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TMI Blog2014 (2) TMI 1227X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as in law, the Ld CIT (A) erred in directing to allow the entire claim of depreciation on building by holding that the rental income was income from business and not income from house properties as assessed in the assessment order. 3. On the facts and in the circumstances of the case as well as in law, the Ld CIT (A) erred in deleting the disallowance of expenses incurred without appreciating that the assessee was not engaged in any business activity but had simply let out the house property." 3. In this case the brief facts are discussed in para 2.1 of the impugned order which read as under: "2.1. The facts of the case were that during the year, the assessee constructed multi-storeyed building consisting of basement, lower ground floor (storage), upper ground floor and six upper floors, facing linking road and lower ground floor (storage), upper ground floor and three upper floors facing S.V. Road. The assessee company let out the upper ground floor to 5th floor of Linking road facing are to M/s. Shoppers Stop Ltd admeasuring 35,516 sq ft and 3,585 sq ft at 3rd floor facing S.V. Road to M/s. Movie Times. The assessee let out 42,000 sq ft area out of the total area of 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmercial activity". Assessee engaged in the business of construction, development, sale and lease of real estate properties. He relied on Memorandum of Association in this regard. The property in question was constructed and designed to suite to commercial establishments for their big showrooms having prime location advantage. The property was constructed to be useful for shopping malls for retail chain. Assessee never sold the property to anybody. Assessee desires to earn regular income by commercial exploitation from the said property. In the relevant period, the assessee leased out the properties to retail chains like Shoppers Stop, M/s. Movie Times Ltd, for restaurants (M/s. Asiawalk and M/s. Sheesha Hospitality Services), for insurance business (M/s. MetLife India Insurance Company) and for Doctors. Before the CIT (A), assessee enlisted the leased services rendered to the lessees as per the details discussed in para 2.2(c) of the impugned order. It is the case of the assessee that when the property was commercially utilized in furtherance of the company, the income received thereon as a result of the systematic activity constitutes „business income‟ and it is not & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shambu Investment Pvt Ltd (supra). As per the Ld Counsel, the facts of the assessee‟s case are identical to that of the case decided by the ITAT, Calcutta in the case of PFH Mall and Retail Management Ltd (supra). Assessee also relied on the judgment of the Hon‟ble Madras High Court in the case of CIT vs. Soumar Holdings Ltd 272 ITR 341 (Mad.), wherein it was held that the letting out shopping mall containing retail chain of stores, cinema, restaurants, air conditioning system, complex parking system etc constitutes „business income‟ . Assessee also relied on the judgment of the Hon‟ble Bombay High Court in the case of CIT vs. Associated Building 137 ITR 339 (Bom) for the proposition that letting out of auditorium along with air conditioning and other services was assessable as business income. Identical proposition was upheld by the Hon‟ble Karnataka High Court in the case of Balaji Enterprises vs. CIT 225 ITR 471 (Kar). Further, assessee also relied on various decisions and para 2.2.(k) of the impugned order is relevant in this regard. Ld Counsel also submitted that the assessee borrowed funds to the tune of Rs. 74.22 Crs for investment in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the income earned from both the activities were of a common nature i.e., business activity. The AO himself has admitted that the revenue generated from the activity of providing amenities / facilities was business income. In the facts and circumstances, it is held that the revenue generated from letting out was also a business income earned on account of use of commercial assets by commercial exploitation of the same on account of systematic and regular activity carried out. The AO is directed to treat the rental receipt as business income and consequentially, allow the related expenses, including depreciation as business expenses. In the result, this ground of appeal is allowed." 4.1. Aggrieved with the above decision of the CIT (A), the Revenue is in appeal before the Tribunal by raising the above mentioned grounds. 5. During the proceedings before us, Ld DR made various arguments and some of them are (i) the existence of two agreements separating the services (ii) any income attached to the building should be brought to tax under the head „income from house property‟; (iii) Ld DR relied on the judgment of the Hon‟ble Supreme Court in the case of East Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITAT, Mumbai in the case of Gesco Corporation Ltd. vs. ACIT Conclusion:- Where assessee operated business centers and commercial complexes and provided space and various services, income from such activities constituted business and not income from house property and consequently assessee is entitled to depreciation in respect of such assets and deduction of administration expenses. 15. Therefore, in our view, the issue involved in the present appeals is essentially a question of fact and once this question is answered, the application of appropriate legal principles should not present much difficulty. We find considerable strength in the submission of the assessee that facts in its case were distinguishable from those in the case of Shambhu Investment (P.) Ltd. (supra). Separate agreements for provision of services and amenities clearly spell out intention to render commercial services to the occupiers. Further, advance received for the hiring of services for a period of 12 months was a normal commercial arrangement and bore no relationship with the cost of the property. Further the factum of the services rendered and the facilities provided to the occupiers was not in dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bar and considered by the Assessing Officer and the learned CIT(A) rather leans in favour of the assessee on the basis of facts and circumstances of the case as have been brought on record. It appears the endeavor of the taxing authorities to refuse the assessee's claim of rendering income from business activities by holding the annual letting out value subject to deduction under the provisions of Section 24(b). The Assessing Officer has rather misdirected himself to hold the case laws cited by him leaning in favour of the Department when actually the Department's appeal had been dismissed by the Hon'ble Apex Court on the finding as was that the partners pooled their resources for carrying on an adventure in the nature of trade and subjected to hiring out the complex. This particular venture or concern was considered taxable as business income was held by the Hon'ble Apex Court in the case of Sambhu Investment (P.) (supra). Here again the Hon'ble Apex Court distinguished the method of finding out the intention of the income whether being taxed as income from house property or commercial activities was misconstrued by the learned CIT(A) on extraneous circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding the same as income from business and not income from house property." 8. We have also perused the judgment of the Hon‟ble Supreme Court relied upon by the Ld DR in the case of East India Housing and Land Development Trust Ltd (supra). In this regard, Ld Counsel for the assessee filed written submissions and mentioned that the said judgment of the Apex Court (supra) was considered by the ITAT while adjudicating the issue in the case of Gesco Corp (P) Ltd (supra) and distinguishes the same. Para 8 from the said papers are relevant in this regard which reads as under: "8. The Departmental Representative has heavily relied on Hon‟ble SC decision in the case of East India Housing Trust Ltd, 42 ITR 49. In this case, rental income from shops and stalls was held to be assessed under the head „income from house property‟. In this case, assessee argued that its main objective as per Memorandum of Association is of earning rent by letting out house property. So, assessee argued that rental income should be assessed under „business head‟. Apex Court held that just because main object clause of business contains putting property on lease shall not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving space with services and facilities which were varied and wide and such activities together would definitely constitute an organized structure for making profits, and would necessarily constitute a business and the relationship between the parties as distinguished from that merely of a landlord and his tenant. Occupation of space was inseparable from the provision of services and amenities as held by the ITAT in the case of Gesco Corp (P) Ltd (supra). Further, providing amenities like electricity, telephone, watch and ward etc are the services rendered by the assessee result of its activities carried on continuously in an organized manner with a set purpose and with a view to earn profit. Hence, all the activities which are subject matters of both the agreements entered into by the asssessee for rendering of services and letting of the office space are in the nature of commercial activities and income derived by assessee from shopping malls / business centre was assessable as „business income‟ and not as „income from house property‟ as held by the ITAT, Calcutta in the case of PFH Mall & Retail Management Ltd (supra) and the same view was taken by the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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