2020 (1) TMI 872 - HC - Income Tax

Correct head of income - rental income received - income from business or Income from House Property - Tribunal held assessee had exploited its property commercially by way of complex commercial activities - HELD THAT - The object of the Respondent Assessee is clearly to acquire, develop, let out the commercial complex. It is clear from the objects with which the assessee was incorporated to derive income from running and maintaining the shopping mall. The Respondent Assessee has provided even marketing and promotional activities and also organising various events and programs. This being done by the Respondent Assessee also in the context of the revenue sharing agreement copies of which have been placed on record. A perusal of one such agreement shows that the Appellant Revenue receives not only license fee of the amounts specified therein and percentage of net revenue. In some of the agreements the compensation is either license fee or percentage of net revenue, whichever is higher. Intention of the Assessee is also a material circumstance and the objects of Association, the kind of services rendered clearly point out that the Income is from Business. All the factors cumulatively taken demonstrate that the assessee had intended to enter into a Business of renting out commercial space to interested parties. The other income is only an income which is a dividend income from the deposits received from the Business income. Therefore, considering all these factors which have been enumerated above and referred to by the Tribunal, the findings rendered by the Tribunal on assessment of the factual position before it that the income in question has to be treated as Business Income cannot be called perverse assessment of facts, necessary test for such determination have been employed by the Tribunal. Therefore, the question of law as proposed has to be answered against the Appellant Revenue Unpaid service tax u/s 43B - HELD THAT - It is an agreed position at the bar that the issue stands covered against the Appellant Revenue in view of the following decisions of Ovira Logistics P.Ltd 2015 (4) TMI 684 - BOMBAY HIGH COURT , also it is informed that even SLP against the decision in the above case have also been dismissed by the Supreme Court. Also Tops Security Ltd. 2018 (9) TMI 799 - BOMBAY HIGH COURT and Knight Frank (India) (P.) Ltd. - . 2016 (8) TMI 1096 - BOMBAY HIGH COURT - Decided against Revenue.

Summary

Issues Involved:
1. Determination of the nature of income as "Income from Business" or "Income from House Property."
2. Disallowance of unpaid service tax under Section 43B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Determination of the Nature of Income:

The primary issue in this case was whether the rental income received by the assessee should be taxable as "Income from Business" or "Income from House Property." The Tribunal had held that the assessee had exploited its property commercially through complex commercial activities, thus categorizing the rental income as business income. The Revenue challenged this, arguing that the settled position of law dictates that income from letting out property should be assessed as "Income from House Property," with amenities provided being incidental to the letting out.

The court noted that the Respondent-Assessee is a private limited company incorporated with the objective of constructing and running commercial and shopping malls. The assessee provided various services to the occupants of the premises, such as security, housekeeping, maintenance, marketing, and promotional activities. The compensation for letting out the premises was based on a revenue-sharing basis.

The court found that the Tribunal had referred to all relevant facts necessary to distinguish between income from business and income from house property. The Tribunal's decision was based on the assessee's activities and amenities provided, which were complex and commercial in nature. The court also considered past judgments, including Principal Commissioner of Income Tax-6, Pune v. Krome Planet Interiors (P.) Ltd., which had similar facts and supported the Tribunal's view.

The court concluded that the assessee's objective and the nature of services provided indicated that the income was from business. The Tribunal's findings were not perverse and were based on a proper assessment of the factual position. Therefore, the income in question was rightly treated as business income.

2. Disallowance of Unpaid Service Tax under Section 43B:

The second issue was related to the disallowance of unpaid service tax under Section 43B of the Income Tax Act. The court noted that this issue was already covered against the Revenue by several decisions of the Bombay High Court, including Commissioner of Income-Tax v. Ovira Logistics P. Ltd., Principal Commissioner of Income-Tax v. Tops Security Ltd., and Commissioner of Income-tax-2, Mumbai v. Knight Frank (India) (P.) Ltd. The Supreme Court had also dismissed the SLP against the decision in Tops Security Ltd.

Given these precedents, the court held that the issue of disallowance of unpaid service tax was settled against the Revenue. Therefore, this question was also answered against the Appellant-Revenue.

Conclusion:

The court dismissed the appeal, concluding that the income in question should be treated as business income and that the issue of disallowance of unpaid service tax under Section 43B was settled against the Revenue. The appeal did not give rise to any substantial question of law.