2011 (10) TMI 35 - HC - Income Tax

Business income or income from house property - Mall upkeep and promotional fees received by the assessee - Held that - maintenance charges collected by the assessee not only relates to the open area/common area, repair and maintenance of equipment, land, atrium, fire fighting equipments, transformers, air conditioner plants, water tank and other services in the common areas of the complex, but also towards the cost of security services and overall house keeping of the common area. - amount of maintenance charges received were business receipts assessable under the head business income

Summary

Issues:
Whether Mall upkeep and promotional fees received by the assessee are to be assessed as 'business income' or 'income received from house property' for the assessment years AY 2004-05, 2005-06, and 2006-07.

Analysis:
The appellant, engaged in building residential and commercial complexes, operates a Mall named 'R Mall' in Mumbai. The appellant sold a portion of the Mall area and leased out the rest to various tenants for shops, cinema halls, etc. The appellant collected business conducting fees, business facility charges, and maintenance charges for upkeep and promotion of the Mall. The assessing officer considered the maintenance charges as 'income from house property.' However, the CIT(A) ruled in favor of the appellant, distinguishing maintenance charges from other fees as essential for maintaining a quality Mall and increasing footfalls.

The revenue challenged the CIT(A)'s decision at the ITAT, which upheld the CIT(A)'s order based on the Kolkata 'A' Bench judgment. The ITAT differentiated between income from property rental and business income, emphasizing the intention behind the property use. The revenue contended that maintenance charges were akin to lease rent under 'income from house property.' The High Court rejected this argument, acknowledging the appellant's business operations in running the Mall. The Court noted that maintenance charges were collected from lessees and property buyers, indicating a business activity beyond mere property rental.

The Court analyzed the business conducting agreement, highlighting that maintenance charges covered various services for common areas and were not merely rent for leased premises. The Court emphasized that the charges were related to overall maintenance, security, and housekeeping of the Mall, supporting the view that they were business receipts. Consequently, the Court upheld the ITAT's decision, affirming that maintenance charges were business income assessable under the head 'income from business.' The appeals were dismissed with no costs awarded.