TMI Blog2015 (9) TMI 1562X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue. - Decided in favour of assessee. Interest on fixed deposits kept with bank - treated as business receipts or income from other sources - Held that:- Admittedly, the interest was earned from the bank receipts. The Ld. A.R. could not convince us as to how the interest earned on fixed deposits can be said to be business activity of the assessee. We do not agree with the finding of the Ld. CIT(A) that since the income from the letting out of the commercial complex has been treated as business income then the interest from FDRs is also to be treated as business income. The interest on FDRs has no relation with the business of letting out of the property of the assessee. This issue is accordingly decided against the assessee and in favour of the Revenue. Treatment of interest income - whether be assessed as ‘business income’ or ‘income from other sources’ - Held that:- As per the proposition of law laid down by the Hon’ble Jurisdictional High Court in the case of “Reliance Utilities and Power Ltd.” [2009 (1) TMI 4 - BOMBAY HIGH COURT] wherein it has been held that “if there be interest free funds available to an assessee sufficient to meet its investments and at the same tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income from letting off of premises to M/s. Shoppers Stop Ltd., Pune which has been a part and parcel of the main activities of the assessee company. The assessee had shown the rental income from the leasing of the premises of M/s. Shoppers Stop Ltd. as business income and claimed depreciation and other expenses upon it. The return of income filed by the assessee was processed under section 143(1) of the Act. However, later on, the assessment was reopened under section 147 of the Act. During the reassessment proceedings, the Assessing Officer (hereinafter referred to as the AO) asked the assessee to explain as to why the income from letting off of the commercial complex (M/s. Shoppers Stop Ltd.) should not be treated as income from House property . The assessee explained that it was a case of composite letting out of building and plant machinery, all the amenities, equipments, fixtures, fittings were leased out along with the building which was the business activity of the assessee. The AO, however, treated the income offered by the assessee as income from House property . 4. The Ld. CIT(A), however, vide impugned order held that the income of the assessee was derived fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -07, decided the issue, ex-parte against the appellant by relying on the order of M.S. Luvish Infotech Projects Pvt. Ltd. for AY 2005-06. 5.7 I have perused the order of the CIT (A)-V, Hyderabad in the case of M.S. Luvish Infotech Projects Pvt. Ltd. for A.Y. 2005-06. The only difference between the two cases is that M.S. Luvish Infotech Projects Pvt. Ltd. had acquired in similar modus operandi a building called Marisoft II which is an IT Park and in the present case the appellant has taken building and leased to Shoppers Stop. 5.8 However, there is a need to evaluate the agreement and the facts of the circumstances of the case and the decision taken by CIT (A)-V, Hyderabad in view of the recent decisions of the Hon'ble ITAT and jurisdictional High Court. 5.9 The Hon'ble High Court of Bombay has recently held in the case of CIT vs. Runwal Developers Private Limited (201 l-TIOL-658-HC-MUM-IT) on October 5, 2011 as under; 9. We see no merit in the aforesaid contention. The fact that the assessee apart from carrying on the construction activity, is in fact carrying on the business of running a Mall in the name of 'R Mall' is not in dispute. Admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls etc and offered the hire charges to tax as business income . The AO relied on Sultan Brothers vs. CIT 51 ITR 353 (SC) CIT vs. Shambhu Investments 263 ITR 143 (SC) and held that as the main intention was letting out of property, the hire charges was assessable as Income from house property . The AO noted that TDS on the hire charges was assessable as Income from house property . The AO noted that TDS on the hire charges was deducted u/s 194-I. On appeal, the CIT(A) reversed the AO on the ground that the assessee had exploited the property by way of commercial activity and the receipts constituted business income . On appeal by the department to the Tribunal, HELD dismissing the appeal: (i) The law laid down in CIT vs. Shambhu Investment 249 ITR 7 (Cal) approved in 263 ITR 143 (SC) is that merely because income is attached to immovable property cannot be the sole factor for assessment of such income as income from property. What has to be seen is the primary object of the assessee while exploiting the property. If the main intention is to let out the property, the income is assessable as income from house property while if the main intention is to exploit the immo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure thereon, it could not be considered as having mode investment in a property for earning rental income only. The lease of the property was shown as part of the business activity, thus, the income received there from cannot be said as income received as a land owner but as a trader...................The activity was done by the assessee as a business venture and was in accordance with the main object of the company. The intention of any prudent businessman is to earn; profit at a maximum level and investment mode in the business never lost its main intention for which it was incorporated...............................The assessee is providing ward and watch, maintenance of common area, maintenance of light in the common area, supply of water, providing lift, installation of electric transformer, power to the lessees, providing generator, over-head water tanks, maintenance of drainage etc., This clearly establishes that the entire activity is in organized manner to earn profit out of investment made by the assessee as a commercial venture. In view thereof, the AO is directed to assess the rental income as from business...... 9.2.2. As the issue before the earlier Bench was si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treated as the owner of the land which is a condition precedent for treating the income as income from house property under section 22 of the Act. The Han'ble Court, taking cue from the ruling of the Hon'ble Supreme court in the case of CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625, had held that the income derived by the company from shops and stalls is income received from property and falls under the specific head described in section 9. 92.4. We would like to point out that the case law relied on by the Revenue is clearly distinguishable to the facts of the issue on hand in the sense that the present assessee, apart from providing bare building, had also provided various amenities such as fit-outs, central air conditioning, generator back ups, street lights, roads, drainage facilities, garden, security, water facilities, sewerage and water treatment plant, sub-station for electricity, water treatment plant etc., which were not made available to the tenants in the case Bhoopalam Commercial Complex case cited supra. 9.3. In the case of Shambhu Investment P. Ltd. a. CIT reported in (2003) 263 ITR 143 (SC), the issue, in brief, was that the assessee owne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 as under: 2. At the outset, the learned Counsel for the assessee submitted before us that all the grounds of appeal are covered in favour of the assessee by the co-ordinate bench decision being ITA no.1057/Mum./2010, vide order dated 12th August 2011, in assessee's own case for assessment year 2005- 06, a copy of which is placed on record. 3. On the other hand, the learned Departmental Representative fairly conceded with the submissions by the learned Counsel for the assessee. 4. After going through the orders of the authorities below, it is seen that the learned Commissioner (Appeals) has followed the conclusions drawn by him in the immediately preceding year i.e., A.Y. 2005- 06 and has decided the issue against the assessee. The said order has been reversed by the Tribunal in asessee's own case cited supra. The issue raised in ground no.1, has been dealt with and discussed vide Para-13 of the order dated 12th August 2011 (supra), passed by the Tribunal in assessee's own case, which reads as follows:- 13. The undisputed fact is that the property in question is on I. T. Park, with all infrastructure facilities and services. This is not a simple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra), the Tribunal, in this decision, after considering the judgment in Shambhu Investments P. Ltd., held that the income earned from business centre is to be assessed under the head Income from Business Profession . The decision of Mumbai Bench of the Tribunal in Shanayo Enterprises (supra) held that when the property is used for specific purposes and in the nature of providing complex services, the income is taxable under the head Income from Business Profession . Applying the propositions laid down in these case lows, we hold that the property can be used only for a specific purpose i.e., I.T. operation and the assessee has provided complex service facilities and infrastructure for operating such business and on this factual matrix, we uphold the contention of the assessee that the income in question should be assessed under the head Income From Business Profession . Consequently, we set aside the order passed by the Commissioner (Appeals) and allow the ground raised by the assessee. 5. Keeping in view the aforesaid findings of the Tribunal, we set aside the impugned order passed by the learned Commissioner (Appeals) and allow ground no.1, raised by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Air conditioning plants would be of reciprocal type/screw type/blue star/carrier or similar make. Chilled water lines upto AHU/fan coils units in each floor level. Common areas of the complex to be used by the public shall be fully air-conditioned. Complete flooring wall painting, false ceiling, wiring upto one point of the premises and other works for development/finishing in respect of all the common areas of the complex. Commissioning of air-conditioning plants and supplying of air-conditioning within the premises. 5.24 It is also pertinent to see clause 5 and 6 of the purchase agreement as mentioned in page 32 of the paper book which reads as under: 5) With a view to provide continuous common maintenance of the entire complex, it has been agreed that the Purchaser shall pay to the Builders a sum of ₹ 66,92,320.50 (Rupees Sixty Six Lacs Ninety Two Thousand Three Hundred Twenty and paid Fifty Only), towards the Corpus Deposit calculated @ ₹ 150/- per chargeable sq.ft. area of 44,615.47 sq.ft., payable on along with the final payment referred in clause 2(u) above. The Builder shall pay the said corpus deposit (after deducting monies paid as dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng terrace -if applicable and if marked on the plan annexed hereto) Built-up Area admeasuring 3648.03 sq.ft. i.e. 338.91 sq.mtrs, carpet area (un-plastered wall to un-plastered wall) 3172.15 sq.ft i.e. 294.70 sq.mtrs. Office/Shop no. F-1 (Part No.2) on the First floor (including area of balcony if applicable) (with adjoining terrace if applicable and if marked on the plan annexed hereto) built-up area admeasuring 4221.10 sq.ft. i.e. 392.15 sq. mtrs. Carpet area (un-plastered wall to un-plastered wall) 3670.52 sq.ft. i.e. 341 sq.mtrs. Office/Shop No.S-1 (Part-2) on the second floor (including area of balcony if applicable) (with adjoining terrace if applicable and if marked on the plan annexed hereto) built-up area admeasuring 4270.62 sq.ft. i.e. 396.75 sq.mtrs, carpet area (un-plastered wall to unplastered wall) 3713.58 sq.ft. i.e. 345 sq.mtrs. The above premises admeasuring in aggregate about 12,139.75 sq.ft. built-up/chargeable area i.e. 1127.81 sq.mtrs....or thereabouts in the building to be known as 'NUCLEUS' under construction on the part of the said property more particularly described in the first schedule herein above written. SPECIFICATION ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the lessors architect To make structural provision for installation of signages on the building elevation. To put in proper size in mutually accepted location on the elevation as per the lessee's requirements. To provide show windows with opening and fixed glazng on show windows as per Architectural Design. Central Air-conditioning plant-supply and installation of central air-conditioning plant of adequate capacity to cover the specified premises including storerooms etc. Actual tonnage requirements to be calculated so as to maintain uniform temperature of 22+, - DEGREES Celsius inside the specified premises and fresh air opening for AHU locations. To provide the air- conditioning plant with control panels, air-handing unit, fan coil units and other equipment required for operation of the air-conditioning plant, air carrier or similar make. Chilled water lines upto AHU, provision of AHU/fan coils units in each floor level. Common areas of the complex to be used by the public shall be fully air-conditioned. Fire protection/safety as per rules. To complete flooring, wall painting, false ceiling, wiring upto one point of the specified premise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name and style Hotel Mount Everest - ₹ 7500/- leasehold rent per annum for a period of 5 years. The Court held that rental income derived from lease should be taxed u/s. 10 of the Income Tax Act, 1922. If the appellant is taxed u/s. 12(4), it loses certain other allowances u/s. 10 by reason of depreciation. In that case the Hon'ble High Court referred to the decision in 51 ITR 353. Sec. 9 of the Income Tax Act, 1922 referred to Income from House Property. Sec. 10 Profit and gain of business - terms and conditions are identical. (ix) 282 ITR 61 (All) - Income from letting out of House Property and in addition had lease rent from letting out of Workshop, Cold Storage, Motor Garage, Raj Oil and Interest income and Misc. income - receipt of rental - business income. In that case decision of the Hon'ble Supreme Court in 51 ITR 353 was referred to. The Court also considered the decision in 20 ITR 451 (SC) - Plant was unused for some time, after some time let out on monthly rent - Court held that it was chargeable to Business Income'. (x) 147 ITR 692 (Mad) - Building consisting of 68 rooms and with various facilities satisfied requirement of lodging house ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets will cease to be business assets and the transaction will only be exploitation of property by owner thereof, but not exploitation of business assets. 5.31 In the case of Mohiddin Hotels P Ltd, referred supra, the assessee therein constructed a hotel and let it out on a fixed annual amount, from the day one when it was ready for commissioning, in the facts of the said case, the Hon'ble Bombay High Court found that there were enough materials in the record to find the intention of the parties and further they suggested that the assessee therein actually intended to exploit the hotel as its business assets, as held by Hon'bie Supreme Court in the case of Mohidding Hotels P Ltd, referred supra. Under those circumstances, it was held that the rental income received there in is business income. 5.32 In the case of Everest Hotels Ltd Vs. CIT (114 ITR 779), the Hon'ble Calcutta High Court found that the assessee had resumed the hotel business even before the assessment was completed by the assessing officer. Under those circumstances, the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not whether there is one -lease or two, i.e., separate leases in respect of the furniture and the - that the two should be enjoyed together? (b) Was the intention to make the letting of the two practically one letting? (c) Would one have been let alone, and a lease of it accepted, without the other? if the answers to the first two questions are in the affirmative and the last in the negative, then it has to be held that the lettings would be inseparable. 5.37 The Hon'ble High Court, alternatively, applied the tests prescribed by the Hon'ble Supreme Court on the facts prevailing in the case of Shambu Investments Pvt. The relevant observations made by the High Court are extracted below:- Let us approach the problem from another angle by applying the test suggested by the five judges' Bench in the case of Sultan Brothers Pvt. Ltd. (1964) 51 ITR 353 (SC). The three questions framed by the apex court are applied in the instant case as follows (Page 363): (A) Was it the intention in making the lease - and it matters not whether there is one lease or two, i.e., separate leases in respect of the furniture and the building - that the two shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the furniture and the building - that the two should be enjoyed together? In the instant case there is no separate agreement for the furniture and fixtures or for providing security and other amenities. The only intention was to let out the premises to the occupant. Hence, the intention was to allow the occupant to use the space. There was no intention that the two should be enjoyed together. Hence, this question should be answered in the negative. (B) Was it the intention to make the letting of the two practically one Jetting? From a plain reading of the agreement it appears that the intention of the parties to the lease agreement was to exploit the commercial asset and not the property alone. Hence, this question should be answered in the negative. (C) Would one have been let alone, and a least of it accepted, without the other? The appellant had let out the premises and as per the directions of the lessee provided various amenities in it so that the premises can be used as a mall. The premises could have been let out independently and the amenities provided therein where at the behest of the lessee. Hence, in view of the same, the question mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lone. The services and amenities provided by the assessee company were inseparable. 7. It has been time and again held by the various judicial authorities that merely because income was attached to a property it could not be a sole factor for assessing such income as income from house property. It has to be seen that whether it was the primary objective of the assessee to exploit the property in a simple manner or to exploit it commercially by way of complex commercial activities to generate income. The assessee in this case has developed the shopping mall and has let out the same by providing host of services/facilities/amenities and the basic intention of the assessee has been to commercially exploit the property. Therefore, the income derived from the shopping mall is liable to be assessed as business income. It is an undisputed fact that in the memorandum of association of company, some of the main objects of the company inter alia are to purchase, acquire, take on lease etc. an area, land, building structure and to develop and maintain the same as markets or other buildings, residential and commercial or convinces, drainage facility, electric, telephonic, television install ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of facilities and amenities provided taking into consideration not only the need and requirements of the business entities/occupants but also the comfort zone of the customers/visitors. The Ld. A.R. of the assessee in this respect has explained that the rental income received by the assessee from letting out the commercial complex along with amenities was very high in comparison to the ordinary letting off of any building. He has explained that for an investment of about ₹ 25 crores the assessee was getting the rental income of ₹ 2.5 crores which was much more than the income that can be failed from ordinary letting of the building. The assessee had made high investments for equipments and infrastructure for providing the amenities. He has further explained that in the case of the sister concern of the assessee M/s. Khandelwal Estate Pvt. Ltd., under similar circumstances, the rental income has been held to be as business income by the Tribunal vide order dated 07.02.2014 passed in ITA No.2692/M/2010. He has further invited our attention to the balance sheet of the assessee to show that the assessee had borrowed huge funds for the construction and development of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be correct but not so, where the letting or sub-letting is part of a trading operation. The diving line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned. The Hon'ble Supreme Court thus has emphasized the professed objects and the manner of activities carried out by an assessee. It has also been pointed out that the nature of dealings with the property would also be factor to determine whether the activities fall for consideration under the head business income or house property income . The Hon ble Supreme Court thus noticed the aforesaid principle and applied the same to the facts of the case before it. The facts of the case before the Hon ble Supreme Court were that as per the memorandum of association, the main objects of the appellant company was to acquire and hold the properties known as Chennai House and Firhavin Estate both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from FDRs is also to be treated as business income. The interest on FDRs has no relation with the business of letting out of the property of the assessee. This issue is accordingly decided against the assessee and in favour of the Revenue. Ground No.6 of the Revenue is therefore treated as allowed. 11. The identical issues taken by the revenue in all the appeals are therefore decided accordingly. 12. Now coming to the appeals filed by the assessee. The assessee in his appeal for A.Y. 2006-07 has raised the first issue as to the treatment of income from letting of the commercial complex. In view of our observations made above, the income from the letting out of the commercial complex is held as business income of the assessee. This issue is decided accordingly. 13. The next issue raised in this appeal is relating to the treatment of interest income as to whether the same is to be assessed as business income or income from other sources . In view of our observations made above, the same is held to be income from other sources. This ground is accordingly decided against the assessee. 14. The assessee has taken an additional ground agitating the disallowance of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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