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

[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.