2021 (12) TMI 560 - AT - Income Tax

Correct head of income - income from infrastructure support services - taxable under the head profits and gains from business or profession or under the head income from house property - HELD THAT - Existence of two agreements is concerned, absolutely, there is no dispute. It is also not in dispute that for the assessment year 2011-12, 2012-13 and 2015-16 also, the assessee offered the receipts under the two streams, namely, rental income earned from leasing out the space within the mall to the tenants and offering the same under the head income from house property and the other is income from business activities of maintaining, operating and providing equipments essential for operation of mall, i.e., infrastructure support services under the head profit and gain from business or profession . It is also not in dispute that for the assessment year 2011-12 and 2012-13, by order dated 16.12.2015 and 18.02.2015, the Assessing Officer accepted the same; whereas for the assessment year 2015-16, ld. CIT(A) in first appeal granted relief to the assessee by holding that the income from infrastructure support services is taxable under the head profits and gains from business or profession and not under the head income from house property . As decided in CHANDER NAGAR CHEMICALS AND MINERAL PRIVATE LIMITED VERSUS ITO, WARD-3 (3) , NEW DELHI. 2020 (9) TMI 342 - ITAT DELHI When the assessee had chosen to bifurcate the transaction and to charge separately towards the rent of the demised premises and for the services provided and hire charges, in our considered opinion the Revenue cannot prevent the same on the ground that such process would result in loss to the Revenue. In the circumstances, we hold that the action of the authorities below not to permit the assessee to arrange their business in the way which is beneficial to them, within the permissible limits of law, is impermissible. Then it goes without saying that the assessee is entitled to claim the business expenses in respect of the income from the services provided and hiring of equipment, and statutory deductions under section 24 (a) of the Act insofar as the income from the house property is concerned. With this view of the matter, we direct the learned Assessing Officer to allow the statutory deduction under section 24 (a) of the Act also and the interest incurred in respect of the house property - Appeal of the Revenue is dismissed.

Summary

Issues:
1. Classification of income from infrastructure support services as profits and gains from business or profession or income from house property.
2. Treatment of interest expense, depreciation, and other expenses related to infrastructure support services.

Analysis:
Issue 1:
The dispute in this case revolves around the classification of income from infrastructure support services by the company engaged in leasing and renting malls. The Assessing Officer treated the income as "income from house property," resulting in a loss assessment. However, the CIT(A) held the income as "profits and gains from business or profession," leading to the deletion of the addition made by the Assessing Officer. The Revenue challenged this decision, arguing that the income should be assessed as "income from house property" due to the nature of the company's activities and the bifurcation of receipts under two heads.

The Revenue contended that the revenue from infrastructure support services should be considered as rent since no direct services were provided to tenants by the company. On the other hand, the company argued that it had the right to structure its business agreements as it deemed fit and cited previous assessment years where similar income was accepted as "profits and gains from business or profession." Additionally, a Tribunal decision supported the company's position that the Revenue cannot dictate how the company arranges its business affairs.

Upon review, the Tribunal found that the company had separate agreements for leasing space and providing infrastructure support services, with past assessments also accepting this arrangement. The Tribunal upheld the CIT(A)'s decision, stating that the company was entitled to structure its business operations as it saw fit within legal limits. Therefore, the Revenue's appeal on this issue was dismissed.

Issue 2:
The second issue pertained to the treatment of interest expense, depreciation, and other expenses related to the infrastructure support services. Since the Tribunal determined that the income from such services should be taxed as "profits and gains from business or profession," the treatment of associated expenses also aligned with this classification. Consequently, the Tribunal dismissed the Revenue's appeal on this ground as well, in favor of the assessee.

In conclusion, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal and affirming the classification of income from infrastructure support services as "profits and gains from business or profession." The treatment of related expenses was also aligned with this classification, leading to a favorable outcome for the assessee in this case.