TMI Blog2012 (3) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... endering services. While concluding the assessments for the AYs 2003-04 to 2006-07, the Assessing Officers treated the lease rentals received by the assessee as income from house property as against business income claimed by the assessee for the reasons recorded in their respective impugned orders under challenge. The consequential disallowances were also made in the assessment orders. 5. Aggrieved, the assessee took up the issues, among others, with the Ld CIT (A) for relief. After due consideration of the lengthy submissions coupled with various case laws put forth by the asssessee s learned A.R and also case records, the relevant portions of the CIT (A) s observations are, for appreciation of facts, are extracted. 5.1. Extensively quoting and analyzing various rulings of judiciary on a similar issue, chiefly, the rulings of Hon ble Supreme Court reported in 66 ITR 596 (SC) and 83 ITR 700 (SC), the CIT (A) had observed thus: 11.1. From a perusal of the above decision, as well as other decisions relied on by the appellant, the characteristics on the basis of which we may determine whether an assessee was simply letting out the property or commercially exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, such as the repairs of roof space, exterior walls, bearing walls, support beams and foundation columns, the appellant was also responsible for the repairs and maintenance of the interiors of the leased premises. (e) The appellant had provided adequate parking facilities to the lessees and for such purpose had engaged the services of parking attendants. (f) The appellant undertook the responsibility of the maintenance of sanitary works and for such purpose provided plumbing and janitorial services. (g) The appellant had also established a centralized sewage treatment system whereby the waste water was treated and made suitable for use in flushing and gardening. (h) The appellant had provided for landscaping in and around the Industrial Park and also maintained a garden for the benefit of the lessee. (i) The appellant had also taken on a comprehensive insurance with regrd to the premises. (j) The appellant undertook the responsibility of providing security and looked after not only the external security of the building but also provided internal security of the leased premises. (k) The appellant undertook the responsib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NOT merely for the bare letting of the property. In fact, in the case of the appellant, I find that there is much more than mere letting out of property simpliciter inasmuch as a host of services and facilities are being provided to the tenants by the appellant. These services and facilities are elaborate and complex in nature and are such which are not ordinarily rendered or provided by a landlord who has let out his house. More importantly, it is seen that the rendering of such services and providing of such facilities has been carried out by the appellant in an organized manner with the PRIMARY INTENT OF COMMERCIAL EXPLOITATION of the property. In fact, it is evident from the list of services and facilities detailed above that there was no intention on the part of the appellant to simply let out the property and in fact all the activities as detailed above exhibits the clear intention of the appellant to commercially exploit the property. For instance it may be noted that in order to provide ready made telecom and internet services to the units in the industrial park, the appellant, as already detailed at sub-paragraph (n) of paragraph 11.2 above had obtained distributorship fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property as in Industrial/Software Technology Park and thereafter engaged itself in the business of management of the industrial/software technology park. Therefore, the activities of the appellant, including the letting out of the building, really partake of the character of a BUSINESS ACTIVITY. 5.2. Placing reliance on the judgement of the Hon ble Apex Court in the case of Karnani Properties Ltd v. CIT [82 ITR 547 (SC)], the CIT (A) further observed that 13 ..On application of the above principle to the case of the appellant, I find that the activity of the appellant of providing services and amenities has been carried on in an organized manner with the set purpose of developing and operating an Industrial/Software Technology Park and thereby earning income. Hence, I am of the opinion that the principle laid down in the case of Karnani Properties Limited v. CIT (supra) is squarely applicable to the case of the appellant and, therefore, it has to be held that the activity of the appellant of providing services and amenities to its tenants in the process of operating an Industrial/Software Technology Park constitute BUSINESS ACTIVITY and the income arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een useless to the tenants. Therefore, it was the intention of the appellant and the tenants that both the services and facilities and the building should be enjoyed TOGETHER and not separately from one another. Therefore, the consideration received for the letting of the building and the consideration received for providing services and facilities formed INSEPARABLE parts of a COMPOSITE CONSIDERATION. Thus, even though a part of the receipts were attributable to the letting out of the building, since the building was let out only as a part and parcel of the business of running an Industrial/Software Technology Park, the rent receipt formed an indivisible part of a composite consideration [which was assessable as income under the head profits and gains of business or profession ] and, therefore, the rent receipts were also assessable as income under the head Profits and gains of business or profession and not under the head Income from house property. In view of the above, the action of the AO in segregating and assessing the receipts attributable to the letting out of the building as Income from house property is found to be NOT SUSTAINABLE. 5.3. After due examination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of a superstructure and in fact the receipts of the appellant consisted of not only a superstructure but also included charges for a host of additional facilities and services which have already been detailed above. Secondly, from the remark of the AO that The consideration received for the furniture/fittings is to be assessed under income from business . It appears that the AO has assumed that the appellant has simply provided some furniture and fittings. This assumption of the AO is wrong as the appellant had provided not only furniture and fittings but also had provided a host of additional facilities and services. Thus, both the assumption of the AO were erroneous and, therefore, the conclusion of the AO that The facts of the assessee s case fall squarely within the scope of the judgment being based on such erroneous assumption is incorrect. Therefore, the ratio of the decision of the case of CIT v. Bhoopalam Commercial Complex Industries Private Limited (supra) cannot be applied to the case of the appellant. 16.0. In view of the above, I agree with the contention of the appellant that the composite charges which includes the charges received for le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and circumstances of the case of Global Tech Park Private Limited v. ACIT (supra) and, hence, I agree with the appellant that the decision in the case that the rental income is assessable as business income is squarely applicable to the case of the appellant. 17.0. In view of the above discussed reasons, the action of the AO in bifurcation and assessment of the composite compensation received by the appellant under the head Income from house property and under the head profits and gains of business or profession is found to be not SUSTAINABLE and, therefore, the consequent disallowances made by the AO on the basis of such bifurcation is hereby DELETED. The AO is directed to treat the entire income of the appellant as income under the head profits and gains of business or profession. 6. Being aggrieved with the findings of the CIT (A), the Revenue has come up with the present appeals before us. 6.1. The learned DR heavily placed reliance on the findings of the AOs and argued that the CIT (A) ought to have appreciated the very fact that the assessee had collected rent for the building premises let out and the same was not in the nature of composite rent pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m a complex commercial activity will be categorized as income from business as against income from house property . The relevant portion of its findings, are extracted as under: 7 On our careful consideration of the facts and circumstances, we are of the considered view that the assessee was incorporated with the sole intention of developing technology park for which it obtained leasehold land from the Karnataka Industrial Development Corporation and also obtained loan from Union of India for constructing superstructure thereon which could not be considered as investment in a property for earning rental income only. The lease of the property was shown as part of the business activity, the income received there-from cannot be said as income received as a land owner but as a trader. In other words, if the property is taken on lease thereafter developed on lease is part of the business activity of the assessee as an owner, then the income has to be treated as business income the activity was done by the assessee as a business venture and was in accordance with the min object of the company. The intention of any prudent businessman is to earn profit at a maximum level a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
