2008 (3) TMI 369 - AT - Income Tax

Summary

Issues involved:
1. Classification of service charges as income from house property or business income.
2. Deduction for actual expenses debited to P&L A/c.
3. Exclusion of income of Rs. 21,849 included in service charges receipt.

Issue 1 - Classification of service charges:
The assessee contested the first appellate order, arguing that service charges of Rs. 7,02,000 should be treated as business income or income from other sources, not as income from house property. The Assessing Officer and the ld. CIT(A) considered the entire income to be taxed as house property income, disallowing various expense claims related to services provided. The assessee maintained that the services and facilities offered justified the service charges, separate from rental income. The agreements with tenants specified services like security, parking, furnishing, etc. The primary intention of the assessee was to exploit the property commercially, providing continuous services. The Tribunal found that the main intention of the assessee was commercial activity, supporting the assessee's case based on various legal precedents. Therefore, the service charges were classified as business income, overturning the lower authorities' decision.

Issue 2 - Deduction for actual expenses:
The assessee sought a deduction for actual expenses of Rs. 6,80,151 debited to the P&L A/c, which were incurred for deriving income of Rs. 7,13,600 as service charges. The Tribunal did not delve into this issue in the provided text.

Issue 3 - Exclusion of income:
The assessee raised concern over the exclusion of income of Rs. 21,849, which was included in the service charges receipt of Rs. 7,02,000, potentially leading to double addition. The Tribunal did not address this specific exclusion in the text provided.

This summary highlights the classification of service charges as business income, emphasizing the intention of the assessee in commercial property exploitation. The Tribunal's decision favored the assessee's argument based on legal precedents and the nature of services provided.