2015 (8) TMI 886 - AT - Income Tax

Income/loss from letting out of multiplex/shopping mall and cinema theatre along with amenities - Income from house property or business income - assessee is a partnership firm constituted by the partners for carrying out the business activity - Held that - As decided in Chennai Properties & Investment Ltd. case 2015 (5) TMI 46 - SUPREME COURT relying on earlier Judgment in the case of Karanpura Development Co. Ltd. Vs. CIT 1961 (8) TMI 7 - SUPREME Court held where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The diving line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned. The facts of the case of the assessee before us are on better footings. 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, marriage halls etc. 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. Thus the issue is squarely covered in favour of the assessee by the above noted decisions of the Hon ble Supreme Court. 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. - Decided in favour of assessee.

Issues Involved:
1. Whether the income/loss from letting out of multiplex/shopping mall and cinema theatre along with amenities should be assessed under the head "Income from house property" or as "business income" of the assessee.

Issue-wise Detailed Analysis:

1. Nature of Income from Letting Out Multiplex/Shopping Mall and Cinema Theatre:
The primary issue in both appeals was whether the income/loss from letting out a multiplex/shopping mall and cinema theatre along with amenities should be assessed under the head "Income from house property" or as "business income." The assessee, a partnership firm, constructed a multiplex complex with various facilities and offered the income/loss from these activities under "Income from business or profession." However, the Assessing Officer (AO) treated it as "Income from house property," a decision upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Assessee's Argument:
The assessee argued that the multiplex complex, which includes 6 screens, parking facilities, food courts, and shops, was operated with a commercial motive. The assessee highlighted significant investments in amenities such as air-conditioning, electrical fittings, escalators, and security arrangements, asserting that these were not mere rental properties but commercial ventures. The assessee cited several judicial decisions to support their claim that the income should be assessed as business income.

3. CIT(A)'s Observation:
The CIT(A) observed that the amenities provided were normal facilities required for making the building fit for occupation by tenants. He opined that the primary purpose of the assessee was to let out the building, and any additional facilities were merely cost improvements to the building, not independent business activities.

4. Tribunal's Analysis and Conclusion:
The Tribunal examined the partnership deed and noted that the formation and objectives of the assessee firm included constructing and managing multiplex centers and commercial complexes. The Tribunal found that the assessee's activities involved substantial income from providing amenities and facilities beyond basic requirements for occupation. These activities were aimed at commercial exploitation of the property, making it a composite business activity rather than mere letting out of property.

The Tribunal referred to the Supreme Court's decisions in "Karnani Properties Ltd. v. CIT" and "Chennai Properties & Investment Ltd.," which emphasized assessing the nature of services and the primary objective of the assessee's activities. The Tribunal concluded that the assessee's primary objective was commercial exploitation of the property through complex business activities, thus the income should be assessed as business income.

5. Ruling:
The Tribunal ruled that the income/loss from the multiplex should be assessed as "business income/loss" and not as "income from house property." Consequently, the assessee is entitled to claim deductions for expenditures incurred and depreciation on assets related to such income.

6. Identical Appeal:
The Tribunal noted that the facts and issues in ITA No.2196/M/2013 were identical except for the figures involved. Therefore, this appeal was also allowed on similar grounds.

Final Judgment:
Both appeals were allowed, and the income/loss from the multiplex was to be assessed as "business income/loss." The order was pronounced in the open court on 14.08.2015.

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