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2014 (11) TMI 481 - AT - Income TaxTaxability of license fee - Income derived from license fee from letting out a commercial property Income from house property or business income - Revenue was of the view that the income needs to be assessable as income from house property Held that - Merely because an income arises from exploitation of immovable property, it would not ipso facto be assessable under the head income from house property - What is required to be appreciated is the peculiar facts and circumstances of each case to decide whether a particular rental income is assessable under the head house property or not relying upon CIT vs. Shambhu Investment (P.) Ltd. 2001 (3) TMI 77 - CALCUTTA High Court - if the main intention of the assessee is to let out the property, the income must be considered as rental income assessable under the head income from house property - the assessee was deriving rental income by merely letting out the property which was assessable under the head income from house property . It is not a case where the license fee has been earned from merely letting out of office space, but has been earned as a result of undertaking composite activities, comprising of leasing of office space and providing services of cafeteria/pantry, conference rooms and equipments such as LCD projectors, PA system etc., use of computer terminals, electrical fittings, UPS, network services and net-switch charges, etc. - The providing of such services along with the office space cannot be regarded as exploitation of the immovable property for earning rentals but it is a case where the commercial property has been exploited by undertaking complex commercial activities and therefore such income has to be held assessable as business income - CIT(A) made no mistake in holding that the impugned license fee received from the users of the office infrastructure facilities in IndiaCo iCenter Plaza was assessable as business income and not under the head income from house property - no material has been lead by the Revenue to show any change of facts during the year the order of the CIT(A) is upheld Decided against revenue.
Issues Involved:
1. Classification of income derived from letting out commercial property as 'income from house property' versus 'business income'. 2. Consistency in tax treatment of similar income in previous assessment years. Issue-wise Detailed Analysis: 1. Classification of Income Derived from Letting Out Commercial Property: The primary issue in both appeals is whether the income derived by the assessee from letting out a commercial property should be classified as 'income from house property' or 'business income'. The respondent-assessee, a company incorporated under the Companies Act, 1956, developed a commercial complex named 'IndiaCo iCenter Plaza' with the objective of providing state-of-the-art office space along with other facilities for newly start-up business units. Historically, the income derived from the license fee by letting out the office space was treated as 'business income' and accepted by the Department up to the assessment year 2006-07. However, for the assessment years 2007-08 and 2008-09, the Assessing Officer (AO) reclassified this income as 'income from house property', arguing that the dominant object of the leave and license agreement was leasing out the property on a monthly rent. The AO contended that the additional services provided, such as security, electrical installations, gensets, and furniture, did not change the nature of the primary rental arrangement. The assessee appealed this decision, and the Commissioner of Income Tax (Appeals) [CIT(A)] ruled in favor of the assessee, holding that the income was assessable as 'business income'. The CIT(A) referenced the judgment of the Hon'ble Bombay High Court in CIT vs. Associated Building Co. Limited, 137 ITR 339 (Bom), which stated that complex services provided along with the letting out of property indicated a business activity rather than mere rental income. The CIT(A) noted the variety of services provided by the assessee, such as conference rooms, restrooms, parking, cafeteria, 24-hour security, and internet services, which were integral to the office space and could not be availed independently. This comprehensive service offering was deemed to constitute a business venture rather than a simple tenancy arrangement. 2. Consistency in Tax Treatment of Similar Income in Previous Assessment Years: The CIT(A) also highlighted that in the assessment year 2005-06, under similar circumstances, the AO had accepted the 'license fee' income as 'business income'. The CIT(A) emphasized the principle of consistency, noting that there was no material change in the facts during the years under consideration that would justify a different tax treatment. The Revenue's appeal against the CIT(A)'s decision was based on the argument that the income should be classified as 'income from house property', supported by the judgment in Shambhu Investment (P) Ltd. vs. CIT [2003] 263 ITR 143 (SC). However, the Tribunal upheld the CIT(A)'s decision, agreeing that the comprehensive services provided along with the office space constituted a business activity, making the income assessable as 'business income'. Conclusion: The Tribunal affirmed the CIT(A)'s decision, holding that the income derived from letting out the commercial property along with various services was assessable as 'business income'. The appeals by the Revenue were dismissed, reinforcing the principle of consistency and the comprehensive nature of the services provided as indicative of a business venture rather than a simple rental arrangement.
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