2016 (11) TMI 1153 - AT - Income Tax

Assessment of income from mall operation - income from house property OR business income - Held that - We notice that the assessee has constructed a shopping mall as per its objects for which it was incorporated and has derived income from running and maintaining the shopping mall. The activities carried on by the assessee, which are extracted above, would show that the assessee is carrying on the activities as its trading/commercial activity. As decided in PFH Mall & Retail management Vs. ITO (2007 (5) TMI 258 - ITAT CALCUTTA-A ) income from Mall operation is assessable as business income, since various services & facilities as well as other amenities similar to company s operations are provided by the assessee. Further the activities are carried on continuously in an organized manner with a set purpose and with a view to earn profit. Thus we set aside the order passed by Ld CIT(A) on this issue and direct the AO to assess the income from Shopping Mall as business income. Disallowance made u/s 14A - Held that - We are of the view that the claim of the assessee that the investment was made only of Share application money needs factual verification. Accordingly we restore this matter to the file of the AO with the direction to examine the factual aspects and decide this issue by following the decision rendered by the jurisdictional High Court in the case of HDFC Bank Ltd (2014 (8) TMI 119 - BOMBAY HIGH COURT). With regard to the disallowance to be made out of administrative expenses, we direct the AO to make disallowance on a reasonable basis, after considering the explanations of the assessee. The order passed by Ld CIT(A) on this issue is set aside accordingly. Disallowance of Service tax liability u/s 43B - Held that - Since the claim of the assessee that the outstanding service tax liability has not accrued as on the last day of year, requires verification, we restore this issue to the file of the AO with the direction to examine the factual aspects and decide the issue by following the decision rendered by jurisdictional High Court in the case of Ovira Logistics P Ltd 2015 (4) TMI 684 - BOMBAY HIGH COURT

Summary

Issues Involved:
1. Assessment of income from mall operations under the head "income from house property" versus "business income."
2. Disallowance made under Section 14A of the Income Tax Act.
3. Disallowance made under Section 43B of the Income Tax Act.

Detailed Analysis:

1. Assessment of Income from Mall Operations:
The primary issue was whether the income from mall operations should be assessed under the head "income from house property" or "business income." The assessee argued that the mall operations involved complex commercial activities, including providing various services such as security, housekeeping, maintenance, marketing, and promotional activities, which should classify the income under "business income." The assessee cited several case laws, including PFH Mall & Retail Management Vs. ITO and ACIT Vs. Stellar Developers P Ltd, where similar income was assessed as business income.

The Tribunal referred to the Hon'ble Supreme Court's decision in the case of M/s. Rayala Corporation Pvt. Ltd., which supported the assessee's stance. The Tribunal noted that the assessee was incorporated with the objective of constructing and operating commercial complexes and had employed over 200 employees for mall operations. The Tribunal concluded that the income from the mall should be assessed as business income, setting aside the CIT(A)'s order and directing the AO to assess the income accordingly.

2. Disallowance under Section 14A:
The second issue involved the disallowance made under Section 14A of the Act. The AO had applied Rule 8D to compute the disallowance. The assessee contended that the investments in mutual funds were made from share application money, not immediately required for mall construction purposes, and hence, there was no need for disallowance out of interest expenditure. The Tribunal restored this matter to the AO for factual verification, directing the AO to follow the decision rendered by the jurisdictional High Court in the case of HDFC Bank Ltd. Regarding the disallowance of administrative expenses, the Tribunal directed the AO to make a reasonable disallowance after considering the assessee's explanations.

3. Disallowance under Section 43B:
The third issue was the disallowance of service tax liability under Section 43B. The assessee argued that the service tax liability accrues only when payment is received from the customer, and hence, the provisions of Section 43B should not apply to the outstanding service tax liability. The Tribunal restored this issue to the AO for factual verification and directed the AO to follow the decision of the jurisdictional High Court in the case of CIT Vs. Ovira Logistics P Ltd.

Conclusion:
The Tribunal allowed the appeal filed by the assessee for statistical purposes, setting aside the CIT(A)'s order on the primary issue and directing the AO to assess the income from mall operations as business income. The Tribunal also restored the issues related to disallowances under Sections 14A and 43B to the AO for further verification and appropriate action based on the cited legal precedents.