2019 (4) TMI 1388 - HC - Income Tax

Correct head of income - activity of leasing out of shops and other commercial establishments to various persons - building was constructed for the purpose of shopping mall - House Property Income OR Business Income - HELD THAT - The significant features are that the assessee had obtained loan from the bank for its mall-complex project. That the assessee had entered into lease and license agreement with individuals for letting out commercial space. Majority of these licensees was for a period of 60 months. In addition to providing such commercial space on lease, the assessee also provided range of common amenities. List of which is reproduced earlier. These facilities included installation of elevators, installation for Fire Hydrant Sprinkler system, installation of central garbage collections and disposal system, installation of common dining arrangement for occupants and the staff, common water purifier and dispensing system, lighting arrangement for common areas etc. The assessee did not simply rent a commercial space without any additional responsibilities. The assessee executed lease and license agreements and also provided range of common facilities and amenities upon which the occupiers could run their business from the leased out premises. The charges for such amenities were also broken down in two parts. Charges for several common amenities was included in the rentals. Only on the consumption based amenity such as electricity, the occupant would be charged separately. All factors thus clearly indicate that assessee desired to enter into a business of renting out commercial space to interested individuals and business houses. - Decided against revenue

Summary

Issues:
1. Classification of income as House Property Income or Business Income.

Analysis:
The case involved a private limited company engaged in leasing out shop space in shopping malls. The company filed its income tax return declaring the income from leasing activities as business income. However, the Assessing Officer classified the income as house property income. The matter reached the Income Tax Appellate Tribunal, which determined the income as business income. The tribunal observed that the company provided various facilities and amenities to the licensees, in addition to leasing out the space. The tribunal highlighted the agreements containing detailed lists of amenities provided by the company, such as lighting arrangements, air conditioning systems, security systems, fire hydrant systems, garbage collection, dining arrangements, water purifiers, and restrooms.

The tribunal noted that the charges for these facilities were included in the license fees for leasing the shop space, with additional charges for electricity consumption payable by the licensees. The tribunal emphasized that no space in the shopping mall was rented out simpliciter and that the company's objective was to exploit the building as a business venture. The company had also obtained a loan from a bank for the shopping mall project, further supporting the business nature of the income. The tribunal's decision was based on the company's systematic provision of services and amenities to the occupiers, indicating a business activity rather than a mere rental arrangement.

The High Court upheld the tribunal's decision, emphasizing that the classification of income as derived from business or house property involves a mixed question of law and facts. In this case, the court found that the company's actions clearly demonstrated its intention to engage in a business of renting out commercial space, supported by the provision of various amenities and services to the licensees. The court distinguished this case from a precedent cited by the revenue, where the Supreme Court held that the receipt was not business income due to the lack of a systematic activity of providing services to the occupiers. Ultimately, the court dismissed the Income Tax Appeal, affirming the tribunal's classification of the income as business income.