2019 (2) TMI 360 - AT - Income Tax

Correct Head of income - rental income from Operating Family Entertainment Center cum Mall and Maintenance Charges - Income from House Property or Profit and Gains from Business or Profession - Held that - As decided in assessee s own case 2017 (7) TMI 779 - BOMBAY HIGH COURT the intention of the Assessing Companies was to commercially exploit the property by way of complex commercial activities and it was not a case of letting out the property simplicitor. The rental income and the service charges thus were received by the Assessee Company as business income during the course of business carried out by them of operating and running a Mall as a commercial activity. - Decided against revenue

Summary

Issues Involved:

1. Classification of rental income and maintenance charges as "Income from House Property" vs. "Profit and Gains from Business or Profession".
2. Applicability of the Supreme Court decision in Shambhu Investment (P) Ltd vs CIT.
3. Allowability of interest expenditure under Section 24(b) of the Income Tax Act.

Issue-wise Detailed Analysis:

Issue 1: Classification of Rental Income and Maintenance Charges

The primary issue was whether the rental income from operating a Family Entertainment Center cum Mall and the associated maintenance charges should be classified as "Income from House Property" or "Profit and Gains from Business or Profession." The Assessing Officer (AO) treated the income from the mall as "Income from House Property," whereas the assessee claimed it as business income.

The Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT) had consistently ruled in favor of the assessee in previous assessment years, treating the income as business income. The CIT(A) noted that the AO had relied on earlier assessments, but those had been overturned by higher authorities, which had recognized the income from commercial complexes as business income. The Tribunal reaffirmed this position, stating that the primary object of the assessee was to exploit the property through complex commercial activities, not merely letting it out.

Issue 2: Applicability of Supreme Court Decision in Shambhu Investment (P) Ltd vs CIT

The Revenue contended that the CIT(A) ignored the Supreme Court decision in Shambhu Investment (P) Ltd vs CIT, which held that income derived from letting out furnished premises along with services should be treated as "Income from House Property." However, the Tribunal distinguished the present case by emphasizing the primary object test. It concluded that the assessee's intention was to engage in commercial activities by operating and running malls, which constituted business income. The Tribunal cited the Calcutta High Court's decision, affirmed by the Supreme Court, which supported this view.

Issue 3: Allowability of Interest Expenditure under Section 24(b)

The AO disallowed the interest expenditure claimed by the assessee under Section 24(b) of the Income Tax Act, arguing that the expense was not incurred for acquiring, constructing, or repairing house property. The CIT(A) and ITAT, however, allowed the interest expenditure, treating the income from the mall as business income. The Tribunal upheld the CIT(A)'s decision, following precedents in the assessee's own case, where similar claims had been allowed.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that classified the income from the mall as business income and allowed the interest expenditure. The Tribunal relied on consistent past rulings in the assessee's favor and distinguished the Supreme Court's decision in Shambhu Investment (P) Ltd vs CIT based on the primary object test. The Tribunal's decision was also supported by the Bombay High Court's judgment, which emphasized the principle of consistency and the specific facts of the case.