2021 (8) TMI 210 - AT - Income Tax

Correct head on income - Income from revenue operation from common area maintenance charges received from the tenants - income from house property or income from business - HELD THAT - Assessee claimed that receipts on account of rent as well as maintenance charges were liable to be taxed under the head Income from house property . AO rejected the claim of the assessee to treat the receipts on account of maintenance agreement as rental income and taxed the same under the head Income from other sources . In the case in hand the assessee is showing receipt as Business income . In the case of Runwal Developers Pvt Ltd 2011 (10) TMI 35 - BOMBAY HIGH COURT has held that maintenance charges received were towards maintenance and promotion of common area and the amounts received towards maintenance charges were business receipts liable to be assessed under the head Income from business . In the case of Karnani Properties 1971 (8) TMI 18 - SUPREME COURT has held that services rendered by the assessee to its tenants were result of its activities carried on continuously in an organized manner with a set purpose and with a view to earn profit and hence those activities were business activities and income arising therefrom was assessable as business income . We do not find any error or infirmity in the findings of the ld. CIT(A). Both the grounds taken by the Revenue are accordingly dismissed.

Summary

Issues Involved:
1. Classification of common area maintenance charges as business income or income from house property.
2. Allowability of lease rental paid to Noida authority as revenue expenditure.

Detailed Analysis:

Issue 1: Classification of Common Area Maintenance Charges

Facts and Contentions:
- The assessee, owner of a multi-storied property, reported revenue from operations amounting to ?2,99,57,551, which included common area maintenance charges.
- The Assessing Officer (AO) classified these charges as 'income from house property,' arguing that the charges are derived from the same tenants who pay rent, and the charges are variable and dependent on the tenancy.
- The assessee contended that these charges should be classified as 'income from business and profession,' as they are for maintenance services provided to tenants, calculated on a cost-plus basis.

CIT(A) Findings:
- The CIT(A) agreed with the assessee, stating that the maintenance charges are for services provided and not for the rental of the property itself.
- The CIT(A) cited various judicial decisions to support the classification of maintenance charges as 'income from business and profession.'

Tribunal’s Analysis:
- The Tribunal noted that the agreement with tenants explicitly mentioned separate charges for common area maintenance, which are payable from the rent commencement date.
- It distinguished the present case from others cited by the AO, where no separate maintenance agreements or expenses were involved.
- The Tribunal referred to the Delhi High Court decision in Abhishek Govil and the Bombay High Court decision in Runwal Developers Pvt Ltd, which supported the classification of maintenance charges as business income.
- The Supreme Court decision in Karnani Properties was also cited, emphasizing that services rendered continuously in an organized manner with a profit motive constitute business activities.

Conclusion:
- The Tribunal upheld the CIT(A)’s decision, confirming that common area maintenance charges should be treated as 'income from business and profession.'

Issue 2: Allowability of Lease Rental as Revenue Expenditure

Facts and Contentions:
- The AO disallowed the lease rental payment of ?6,47,130 to Noida authority, treating it as non-revenue expenditure.
- The assessee argued that since the maintenance charges are business income, the related lease rental should be allowed as revenue expenditure.

CIT(A) Findings:
- The CIT(A) directed the AO to allow the lease rental payment as revenue expenditure, in line with the classification of maintenance charges as business income.

Tribunal’s Analysis:
- The Tribunal agreed with the CIT(A), stating that once the maintenance charges are classified as business income, the related lease rental payment qualifies as a revenue expenditure.

Conclusion:
- The Tribunal upheld the CIT(A)’s decision, allowing the lease rental payment as revenue expenditure.

Final Judgment:
- The appeal by the Revenue was dismissed, and the order of the CIT(A) was upheld in its entirety.
- The Tribunal pronounced the order in the open court on 27.07.2021.