2015 (9) TMI 1562 - AT - Income Tax

Rental income earned from leased premises - assessed as income from House property or as Business income - Held that - The assessee s objects are not in respect of letting of any particular property, but it has the main objects of acquiring, constructing, operating and maintaining of the multiplexes, business center, I.T. Parks, software zones, commercial & residential complexes and to grant the same on lease/license also. The very object is the commercially exploitation of the properties. Besides that the assessee is also providing hosts of amenities and facilities, as discussed above, which amounts to composite business activity. We therefore hold that the income/loss from the multiplex is liable to be assessed as business income/loss and not as income from house property. The assessee consequently is also entitled to the claim of deductions in respect of expenditure incurred and depreciation on assets etc. in relation to such income. Hence, we do not find any reason to deviate from the findings recorded by the Ld. CIT(A) on this issue. - 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 time the assessee had raised a loan it can be presumed that the investments were from the interest free funds available. The assessee had sufficient own funds and as per the law laid down by the Hon ble Jurisdictional High Court (supra) the presumption will be that the advances were given out of the own funds. Considering the above submission of the assessee, we restore this issue to the file of the AO to examine whether the assessee was having sufficient own funds to meet the advances given to sister concerns, if the contention of the assessee is found to be correct then no disallowance would be attracted

Issues Involved:
1. Classification of rental income as 'House Property' or 'Business Income'.
2. Treatment of interest on fixed deposits as 'Business Receipts' or 'Income from Other Sources'.
3. Disallowance of interest expenditure in proportion to loans given to sister concerns.

Detailed Analysis:

1. Classification of Rental Income:
The primary issue was whether the rental income from leased premises should be assessed as 'House Property' or 'Business Income'. The assessee, a private limited company, engaged in acquiring, developing, disposing of, and maintaining properties, including leasing premises to M/s. Shoppers Stop Ltd. The assessee declared the rental income as 'Business Income', claiming depreciation and other expenses.

The Assessing Officer (AO) treated the rental income as 'House Property' income. However, the CIT(A) held it as 'Business Income', emphasizing that the income was derived from the operation of business activities. The CIT(A) observed that the premises were part of a commercial complex with numerous amenities, and the primary intention was to exploit the property through complex commercial activities.

The ITAT upheld the CIT(A)'s decision, noting that the premises were specially designed as a commercial complex with amenities like infrastructure facilities, escalators, power backup, central air-conditioning, and maintenance of common areas. The ITAT referenced several judicial decisions, including the Hon'ble Supreme Court's ruling in 'Chennai Properties & Investment Ltd.' and 'Karanpura Development Co. Ltd. Vs. CIT', which emphasized the professed objects and manner of activities carried out by an assessee to determine the nature of income.

The ITAT concluded that the assessee's activities were part of an organized business venture aimed at commercially exploiting the property, thus classifying the rental income as 'Business Income'.

2. Treatment of Interest on Fixed Deposits:
The second issue was whether the interest on fixed deposits should be treated as 'Business Receipts' or 'Income from Other Sources'. The CIT(A) had treated the interest as business income, reasoning that since the rental income was considered business income, the interest should follow suit.

The ITAT disagreed, stating that the interest on fixed deposits had no direct relation to the business of letting out the property. Therefore, the interest income was classified as 'Income from Other Sources'.

3. Disallowance of Interest Expenditure:
The third issue involved the disallowance of interest expenditure in proportion to loans given to sister concerns. The assessee argued that it had sufficient interest-free funds to cover the advances to sister concerns. The ITAT referred to the Hon'ble Jurisdictional High Court's ruling in 'Reliance Utilities and Power Ltd.', which held that if an assessee has sufficient interest-free funds, it can be presumed that the investments were made from those funds.

The ITAT restored the issue to the AO to verify if the assessee had sufficient own funds to meet the advances. If confirmed, no disallowance would be warranted.

Conclusion:
The ITAT upheld the CIT(A)'s decision to classify the rental income as 'Business Income' due to the commercial exploitation of the property. The interest on fixed deposits was classified as 'Income from Other Sources'. The issue of disallowance of interest expenditure was remanded to the AO for verification of the availability of interest-free funds. The appeals were decided accordingly, with the revenue's appeal partly allowed and the assessee's appeals partly allowed or remanded for further examination.

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