2015 (6) TMI 129 - AT - Income Tax

Income earned from letting out of commercial spaces, amenities and maintenance - Profits and Gains from Business OR Income from House Property - Held that - The deciding factor is not the ownership of the land or the leases thereof, but the nature of the activity of the assessee and the nature of the operations in relation to them. In the case on hand, considering the nature of the assessee s dealings with the property, apart from letting them out and the manner and extent of its activities, inter alia, like providing of ward and watch, security, maintenance of common area and lighting thereof, fire safety, supply of water, providing lifts, installation of electric transformers, generators, water tanks, etc. go to clearly establish that the entire activity is conducted in an organized manner to earn profits out of the investment made by the assessee as a commercial venture. Thus the operations of the assessee in earning the rental income received from leasing out of the building properties would fall under the head Income from Business and not Income from House Property as held by the authorities below - Decided in favour of assesse. Interest under Section 234A and 234B - Held that - The charging of interest is consequential and mandatory and the Assessing Officer has no discretion in the matter. This proposition has been upheld in the case of Anjum H Ghaswala (2001 (10) TMI 4 - SUPREME Court) and we, therefore, uphold the action of the Assessing Officer in charging the said interest. - Decided against assessee.

Issues Involved:
1. Classification of income from letting out commercial spaces, amenities, and maintenance as "Income from House Property" or "Income from Business."
2. Charging of interest under Section 234A and 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Classification of Income:
The primary issue in the appeals was whether the income earned by the assessee from letting out commercial spaces, amenities, and maintenance should be taxed under the head "Income from House Property" or "Income from Business."

- Assessee's Argument:
The assessee contended that its activities constituted a complex commercial activity rather than passive investment. The assessee provided various amenities and services along with the commercial space, such as workstations, chairs, discussion tables, storage units, access control doors, projectors, power backup, coffee machines, diesel generators, internet connection, server rooms, water and electricity, centralized air-conditioning, fire-fighting equipment, telephone lines, canteen space, and parking space. Additionally, the assessee was responsible for maintenance services like round-the-clock security, insurance of the premises, parking management, maintenance of common areas, elevators, bore wells, generators, collection and payment of electricity and water bills, and upkeep of common areas.

- Revenue's Argument:
The Revenue supported the CIT (Appeals)'s decision that the income should be classified as "Income from House Property." The CIT (Appeals) had dismissed the assessee's appeal on the grounds that the asset was being exploited as a capital asset and lacked essential business elements like risk of losing capital and uncertainty of return on investment. The CIT (Appeals) also noted that in some cases, maintenance charges were not levied, and tenants were not allowed to use common facilities.

- Tribunal's Analysis:
The Tribunal referred to various judicial decisions, including the Supreme Court's decision in Shambu Investments Pvt. Ltd. and other relevant cases. It noted that the nature of the activity and operations of the assessee, including providing various amenities and maintenance services, indicated that the income should be classified as "Income from Business." The Tribunal distinguished the present case from the cited cases by the Revenue, highlighting that the assessee's activities involved more than just letting out space; they included providing sophisticated infrastructure and maintenance services, making it a commercial venture.

The Tribunal also referred to the decision in Velankani Information Systems Pvt. Ltd., where similar activities were held to be "Income from Business." The Tribunal found that the facts of the present case were similar to those in Velankani Information Systems Pvt. Ltd., and therefore, the income should be classified as "Income from Business."

The Tribunal concluded that the assessee's operations in earning rental income from leasing out the building properties were conducted in an organized manner to earn profits as a commercial venture. Therefore, the income should be classified under the head "Income from Business" and not "Income from House Property."

2. Charging of Interest under Section 234A and 234B:
The assessee contested the charging of interest under Section 234A and 234B of the Income Tax Act.

- Tribunal's Decision:
The Tribunal upheld the Assessing Officer's action in charging interest under Section 234A and 234B, citing the Supreme Court's decision in Anjum H Ghaswala, which held that the charging of interest is consequential and mandatory. However, the Tribunal directed the Assessing Officer to recompute the interest chargeable under these sections while giving effect to the order.

Conclusion:
The Tribunal allowed the assessee's appeals for Assessment Years 2010-11 and 2011-12, classifying the income from letting out commercial spaces, amenities, and maintenance as "Income from Business" and upheld the charging of interest under Section 234A and 234B, subject to recomputation.

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