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2013 (8) TMI 402 - AT - Income TaxIncome from house property or business income - Property let out on lease - Held that - income realized by the owner by way of rental income from a building, whether commercial building or residential, is assessable under the head income from house property. Therefore, to the extent of leave and license amounts received by the assessee by letting out the commercial building is concerned, the CIT(A) has correctly analysed and came to a conclusion that the income is assessable under the head income from House Property - Following decision of Shambhu Investment Pvt. Ltd. vs. CIT 2003 (1) TMI 99 - SUPREME Court - Decided in favour of assessee.
Issues Involved:
1. Classification of income from letting out property and amenities as 'income from house property' or 'business income'. Detailed Analysis: Issue 1: Classification of Income from Letting Out Property The primary issue in these appeals is whether the income earned by the assessee from letting out the property on a leave and license basis, along with a separate agreement for amenities, should be assessed under the head 'income from house property' or as 'business income'. The assessee, a partnership firm involved in the development and construction of commercial premises, leased out the property to a group of concerns for a period of five years, with an option to renew for an additional four years. The monthly rent for the premises was Rs.13,15,700/- for the first year, and a separate agreement for amenities was made at Rs.6,57,900/- per month. The assessee treated the entire receipt as rent and offered it under the head 'income from house property'. However, the AO treated the entire receipt as 'business income' based on the decision of the Jurisdictional High Court in CIT vs. National Storage Pvt. Ltd. [48 ITR 577 (Bom)]. The CIT(A) treated the leave and license amount as 'income from house property' but upheld the treatment of receipts from amenities as 'business income'. Issue 2: Treatment of Receipts from Amenities The Ld. Counsel for the assessee argued that the amenities provided were fixed and integral to the building, such as generators, security systems, air-conditioners, and other necessary facilities for a commercial building. The Counsel contended that these amenities were part of the building and the receipts should not be separated as business income. The Counsel relied on the principles laid down by the Hon'ble High Court in Shambhu Investment Pvt. Ltd. and National Storage Pvt. Ltd. to support the argument that the entire income should be treated as 'income from house property'. Issue 3: Revenue's Contention The Ld. DR argued that the assessee was providing services to the tenants and, therefore, the income should be treated as 'business income'. The DR cited several cases, including Kenton Leisure Services (P.) Ltd. vs. DCIT, ITO vs. Information Technology Park Ltd., Narayan Market Complex vs. ITO, and ACIT vs. Vijay S. Mallya, to support the contention that the income should be classified as 'business income'. Tribunal's Findings The Tribunal considered the issue and the rival contentions. It emphasized that the classification of income from letting out property depends on the facts and circumstances of each case. The Tribunal referred to the Supreme Court decision in Shambhu Investment Pvt. Ltd. vs. CIT, which held that rental income from a building, whether commercial or residential, is assessable under the head 'income from house property'. The Tribunal confirmed the CIT(A)'s decision to treat the leave and license amounts as 'income from house property' and rejected the revenue's grounds, dismissing both revenue appeals. Analysis of Amenities Agreement The Tribunal analyzed the amenities provided by the assessee, which included generators, security systems, air-conditioners, and other fixed facilities integral to the building. The Tribunal noted that these amenities were inseparable from the building and were part of the commercial premises let out to the tenants. The assessee did not provide any additional services such as security, transport, or maintenance, and all charges were borne by the tenants. The Tribunal concluded that the amenities were part of the building and the income from these amenities should be treated as 'income from house property'. Distinguishing Cited Cases The Tribunal distinguished the cases cited by the Ld. DR, noting that in those cases, the assessee provided additional services or engaged in complex commercial activities. In contrast, the present case involved letting out a commercial building with fixed amenities and no additional services. Therefore, the principles laid down in those cases did not apply to the present case. Conclusion The Tribunal relied on the Jurisdictional High Court decision in CIT vs. National Storage Pvt. Ltd. and the Supreme Court decision in Shambhu Investment Pvt. Ltd. to conclude that the entire receipt, both from leave and license and amenities, should be assessed as 'income from house property'. The Tribunal modified the CIT(A)'s order to this extent and allowed the assessee's appeals while dismissing the revenue's appeals. Order Pronouncement In the result, the assessee's appeals are allowed, and the revenue's appeals are dismissed. The order was pronounced in the open court on 24.07.2013.
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