2017 (11) TMI 862 - AT - Income Tax

Treatment to rental receipts - nature of income - business receipts or Income from House Property - Held that - As perused the order of co-ordinate Bench of the Tribunal for A.Y. 2006-07 to 2009-10 2015 (9) TMI 1562 - ITAT MUMBAI the assessee s objects are not in respect of letting of any particular property, but it has the main objects of acquiring, constructing, operating and maintaining of the multiplexes, business center, I.T. Parks, software zones, commercial & residential complexes and to grant the same on lease/license also. The very object is the commercially exploitation of the properties. Besides that the assessee is also providing hosts of amenities and facilities, as discussed above, which amounts to composite business activity. We therefore hold that the income/loss from the multiplex is liable to be assessed as business income/loss and not as income from house property. The assessee consequently is also entitled to the claim of deductions in respect of expenditure incurred and depreciation on assets etc. in relation to such income. Hence, we do not find any reason to deviate from the findings recorded by the Ld. CIT(A) on this issue. - Decided in favour of assessee.

Issues Involved:
1. Classification of rental receipts as Business Receipts or Income from House Property.
2. Provision of amenities and facilities by the assessee and their impact on the classification of rental receipts.
3. Reliance on judicial precedents and their applicability to the current case.
4. Taxability of rental income from a commercial complex.
5. Interest on fixed deposits and its nexus with business income.

Issue-wise Detailed Analysis:

1. Classification of Rental Receipts:
The primary issue in this case is whether the rental receipts should be classified as Business Receipts or Income from House Property. The Revenue argued that the rental income was derived from allowing the use of the property, which does not constitute a systematic business activity. However, the CIT(A) held that the rental receipts should be classified as Business Receipts, emphasizing the commercial exploitation of the property through various amenities and facilities provided.

2. Provision of Amenities and Facilities:
The CIT(A) observed that the assessee provided numerous amenities, such as security systems, cleaning and maintenance, lighting, repair and maintenance of lifts, parking management, firefighting equipment, and insurance. These services were integral to the commercial exploitation of the property and were inseparable from the rental income. The Tribunal upheld this view, noting that the services and amenities provided were part of an organized business activity aimed at commercially exploiting the property.

3. Reliance on Judicial Precedents:
The Revenue contended that the CIT(A) erroneously relied on the Bombay High Court's decision in CIT Vs. Runwal Developers Pvt. Ltd. and the ITAT's decision in M/s. Krishna Land Developers Pvt. Ltd., arguing that these cases were distinguishable. However, the Tribunal found that the CIT(A)'s reliance on these precedents was appropriate. The Tribunal also referenced the Supreme Court's decision in Chennai Properties & Investment Pvt. Ltd., which supported the classification of rental income as business income when the primary objective was commercial exploitation.

4. Taxability of Rental Income from a Commercial Complex:
The Tribunal emphasized that the assessee's activities, including the development and maintenance of a commercial complex with various amenities, constituted a business venture. The intention was to exploit the commercial asset, not merely to let out the property. The Tribunal noted that the assessee's memorandum of association supported this objective, as it included provisions for developing, maintaining, and commercially exploiting properties.

5. Interest on Fixed Deposits:
The Revenue argued that the interest on fixed deposits should not be classified as business receipts, as it lacked an immediate nexus with the assessee's business. However, this issue was not extensively discussed in the Tribunal's decision, as the primary focus was on the classification of rental receipts.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to classify the rental receipts as Business Receipts, dismissing the Revenue's appeal. The Tribunal found that the assessee's activities, including the provision of various amenities and the commercial exploitation of the property, constituted a business venture. The Tribunal's decision was consistent with judicial precedents, including the Supreme Court's ruling in Chennai Properties & Investment Pvt. Ltd. The appeal was dismissed, and the order was pronounced in the Open Court on 13.11.2017.

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