2014 (7) TMI 1110 - AT - Income Tax

Determination of head of income under which the income received from business service centre is chargeable to tax - Held that - Assessee has agreed that the income received by the assessee from business service centre in the form of license fees, which is in the nature of rent, is liable to be taxed under the head income from house property in the hands of the assessee as rightly held by the authorities below. The license fees/rent was received by the assessee as per the first agreement while the service charges were received by the assessee as per the other agreement and going by the quantum of service charges received, which were more than the amount of license fees, the AO, in our opinion, should have confronted this position to the concerned parties while making enquiry to find out the exact factual position. Having regard to all these facts of this case, we are of the view that this matter should go back to the Assessing Officer to decide the same afresh in accordance with law after verifying all the relevant aspects and after giving the assessee a proper and sufficient opportunity of being heard. The AO may also take into consideration the final fate of this issue in assessee s own case for A.Y.2007-08 - Decided partly in favour of assessee.

Summary

Issues:
Determination of head of income for income received from business service center.

Analysis:
The appeal focused on the determination of the head of income under which the income received from a business service center should be taxed. The assessee, a partnership firm, declared its income under the head "Profit & gains of business or profession." However, during the assessment proceedings, it was found that the income was received from renting out space in a business service center, and no services were provided by the assessee to the tenants. The Assessing Officer (AO) concluded that the income should be treated as house property income based on the Supreme Court judgment and assessed it accordingly, resulting in a substantial addition to the total income.

The Commissioner of Income Tax (Appeals) upheld the AO's decision, stating that the amenities provided by the assessee were part of the furnished office premises let out to customers. The CIT(A) considered the separate agreements for license fees and service charges as a division of the total lease rent received. The assessee contended that the service charges constituted business income and should be assessed under "profit & gain of business or profession." There was a discrepancy in the findings regarding the amenities provided, leading to a need for further examination.

The Tribunal observed the contradictions in the findings of the authorities below regarding the amenities provided by the assessee. As there were two separate agreements for space and amenities, the matter was remanded back to the AO for a fresh decision after verifying all relevant aspects and giving the assessee a proper opportunity to be heard. The AO was also directed to consider the outcome of a similar issue in the assessee's case for a previous assessment year.

In conclusion, the appeal was treated as partly allowed for statistical purposes, and the matter was remanded back to the AO for a fresh decision in accordance with the law.