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2022 (11) TMI 1464 - AT - Income TaxCorrect head of income - rental income from letting out of properties - Categorizing the income derived from the activities of the Shopping Mall - income from business or income from house property - HELD THAT - Main object of carrying out of business of the assessee is of constructing owning acquiring developing managing running hiring letting out selling or leasing multiplex cineplex cinema halls theatres shops shopping malls etc. as per the Memorandum of Articles and Associations. The above facilities and amenities provided by the assessee is for carrying out the business of Shopping Mall in a systematic and organized way for earning profit and not particularly letting out the property on rental basis. Considering that particular aspect of the matter the First Appellate Authority accepted the categorization of the income derived from such Shopping Mall of the assessee under head income from Income from Business under Section 28. Hon ble Apex Court in the judgment passed in the matter of Chennai Properties Investment Ltd. 2015 (5) TMI 46 - SUPREME COURT categorically held that where an income has been derived by the assessee for the commercial exploitation of the properties and in lieu of its professed objects then the same is required to be recorded as business income and not income from house property. The same view has been reiterated in the case of Rayala Corporation Pvt. Ltd. 2016 (8) TMI 522 - SUPREME COURT by the Apex Court. The Hon ble Kerala High Court in the case of CIT vs. Oberon Edifices and Estates Pvt. Ltd. 2019 (3) TMI 1468 - KERALA HIGH COURT on an identical facts and circumstances of the case has been pleased to hold that income derived by the assessee by letting out of the shops in the Mall has to be assessed as income from business and not income from house property. Thus no irregularities and/or ambiguity in the order passed by the Ld. CIT(A) considering the income derived by the appellant company from leasing out properties in the mall falls under the head income from business and not under the head income from house property so as to warrant interference. Addition on determining gross rent - CIT(A) deleted addition - HELD THAT - Admittedly the AO has made estimation of rent on ALV upon invocation of provisions of Section 23 of the Act which can only be invoked if the income is computed under Section 22 of the Act. As we have already seen in the earlier ground that the income from leasing out of properties in the mall has been held to be chargeable to tax under the head Income from Business or Profession under Section 28 of the Act which has also been confirmed by us the rental income estimated under the provision of Section 23 of the Act by the Ld. AO is bad in law and thus liable to be quashed in the present facts and circumstances of the case. Hence the order passed by the Ld. CIT(A) as above is according to us is just and proper so as to warrant interference. Ground filed by the Revenue dismissed. Restricting depreciation on fixed assets - Asset put to use - AO held that rental income from leasing out the areas in the Mall was assessable as Income from House Property and therefore the depreciation in respect of those areas was disallowed - HELD THAT - The income from leasing out properties in the Mall has been held to be chargeable to tax under the head Income from Business . In that view of the matter the appellant is eligible for claim of depreciation of all the business assets which were either actually put to use or were ready to be put to use by the appellant for the purpose of its business of leasing out the properties. The entire property including the right of leasing were owned by the appellant and the same were put to use for business purposes or ready to put use. The assessee has restricted the claim of depreciation at 50% of the prescribed rate of depreciation as the assets were put to use for a period of less than 180 days. For the purpose of allowance of depreciation under Section 32 of the Act actual user of the property is not the precondition and depreciation can be allowed even for a passive user of the property if it is ready for use for the intended purpose the claim of depreciation of such assets since has been made at the rates and on the prescribed manner the claim of the appellant of depreciation of 50% of the building Phase-1 has been rightly allowed by the Ld. CIT(A) which is found to be just and proper without any ambiguity so as to warrant interference. Hence the order passed by the Ld. CIT(A) is hereby upheld. This ground of appeal preferred by the Revenue is found to be devoid of any merit and thus dismissed.
Issues Involved:
1. Classification of income from leasing out properties in a mall. 2. Deletion of addition made under the head income from house property. 3. Determination of gross rent and rental basis. 4. Allowance of depreciation claimed by the assessee. Issue-wise Detailed Analysis: 1. Classification of Income from Leasing Out Properties in a Mall: The primary issue was whether the income derived by the company from leasing out properties in the mall should be classified under "income from business" or "income from house property." The assessee argued that the mall was constructed for the purpose of carrying out its business, and the income should be categorized as business income. The assessee provided various amenities and services, such as parking, elevators, security, and organized events to ensure footfall, which indicated a systematic business activity. The CIT(A) and the Tribunal agreed with the assessee, relying on the Supreme Court judgments in the cases of Chennai Properties & Investments Ltd. and Rayala Corporation Pvt. Ltd., which held that income from commercial exploitation of properties should be treated as business income. 2. Deletion of Addition Made Under the Head Income from House Property: The AO had re-characterized the income from the operation of the mall as "income from house property" and made additions accordingly. However, the CIT(A) deleted these additions, stating that the predominant object of the assessee was running and operating the shopping mall, which involved various activities beyond mere letting out of property. The Tribunal upheld this view, noting that the assessee's activities were systematic and organized, and the income should be assessed under "income from business." 3. Determination of Gross Rent and Rental Basis: The AO had determined the gross rent at Rs. 7,92,90,780/- based on an estimation method, which the assessee contested. The CIT(A) found that the AO's estimation was not justified as it was based on hypothetical assumptions without considering the actual rent received by the assessee. The Tribunal agreed with the CIT(A), stating that the provisions of Section 23 of the Income Tax Act, which were invoked by the AO, were not applicable as the income was already categorized under "income from business." 4. Allowance of Depreciation Claimed by the Assessee: The AO had restricted the depreciation claimed by the assessee on the grounds that the rental income was assessable under "income from house property" and not "income from business." The AO allowed depreciation only for the occupied portion of the mall. The CIT(A) allowed the full depreciation claimed by the assessee, noting that the entire building was used for business purposes and that even the unoccupied portions were ready for use. The Tribunal upheld this view, emphasizing that actual user is not a precondition for claiming depreciation if the asset is ready for use. Conclusion: The Tribunal dismissed the appeals filed by the Revenue, upholding the CIT(A)'s decisions that the income derived from leasing out properties in the mall should be classified under "income from business," the additions made under "income from house property" should be deleted, the gross rent determination by the AO was incorrect, and the depreciation claimed by the assessee should be allowed in full. The judgments relied upon by the CIT(A) and the Tribunal included those from the Supreme Court and various High Courts, which supported the assessee's position.
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