2016 (6) TMI 730 - AT - Income Tax

Income derived from mere letting out of property - receipt of facility charges for providing specific services like house-keeping security etc. - business income or income from house property - Held that - Amount received from the tenants as rent for letting of the property was assessable under section 22 of the Act as income from house property and the other receipts in respect of the services rendered to the tenants was liable to be assessed under section 28 of the Act as business profits . In our view the ratio laid down by the Hon ble Gujarat High Court in the case of Sarabhai (P) Ltd.(2002 (11) TMI 32 - GUJARAT High Court ) covers the instant situation. Undisputedly the facility service charges are being received by the assessee in return of providing specific services like house-keeping security etc. To the similar effect is also the judgment of the Hon ble Madras High Court in the case of A.K.Complex (2007 (6) TMI 177 - MADRAS High Court ) which was relied upon by the assessee before us. The argument of the Revenue that services rendered by the assessee are not of special nature and they are of routine nature expected to be provided by the Landlord is of no consequence to decide the controversy in question. This is for the reason that factually it has not been disputed by the Revenue that services by way of housekeeping security etc. have been rendered by the assessee. Moreover it has to be deciphered on the basis of terms and conditions in each case as to the nature of the services that may be provided by the owner of property to its tenants to decide as to whether they are distinct from an activity which is merely because of ownership of the property. In the present case it is quite evident that the said services are distinct from letting out of the property and therefore assessee is justified in asserting that the same be taxed as business income . Thus on this aspect we set-aside the order of the CIT(A) and direct the Assessing Officer to recompute the income in view of the aforesaid directions Disallowance of expenditure - Held that - P&L Account pertaining to administrative expenses reveal that various expenses on account of repairs and maintenance filing fee post and telegraph bank charges accounting charges audit fee etc. have been debited apart from expenses incurred on house-keeping and security charges with which we have dealt with in the earlier part of this order. In our view the Assessing Officer has mechanically disallowed the entire expenditure without appreciating that certain bare minimum expenses are liable to be incurred by the assessee company in order to maintain its status of a corporate body. Therefore we deem it fit and proper to restore the matter back to the file of Assessing Officer in order to examine the allowability of expenditure afresh in the aforesaid light and thereafter recompute the income of the assessee. Thus on this issue the assessee succeeds for statistical purposes.

Summary

Issues:
Assessability of facility service charges under "Income from House Property" or "Income from Business or Profession"
Disallowance of expenses for the year due to lack of business activity

Assessability of Facility Service Charges:
The appeal concerned the assessability of facility service charges of ?9,60,000 received by the assessee. The Assessing Officer treated this amount as "Income from House Property" instead of the assessee's claim of "Income from Business or Profession." The CIT(A) upheld this decision, stating that the charges were received primarily due to letting out the property, thus falling under "income from house property." The assessee argued that the charges were for specific services like housekeeping and security, distinct from property ownership. Citing relevant case laws, the assessee contended that such charges should be taxed as "business income." The tribunal agreed, emphasizing that services provided by the assessee were not routine landlord activities but distinct services justifying taxation as business income. The order was set aside, directing the Assessing Officer to recompute the income accordingly.

Disallowance of Expenses:
The second ground of appeal related to the disallowance of expenses amounting to ?18,96,428. The Assessing Officer disallowed the expenses due to the absence of business activity during the year. The CIT(A) did not address this issue. The assessee argued that the expenses were routine and necessary for maintaining the business entity, citing precedents supporting the allowance of such expenses. The tribunal noted that certain expenses were essential for corporate entity maintenance, directing the Assessing Officer to reexamine the allowability of expenses in light of this, and to recalculate the income. The assessee succeeded on this issue for statistical purposes.

In conclusion, the tribunal partly allowed the appeal, ruling in favor of the assessee on both issues. The order was pronounced on 15/06/2016.