2016 (2) TMI 374 - AT - Income Tax

Income from shops - treated as business income OR Income from House Property - Held that - Authorities below have erred in holding that the income derived by assessee from letting out of shops in the shopping complex Krome Planet is to be treated as Income from House Property. The findings of the Commissioner of Income Tax (Appeals) are set aside and the income from letting out of shops in the Shopping Mall is held to be business income. - Decided in favour of assessee

Issues Involved:
1. Treating the business income as income from house property.
2. Treating the business income as income from other sources.
3. Disallowing expenses incurred for the mall business.

Issue-wise Detailed Analysis:

1. Treating the Business Income as Income from House Property:

The primary issue was whether the income from letting out shop spaces in a shopping mall should be assessed under "Income from House Property" or "Income from Business." The assessee argued that the property was purchased and developed as a business asset, providing various amenities and services beyond mere rental. The Assessing Officer and Commissioner of Income Tax (Appeals) treated the income as "Income from House Property," leading to the disallowance of depreciation claims.

The Tribunal examined the Leave and License Agreement, which detailed various amenities provided by the assessee, such as lighting, air conditioning, elevators, security systems, and other facilities. The Tribunal noted that the assessee's primary intention was commercial exploitation of the property, supported by the fact that the property was used as a shopping mall, and the assessee provided numerous facilities beyond simple renting.

The Tribunal relied on the decision in PFH Mall & Retail Management Ltd. Vs. Income Tax Officer, where it was held that income from letting out shops in a shopping complex is business income due to the provision of various services and amenities. The Tribunal also referred to the Supreme Court's decision in Karnani Properties Ltd., which emphasized that services rendered continuously in an organized manner with a view to earn profits should be considered business activities.

The Tribunal concluded that the assessee's activities were commercial in nature, and the income derived from the shopping mall should be treated as business income, not as income from house property.

2. Treating the Business Income as Income from Other Sources:

The Assessing Officer had also categorized charges received for common amenities, maintenance, and advertisements as "Income from Other Sources." The assessee contended that these charges were part of the business income, as they were integral to the services provided in the shopping mall.

The Tribunal supported the assessee's view, noting that the charges for amenities and services were part of the overall business model of operating a shopping mall. The Tribunal cited the same principles from PFH Mall & Retail Management Ltd., where similar income was treated as business income.

3. Disallowing Expenses Incurred for the Mall Business:

Given the Tribunal's decision to treat the income from the shopping mall as business income, the expenses incurred for the mall business, including depreciation on the building, were deemed allowable. The Tribunal noted that since the shopping complex was a business asset, related expenses should be allowed as business deductions.

Conclusion:

The Tribunal set aside the orders of the Commissioner of Income Tax (Appeals) and held that the income from letting out shops in the shopping mall should be treated as business income. Consequently, the related expenses, including depreciation, were allowed. The appeals of the assessee were allowed in favor of treating the income as business income and allowing the associated expenses.

Order Pronouncement:

The order was pronounced on Friday, the 08th day of January, 2016.

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