TMI Blog2014 (7) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... pany as business income during the course of its business carried on by them of operating and running the Malls as a commercial activity and as rightly held by the ld. CIT(A), the said income primarily arising from the exploitation of commercial assets by way of complex commercial activity constituted the business income of the assessee company. It is observed that the decision of the co-ordinate bench of this Tribunal in the case of M/s Khandelwal Estate P. Ltd. (2014 (2) TMI 1227 - ITAT MUMBAI ) cited by the ld. Counsel for the assessee also supports the case of the assessees. In the said case, the income received by the assesse from the operation of shopping malls in the form of rent and service charges was held to be business income of the assessee by the Tribunal holding that giving space with services and facilities of varied and wide nature would definitely constitute a business and the relationship between the parties in such case is distinguished from that merely of a landlord and tenant relationship. We therefore find no infirmity in the impugned orders of the ld. CIT(A) treating the operational income received by the assessee companies from running of Malls in the for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in the form of rent and service charges was chargeable to tax under the head income from house property and the same was offered by the assessee under the head profits and gains of business or profession in order to avoid tax by claiming various expenses which otherwise were not allowable under the head income from house property . He therefore required the assessee to explain as to why the said income should not be brought to tax under the head income from house property as the primary object of operating Malls was to earn rental income by letting out the property. In reply filed in writing, the following submission was made by the assessee companies in support of their claim that the income received from the running of Mall in the form of rent and other service charges was chargeable to tax under the head profits and gains of business or profession : As per the main objects of the Memorandum of Association, the company is permitted to carry on the following businesses: To carry on the business as builders and general construction contractors and own, sell, acquire, process, develop, construct, demolish, enlarge, rebuild, renovate, decorate, repair, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the present case, complex fit-outs arte 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 composite activities would be chargeable under the head business income. Merely because income is attached to any immovable property that cannot be the sole factor for assessment of such income as income from property. What has to be seen is what was the primary object of the assessee while exploiting the property. If it is found applying such tests that the main intention is for letting out the property or any portion thereof the same must be considered as rental income or income from house property. In case it is found that the main intention is to exploit the immovable property by way of complex commercial activities in the event it must be held as business income. In a recent judgment in the case of PFH Mall Retail Management Vs. ITO (110 ITD 337) (Kol) (2008), the Tribunal held - on the facts of the case, that income derived from construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities would be chargeable under the head business income. Accordingly, the assessee has rightly treated rental revenue from commercial exploitation as chargeable under the head Business Income. 4. After considering the submission made by the assessee, the A.O. held that the ratio of the judicial pronouncements relied upon by the assessee was not applicable to the facts and circumstances of the assessee s case. He also did not find the submission made by the assessee companies in support of their claim to be not acceptable for the following reasons: 10. The colourful contention of the assessee that the assessee is giving various types of facilities to the lessee in respect of property let out and hence the income from rent is assessable under the head Income from Business is not acceptable as the assessee company is solely working with the intention to earn the rent from letting out the properties. 11. Further, whatever, the facilities, the assessee company is providing to the lessee is also recovered by the assessee company which is also a one type of rent received by the assessee. The maintenance charges recovered by the assessee in respect of various facilities, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee of operating mall was in the nature of business income and income derived from the said activity in the form of rent and other service charges was assessable as business income and not as income from house property: 2.3.11 In the case of PFH Mall Retail Management (Supra), the Hon ble ITAT has held that before arriving at any conclusion about the particular head under which the income derived by the assessee is required to be assessed, it is necessary to examine the relevant provisions of the agreements that the assessee had entered into with the users. In all the agreements the assessee is shown as the owner of the premises in which the shopping malls/business centres are located and the other party to the agreement is shown as the user. The assessee, as owner of the premises, has the responsibility of providing security, communication and other services as specified in the agreements. The users do not enjoy even any tenancy right as per the agreements. The service charges payable by the users have been determined at a fixed rate. Clearly the assessee is engaged in a complex set of activities, the purpose of which cannot be regarded as merely earning of rental inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees/charges ix. Insurance of entire building x. Horticulture/garden/common area/passage xi. And all other costs expenses attributable to the complex 2.3.15 Traditionally the income from let out the property simpliciter presupposes existence of an owner-tenant relationship between the receiver and the payer of the rent. One of the principal characteristics of such relationship is that the tenant must enjoy tenancy rights, which he acquires the moment he becomes a tenant. Section 55(2)(a) of the Act even speaks of the cost of acquisition of such tenancy rights for the purpose of computation of capital gains on transfer thereof. In the instant case the agreements entered into specifically provided that the user of the services provided by the owner shall not have any tenancy rights. During the subsistence of the agreement the exclusive, absolute, legal, and judicial possession of the premises shall remain and be deemed to have always been remained with the owner at all times. The relevant clause (10(b) at page 15 of the agreement) in the agreements states as under: Nothing herein contained shall be construed as creating any right, interest, easement, tenancy, sub-ten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities, the income derived therefrom which is not separable as income from letting out the building and the income letting out from the furniture, plant and machinery, etc., such composite income shall not be covered by the income from house property. The facts of the present case are different from the facts before the Hon ble Supreme Court in the case of Shambhu Investment (P) Ltd. (supra). In the case before the Hon ble Supreme Court, the assessee had let out the furnished accommodation without any other facilities. However, in the present case appellant is operating business centers and commercial complexes by providing space along with various services and amenities as a business venture. 9. The ld. CIT(A) finally held that the intention of the assessee companies was to commercially exploit the property as unequivocally established from the facts and circumstances of the case and letting out was only incidental to carrying on such business. He accordingly held that the object of the assessee companies was to develop and operate family entertainment centre cum malls by exploiting the property and it was not a case of mere letting out the property. He also noted that the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies as going concerns and the same business as carried out by the demerged company was continued by the assessee companies. He contended that there was thus no justification in the action of the A.O. to treat similar income earned by the assessee companies from the operation of Malls in the form of rent and other service charges as income from house property by taking a different view than the view taken in the earlier years in the case of demerged company especially when there was no change in the facts and circumstances of the case. He also contended that the activity of operating Malls, in any case, was a business activity as rightly held by the ld. CIT(A) and the income earned from the said activity in the form of rent and other service charges was chargeable to tax in the hands of the assessee as business income. He therefore strongly relied on the impugned orders of the ld. CIT(A) treating the said income as business income and also submitted that the decision of Hon ble Delhi High Court in the case of CIT vs. Neo Poly Pack (P.) Ltd., 245 ITR 492 as well as the decision of the Tribunal in the case of ITO vs. M/s Khandelwal Estate P. Ltd. (ITA No. 2692/M/2010 order dtd. 7- 2- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s duly taken into consideration the nature of business activity of the assessee company as well as the terms and conditions of the relevant agreements under which the commercial space in the Malls was given on hire by the assessee companies to the concerned parties. He has also taken into account the various services provided by the assessee companies during the course of operation and running of the family entertainment centre cum Malls owned by it in para 2.3.14 of his impugned order to come to the conclusion that the intention of the assessee companies was to commercially exploit the property and letting out was only incidental to carrying on such business. 14. As held by the Hon ble Calcutta High Court in the case of Shambhu Investment Pvt. Ltd. (2001) 249 ITR 47 (Cal.), which has been subsequently affirmed by the Hon ble Supreme Court, what has to be seen in this context is what is the primary object of the assessee while exploiting the property. If it is found applying such test that the main intention is to let out the property or any portion thereof, the same must be considered as income from house property. In case it is found that the very intention is to exploit the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
