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2015 (4) TMI 625 - DELHI HIGH COURT

2015 (4) TMI 625 - DELHI HIGH COURT - TMI - Rental income earned from terrace floor/roof area - assessable under the head "Income from other sources" OR "Income from house property" - Held that:- In the case at hand, the building the top terrace of which is the subject of focal attention here has been developed for its various portions to be sold or let out with no possibility of the terrace floor being subjected to such utilization. The assessee continues to be the owner of the terrace floor. I .....

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e building which has been constructed on the land beneath the super-structure. It is, therefore, not correct to hold that the terrace does not have any appurtenant land. We, therefore, reject the conclusion of ITAT that the agreement of renting and hiring terrace is in essence for hiring space and not hiring building or land appurtenant thereto. - Decided in favour of the assessee. - ITA 43/2014 - Dated:- 25-3-2015 - S. Ravindra Bhat And R. K. Gauba,JJ. For the Appellant : Mr. Ajay Vohra, Sr. Ad .....

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d rejecting the contention of the appellant that the income claimed as rent from space antenna in respect of the top terrace of property described as Vikram Tower, 16, Rajendra Place, New Delhi (hereinafter referred to as the property ), in the sum of ₹ 38,23,281/- for the assessment year 2008-09 was income from house property and instead treating it as income from other sources . 2. The following question of law arises for consideration:- Whether on the facts and in the circumstances of t .....

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of the property. On 31.10.2007, it entered into a formal arrangement styled as Leave and Licence Agreement with M/s Arvind Mills Ltd. (Telecommunication), a company incorporated under the Companies Act having corporate office at 3rd Floor, Lingfield Plaza , S. No. 66/67, Salunke Vihar road, Wanowrie, Pune - 411 040. By virtue of the said agreement, the assessee company gave on licence the terrace floor as the space for mounting a tower/mast and antenna and gen set in addition to covered space ad .....

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increase in case the rates of taxes are increased ) for ten years at ₹ 74,000/- for the period 01.11.2007 to 31.10.2010, at ₹ 85,000/- for the period 01.11.2010 to 31.10.2013, and ₹ 98,000/- for the period November, 2013 to 31.10.2017. 4. In terms of the above-mentioned agreement, the licence fee is payable in advance on or before 10th day of each English calendar month; the licensee is to pay charges for the electricity as per the actual consumption; licence is to terminate i .....

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t so as to cover the portion of the open space nor allow its use to any third party, with the exception of sister concerns or subsidiaries . The terms stipulate that the licensee shall permit the licensor or its authorized agents to enter into the licensed space during the working hours upon reasonable notice for the purpose of viewing its condition, reserving the right of the licensor to carry out, without any objection or hinderance as the part of licensee, necessary repairs, alterations or im .....

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right for passage for ingress into and egress from the licensed space to be subject to the prescription of the licensor. The licensee, however, is permitted to deploy on 24-hours basis its own security guard with stipulation that the legal possession of the licensed space shall always remain with the licensee . 6. The case of the appellant-assessee was taken up for assessment under Section 143(3) of the Act. The Assessing Officer (AO) by his order dated 27.12.2010 rejected the claim of the appel .....

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s stock-in-trade. 7. The AO eventually held against the assessee and, inter alia, observed that the assessee is a builder/developer, the primary objective of its business being to purchase, develop and sell various properties, renting parts of the property (stock-in-trade) held by it being only an incidental activity , and indulged in only till such time such properties were actually sold, and thus, it was engaged primarily in complex commercial activities . The AO ruled that merely because the .....

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Pvt. Ltd. (1967) 66 ITR 596, the AO observed that the question of exploitation of the property for purposes of commerce or business is material and that it requires to be seen whether the assessee is carrying on any business in the nature of trade, commerce or manufacture. 8. The appellant-assessee was aggrieved and, thus, took out an appeal before Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT (Appeals) ]. It submitted that the crucial test is as to what is the primar .....

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ot legally or contractually permitted to sell and, thus, there was no question of turning the let out property to account . It was also submitted that the assessee (i.e. licensor vis-à-vis the agency to which the licensed space has been given) was not required to render any services. 9. The appeal was allowed by the CIT(Appeals) taking note of, amongst others, the law laid down by the Supreme Court in the case of Karanpura Development Co. Ltd. v. CIT (1962) 44 ITR 362. The CIT (Appeals) n .....

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ellant had let out the structures on the terraces of the buildings to various companies and government departments for housing their communication equipments and antennas and did not render any other services to them. It is also a fact that the appellant was not entitled to sell any space on the terraces of the buildings. Therefore, it had to exploit the property as owner only and it was not an interim arrangement to let out the property pending final sale. The dominant object of the letting out .....

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erty and consistently so accepted by the AO while completing the assessment under Section 143(3) for the preceding six years. Observing that nothing had been brought on record to suggest that facts for the period in question in any manner differed from those prevailing in the previous years, she upheld the contentions of the assessee and allowed the deduction in terms of Section 24 (a) of the Act. 12. The Revenue questioned the correctness of the order of the CIT (Appeals) by ITA No. 901 (Del)/2 .....

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re that the assessee has been renting the space and small rooms constructed on terraces for the last 9 years. Thus, the intention is not to sell the space on the terrace as stock-in-trade but hold on to it as a fixed asset. Therefore, it is held that the asset has been wrongly classified in accounts and for the purpose of law it should be taken as a fixed asset. Now, we have to decide as to whether the space and small rooms on the terraces constitute house property, i.e., building and land appur .....

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obviate the necessity of constructing towers to avoid shadow region occurring on account of obstruction from tall buildings in the vicinity. Thus, in essence the main purpose of hiring terraces is to have open space for mounting antennae and other instruments. The terrace does not have any appurtenant land. Therefore, the agreement of renting and hiring terraces is in essence an agreement of hiring space and not building and land appurtenant thereto. The existence of small rooms on the terrace .....

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ng space is being carried out so as to render it as a business activity. Thus, the income is rightly assessable under the head "income from other sources". It may be mentioned here that Tribunal will be within its right to correct the head of income although it may not be in a position to enhance the income. Treating the income to be taxable under the residuary head as against the business income as taxed by the AO does not lead to enhancement of income. Therefore, we are entitled to c .....

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erence has been made to the rulings in the cases reported as CIT v. National Storage Pvt. Ltd. (supra) and Mukherjee Estate (P.) Ltd. v. Commissioner of Income-tax (2000) 244 ITR 1 (Cal.), but improperly so. 15. In National Storage Pvt. Ltd. (supra), the assessee had purchased a plot of land and constructed thereon a building in the nature of godown. In the super-structure, thus built, certain vaults were developed with the objective of making them available on licence basis to film distributors .....

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e income derived was not income generated from the exercise of property rights but on account of carrying on trade. Holding that the letting out of the space from which the assessee derives income has to have a definite and identifiable nexus with the business of the assessee, it was ruled that such income was bound to be treated as income from business and not as income from house property. The court held that the assessee was in occupation of the entire premises and providing special services .....

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et out instead of space on the roof for putting up all such hoardings. In these facts and circumstances, the Calcutta High Court took the view that the income from the hoardings could not be taken as income from house property since hoardings were not part of the building. 17. In Karanpura Development Co. Ltd. (supra), the Supreme Court had ruled as under:- Ownership of property and leasing it out may be done as a part of business, or it may be done as landowner. Whether it is the one or the oth .....

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urning them to account even by way of leasing them out as an integral part of its business, cannot be said to treat them as landowner but as trader... In deciding whether a company dealt with its properties as owner, one must see not to the form which it gave to the transaction but to the substance of the matter [emphasis supplied] 18. The above view was reiterated in S.G. Mercantile Corporation P. Ltd. v. CIT (1972) 83 ITR 700 (SC). 19. The crucial test is as to whether the letting out has a de .....

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ace floor has been handed over to the licensee not only for setting up the tower/mast on which antenna is to be mounted but also for construction of a room where the watch/ ward staff can be stationed and space used for storage purposes. 20. Unlike the case of Mukherjee Estate (P.) Ltd. (supra) where no space on the terrace floor was let out (the income generated being restricted to the display of advertisement on the hoardings provided), in the case of the assessee here, the licensee is virtual .....

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