] 265 ITR 379 and the Tribunal's decision in PFH Mall & Retail Management Ltd. v. ITO [2008] 298 ITR (AT) 371 (Kol.), asserting that such income should be assessed as business income. They also referenced the Supreme Court ruling in Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 regarding service charges as business receipts. Revenue's Arguments: The Revenue relied on the Supreme Court's decision in Shambhu Investment (P.) Ltd. and East India Housing & Land Development Trust Ltd. v. CIT [1961] 42 ITR 49, arguing that income from letting out furnished accommodation should be under 'Income from house property'. Tribunal's Findings: The Tribunal found no merit in the assessee's appeal, citing the Supreme Court's decision in Shambhu Investment (P.) Ltd. The facts of the present case were similar, where the property was let out on a fixed monthly rent basis, inclusive of facilities like telephone and office equipment. The Tribunal noted discrepancies in the agreements and balance sheet, questioning the credibility of the agreements. The Tribunal concluded that the property was let out on a fixed monthly charge, akin to rent, and thus assessable under 'Income from house property'. Additional Observations: The Tribunal clarified that mere letting out of property, even if furnished, does not constitute running a business center. The intention to earn rental income, whether through lease or leave & license agreements, classifies the income under 'Income from house property'. The Tribunal rejected the argument that no specific area was allotted, noting varied charges from different parties, indicating specific allocations. Distinguishing Case Laws: The Tribunal distinguished the assessee's case from Saptarshi Services Ltd., where the assessee was not the property owner and provided extensive services, unlike the present case. The Tribunal also differentiated from PFH Mall & Retail Management Ltd., which involved running a mall, akin to hotel business, not applicable here. The Karnani Properties Ltd. case was also deemed inapplicable as it involved a split of rental and service income, unlike the composite rent in the present case. Conclusion: The Tribunal upheld the CIT(A)'s order, dismissing the appeal, affirming that the income from letting out the property was rightly assessed under 'Income from house property', in line with the Supreme Court's judgment in Shambhu Investment (P.) Ltd. The Tribunal emphasized that real, substantial, and systematic business activities must be evident to classify income under 'Profits and gains from business or profession', which was not demonstrated by the assessee. Result: The appeal was dismissed.
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