2018 (11) TMI 693 - AT - Income Tax

Nature of income - income from renting a properties in Mall - Income from house property or busniss income - allowance of busniss loss - appellant contended that it had set up its business during the year and Mall under construction was capitalized and contended that loss was required to be allowed - CIT(A) held that income of the appellant to be taxed under the head income from house property - Held that - In similar circumstances, Hon ble Supreme Court in the matter of Chennai Properties & Investments Ltd. 2015 (5) TMI 46 - SUPREME COURT decided matter in favour of the assessee holding that income from renting a property of Mall to be treated as business income and in those circumstances, appellant case is fully covered by the aforesaid judgment. ITAT Bench of Mumbai in the matter of Hagwood Commercial Developers Pvt. Ltd. 2017 (2) TMI 626 - ITAT MUMBAI has also given finding in favour of assessee. To the effect that even if Mall had not commenced business till end of relevant year, assessee had rightly debited general overhead expenses being indirect expenses incurred, in profit and loss account. Thus, we are considered opinion, that in assessee s case, the income from renting a properties in Mall to be taxed as business income and not income from house property as well as business loss also to be allowed. - Decided in favour of assessee.

Issues Involved:
1. Taxability of income as "Income from house property" vs. "Business income."
2. Disallowance of business loss and treatment as preoperative expenses.
3. Classification of rental income as "Income from other sources."
4. Set off of business loss against other income.
5. Initiation of penalty proceedings under section 271(1)(a).

Detailed Analysis:

1. Taxability of Income:
The primary issue was whether the income from leasing out premises in a Mall should be taxed as "Income from house property" or "Business income." The assessee argued that the main objective since incorporation was to carry on the business of leasing premises, and thus the income should be considered as business income. The Tribunal referred to the Supreme Court's judgment in Chennai Properties & Investments Ltd. Vs. CIT, which held that if the main object of the company is to acquire properties and earn income by letting them out, such income should be treated as business income. The Tribunal agreed with this view, stating that the activities carried out by the assessee were systematic and regular, involving substantial services, and thus should be taxed as business income.

2. Disallowance of Business Loss:
The assessee claimed a business loss of ?2,46,03,893 for the A.Y. 2010-11, which was disallowed by the AO on the grounds that the project was still under construction. The Tribunal noted that the business had commenced when the land was purchased in F.Y. 2005-06, and the expenses incurred after the completion of the building should be considered as revenue expenditure. The Tribunal relied on the judgment in Hagwood Commercial Developers Pvt. Ltd. Vs. ACIT, which allowed the deduction of general overhead expenses as revenue expenditure even if the Mall had not commenced business by the end of the relevant year. Thus, the Tribunal allowed the business loss claimed by the assessee.

3. Classification of Rental Income:
The AO classified rental income of ?1,35,000 as "Income from other sources." The Tribunal did not provide a specific ruling on this issue in the detailed analysis, but the overall context suggests that since the income from leasing was considered as business income, any rental income would also fall under the same head.

4. Set Off of Business Loss:
The AO did not allow the set-off of business loss against other income. Given that the Tribunal ruled the income from leasing as business income and allowed the business loss, it implicitly allowed the set-off of business loss against other income.

5. Initiation of Penalty Proceedings:
The Tribunal deemed the initiation of penalty proceedings under section 271(1)(a) as premature and chose not to comment on it.

Conclusion:
The Tribunal allowed all four appeals filed by the assessee, ruling that the income from leasing premises in the Mall should be taxed as business income, the business loss should be allowed, and the penalty proceedings were premature. The Tribunal's decision was influenced by precedents such as Chennai Properties & Investments Ltd. Vs. CIT and Hagwood Commercial Developers Pvt. Ltd. Vs. ACIT. The appeals for subsequent years were similarly allowed, following the same reasoning.

Order Pronouncement:
The order was pronounced in open court on 15-10-2018.

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