2009 (4) TMI 549 - AT - Income Tax

Determination of head of income - business income or income from other sources - Method of ascertaining receipts - hiring of space - measurement of consideration for services - disallowance of depreciation - Assessee considered the receipts from operating the business centers and commercial complexes as business income and claimed the related expenses as business expenditure as also depreciation on the buildings and the related assets - AO held that receipts were assessable as income from house property - also disallowed depreciation - CIT(A) directed AO to assess only so much of receipts as income from house property as were received by way of hiring of space and the balance receipts from rendering of services were held to be assessable as business income. HELD THAT - In our view the basic principle permeating through all the judicial precedents cited by the lower authorities in their respective orders and those cited before us by the ld AR and DR is that if the main intention is to use the property as a business asset as a handmaid to the commercial exploitation of the property income therefrom should be assessed as business income. However on the other hand if the primary intention is to let out the property simpliciter the income has to be assessed as income from house property. We find considerable strength in the submission of the assessee that facts in its case were distinguishable from those in the case of Shambhu Investment (P.) Ltd. 2001 (3) TMI 77 - CALCUTTA HIGH COURT . Separate agreements for provision of services and amenities clearly spell out intention to render commercial services to the occupiers. Further advance received for the hiring of services for a period of 12 months was a normal commercial arrangement and bore no relationship with the cost of the property. Further the factum of the services rendered and the facilities provided to the occupiers was not in dispute at all. Agreement for hiring out the space and agreements for the services and the facilities were inextricably linked with similar tenures. It is clearly discernible for these agreements that the parties entered into the arrangement with the assessee with the intention of using the bundled services and amenities. Assessee was giving space with services and facilities which were varied and wide and such activities together would definitely constitute an organized structure for making profits and would necessarily constitute a business. Thus in our view the assessee had created a commercial infrastructure and the services rendered were complex commercial/business activity. As aforesaid a perusal of the agreements and the stipulations contained therein would not leave any doubt about the commercial character of the relationship between the parties as distinguished from that merely of a landlord and his tenant. Occupation of space was inseparable from the provision of services and amenities. Thus the facts on record lead to the finding that the properties in question were business assets of the assessee and these assets were exploited by the assessee for the purpose of business by rendering complex commercial and business services as property managers in a systematic and organized manner and therefore the case of the assessee merits acceptance. Accordingly we hold as under Assessee s appeal is partially allowed due to the withdrawal of the third ground by the assessee itself. Apropos the first two grounds of appeal AO is directed to treat the entire receipts from the properties as business income and allow depreciation thereon as claimed. In view of these findings the modified ground of appeal is rendered infructuous. Both grounds in revenue s appeal are dismissed. it is dismissed for the reason that once the receipts are considered as under the head Profits and Gains of business or profession there can be no disallowance of any administrative expenses. CO. of the assessee has as a result become infructuous and therefore stands dismissed.

Issues Involved:
1. Taxability of income as "income from house property" versus "income from business."
2. Disallowance of depreciation on buildings.
3. Deduction of operating expenses.
4. Allocation of administrative and personnel expenses.
5. Use of premises by the assessee as its own office.

Issue-wise Detailed Analysis:

1. Taxability of Income:
The primary issue revolved around whether the income from leasing commercial premises and operating business centers should be taxed as "income from house property" or "income from business." The assessee argued that the income should be considered business income due to the provision of various services and amenities, while the Assessing Officer treated it as income from house property. The CIT(A) partially upheld the Assessing Officer's view but directed that receipts from services should be treated as business income.

The Tribunal, after examining the agreements and the nature of services provided, concluded that the assessee was engaged in complex commercial activities. The agreements for hiring space and providing services were distinct, and the services rendered were inseparable from the letting of the property. It was held that the assessee's primary intention was to exploit the property through commercial activities, and thus, the income should be assessed as business income.

2. Disallowance of Depreciation:
The CIT(A) confirmed the disallowance of depreciation on buildings, following the Assessing Officer's view that the properties were not used for the assessee's business. The Tribunal, however, found that the properties were indeed business assets, and the assessee was entitled to claim depreciation. The Tribunal directed the Assessing Officer to allow depreciation as claimed by the assessee.

3. Deduction of Operating Expenses:
The Assessing Officer disallowed the operating expenses related to the business centers and commercial complexes, considering the income as house property income. The CIT(A) allowed the expenses related to services as business expenses. The Tribunal upheld this view, stating that once the income is treated as business income, the related expenses must be allowed as business expenditure.

4. Allocation of Administrative and Personnel Expenses:
The assessee contested the allocation of administrative and personnel expenses to income from house property. The CIT(A) did not adjudicate on this issue. The Tribunal, considering the entire income as business income, found the issue moot and directed that all related expenses be treated as business expenses.

5. Use of Premises by the Assessee as Its Own Office:
The assessee argued that a part of the premises was used as its own office, and thus, depreciation should be allowed. The Tribunal's decision to treat the entire income as business income rendered this issue moot, as the entire property was considered a business asset.

Conclusion:
The Tribunal allowed the assessee's appeal, directing that the entire receipts be treated as business income and depreciation be allowed. The revenue's appeal was dismissed, and the cross-objection by the assessee was rendered infructuous. The Tribunal emphasized the commercial nature of the assessee's activities and the inseparability of services provided from the letting of the property.

← Previous Next →