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2016 (2) TMI 374 - ITAT PUNE

2016 (2) TMI 374 - ITAT PUNE - TMI - Income from shops - treated as business income OR Income from House Property - Held that:- Authorities below have erred in holding that the income derived by assessee from letting out of shops in the shopping complex Krome Planet is to be treated as Income from House Property. The findings of the Commissioner of Income Tax (Appeals) are set aside and the income from letting out of shops in the Shopping Mall is held to be business income. - Decided in favour o .....

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appeals are identical, the appeals are taken up together for adjudication. 2. The facts of the case as emanating from the records are: The assessee is engaged in the business of leasing out of shop space (units) in the Shopping Mall. The building where the Shopping Mall has been developed was allegedly purchased by the assessee to earn income by letting out of the property. The assessee in the return of income for the impugned assessment years had declared the income received from leasing out of .....

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e income received by the assessee from leasing of shops is to be assessed under the head Income from house property . Accordingly, the Assessing Officer disallowed the claim of depreciation on the building. Further, the Assessing Officer brought to tax the receipts received by the assessee on account of common amenities, maintenance, advertisement etc. under the head Income from other sources . Aggrieved by the assessment order dated 31-12-2010 for the assessment year 2008-09 and dated 05-03-201 .....

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hopping Mall and leasing out the various shops therein. The main purpose of the assessee to invest in the building was to use it as business asset. The assessee in its return of income has disclosed the license fees received from various parties/licensees to whom the shops have been given under Leave and License agreements as business income. It is not a case where the assessee has simply given the premises on rent. The assessee is providing various amenities and facilities to the licensees. The .....

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of the Leave and License agreement at pages 1 to 44 of the paper book to show that the services provided by the assessee along with shop floor area and the terms and conditions for providing the services. The ld. AR pointed that the assessee has taken loan facility from Cosmos Co-operative Bank Ltd. and ICICI Bank for construction of shopping mall and creating other facilities at the premises. The ld. AR submitted that the authorities below have erred in coming to the conclusion that charges rec .....

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erties Ltd. Vs. Commissioner of Income-tax, 82 ITR 547 (SC); ii. Assistant Commissioner of Income Tax Vs. Saptarshi Services Ld., 265 ITR 379 (Guj.); and iii. PFH Mall & Retail Management Ltd. Vs. Income-tax Officer, 110 ITD 337 (Kol.). 4. On the other hand Shri Dheeraj Kumar Jain representing the Department vehemently supported the findings of the authorities below. The ld. DR submitted that the agreement entered into between the assessee and various parties to whom shops have been rented o .....

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d. Thus, from the facts of the case it is evident that the income from letting of shops has to be assessed under the head, Income from House Property . In support of his submissions the ld. DR placed reliance on the decision of Hon'ble Supreme Court of India in the case of East India Housing and Land Development Trust Ltd. Vs. Commissioner of Income Tax reported as 42 ITR 49 (SC) and Shambhu Investment (P) Ltd. Vs. Commissioner of Income Tax reported as 263 ITR 143 (SC). 5. The ld. AR refuti .....

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perused the orders of the authorities below. We have also examined the documents filed by the assessee in the form of paper book. The assessee has assailed the findings of Commissioner of Income Tax (Appeals) in the impugned assessment years on the following grounds: i. Treating the business income as income from house property. ii. Treating the business income as income from Other Sources. iii. Disallowing expenses incurred for the Mall business. 6.1 The income from letting out of property whe .....

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cipal Corporation for setting up of a Shopping Mall. The assessee is providing various facilities and amenities apart from the shop space to the Licensee. The list of the facilities provided by the assessee in the Shopping Mall is given in Clause 7 of the agreement. Illustrative list of the facilities/amenities provided by the assessee to the Licensees are given here-in-under: i. Lighting arrangement for common areas like passages, atrium, rest rooms, loading / unloading areas, waste disposal ar .....

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drant & Sprinkler system. vi. Installing the central garbage collection & disposal system. vii. Provision of separate area for garbage collection, loading / unloading docks and logistics area. viii. Installation of common dining arrangement for occupants, their staff & workers with tables, chairs, benches, etc. ix. Installation of common water purifier and dispensing system to provide clean & hygienic potable water. x. Installation of common rest room facilities. 6.2 Charges for .....

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urities etc. A perusal of Clause 3 relating to License Fee and other charges would show that the license fee is inclusive of taxes, levies, CAM (common amenities maintenance and services) charges, service tax and statutory duties/levies as may be applicable from time to time. However, the licensee was required to pay additional charges towards the cost of electricity consumed for lights, air conditioning of the center part atrium area and the toilets and washrooms exclusively designated to the l .....

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t the security of rental receivables. The facts on record show that the assessee had acquired the property for its commercial exploitation. The assessee has not given units/shops in the shopping complex on rent simplicitor. The assessee is providing various amenities and facilities also. The object of the assessee is to exploit the building as a business asset. The assessee had taken loan facility from the bank for the Shopping Mall project. The assessee had also engaged staff to manage the affa .....

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out of shops in the shopping complex is a business income. The relevant extract of the findings of the Tribunal are reproduced here-in-under: 6. We have carefully considered the relevant facts, the arguments advanced by the rival parties and the decisions cited. In our view, 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 ha .....

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eriod of six years commencing from 1-4-1999 and that with Pantaloon Retail (India) Ltd. is made operative for a period of seven years commencing from the date of official launch of the mall, or, in any case, on or before 15-3-2000, by which time the owner would endeavour to provide the user with all the services and facilities as mentioned in the agreement. The agreements provide inter alia that the owner, Le. the assessee, would keep open the business centres from 9 A.M. to 10 P.M. ((10 A.M. to .....

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e to the use of the said business centre and to facilitate free movement of the visitors within the said building. As per the agreements the users are not permitted to allow any person to sleep or stay in sny part of the building nor to use the same for residential puposes. The agreements specifically stipulate that the user is only granted permissive use of the services and facilities provided in the premises by the assessee. The user would not be vested with or enjoy any right, title or intere .....

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n time would attract charge of interest at a steep rate (21% and 24% compounded quarterly). The fixed service charges do not include charges for telephone and FAX facilities and electricity charges or charges for any other similar facilities provided by the owner to the users. These are to be paid by the users on actual basis. The assessee is responsible for the payment of ground rent/lease rent, maintenance charges, municipal and other taxes, rates and cesses as well as other such outgoings. Ho .....

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nt the customers had no right of occupancy. They have only limited access to use the space for the purpose of their business, and that too, in respect of certain activities, during the specific hours of the day only. Furthermore the keys of the premises are kept by the assessee meaning thereby that the premises are fully in control of the assessee. 6.1 At this juncture it would be pertinent to focus our attention to some undisputed facts pertaining to this case. The assessee has given up its bus .....

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changing economic scenario of the country the assessee correctly recognised the immense opportunity that the retail shopping malls would provide for making big money. That is why it lost no time in discarding its earlier business to venture into this new field. The Hon'ble Supreme Court in Karnani Properties Ltd. 's case (supra) had observed : From the facts; found by the Tribunal it follows that the services rendered by the assessee to its tenants were the result of its activities carr .....

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ibility of the assessee. Obviously the assessee is required to employ a good number of personnel on a permanent basis to discharge such responsibility. The various arrangements that the assessee has to make on a daily basis, to ensure availability of the services and amenities to the users in accordance with the agreements, reflect a clear manifestation of organised activity. The duration of the agreements and various legal and other commitments that each party to the agreement(s) are required t .....

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f the agreements, as stated above, also indicate that there is much more than letting out of the properties simpliciter for earning rental income. 6.2 The Hon'ble Bombay High Court in the case of CIT v. National Storage (P.) Lid., while laying down the principles to be followed in determining the particular head under which an income is to be assessed, observed: In cases where the income received is not from the bare letting of the tenement or from the letting accompanied by incidental servi .....

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section but income from operations of a trading nature falling under Section 10 of the Act; The facts in the instant case undoubtedly show that the income obtained is not merely because of the bare letting of the premises but also because of the facilities and services rendered. Thus the income derived by the assessee cannot be regarded as simply from the exercise of property rights. Rather the income is derived by the assessee from complex g operations of a trading nature. 6.3 In the case of Ev .....

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e evidence of exploitation of a commercial asset. (2) Exploitation of a commercial asset does not necessarily mean exploitation by the assessee himself at all material times. The assessee may temporarily cause it to be exploited by another person against payment of consideration and for this purpose may also execute a lease for a fixed period even with clauses of option to renew. (3) But in order that the income derived from the lease may be taxable under Section 10 it must be shown that the les .....

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shopping mall. Indeed both malls and hotels constitute building or group of buildings providing accommodation for commercial use thereof. In the management of both hotels and shopping malls the predominant activity is commercial exploitation of the property. We feel that there is a lot of sense in the contention of the learned counsel of the appellant that just as utilisation of accommodation for providing F customers with board and lodging is a commercial activity, utilisation of space for pro .....

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business centre constitutes business income. The decision of the Tribunal is based on the finding that the assessee is providing a number of services, e.g. having an EPABX machine facilitating telephone services to the occupants of the business centre, services of lift, services of receptionists, secretarial services, data processing, conference room, etc. Thus what the assessee is providing in reality happens to be a working place along with the aforesaid facilities. It is apparent that the va .....

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inners (P.) Ltd. (supra), the Hon'ble Madras High Court held that only letting out of a property simpliciter without anything more will fall under the category income from house property. But where the assessee is already running a factory and has built another factory and gives it on rent for running it, it is not a case of letting out the property simpliciter. From the nature of the services provided by the appellant coupled with some of the provisions of the agreements (notably the one re .....

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lcutta High Court observed: Taking a sum total of the aforesaid decisions it clearly appears that 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 test that the main intention is for letting out the property or any portion thereof the same must be considered as rental income .....

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/business centres and taking up the business of the management of the same. The way the agreements have been drafted gives ample evidence of such intention of the assessee. The fact that the Apex Court held that the income earned by Shambhu Investment Pvt. Ltd. is assessable as property income has no relevance in the facts and circumstances of the present case. Because in that case the facts showed that the main intention was to earn rental income. That was why the entire cost of the property wa .....

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the income is attached to immovable property, cannot be the sole criterion for assessment of such income as income from house property. It is necessary to dig further to find out what is the primary object of the assessee while exploiting the property. If it is found, that the main intention is for simply letting out of property or any portion thereof, the resultant income must be assessed as income from house property. If, on the other hand, the main intention is found to be the exploitation o .....

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ssed as business income and not as income from house property. In the instant case we observe that the intention of the assessee right from the beginning was to exploit the property for commercial activities. As is evident from License agreement, the assessee is carrying out various activities to manage the affairs of the shopping complex. We are of the view that the facts in the case of the assessee are similar to the facts in the case of PFH Mall & Retail Management Ltd. Vs. Income Tax Off .....

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