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2007 (5) TMI 258 - AT - Income TaxIncome derived from shopping malls/business centres - Taxable under the head of income Income from house property Or business expenditure - Validity of the assumption of jurisdiction by the CIT u/s 263 - HELD THAT - The facts in the instant case undoubtedly show that the income obtained is not merely because of the bare letting of the premises but also because of the facilities and services rendered. Thus the income derived by the assessee cannot be regarded as simply from the exercise of property rights. Rather the income is derived by the assessee from complex operations of a trading nature. We agree with the learned counsel of the appellant that there are a lot of similarities in both the purpose as well as the activities concerning the running of a hotel and that of shopping mall. Indeed both malls and hotels constitute building or group of buildings providing accommodation for commercial use thereof. In the management of both hotels and shopping malls the predominant activity is commercial exploitation of the property. We feel that there is a lot of sense in the contention of the learned counsel of the appellant that just as utilisation of accommodation for providing customers with board and lodging is a commercial activity, utilisation of space for providing shopping facilities to customers is also a commercial activity. So applying the principles laid down In the case of Everest Hotels Ltd. 1973 (1) TMI 19 - CALCUTTA HIGH COURT the irresistible conclusion would be that the income derived by the assessee from the shopping malls/business centres is to be assessed as business income. In the instant case the primary object of the assessee is to earn income by commercial exploitation of the property. From the planning stage and arranging finance for its investments, every subsequent activity of the assessee has been directed towards developing the properties as shopping malls/business centres and taking up the business of the management of the same. The way the agreements have been drafted gives ample evidence of such intention of the assessee. After carefully analysing the facts of the instant case, and following the consensus of judicial opinion on the issue, our considered view is that, the mere fact that the income is attached to immovable property, cannot be the sole criterion for assessment of such income as income from house property. It is necessary to dig further to find out what is the primary object of the assessee while exploiting the property. If it is found, that the main intention is for simply letting out of property or any portion thereof, the resultant income must be assessed as income from house property. If, on the other hand, the main intention is found to be the exploitation of the immovable property by way of commercial activities, then the resultant income must be held as business income. In the instant case, we found that services rendered by the assessee were the result of its activities carried on continuously in an organized manner with a set purpose and with a view to earn profit. Hence, all these activities are in the nature of commercial activities. Accordingly we hold that the income derived by the assessee from shopping malls/business centres is to be assessed as business income and not as income from house property. Validity of the assumption of jurisdiction by the CIT u/s 263 - HELD THAT - In our view, the Hon'ble Supreme Court very succinctly enunciated the principles of law on this issue in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT held that; A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the Revenue. The Commissioner has to he satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.'' On an analysis of the relevant facts we have to hold that this is a case where conceivably two views are possible. We have also to hold that the view taken by the Assessing Officer cannot be considered as unsustainable in law. As a matter of fact, on merits, we have already held that the income derived by the assessee from shopping malls/business centres is required be assessed as business income. Under the circumstances we hold that assumption of jurisdiction u/s 263 of the Act by the ld CIT is without the sanction of law. The order u/s 263 is accordingly cancelled. In the result, the appeal of the assessee is allowed.
Issues Involved:
1. Cancellation of the assessment under section 263. 2. Classification of mall management/business centre charges as "Income from house property" versus "business income." 3. Consideration of finance charges paid for acquiring property under "Income from house property" versus "business expenditure." 4. Assumption of jurisdiction under section 263 by the Commissioner of Income-tax. Issue-wise Detailed Analysis: 1. Cancellation of the Assessment under Section 263: The primary issue in this case is the cancellation of the assessment framed by the Assessing Officer (AO) under section 263. The Commissioner of Income-tax (CIT) reviewed the assessment and found it to be erroneous and prejudicial to the interests of the Revenue. The CIT directed the AO to revise the original assessment by assessing the mall management and business centre charges as "Income from house property" instead of "business income." 2. Classification of Mall Management/Business Centre Charges: The CIT held that the mall management/business centre charges should be taxed under "Income from house property." The assessee argued that these charges should be assessed as "business income" based on the services provided, which included security systems, cleaning staff, lighting, lift maintenance, parking space, fire-fighting equipment, and other amenities. The assessee cited the Supreme Court's decision in Karnani Properties Ltd. v. CIT, which laid down tests to determine whether services rendered are business activities. The Tribunal found that the assessee's activities met these tests and thus should be classified as business income. 3. Consideration of Finance Charges: The CIT held that the finance charges paid for acquiring the property at Ahmedabad should be considered under "Income from house property" and not as "business expenditure." The assessee contended that the interest paid on loans for acquiring the property should be allowed as business expenditure. The Tribunal agreed with the assessee, noting that the loans were taken for commercial purposes, and the interest paid was a legitimate business expense. 4. Assumption of Jurisdiction under Section 263: The assessee challenged the assumption of jurisdiction under section 263 by the CIT. The Tribunal examined whether the CIT had the authority to revise the AO's order. The Tribunal noted that section 263 requires the order to be both erroneous and prejudicial to the interests of the Revenue. The Tribunal found that the AO had exercised his quasi-judicial powers appropriately, and the view taken by the AO was a possible and sustainable view in law. Therefore, the assumption of jurisdiction under section 263 by the CIT was deemed without legal sanction. Conclusion: The Tribunal concluded that the income derived by the assessee from shopping malls/business centres should be assessed as business income and not as income from house property. The order under section 263 was canceled, and the appeal of the assessee was allowed.
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