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TMI Blog2024 (8) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... me (i) Sale of Services less service tax and at Notes 17.1 License fees and rental income, service charges and events . Similarly the assessee has disclosed at Notes 18 Other Income placed at Page 12 of the paper book to substantiate the composite rent is bifurcated between rental income and maintenance charges. We find that the assessing officer has accepted the method of accounting of offering of rental income under the income from house property and the common area maintenance charges under income from business rental income for the A.Y.2016-17 to A.Y.2021-22 and passed the orders u/sec 143(1) and U/sec143(3) CIT(A) has over looked various factual aspects/evidences and sustained the action of the assessing officer. Accordingly, we set aside the order of the CIT(A) on this ground of appeal and direct the AO to consider the rental income under the income from house property and the common area maintenance charges under income from business and allow the deductions incurred wholly and exclusively for earning the income. Ground of appeal no.1 decided in favour of the assessee on taxability of rental income under income from house property. Disallowing interest expenses considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nging to tax income from house property of Rs. 14,86,78,609 under the head Income from Business/ Profession . The Ld. CIT(A) ought to have held that income of Rs. 14,86,78,609 have been taxed under the head Income from House Property . 2. Without prejudice to ground No.1, the Ld. CIT(A) erred in not holding that the other expenses amounting to Rs. 1,92,20,831 is required to be allowed under the head business income, which were suo-moto disallowed by the appellant as it had considered the rent income as Income from House Property . 3. The Ld. CIT(A) erred in not holding that interest expense of Rs. 1,85,07,827 is required to be allowed under the head business income. 4. Without prejudice to the above grounds, the Ld CIT(A) erred in not following the procedure laid down by the Ministry of Finance vide Faceless Appeal Scheme, 2021 notification no. 139/2021 dated 28.12.2021 and accordingly not provided an appropriate opportunity to the appellant. Thus, the order passed by the Ld CIT(A) is bad in law and void ab initio. At the time of hearing, the Ld. AR of the assessee, has not pressed the ground of appeal no.4 and accordingly the ground of appeal is treated as withdrawn and is dismiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtinent to note that the assessee has put a condition to provide regularly sales statements and other data to the LICENSOR for the purpose of determining the Variable License Fees and other associated purposes. By reading this clause, it shows assessee commercial intention to decide and increase rental income, which in normal circumstances are not permissible. It shows that the assessee has a close watch on violation of any terms mentioned in Leave license agreement. On detailed examination of Leave License Agreement, it is found that letting out and other services offered cannot exist in isolation and hence the arrangement cannot be termed as Income from letting out of premises. Hence, it is concluded that the intention of the assessee to execute Leave and License agreement was not only for letting out of building for rent, but also carrying on a complex commercial activity of setting up a Mall in which various amenities and fit-outs have been provided. Since the entire activity carried out in an organized manner to earn profit out of the investment made by the taxpayer, it should be treated as a commercial venture. Accordingly, the rental income should be chargeable to tax as bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rental income under income from business and has sustained the disallowance of deduction u/sec 24 of the Act claimed by the assessee under income from house property. Further the CIT(A) granted relief in other grounds of appeal and partly allowed the assessee appeal. Aggrieved by the CIT(A)order, the assessee and revenue has filed appeal before the Hon ble Tribunal. 6. At the time of hearing the Ld.AR of the assessee submitted that the CIT(A) has erred in sustaining the action of the AO in bringing to tax income from house property under the head income from business. The Ld.AR submitted that the assessee has constructed a mall and has let out the shops and spaces to various tenants and the assessee was receiving rental income and was offered to tax under income from house property. Whereas out of the composite rent which includes amenities, maintenance expenses and other charges as per leave and license agreement, the assessee has offered such receipts to tax and simultaneously claimed the actual expenditure as per the terms of agreement under income from business. The Ld.AR mentioned that alerternatively, if the claim of expenditure is not allowed under Income from house pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR referred to the Para 6.1 of the assessment order explaining the nature of composite rent received by the assessee from the tenants and the Ld.AR has demonstrated the audited financial statements disclosing the income, in particular at page No. 9 Profit Loss account, Revenue from operations and Note17 at page 19 of the paper book. Further in respect of the one of the tenant, the Ld.AR has demonstrated the clauses and recitals in the leave and license agreement placed at page 27 to 60 of the paper book. The Ld.AR highlighted on the terms and clauses including the duration period, method of quantification, composite rent, TDS and service tax provisions, amenities, common area maintenance charges, parking lot charges, payment mechanism, services, fit out works charges and other issues in respect of the tenancy rights and duties. Further the Ld. AR referred and demonstrated the FAQ from the Income Tax Department Website on the taxability of the composite rent and implications placed at page 164 of the paper book read as under: Title: What is the tax treatment of composite rent when the composite rent pertains to letting out of building along with charges for provision of services? Lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g., letting out of refrigerator along with residential bungalow), rent of building will be charged to tax under the head Income from house property and rent of other assets will be charged to tax under the head Profits and gains of business and profession or Income from other sources , as the case may be. This rule is applicable, even if the owner receives composite rent for both the lettings. In other words, in such a case, the composite rent is to be allocated for letting out of building and for letting of other assets. Tax treatment of composite rent in a case of letting of building along with provision of services In a case letting of building along with provision of services, composite rent includes rent of building and charges for different services (like lift, watchman, water supply, etc.): In this situation, the composite rent is to be bifurcated and the sum attributable to the use of property will be charged to tax under the head Income from house property and charges for various services will be charged to tax under the head Profits and gains of business and profession or Income from other sources (as the case may be). Computation of income from a let out property Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenance charges. The assessee has offered rental income under income from house property and the balance of composite rent includes amenities charges, maintenance expenses and other charges as per leave and license agreement, which the assessee has offered such receipts to tax and simultaneously claimed the actual expenditure as per the terms of agreement under income from business. The Ld. AR demonstrated a copy of from. No. 16A for the A.Y 2012-13 issued by one of the tenant, where the TDS is deducted u/sec 194I of the Act in respect of Rent of the premises and whereas in respect of maintenance and other charges TDS is deducted under the provisions of Sec. 194C of the Act. The Ld.DR submitted that the assessee is solely engaged in the leasing out of the properties and the since the tenant is paying rent along with the amenities charges hence the income disclosed under the head income from house property is chargeable to tax under head income from business. We find that the assessee is engaged in the main business of development of commercial, retail and entertainment complex and also engaged in rental and ancillary services. This is the first year of commercial operations of let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es under income from business and allow the deductions incurred wholly and exclusively for earning the income. Since we have decided the ground of appeal no. 1 in favour of the assessee as discussed above on taxability of rental income under income from house property, therefore the alternative grounds of appeal no. 2 3 becomes academic and are not adjudicated and the ground of appeal no 4 is not pressed by the asssessee. And the appeal filed by the assessee is partly allowed. ITA No.2352/Mum/2023, A.Y. 2012-13 (revenue appeal) 13. The revenue has raised following grounds of appeal as under: 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to call for necessary and factual details at the time of giving effect to the order passed by CIT(A) and then re-compute the income of the assessee on the lines stated in the order without giving any clear-cut findings with quantification of deletion or confirmation of additions made by the AO. As such order of CIT(A) qua verification by AO borders on the line of matter being set-aside to file of AO, a power not available with CIT(A). 2. Whether on the facts and in the circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) / NFAC as to how much interest need be capitalized in the instant case for the current year and how much is to be treated as revenue. 7. The Appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 08. The appellant craves leave to amend, or alter any grounds or add a new grounds, which may be necessary 14. At the time of hearing, the Ld. DR submitted that the CIT(A) has erred in giving directions to the assessing officer to call for necessary details for verification of facts and the CIT(A) does not have powers to issue directions to the Assessing officer and to decide and the matter was set aside to the file. Further the CIT(A) has erred in directing the AO to allow the depreciation on building, other expenses and interest expenses from income from business though the assessee has suo moto disallowed the claims were the rental income was considered under income from house property. The CIT(A) has erred in directing the AO to delete the disallowance of excessive claim of interest payment U/sec 36(1)(iii) of the Act overlooking the findings in the assessment order. The CIT(A) has erred in directing the AO to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest on fixed deposits for assessment year 12-13 contention of appellant is that this being interest earned on excess deposits in construction phase should be set off against the project cost and not be treated as income from other sources. Appellant has mentioned that honourable ITAT in appellant's on case for the years 2010-11 and 2011-12 has held that interest should be set off against project cost. Respectfully following the above, the same method should be adopted for the year under appeal. Appeal on this ground is hence allowed. 9.10 It may be noted that for additions made u/s 14A and allowance of revenue expense wrongly considered capital in nature and as regards the issue of TDS claim the relevant grounds have not been pressed by appellant and hence all not taken up. In all the years under appeal the income is to be computed as per method laid down by honourable Supreme Court in the case of Chennai properties as mentioned above. 10. As a result, the appeals are Partly Allowed s 16. Whereas in the assessee appeal, we have directed the Assessing officer to consider the rental income under the income from house property and the common area maintenance charges under income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal no 1, 2, 3, 4 5, in this revenue appeal are identical to grounds of appeals in ITA No. 2352/Mum/2023 for A.Y. 2012-13 (except the variance in figures). Therefore, the decision rendered in above paragraphs no. 15 16 would apply mutatis mutandis for this appeal. In the result, the appeal filed by the revenue is dismissed. ITA No.2248/Mum/2023, A.Y 2014-15 (Assessee appeal) 22. As the facts, circumstances and the grounds of appeal no 1, 2, 3, 4 7, in this assessee appeal are identical to grounds of appeal in ITA No. 2246/Mum/2023 for A.Y. 2012-13 (except the variance in figures). Therefore, the decision rendered in above paragraphs no.8.9.10.11 12 would apply mutatis mutandis for this appeal. The ground of appeal No. 5 6 raised by assessee are as under: 5. The Ld. CIT(A) erred in not holding that brought forward book losses of Rs. 2,46,41,066 is allowed to be set off against the book profits calculated as per the MAT provisions. 6. The Ld. CIT(A) erred in not holding that interest expenses of Rs. 26,20,481 is incurred wholly for business purposes. 23. The Ld.AR made submissions on the ground of appeal .no5 that the CIT(A) has erred in not allowing the adjustment of brought for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s mutandis for this appeal also. And the appeal filed by the assessee is partly allowed. ITA No.2355/Mum/2023, A.Y 2015-16(Revenue Appeal) 28. As the facts, circumstances and the grounds of appeal no 1, 2 3, in this revenue appeal are identical to grounds of appeals in ITA No.2352/Mum/2023 for A.Y. 2012-13 (except the variance in figures). Therefore, the decision rendered in above paragraphs no.15 16 would apply mutatis mutandis for this appeal. In the result, the appeal filed by the revenue is dismissed. ITA No.2250/Mum/2023, A.Y 2016-17.(Assessee Appeal) 29. The assessee has raised the fallowing grounds of appeal: 1. The Ld. CIT(A) erred in bringing to tax income from house property of Rs. 50,92,34,250/- under the head Income from Business/Profession . 2. Without prejudice to ground No. 1, the Ld. CIT(A) erred in not holding that the sum of Rs. 2,30,53,909/- [being 59% of 5,14,70,407-73,13,631] is required to be allowed under the head business income out of the total legal and professional charges. The applicant prays that the issue of disallowance of legal and professional charges of Rs. 2,30,53,909/- may kindly be adjudicated. 3. Without prejudice to ground No. 1, the Ld. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT(A) erred in not following the procedure laid down by the Ministry of Finance vide Faceless Appeal Scheme, 2021 notification no. 139/2021 dated 28.12.2021 and accordingly not provided an appropriate opportunity to the appellant. Thus, the order passed by the ld. CIT(A) is bad in law and void ab initio. 30. As the facts, circumstances and the ground of appeal no 1 in this appeal is identical to grounds of appeal in ITA No 2246/Mum/2023 for A.Y.2012-13 (except the variance in figures). Therefore, the decision rendered in above paragraphs no.8,9,10,11 12 would apply mutatis mutandis for this appeal also. Accordingly, we set aside the order of the CIT(A) on ground of appeal no.1 and direct the Assessing officer to consider the rental income under the income from house property and the common area maintenance charges under income from business and allow the deductions incurred wholly and exclusively for earning the income. We have decided the ground of appeal no.1 in favour of the assessee as discussed above on taxability of rental income under income from house property. Whereas grounds of appeal no.2,3,4,5,6,7,8 9 are in respect of allocating of expenses and we find the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and Income from Business. We find there is no finding on these aspects on the submissions of the assessee by the CIT(A). Therefore, we considering the principles of natural justice shall provide with one more opportunity of hearing to the assessee to substantiate the case with evidences and information. Accordingly, set aside the order of the CIT(A) on these disputed issues and remit the entire disputed issues to the file of the CIT(A) to adjudicate afresh and the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information and the ground of appeal no 10 is not pressed by the asssessee. The ground of appeal No.8 9 raised by the assessee are as under: 8. The Ld. CIT(A) erred in not holding that the claim of write off of Rs. 65,60,08,078 is allowable as business loss. The Ld CIT(A) ought to have been held that loss of Rs 65,60,08,078 is allowable as business loss 9. Without prejudice to ground No. 1, the Ld. CIT(A) erred in not holding that deduction from house property of Rs. 1,55,70,984 claimed as unrealized rent is required to be allowed. The applicant prays that the claim of unrealized rent may kindly be adjudicated. The Ld.AR m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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