July 2019

Section 28 (i) Business income vs. income from house property Income received from leasing out of shops and other commercial establishments Also received common amenities charges, maintenance charges, advertisement charges Held to be assessable as business income

Ajay R. Singh
Advocate

12 Pr. CIT-6 vs. Krome Planet Interiors Pvt. Ltd. [Income-tax appeal No. 282 of 2017; dated 15th April, 2019 (Bombay High Court)]

 

[Krome Planet Interiors Pvt. Ltd. vs. ACIT; A.Y.: 2008-09; Mum. ITAT]

 

Section 28 (i) Business income vs. income from house property Income received from leasing out of shops and other commercial establishments Also received common amenities charges, maintenance charges, advertisement charges Held to be assessable as business income

 

The assessee is a private limited company engaged in the business of leasing out shop space in shopping malls. The assessee had filed his return for the A.Y. 2008-2009 declaring the income received from such activity of leasing out of shops and other commercial establishments to various persons as business income. In addition to rental income, the assessee had also received certain charges from the licensees such as common amenities charges, maintenance charges and advertisement charges.

 

However, the assessing officer (AO) held that the income was from house property and not business income.

 

The issue eventually reached the Tribunal. The Tribunal, by the impugned judgement held that the income was business income. It noted that the assessee had entered into a leave and license agreement with the licensee which shows that the building was constructed for the purpose of a shopping mall with the approval of the Pune Municipal Corporation. The assessee was providing various facilities and amenities apart from giving shopping space on lease. The agreement contained the list of facilities to be provided by the assessee. The charges for the facilities and utilisation were included in the license fees charge for leasing the shop space. The additional charges towards the costs of electricity consumed would be payable by the licensees. The period of license was 60 months. The Tribunal also noted that no space in the shopping mall was given on rent simplicitor. The Tribunal, therefore, held that the object of the assessee to exploit the building as a business is established. The assessee had also taken a loan facility from a bank for the shopping mall project.

 

Being aggrieved with the ITAT order, the Revenue filed an appeal to the High Court. The Court held that the assessee had obtained a loan from a bank for its mall complex project; that the assessee had entered into leave and license agreements with individuals for letting out commercial space; a majority of the licenses were for 60 months; in addition to providing such commercial space on lease, the assessee also provided a range of common amenities, a list of which is reproduced earlier. These facilities included installation of elevators, installation of a fire hydrant & sprinkler system, installation of central garbage collection and disposal system, installation of common dining arrangement for occupants and the staff, common water purifier and dispensing system, lighting arrangement for common areas, etc.

 

Thus, in plain terms, the assessee did not simply rent out a commercial space without any additional responsibilities. He executed leave and license agreements and also provided a range of common facilities and amenities upon which the occupiers could run their business from the leased out premises. The charges for such amenities were also broken down in two parts. Charges for several common amenities were included in the rentals. Only on a consumption-based amenity, such as electricity, would the occupant be charged separately. All factors thus clearly indicate that the assessee desired to enter into a business of renting out commercial space to interested individuals and business houses.

 

The Revenue, however, strongly relied on the decision of the Supreme Court in the case of Raj Dadarkar & Associates vs. Assistant Commissioner of Income-tax, reported in (2017) 81 taxmann.com 193. It was, however, a case in which on facts the Supreme Court held that the assessee was not engaged in systematic activity of providing service to occupiers of the shops so as to constitute the receipt as business income. In the result, the Revenue appeal was dismissed.

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