ITAT, JAIPUR BENCH ‘A’, JAIPUR Ascertainment of head of income derived by a landlord from hirers of his office space

Ascertainment of head of income derived by a landlord from hirers of his office space



Intention of the landlord is a material factor in deciding the issue as to whether charging of services to be provided in terms of the agreements with the tenants is business income or not; if it is found that 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.

ITAT, JAIPUR BENCH ‘A’, JAIPUR

Vikram Golecha

v.

DCIT

ITA No. 799/Jp/2005

March 31, 2008

RELEVANT EXTRACTS:

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6. After having gone through the decisions relied upon by the parties in view of the arguments advanced by them as well as the facts of present*case emerging from orders of lower authorities, we are of the view that intention of the landlord is a material factor in deciding the issue as to whether charging of services to be provided in terms of the agreements with the tenants is business income or not. In this regard, we find support from the decision of Hon'ble Calcutta High Court in the case of CIT v/s Shambhu Inv. P. Ltd. (supra) giving a ratio that merely because income is attached to any immovable property cannot be the sole factor for assessment of such income as income from property. What has to be seen is what was the primary object of the assessee while exploiting the property. If qp applying such test it is found that 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. Similar view has been expressed by Calcutta Bench of the Tribunal in the case of PFH Mall and Retail Management Ltd. v/s ITO (supra) placing reliance on several decisions of Hon'ble Courts. We agree with the submission of the Ld. A.R. that in the present case before us the ratio laid down by the Hon'ble Calcutta High Court in the case of CIT v/s Shambhu Inv. P. Ltd. (supra), subsequently affirmed by Hon'ble Supreme Court is of little help to the department and it actually supports the stand of the assessee. In the case of Attukal Shopping Complex P. Ltd. v/s CIT (supra), the assessee company was formed with the object to erect shopping complex etc. and selling / leasing such properties. Under the lease agreements with various lessees, the assessee charged separately the license fee towards lease of property and towards providing various amenities. Applying the principles laid down by Hon'ble Supreme Court in the case of Sultan Bros Pvt. Ltd. v/s CIT (supra) and Karnpura Dev. Co. Ltd. v/s CIT (supra), the Hon'ble Kerela High Court was pleased to hold that the part of the income was from property and part-of the income was from "business. Amenities and services provided by the assessee to the lessees included extensive parking spaces, security personnel for the complex, CIT v/s Shankar Narayana Hotels (P) Ltd. (supra) the Hon'ble Karnataka High Court was pleased to hold that the composite rent received by the assessee from its tenants should be split and the amounts attributable to the property only should be assessed under the head "income from house property", while the amount attributable to amenities provided / services rendered by the assessee to the tenants should be assessed under the head income from other sources.

7. If the above test is applied to the facts and circumstances of the present case, we find that there is no room for doubting that the main intention of the assessee has been to exploit its immovable property i.e. in the form of a business centre for various companies and concerns and in fact the income from service charges for the last several years except for A.Y. 1996-97 (in which second appeal could not be filed due to very little tax effect) was assessed as income from the property. The primary intention of the assessee was to exploit the property as a commercial centre. The photographs placed in paper book at page No. 14 & 15 speak the truth. Lot of services were provided to the occupants by incurring expenditure as detailed in P&L A/c placed at page No.1 of paper book, against which income from service charges were received and the same qualified as business activities. Services were provided in a continuous manner for this year, as well as in earlier years and subsequent years. Services rendered by the assessee to the occupants were the result of activities carried on continuously in an organized manner with a set purpose and with a view to earn profits. The agreements entered with occupants only conferred contractual right to occupy the space for business but they were not vested with any right, title or interest of any kind in the services and facilities provided by the assessee. The security deposits received from six occupants aggregated to Rs.7,95,000/- whereas the value of the properties including the open space for parking and garden was in crores of rupees, hence, the finding in the case of Shambhu Inv. P. Ltd. (supra), where entire cost of property was recovered will not be applicable, however, the ratio laid down in the judgment will support the assessee's case. Under these circumstances, we while setting aside orders of the lower authorities on the issue direct the A.O. to treat Rs.7, 02,000/- the services charges as business income. The ground No 1 is accordingly allowed in favour of the assessee.

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