9911796707
TMI Blog2014 (7) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... " as claimed by the assessee or under the head "income from house property" as held by the A.O. 3. The relevant facts of the case giving rise to these appeals are as follows. One company namely E-City Project Construction Pvt. Ltd. was engaged in the business of acquisition of immovable properties, constructing, developing and building "Family Entertainment Centre cum Malls" across India and leasing (short term and long term), licensing, renting, managing, operating and running the same for commercial use by providing necessary infrastructure. As a result of demerger of the said company, which took place on 1-4-2006, both the assessee companies in the present case came into existence and continued to be in the same business as that of the demerged company. These companies earned substantial operating income from the Mall in the form of rent and service charges recovered from the occupants of the Mall. In the returns of income filed for the years under consideration, the said income was declared by both the assessee companies under the head "profits and gains of business or profession" and after claiming various expenses, the net income/loss was offered by them to tax. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty is developed with a view of commercial exploitation and the prime object is to exploit the immovable property by way of complex commercial activities. The assessee provides complete integrated facility to the lessee like electricity, air conditioning and basic interiors. Further, in terms of the agreement with the licensee for lease of premises, the lessor (i.e. assessee) agrees to provide certain services as detailed in clause 7 of the agreement. Alongwith the construction of Family entertainment Centers, the assessee is developing and letting out property along with basic amenities, infrastructure etc. which is essential for the business of the lessee. This involves compliance of stringent complex regulatory requirements as regards provisions of common toilet facilities, housekeeping facilities, electromechanical maintenance, equipments, fire systems, common area, lift escalator etc. In the case of the assessee, the benefit of the facilities by the lessee is integral to their use of the leased premises and for carrying on multiplex business. Also, the building premises will also be use for advertisement purposes by way of hoardings etc. income from which partakes the cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is developed with a view of commercial exploitation and the prime object is to exploit the immovable property by way of complex commercial activities. This is not a mere case of a person constructing a building to be used for office or table space. This is a case of a person constructing of Family Entertainment Centres wherein the assessee is developing and letting out property alongwith basic amenities, infrastructure, etc., which is essential for the business of the lessee. This involves compliance of stringent complex regulatory requirements as regards provisions of common toilet facilities, housekeeping facilities, electromechanical maintenance, the benefit of the facilities by the assessee is integral to their use of the leased premises and for carrying multiplex business. Also, the building premises will also be used for character of business. In the present case, complex fit outs are installed as per the strict requirements of the occupants as also as per the regulatory requirements. Letting out of the premises is not possible without the relevant services, amenities and facilities and letting out of premises and utilities and fit outs are inseparable and income from such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported in 129 Taxman 17, the A.O. held that the income earned by the assessee companies from operating Mall in the form of rent and other service charges was chargeable to tax under the head "income from house property" and not under the head "profits and gains of business or profession". Accordingly, he assessed the said income under the head "income from house property" after allowing deduction only on account of interest and standard deduction u/s 24 and disallowing entirely the other expenses claimed by the assessee which resulted in substantial additions to the total income of the assessee companies for the years under consideration. 6. The action of the A.O. in treating the income from operation of Mall in the form of rent and other service charges as income from house property was challenged by both the assessee companies in the appeals filed before the ld. CIT(A) and after discussing the relevant case laws cited by the assessee and relied upon by the A.O., the ld. CIT(A) held that the activity of the assessee of operating Mall was in the nature of commercial activity. The ld. CIT(A) also held, for the following reasons given in para No. 2.3.11, that the activity of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... house property". 7. The ld. CIT(A) also examined the various clauses of the agreements entered into by the assessee companies with the parties interested in hiring commercial space in the malls and recorded his findings on such examination in para 2.3.14 and 2.3.15 of his impugned order as under:- "2.3.14 Facts of the instant case revealed that the appellant entered into a conducting agreement with parties interested in hiring commercial space. The appellant submitted a sample copy of this conducting agreement with M/s Fusion Cuisines Private Limited. A perusal of the various clauses of the same revealed that appellant had to provide various services to the conductor in the Family Entertainment Centre cum Malls owned by it (refer page 5 para (iv of the agreement) : i. Housekeeping/Sanitation services ii. Electricity, water charges for Common Area iii. HVAC for common area iv. AMC's for all plant and machinery facilities and amenities provided in the mall. v. Lifts, escalators and other utilities vi. Civil, plumbing, structural and all other repairs replacements and maintenance vii. Maintenance and upkeep of building viii. Mall Management Agency's fees/charges i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness income. This test has been laid down by the Hon'ble Calcutta High Court in the case of Shambhu Investment (P) Ltd. (supra) which has been approved by the apex Court (supra). The relevant observations of the Hon'ble High Court are being reproduced as under: "Merely because income is attached to any immovable property, that cannot be the sole factor for assessment of such income as income from property. If the main intention of the assessee is to let out the property or any portion thereof the income must be considered as rental income or income from property whereas if the primary object is to exploit the immovable property by way of complex commercial activities in that event it must be held as business income." 2.3.17 The Bombay High Court High Court in the case of Mohiddin Hotels reported in 284 ITR 229 (Bom), rendered after the Shambhu Investment (P) Ltd. case (supra) observed as under:- "By catena of decisions the Courts, time and again, have held that where the subject-matter that is let out or given on licence is not bare tenement but is a complex one like a well-furnished paying guest establishment or sheds with infrastructural facilities, the income derive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore relied strongly on the reasons given by the A.O. in the assessment order as well as the decision of Hon'ble Supreme Court in the case of Shambhu Investment Pvt. Ltd. (supra) in support of the Revenue's case that the rental income received from Malls as well as service charges received from the tenants were rightly assessed by the A.O. in the hands of the assessee companies under the head "income from house property" and the ld. CIT(A) is not justified in treating the same as "business income" by overlooking the reasons given by the A.O. as well as the decision of Hon'ble Supreme Court in the case of Shambhu Investment Pvt. Ltd. (supra) 11. The ld. Counsel for the assessee, on the other hand, submitted that various Malls were operated by the demerged company right from the financial year 2001-02 and the income received by the said company from the operation of the Mall in the form of rent and other service charges prior to demerger was regularly assessed to tax by the A.O. as business income. He submitted that the demerger took place on 1-4-2006 whereby the assets and liabilities of the demerged company were transferred to the assessee companies as going concerns and the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee companies took over the assets and liabilities of the demerged company and continued the same business of operating and running the Malls. In these facts and circumstances of the case, we find ourselves in agreement with the ld. Counsel for the assessee that the A.O. was not justified in taking a different view by treating the operating income received by the assessee companies from Malls in the form of rent and other service charges as income from house property and the ld. CIT(A) was correct in treating the same as business income of the assessee companies by following the rule of consistency after having found that there was no change in the relevant facts and circumstances of the case. 13. It is also observed that while accepting the claim of the assessee companies that operational income in the form of rent and service charges constituted their business income on merit, the ld. CIT(A) has considered all the judicial pronouncements cited by the assessee as well as relied upon by the A.O. and decided the issue in favour of the assessee by applying the legal position emanating from the said judicial pronouncements. While doing so, he has duly taken into consideration the ..... 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