2008 (5) TMI 293 - AT - Income Tax

Nature of income - Business Centre Service charges - treated as Business Income or Income from house Property or 'Income from other sources' - HELD THAT - We find that the facts of the present case are different from the facts before the Hon'ble Supreme Court in the case of Shambhu Investment (P) Ltd. 2003 (1) TMI 99 - SC ORDER . In the case before the Hon'ble Supreme Court, the assessee had let out the furnished accommodation without any other facilities. However, in the present case. various facilities are provided as noted by the CIT(A) as well as by us in this order such as. receptionist and a telephone operator to attend the customers and their telephone calls, use of common waiting/guest room with attached toilets etc., for use of the customers and guests of the customers. use of central air-conditioning, services of attendants, sweeper, etc., use of telephone and fax machine and furniture, etc. Further, ultimate control over the premises is with the assessee. Further, there is no intention of mere letting out the property and earn the rental income since customers keep on changing from time-to-time. The space is provided to the customers on weekly/monthly basis for carrying out their work of assignment or for completing the specific work. Sometimes, there may be no customer and space may remain vacant. In such cases, the activity is to run business centre as a commercial activity like hotels and hospitals and use of the property is incidental to carrying on such business activity. Sec. 22 of the Act specifically excludes those cases where property is used for business purposes. Therefore, we are of the view that the object of the assessee is to run the business centre by exploiting the property and not mere letting out the property. Consequently, the receipts from such activity must be considered as business receipts. Accordingly, we hold so. The view taken by us is fortified by the decision of Hon'ble Gujarat High Court in the case of Asstt. CIT vs. Saptarshi Services Ltd. 2003 (2) TMI 415 - GUJARAT HIGH COURT . Therefore, the order of the CIT(A) is set aside and consequently, the AO is directed to compute the income under the head Profits and gains from business or profession . Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Classification of income from running a business centre: Whether it should be assessed as "business income," "income from house property," or "income from other sources."

Detailed Analysis:

1. Classification of Income from Running a Business Centre:
The primary issue in this appeal is whether the income from running a business centre should be assessed as business income or under the head "Income from house property" or "Income from other sources."

Facts of the Case:
The assessee operated business centres under two proprietary concerns. The receipts and expenditures were recorded in the Profit & Loss Account, and the net amount was declared as business income. The Assessing Officer observed that the property for one business centre was owned by the assessee, while the other was leased. The receipts were primarily from customers using the space and facilities, labeled as service charges.

Assessing Officer's View:
The Assessing Officer rejected the assessee's explanation that the primary intention was to provide business services, not to let out the premises. He classified the income from the owned property as "Income from house property" and from the leased property as "Income from other sources," relying on the Supreme Court decision in Shambhu Investment (P) Ltd.

CIT(A)'s Decision:
The CIT(A) upheld the Assessing Officer's decision, stating that the assessee had essentially let out office premises and did not provide complex or specialized services. The CIT(A) also rejected the assessee's plea for consistency based on previous assessments.

Tribunal's Analysis:
The Tribunal considered the assessee's argument that the intention was not to let out the building but to provide space and facilities for a specified period. The Tribunal noted various facilities provided by the assessee, such as reception services, telephone operators, common waiting rooms, central air-conditioning, and maintenance staff. The Tribunal distinguished the case from Shambhu Investments Pvt. Ltd., where the property was let out without additional facilities.

The Tribunal emphasized that the primary object was to exploit the property through complex commercial activities, not mere letting out. The Tribunal cited the legal position laid down by the Calcutta High Court in Shambhu Investments Pvt. Ltd., which was approved by the Supreme Court, stating that if the primary object is to exploit the property by complex commercial activities, the income should be considered as business income.

Supporting Case Law:
The Tribunal referenced the Gujarat High Court decision in Saptarshi Services Ltd., where similar services provided by a business centre were held to be business income.

Conclusion:
The Tribunal concluded that the assessee's intention was to run a business centre by exploiting the property and not merely letting it out. Therefore, the income should be assessed as business income. The Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to compute the income under the head "profits and gains from business or profession."

Final Judgment:
The appeal of the assessee was allowed, and the order was pronounced on 22nd May, 2008.