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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 ..... P) Ltd (2009 (4) TMI 549 - ITAT MUMBAI ). 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 as held by the AO. Therefore, the decision of the CIT (A) in allowing the assessee s claim of depreciation on building by holding that the rental income was "income from business" is fair and reasonable and it does not call for any interference. - Decided against revenue X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings the assessee company filed copies of agreement made with the tenants for lease as well as for the amenities provided. From the agreements the AO noted that assessee given the part of building to tenants engaged in their own business of trading in consumer items and running cinema respectively in the premises of the assessee company building on lease basis paying monthly rent as per the lease agreement. From this fact that AO concluded that assessee company was receiving rent from the portion of the building let out from its tenants but neither engaged in any business activity nor handed over any running business to its tenants. The assessee company simply constructed a building on the plot of handed over the bare house property to tenants on leased basis. The AO also noted that tenants made internal arrangements of the furniture and fixtures and fittings, decorated the premises internally as per their business requirements. The tenants were also responsible to pay charges of internal electricity and water consumed in the premises from the time to time as per agreement. This proved that the assessee company never carried out any business on the portion of let out hou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustomers but also to maintaining the property systematically, manage the property on regular basis, taking steps for safety and security of the customers visiting the said shops in the mall. Further, providing safety and security for boosting the commercial importance of the mall should also the commercial duty of the assessee, the lesser of the commercial complex - the mall. In support of the above, assessee relied on the judgment of the Hon‟ble Gujarat High Court in the case of CIT vs. New India Industries 201 ITR 208. Further, assessee submitted that it is a matter of fact that the taxability of income on leasing out the properties of this kind requires to be decided based on the facts of each case. Income earned on a commercial exploitation of a property and on letting them out for the purpose of enjoying the rent are two different activities and the distinction between the two is very thin and the decision has to be taken based on the peculiar facts of each case. Assessee distinguished the facts of the present case from that of the judgment of the Hon‟ble Supreme Court in the case of CIT vs. Shambu investment 263 ITR 143 (SC) which is relevant for the proposition t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n should be taxable as „business income‟. CIT (A) perused the said submissions of the assessee and concluded in his favour. Relevant discussion are given in para 2.3(a) to 2.3(m) of the impugned order. In these paras, there is a discussion about the facts relating to earning of receipts of services charges of ₹ 3.15 Crs to reject the other limb of the rental income of ₹ 1.38 Crs. In para 2.3(d) of the impugned order, there is an analysis how the services and the rental charges are inseparable and interconnected. There is a discussion of the necessity of treating both these charges as „business income‟ of the assessee. As per the assessee, the whole venture of construction and renting as a mall from the starting of its construction being a business activity constitutes business undertaking for the interest of commercial exploitation. The fact of incurring advertisement and marketing expenses for attracting the new tenants was also mentioned. Finally, CIT (A) concluded by mentioning that the rental receipts should be treated as business income‟ on par with the „services charges‟. Para 2.3(m) is relevant in this regard and the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess operations. Further, Ld DR relied on the decision of the ITAT, Mumbai in the case of Batra Gulati Hotels vs. ITO [2010] 40 SOT 406 (Mum) for a limited purpose but eventually the said judgment is in favour of the assessee. It is the submission of the Ld DR that the income earned on leasing out of the establishments in the Mall is taxable under the head „income from house property‟. 6. On the other hand, Ld Counsel for the assessee heavily relied on the order of the CIT (A) and reiterated the submissions made before him. 7. We have heard both the parties and perused the orders of the Revenue Authorities as well as the papers / copies of the judgments filed before us. the limited issue for adjudication before us is the proper head of income for taxing the rental income earned by the assessee in respect of the commercial complex in the form of Mall constructed and leased by the assessee to various lessees. There is no dispute about the taxability of the income earned on providing of certain services and they are taxed by the Revenue as „taxable income under the head profits and gains from business or profession‟. The case of the Revenue is that such leased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wide and such activities together would definitely constitute an organized structure for making profits, and would necessarily constitute a business. Thus, in our view the assessee had created a commercial infrastructure and the services rendered were complex commercial/business activity. As aforesaid a perusal of the agreements and the stipulations contained therein would not leave any doubt about the commercial character of 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. In fact, the undisputed facts on record do demonstrate that assessee was a property manager rather than a passive owner of the property. The responsibilities entrusted to the outsourced agency, extracted hereunder from pages 151 and 152 of the paper book, bring out this facet of the case." Decision in the case of PFH Mall & Retail Management Ltd vs. ITO [207] 112 TTJ (Kol) 523 Conclusion:- Under the agreement, where the assessee had contractual obligation for providing services to customers (the users of shopping malls / business centres) like electricity, telephone, watch and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners pooled their resources to repay the loan and let out the property to the commercial organizations for earning income against which incidental expenses incurred for carrying out such activities were denied. The depreciation and interest therefore becomes an integral part for earning the income cannot be lost sight off when there is specific provision for claiming the same from the house property. It is not the case of the assessee to claim higher depreciation that what is allowable by law. It is also not the claim of the assessee to make profit in the form of income from business by earning more interest than what has been paid to the bank. The assessee's contention therefore becomes clear insofar as it rendered its income, residual to receipts from the lessees on account of electricity, water charges etc., which are the business activities from the assessee to charge for their portion and incur the remaining for itself along with the maintenance and providing security was in the nature of carrying out commercial activities and not for the purpose of letting it out as house property. On perusal of the assessment order and the appellate order, I am of the considered view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position in the case of house property that if the same is commercially exploited, it should be assessed under the business head else should be assessed under income from house property. In the case of East India Housing Ltd whether shopping complex was commercially exploited or not was never an issue agitated or argued. It may be noted that the case belongs to Assessment year 1953-54 and at that time shopping complex was simple and landlord used to earn rent just as owner of property and not because of its commercial exploitation. It may be noted in the above case that there was no element of service charges and only rent was charged. Services rendered were incidental to leasing and were of simple nature. This case is not applicable in the case of respondent who is owning and maintaining a mall. It may be noted that whereas rental income charged was ₹ 1.38 Crs whereas service charges were 3.15 Crs in the year under appeal. The magnitude of the services is too high as well as interlinked with leasing of shops. In the case of Gesco Corp (P) Ltd (supra), ITAT has considered the case of East India Housing Ltd and distinguishes the same. Please refer para 7 of the decision in p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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