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The Deputy Commissioner of Income Tax Versus M/s Keyaram Hotel Pvt. Ltd. And Vice-Versa

2016 (6) TMI 427 - ITAT CHENNAI

Classification of rental income received by the assessee from the commercial complex - income from business v/s income from house property - Held that:- Since the assessee itself claims 75% of rental income has to be classified as income from house property, the CIT(Appeals) has rightly found that 75% of the rental income for assessment year 2003-04 as income from house property. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly found that 75% of the rental .....

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:- 1-6-2016 - Shri N.R.S. Ganesan, Judicial Member And Shri A. Mohan Alankamony, Accountant Member For the Revenue : Sh. P. Radhakrishnan, JCIT For the Assessee : Shri S. Sridhar, Advocate ORDER Per N. R. S. Ganesan, Judicial Member I.T.A. No.402/Mds/2013 is filed by the Revenue for the assessment year 2003-04 and other appeals, viz. I.T.A. No.1095/Mds/2014, I.T.A. Nos.2215 & 2216/Mds/2015 are filed by the assessee for assessment years 2010-11, 2006-07 and 2009-10. Since common issue arises .....

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from business. However, the Assessing Officer classified the entire rental income as income from house property. On further appeal, the same was also confirmed by this Tribunal and the High Court. In fact, for the assessment year 2001-02, the Madras High Court in Keyaram Hotels P. Ltd. v. ACIT (2008) 300 ITR 118 confirmed the order of this Tribunal by holding that the entire rental income is income from house property. The Madras High Court placed its reliance on the earlier Division Bench judgm .....

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ncome from house property. According to the Ld. counsel, the basis for the High Court s judgment for earlier assessment year in the assessee's own case is the judgment of Division Bench of Madras High Court in Chennai Properties and Investments Ltd. (supra). Now, the Apex Court in Chennai Properties and Investments Ltd. v. CIT (2015) 373 ITR 673 reversed the judgment of Madras High Court in Chennai Properties and Investments Ltd. (supra). Therefore, the judgment of Madras High Court is not a .....

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e Assessing Officer, after considering the activity of the assessee, again found that the income has to be assessed as income from house property. On appeal before the CIT(Appeals), the CIT(Appeals) found that the assessee has not just let out the property, but undertaken to maintain the same by providing indispensable amenities. Therefore, the assessee has to make compulsory expenditure in day-to-day maintenance of amenities provided and security system, etc. The CIT(Appeals) further found that .....

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-10, the CIT(Appeals) confirmed the order of the Assessing Officer holding that the rental income from letting out the commercial complex, including the amenities, is assessable under the head income from house property and not under the head business income . Against these orders of the CIT(Appeals), the assessee has also filed appeals. 4. Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the assessee let out a luxurious commercial complex along with several amenities. Referring .....

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ing room, reading room and waiting room, etc. These facilities are to be undertaken in a systematic manner, therefore, according to the Ld. counsel, part of the rental income has to be considered as income from business. Without providing these services in a systematic and routine manner, the tenants would not have taken the building on lease. The expenditure claimed by the assessee on day-to-day maintenance in a systematic manner cannot be considered as part of the rental income. Therefore, the .....

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ment year 2001-02 and for assessment years 2004-05, 2005-06, 2007-08 and 2008-09, the Ld.counsel submitted that the basis for the judgments of Madras High Court is the judgment of Division Bench in Chennai Properties and Investments Ltd. (supra). The Apex Court examined the correctness of the judgment of Madras High Court in Chennai Properties and Investments Ltd. v. CIT (2015) 373 ITR 673 and found that the deciding factor is not the ownership of the land or leases but the nature of the activit .....

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Court in the assessee's own case for assessment year 2001-02 and 2004-05, 2005-06, 2007-08 and 2008-09 are not applicable to the facts of this case. 6. On the contrary, Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that the assessee let out the commercial complex to various persons and receiving rental income. The assessee claimed in the earlier assessment year the entire rental income as income from business. The Assessing Officer, however, rejected the claim of the a .....

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s to be assessed as income from house property. For the assessment year 2003-04, this Tribunal, however, found that the assessee, apart from letting out the property and collecting rent, provides services such as general public refreshments, maintenance of waiting room, reading room, meeting room and other conveniences, internal security, maintenance of common area and lift operation. Therefore, by placing reliance on the judgment of Kerala High Court in Attukal Shopping Complex P. Ltd. (supra), .....

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es rendered for maintaining the common area, waiting room, reading room, sundry services and lift room, therefore, the 25% of rental income has to be assessed as income from business. The assessee had appealed before the CIT(Appeals) that the balance 75% of rental income has to be assessed as income from house property. This claim of the assessee was accepted by the CIT(Appeals) for assessment year 2003-04. Since the judgments of Madras High Court for assessment year 2001-02 and for the assessme .....

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come has to be treated as income from business, is not justified. 7. Referring to the assessee s appeals for assessment years 2010-11, 2006-07 and 2009-10, the Ld. Departmental Representative submitted that the CIT(Appeals) has rightly confirmed the orders of the Assessing Officer by holding that the rental income has to be assessed as income from house property by placing reliance on the judgment of Madras High Court in Chennai Properties and Investments Ltd. (supra). The CIT(Appeals) has also .....

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2007-08 and 2008-09, the issue travelled upto Madras High Court and the Madras High Court found that the entire rental income has to be assessed as income from house property. For the assessment year 2003-04, this Tribunal found that the activities carried on by the assessee were not considered by the authorities below, therefore, the matter was remitted back to the file of the Assessing Officer. The Assessing Officer, after examining the activities of the assessee, found that the rental income .....

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come from business and 75% has to be assessed as income from house property. Therefore, the Revenue filed appeal before this Tribunal for assessment year 2003-04. For other assessment years, namely, 2010-11, 2006-07 and 2009-10, the CIT(Appeals) confirmed the orders of the Assessing Officer holding that the rental income has to be treated as income from house property. 9. We have carefully gone through the judgments of Madras High Court in the assessee's own case for assessment year 2001- 02 .....

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he judgment of the Madras High Court in Chennai Properties and Investments Ltd. (supra). The Apex Court found that the ownership of land or leases cannot be a deciding factor but the nature of activities of the assessee and nature of operation in relation to them would be the deciding factor. After referring to the judgment of Privy Council and House of Lords in England and the judgment of Apex Court in Karanpura Development Co. Ltd. (supra), the Apex Court found that the facts of the case in Ch .....

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tivities and operation carried on by the assessee. Since, in the earlier judgment in assessee's own case, the Madras High Court decided based upon its judgment in Chennai Properties and Investments Ltd. (supra) and the same was reversed by the Apex Court, this Tribunal is of the considered opinion that the judgment of Madras High Court in the assessee's own case for earlier assessment years may not be applicable to the facts of the case. The law laid down by the Apex Court is binding on .....

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pra). It is not in dispute that apart from letting out the property, the assessee is maintaining common area, lift operation, providing security, maintenance of waiting hall, meeting hall, etc. These activities are carried on in a systematic and regular manner. Therefore, the service provided by the assessee in a systematic and regular manner would amount to business activity. The rental agreement entered into by the assessee does not bifurcate the rent for the services provided and letting out .....

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