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TMI Blog2007 (5) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... ldings providing accommodation for commercial use thereof. In the management of both hotels and shopping malls the predominant activity is commercial exploitation of the property. We feel that there is a lot of sense in the contention of the learned counsel of the appellant that just as utilisation of accommodation for providing customers with board and lodging is a commercial activity, utilisation of space for providing shopping facilities to customers is also a commercial activity. So applying the principles laid down In the case of Everest Hotels Ltd. [ 1973 (1) TMI 19 - CALCUTTA HIGH COURT] the irresistible conclusion would be that the income derived by the assessee from the shopping malls/business centres is to be assessed as business income. In the instant case the primary object of the assessee is to earn income by commercial exploitation of the property. From the planning stage and arranging finance for its investments, every subsequent activity of the assessee has been directed towards developing the properties as shopping malls/business centres and taking up the business of the management of the same. The way the agreements have been drafted gives ample evidence of such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. On an analysis of the relevant facts we have to hold that this is a case where conceivably two views are possible. We have also to hold that the view taken by the Assessing Officer cannot be considered as unsustainable in law. As a matter of fact, on merits, we have already held that the income derived by the assessee from shopping malls/business centres is required be assessed as business income. Under the circumstances we hold that assumption of jurisdiction u/s 263 of the Act by the ld CIT is without the sanction of law. The order u/s 263 is accordingly cancelled. In the result, the appeal of the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequently, the case of the assessee was transferred to Kolkata. The learned Commissioner of Income-tax, Kolkata-III reviewed the aforesaid assessment. On such review it, prima facie, appeared to her that the said assessment was erroneous and prejudicial to the interest of the Revenue. She therefore, assumed jurisdiction under section 263 of the Act, and passed an order under the said section dated January 24, 2006, cancelling the assessment made under section 143(3) of the Act and directing the Assessing Officer to revise the original assessment by assessing the amount of Rs. 1,75,20,000 being mall management and business centre charges, as income from house property instead of as business income. The reasons why prima facie it appeared to the learned Commissioner of Income-tax that the assessment made under section 143(3) was erroneous and prejudicial to the interests of the Revenue necessitating action under section 263, are as under : (a) The mall management and business centre charges were assessed as business income against which business expenditure of Rs. 1.5 crores was claimed though the receipts should have been taxed as income from house property. (b) In the profit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 very succinctly enunciated the unique characteristics of a business activity. The apex court has laid down precise tests that are necessary to determine whether the services rendered by an assessee to its tenants/recipients of service, are in the nature of business activities and income generated therefrom assessable as business income, or not. The hon'ble court expressed the view that if the services rendered by the assessee are the results of its activities carried on continuously in an organised manner, with a set purpose and with a view to earn profits, those activities would constitute business activities and the income arising therefrom would be assessable under section 10 (of the 1922 Act, i.e. as business income under section 28 of the 1961 Act). In the context of the order under appeal, it is pertinent to apply the above tests to the facts of the instant case. The various services rendered by the assessee-company in the shopping malls/business centres owned by it at Mumbai, Ahmedabad and Kolkata, as may be noticed from the agreements reached in this respect with the users, viz., (i) Pantaloon Industries Ltd., (ii) Pant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; ble Supreme Court are satisfied in the case of the assessee, for its aforesaid activities to qualify as business activities. Consequently the income derived from such activities can only be assessed as business income. Viewed from another angle, learned counsel submitted, that in Karnani Properties, the tenants had to make a monthly payment which included charges for electric current, for use of lifts, for the supply of hot and cold water, for the arrangement for scavenging, for providing watch and ward facilities as well as other amenities. The company further provided for the benefit of tenants, electric lifts working day and night. It also maintained a separate water pump-house and a boiler for the supply of hot and cold water to the tenants. For all these purposes the company had to maintain a large number of permanent staff. If may be noticed that the services rendered by the present assessee to the users of its shopping malls/business centres are very similar in nature to those rendered by Karnani Properties Ltd. [1971] 82 ITR 547 (SC). Therefore, following the decision of the hon'ble apex court, the earnings made by the assessee by rendering the aforesaid services can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our attention to the judgment of the hon'ble Calcutta High Court in the case of Everest Hotels Ltd v. CIT [1978] 114 ITR 779 (Appx.) wherein the court had occasion to deliberate on a similar issue. The facts in the said case in a nutshell, are that the appellant, since 1927 has been carrying on the business of a hotel under the name and style of " Hotel Mount Everest" at Darjeeling. On October 23, 1952, the appellant executed an indenture of lease in favour of Messrs Hotels (1938) Private Ltd. with effect from November 1, 1952, at a consolidated leasehold rent of Rs. 75,000 per annum for a period of 5 years. The entire business of Hotel Everest, its goodwill, buildings, furniture, equipments, etc., were let out to Messrs Hotels (1938) Pvt. Ltd. under this indenture. The question was whether the assessee' s rental income should be taxed as property income under section 9 of the Act of 1922 or as business income under section 10 of the said Act. On the above facts, after an elaborate discussion taking into account the relevant judicial pronouncements, the court held that the rental income derived from the lease is assessable as business income under section 10 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ism that wherever the basic purpose, as evidenced by various related activities, is commercial exploitation of the property and letting out is only incidental to carrying on such business, the income earned is necessarily to be treated as business income. The facts and circumstances show that the basic intention of the appellant-company is commercial exploitation of the properties at Mumbai, Ahmedabad and Kolkata by developing these as shopping malls/ business centres, and all the related activities are geared towards that purpose. So the income derived can only be assessed under the business head. 10. Referring to the reliance of the Commissioner of Income-tax on the Supreme Court decision in the case of Shambhu Investment (P.) Ltd. v. CIT [2003] 263 ITR 143 to justify her contention that the income in question should have been taxed under the head of " Income from house property", learned counsel for the assessee submitted that the said judgment only stated that the court saw no reason to interfere with the conclusion arrived by the High Court on the question as framed under section 256(2) of the Act. Even the question framed has not been quoted in the judgment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) CIT v. Halai Nemon Association [2000] 243 ITR 439 (Mad) and (viii) Mukherjee Estate (P.) Ltd. v. CIT [2000] 244 ITR 1 (Cal) came to the conclusion that the mere fact of attachment of income to any immovable property cannot be the sole factor for assessment of such income as income from property. It is necessary to find out the primary object of the assessee while exploiting the property. If it is found that the main intention is for letting out the property or any portion thereof the same must be considered as rental income or income from property. In case it is found that the main intention is to exploit the immovable property by way of complex commercial activities, in that event it must be held as business income. He argued that if the above test is applied to the facts and circumstances of the instant case, there would be no room for doubting that the main intention of the assessee is to exploit its immovable properties, i.e. shopping malls/ business centres, by engaging in complex commercial activities. It cannot be denied that right from the planning stage and arranging finance for its investments, every subsequent activity of the assessee has been geared towards taking up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had entered into with the users. In all the agreements the assessee is shown as the owner of the premises in which the shopping malls/business centres are located and the other party to the agreement is shown as the user. The assessee, as owner of the premises, has the responsibility of providing security, communication and other services as specified in the agreements. The agreements with Pantaloon Industries Ltd., PFH Entertainment Ltd. and Pantaloon Fashions (India) Ltd., are operative for a period of six years commencing from April 1, 1999, and that with Pantaloon Retail (India) Ltd. is made operative for a period of seven years commencing from the date of official launch of the mall, or, in any case, on or before March 15, 2000, by which time the owner would endeavour to provide the user with all the services and facilities as mentioned in the agreement. The agreements provide inter alia that the owner, i.e. the assessee, would keep open the business centres from 9 a.m. to 10 p.m. [(10 a.m. to 10 p.m. as per the agreement with Pantaloon Retail (India) Ltd.)] every day. During this period the assessee would provide the services as mentioned in the agreements and would p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only limited access to use the space for the purpose of their business, and that too, in respect of certain activities, during the specific hours of the day only. Furthermore the keys of the premises are kept by the assessee meaning thereby that the premises are fully in control of the assessee. 13. At this juncture it would be pertinent to focus our attention to some undisputed facts pertaining to this case. The assessee has given up its business of trading in textiles and embarked on setting up shopping malls/ business centres at various metros in India in a big way. For this purpose it had secured loans from the banks, observed various formalities and obtained necessary permissions. Apart from providing various services, in subsequent years it has also taken up, as part and parcel of its mall management activities, the job of marketing as well as that of selling agency of ready-made garments and other articles. No doubt in the changing economic scenario of the country the assessee correctly recognised the immense opportunity that the retail shopping malls would provide for making big money. That is why it lost no time in discarding its earlier business to venture into this new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained is not so much because of the bare letting of the tenement but because of the facilities and services rendered, the operations involved in such letting of the property may be of the nature of business or trading operations and the income derived may be income not from exercise of property rights properly so-called so as to fall under section 9 but income from operations of a trading nature falling under section 10 of the Act." 16. The facts in the instant case undoubtedly show that the income obtained is not merely because of the bare letting of the premises but also because of the facilities and services rendered. Thus the income derived by the assessee cannot be regarded as simply from the exercise of property rights. Rather the income is derived by the assessee from complex operations of a trading nature. 17. In the case of Everest Hotels Ltd. v. CIT [1978] 114 ITR 779 it has been held by the hon'ble Calcutta High Court that the running of hotel being a commercial activity, the income derived from lease rent by letting out the hotel premises is assessable as business income. This is because the lease rent received was from commercial utilisation of the prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machine facilitating telephone services to the occupants of the business centre, services of lift, services of receptionists, secretarial services, data processing, conference room, etc. Thus what the assessee is providing in reality happens to be a working place along with the aforesaid facilities. It is apparent that the various services and facilities provided by the present assessee are very similar in nature. Therefore, it can be justifiably inferred that here too the assessee is actually providing a working place for doing business with the attendant facilities. In this view of the matter, the irresistible conclusion is that what the appellant has earned is business income and the same should be assessed under the head of " Profits and gains from business and profession" . 20. In the case of CIT v. Kongarar Spinners (P.) Ltd. [1994] 208 ITR 645, the hon'ble Madras High Court held that only letting out of a property simpliciter without anything more will fall under the category income from house property. But where the assessee is already running a factory and has built another factory and gives it on rent for running it, it is not a case of letting out the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... businessman. As discussed hereinabove, every action of the present assessee appears to be with the sole object of commercial exploitation of the premises. 23. After carefully analysing the facts of the instant case, and following the consensus of judicial opinion on the issue, our considered view is that, the mere fact that the income is attached to immovable property, cannot be the sole criterion for assessment of such income as income from house property. It is necessary to dig further to find out what is the primary object of the assessee while exploiting the property. If it is found, that the main intention is for simply letting out of property or any portion thereof, the resultant income must be assessed as income from house property. If, on the other hand, the main intention is found to be the exploitation of the immovable property by way of commercial activities, then the resultant income must be held as business income. In the instant case, we found that services rendered by the assessee were the result of its activities carried on continuously in an organized manner with a set purpose and with a view to earn profit. Hence, all these activities are in the nature of commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -judicial powers vested in him in accordance with the law and arrived at a conclusion such a conclusion cannot be termed to be erroneous, simply because the Commissioner does not feel satisfied with the conclusion. In such a case the fact that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement namely that the order is erroneous is absent. In order to clothe the Commissioner with the power of exercising jurisdiction under section 263, an order has to be both erroneous as well as prejudicial to the interests of the Revenue. Learned counsel also relied on the decision of the Kolkata Bench of the Tribunal in the case of J. K. Industries Ltd. v. Asst. CIT [2006] 283 ITR (AT) 101 to argue that merely because it results in loss of revenue, the Commissioner cannot revise an order, unless he proves that the order resulting in such loss was also erroneous. The proceedings under section 263 can only be invoked if the basis adopted by the Assessing Officer is patently wrong or the deduction or relief was allowed in contrave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer is erroneous as well as prejudicial to the interests of the Revenue. The expression " prejudicial to the interests of the Revenue" applies only to an order that has not been passed in consonance with the principles of law which has affected realisation of lawful revenue by the State. Shri Tulsiyan submitted that no material has been brought on record to show that the order under section 143(3) was not passed in consonance with the principles of law and that has affected the realisation of lawful revenue by the State. 27. The learned Departmental Representative submitted that the assessment order of the Assessing Officer is cryptic. It is based on incorrect assumption of fact and law. Hence the assessment order is erroneous and prejudicial to the interests of the Revenue. In reply, learned counsel for the assessee, relying on the decision of the Income-tax Appellate Tribunal, Mumbai in the case of Dhruv N. Shah v. Deputy CIT [2005] 273 ITR (AT) 59 [TM] submitted that even in cases where the Assessing Officer had not elaborated the reason for his taking a particular view in the body of the order, still the assumption of jurisdiction under section 263 by the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a person, it will certainly be prejudicial to the interests of the Revenue. The phrase ' prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." 29. On an analysis of the relevant facts we have to hold that this is a case where conceivably two views are possible. We have also to hold that the view taken by the Assessing Officer cannot be considered as unsustainable in law. As a matter of fact, on the merits, we have already held that the income derived by the assessee from shopping malls/business centres is required be assessed as business income. Und ..... 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