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2015 (6) TMI 129 - ITAT BANGALORE

2015 (6) TMI 129 - ITAT BANGALORE - TMI - Income earned from letting out of commercial spaces, amenities and maintenance - ‘Profits and Gains from Business’ OR ‘Income from House Property’ - Held that:- The deciding factor is not the ownership of the land or the leases thereof, but the nature of the activity of the assessee and the nature of the operations in relation to them. In the case on hand, considering the nature of the assessee's dealings with the property, apart from letting them out an .....

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ceived from leasing out of the building properties would fall under the head ‘Income from Business’ and not ‘Income from House Property’ as held by the authorities below - Decided in favour of assesse.

Interest under Section 234A and 234B - Held that:- The charging of interest is consequential and mandatory and the Assessing Officer has no discretion in the matter. This proposition has been upheld in the case of Anjum H Ghaswala (2001 (10) TMI 4 - SUPREME Court) and we, therefore, uph .....

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hese two appeals being heard together are being disposed off by way of this common order. 2. The facts of the case, briefly, are as under :- 2.1 The assessee is a company engaged in the business of software development, testing and renting of property. For Assessment Year 2010-11, the assessee filed its return of income on 26.3.2012 declaring NIL income and claimed carry forward of business loss of ₹ 1,39,60,360. For Assessment Year 2011-12, the return of income was filed on 28.9.2012 decl .....

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nance as income under the head Profits and Gains from Business , the Assessing Officer was of the opinion that the Lease Agreements are composite agreements of rent for commercial space with basic fixture and fittings and since the basic necessities are inseparable from the immovable property let out by the assessee, the income received by the assessee constitutes rent from letting out and was exigible to tax under the head Income from House Property . In coming to this conclusion, the Assessing .....

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. The learned CIT (Appeals) vide orders dt.30.10.2014 dismissed the assessee's appeal on the ground that the asset owned by the assessee is being exploited as a capital asset and that the essential requirements of business such as risk of losing capital, uncertainty of the return on investment, etc., were missing. The learned CIT (Appeals) also observed that in a couple of cases, maintenance charges were not levied and the tenants were not allowed to use the common facilities. In coming to t .....

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ntical grounds :- 1. The order of the learned CIT (A) is opposed to law, facts and circumstances of the case. 2. The Ld. AO has erred in holding that the income earned by the Appellant is to be taxed under the head Income from House Property and not under Profits and gains from Business or Profession and the Ld. CIT (A) erred in confirming the same. 3. The Ld. AO and CIT(A) ought to have appreciated the fact that the activities carried on by the Appellant constitute a complex commercial activity .....

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other services also which is nothing but carrying on business. 7. The Ld. Commissioner of Income Tax (Appeals) failed to appreciate the fact that, the amount paid by the tenants is not only rent but it includes charges towards providing services, and the amount payable by the tenants is a composite amount. 8. The Ld. Commissioner of Income Tax (Appeals) failed to appreciate the fact that, the facts of the case of the Shambhu Investments Pvt Ltd on which the Assessing officer has relied is entir .....

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ation is called for thereon. 5. In the Ground at S.No.10, the assessee denies itself liable to be charged interest under Section 234A and 234B of the Act. The charging of interest is consequential and mandatory and the Assessing Officer has no discretion in the matter. This proposition has been upheld by the Hon'ble Apex Court in the case of Anjum H Ghaswala (252 ITR 1) and we, therefore, uphold the action of the Assessing Officer in charging the said interest. The Assessing Officer is, howe .....

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by the assessee from letting out of commercial spaces, amenities and maintenance be assessed to tax as Income from Business as declared by the assessee and not as Income from House Property as held by the authorities below. 6.3 Per contra, the learned Departmental Representative supported the impugned order of the learned CIT (Appeals) and prayed that the assessee's appeals be dismissed. 6.4.1 We have heard the rival contentions and perused and carefully considered the material on record; in .....

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necessity of incurring capital expenditure for setting up of infrastructure and retaining the responsibility of maintenance and security of the premises with the assessee. Inviting reference to Schedule - II of the Lease Agreements, placed at pages 14,29,45, etc of the assessee's paper book, it was submitted that the assessee is providing the following additional amenities with the commercial space as a composite service :- a. Work Station and Chairs. b. DiscussionTables. c. Storage Units. .....

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ace. 6.4.2 Drawing reference to Schedule III of the Lease Agreements enclosed at pages 16, 46, 61 of the assessee's paper book, it was submitted that the assessee was also responsible for providing various maintenance facilities listed hereunder :- (i) Round the clock security (ii) Insurance of the premises. (iii) Parking Management. (iv) Maintenance of common areas, land scaped areas and common electrical installations. (v) Maintenance and operation of elevator, bore well and generator. (vi .....

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t was further submitted that by no stretch of imagination can work stations with white boards and network plugs, access control devices, hand dryers, fire extinguishers, projectors and coffee vending machines, certain facilities for employees, 24/7 power supply, etc be termed as basic fixture & fittings like tables, chairs, light, fans and standard amenities like provision of water, electricity and security , as concluded by the Assessing Officer . 6.4.4 It was submitted that the activity ca .....

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ce of merely letting out of a bare building and a building braced up with various amenities had held as under :- In our view, the High Court was right in holding that the assessee was carrying on an adventure or concern in the nature of trade. The assessee not only constructed vaults of special design and special doors and electric fittings, but it also rendere4d other services to the vault-holders. It installed fire alarm and was incurring expenditure for the maintenance of fire alarm by paying .....

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t of its contention that the income derived from providing the facility on plug and play basis is to be classified under the head Income from Business , the assessee placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of DCIT V Velankani Information Systems Pvt. Ltd. in ITA No.1507 to 1510/Bang/2010 dt.30.3.2012. The assessee has furnished an item-wise comparison of the services rendered and facilities provided by it vis-à-vis those provided in the case o .....

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ided in Schedule III of the Agreements enclosed in pages 16, 31, 46 etc. of the paper book wherein the Appellant is not only providing the elevators but has also undertaken the responsibility of maintaining them. The Appellant has insured the premises c.. Comprehensive Insurance of the premises d. Provision of necessary furniture & fixtures along with necessary outlets for electricity, telecom & internet The Appellant has provided necessary furniture & fixtures detailed in Schedule I .....

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has also undertaken responsibility of periodical maintenance of the building while also ensuring maintenance & upkeep of common areas such as basement, terrace, car park areas, lobby, corridors, staircases, compounds & landscape. For this very purpose, the Appellant has appointed a housekeeping agency. Reference is drawn to Schedule III of the Agreements enclosed in pages 16, 31, 46 etc. of the paper book as also Clause 4 of the Agreements dealing with Maintenance. f. Responsibility of .....

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ed in the paper book wherein the Appellant has undertaken the responsibility of plumbing services and toilet fittings in the leased premises as well as common areas. j. Provision of electricity 24/7 and 100% power backup The Appellant has undertaken the responsibility of ensuring power supply 24/7. The Appellant makes arrangements for water and water is supplied to them free of cost. The Appellant has installed UPS in the leased premises and power generators are on stand-by mode 24 hours a day. .....

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31, 46 etc. of the paper book respectively. k. Responsibility of supplying water l. Provision of air conditioning facility and responsibility of maintaining the same m. Provision of canteen area The Appellant has earmarked a canteen area in the premises and is providing food to the employees of the Lessees on a daily basis. The occupants are charged separately on head count basis for the facilities utilized by them. Reference is drawn to Para 5 of the agreements on Pages 4, 20, 50 etc. of the pa .....

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mpromise of data security and confidentiality. However, the Appellant has provided optical fiber network cables with server racks & panels on one side to plug in the servers and workstations on the other side with sockets to plug in the systems. In effect, the plug & play functionality is provided. In our view, it is evident from the details of the above table that there is very little to distinguish between the services rendered and facilities provided by the assessee with those provide .....

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ance of common area, maintenance of light in the common area, supply of water, providing lift, installation of electric transformer, power to the lessees, providing generator, over-head water tanks, maintenance of drainage, etc. clearly establishes that the entire activity is structured in an organized manner to earn profit out of investment made by the assessee as a commercial venture and held that the rental income received in these factual circumstances is to be assessed as business income. T .....

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n the ground that in the case on hand, the primary object of the assessee is not to set up Software Park. According to the assessee, after selling the software business with about 200 employees in Sept., 2008, the assessee invested ₹ 2.61 Crores during the F.Ys 2009-10 and 2010-11 on additions to the building (details at pages 136 and 139 of assessee's paper book) with the primary intention of setting up new infrastructure of approx. 54,000 sq. ft. which can accommodate about 750 perso .....

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premises and furniture. The assessee submits that in the light of the above, it can be clearly said that the primary intent of the assessee was to set up a software park and that this premises is being exploited as a business asset. 6.4.8 The learned CIT (Appeals) was also of the view that the essential requirements of a business as a prescribed by the Hon'ble High Court of Gujarat in the case of CIT V Smt. Minal Rameshchandra (supra) are missing in the case on hand. The assessee submits tha .....

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tage, break down of amenities, tenants vacating the premises before expiry of lease period which need to be catered to immediately. It is contended that in the case on hand, there is risk, uncertainty and unforeseen hurdles which have been laid down as essential requirements of a business by the Hon'ble High Court of Gujarat in the case of Smt. Minal Rameshchandra (supra). 6.4.9 The learned CIT (Appeals) was of the view that the decision of the Hon'ble Apex Court in the case of East Indi .....

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s. In those factual circumstances, the question that arose for consideration was whether the rental income received was to be treated as Income from House Property or Income from Business. The Hon'ble Apex Court, while holding that the income shall be treated as Income from House Property rested its decision in the context of the main objective of the company and took note of the fact that letting out of the property was not the object of the company at all. The Court was, therefore, of the .....

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able from the aforesaid decision relied on by the learned CIT (Appeals). 6.4.10 Similarly, in the case of Mahesh Investments (supra), the rent received was for letting out of only the commercial space, without any amenities, furniture and fixtures or the undertaking of any maintenance activities, was held to exigible to tax as Income from House Property. 6.4.11 What emerges from the above discussion from para 6.1 to 6.4.10 of this order (supra), is that the question of whether the rental income .....

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