2013 (9) TMI 479 - AT - Income Tax

Income from house property - License fees - CIT followed previous decisions and held it as income from business - Held that - mere fact that income is attached to property cannot be said to be assessable as income from house property if the main intention is not simply letting the property or any portion thereof. If the main intention is of exploiting immovable property by way of commercial activity, then the income must be held to be business income - appellant company with its professed objects as contained in its articles and memorandum as also reflected in its manner of activities and the nature of its dealings with the Haat properties, it is possible to say that the activities are part of its business activities - Folloing decision of Pfh Mall And Retail Management Limited. Versus Income-tax Officer, Ward - 8(3), Kolkata 2007 (5) TMI 258 - ITAT CALCUTTA-A and Radhasoami Satsang Versus Commissioner of Income-Tax 1991 (11) TMI 2 - SUPREME Court - Decided against Revenue.

Issues Involved:
1. Classification of income from license fee and collection on account of outgoings: business income vs. income from house property.
2. Treatment of receipts from 20 leasehold stalls and related expenses.
3. Allowability of depreciation on leasehold property.
4. Allowability of expenses for maintenance under different heads of income.

Detailed Analysis:

1. Classification of Income from License Fee and Outgoings:
The primary issue was whether the income from license fees and collections for outgoings should be treated as "income from business" or "income from house property." The assessee company, incorporated in 1993, was engaged in promoting and developing markets, specifically setting up a market known as "Jabbar Haat." The company constructed 996 stalls and leased them to tailors, receiving advances and annual license fees and outgoings.

The Assessing Officer (AO) classified the rent receipts as income from house property. However, the CIT(A) reversed this decision, referring to the Supreme Court's ruling in PFH Mall & Retail Management Ltd. Vs. ITO, which emphasized the nature of the activity and the primary objective of the assessee in exploiting the property. The CIT(A) noted that the assessee provided numerous services to the stall holders, akin to business operations rather than mere tenancy arrangements. The CIT(A) concluded that the income should be assessed as business income, considering the extensive commercial activities involved.

2. Treatment of Receipts from 20 Leasehold Stalls and Related Expenses:
The AO had separately considered the rent received from 20 leasehold stalls as "income from other sources" and disallowed related expenses, including depreciation. The CIT(A) found that these stalls were taken on lease from a partnership firm and sub-leased to tailors, with the company showing this as leasehold property and charging depreciation.

The CIT(A) held that the income from these leasehold stalls should also be assessed as business income, consistent with the treatment of the company's own stalls. The decision was based on the principle that the company's primary objective was to exploit the property through commercial activities, not merely to earn rental income.

3. Allowability of Depreciation on Leasehold Property:
The AO disallowed depreciation on the leasehold property, arguing that such depreciation is not allowable under the heads "income from house property" or "income from other sources." However, the CIT(A) allowed the depreciation, treating the income from the leasehold stalls as business income. Consequently, the expenses, including depreciation, were considered allowable business expenses.

4. Allowability of Expenses for Maintenance:
The AO disallowed maintenance expenses, asserting that such expenses are not allowable under the head "income from house property" except for statutory ones. The CIT(A), however, allowed these expenses, treating the income from license fees and outgoings as business income. The CIT(A) emphasized that the assessee's activities were commercial in nature, involving various services and maintenance activities necessary for running the market efficiently.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, emphasizing the principle of consistency as established in the Supreme Court's ruling in Radhasoami Satsang Vs. CIT. The Tribunal noted that the assessee's income had been consistently treated as business income in previous years. The decision in PFH Mall & Retail Management Ltd. was also cited to support the classification of the income as business income due to the commercial nature of the activities involved. Consequently, the Tribunal dismissed the revenue's appeal, affirming that the income from license fees and outgoings should be assessed under the head "profits from business," and the related expenses, including depreciation, were allowable as business expenses.

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