Commercial Complex on MSRTC Land Generates Business Income, Not House Property Income: Mumbai ITA

ACIT Vs Akrutismc Joint Venture (ITAT Mumbai)

Commercial Complex on MSRTC Land Generates Business Income, Not House Property Income: Mumbai ITA

No Ownership, No House Property Tax: ITAT Treats MSRTC Commercial Complex Rentals as Business Income.

The Mumbai ITAT dismissed the Revenue’s appeal and held that lease rentals and allied receipts earned by Akruti SMC Joint Venture from a commercial complex developed on MSRTC land were taxable as business income and not as income from house property.

The assessee was formed as a joint venture specifically for developing a bus station and commercial complex on land belonging to MSRTC. Under the development agreement, the assessee constructed the project at its own cost and, in consideration thereof, was granted the right to commercially exploit the commercial portion by leasing it for a period of 30 years. However, ownership of both the land and the building continued to remain with MSRTC throughout the arrangement.

The Assessing Officer treated rental receipts of about ₹9.88 crore as income from house property, relying on the fact that the assessee was receiving rent from tenants. The CIT(A), however, followed earlier appellate orders in the assessee’s own case and held that the receipts constituted business income.

Upholding the CIT(A)’s order, the Tribunal observed that the assessee was neither the owner nor the deemed owner of the property for the purposes of sections 22 and 27 of the Act. It merely possessed a contractual right to commercially exploit the property for a limited period. Since ownership remained vested with MSRTC and the assessee’s very purpose was to develop and commercially exploit the project, the rental receipts arose from carrying on its business activity rather than from ownership of property.

The Tribunal further noted that the issue had already been decided in favour of the assessee in earlier years on identical facts. Following the principle of consistency and finding no change in facts or contractual arrangements, it reaffirmed that lease rentals from the commercial complex, as well as related service receipts, were assessable as business income.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal is filed by the Revenue challenging the order of the Learned Commissioner of Income Tax (Appeals) [‘Ld. CIT(A)’ for short], National Faceless Appeal Centre (“NFAC” for short)passed u/s. 250 of the Income Tax Act, 1961 (‘the Act’), pertaining to the Assessment Year (‘A.Y.’ for short) 2018-19.

2. The Revenue has challenged the following grounds of Appeal.

“1.Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the deletion of the entire addition of Rs. 9,94,49,213, by treating lease rentals and related receipts from the commercial complex constructed on MSRTC land as Profits and Gains of Business or Profession, instead of upholding the assessment made by the Ld. AO under the head Income from House Property on lease rental income of Rs. 9,87,57,515 in accordance with sections 22, 23, 24 and 27(iiib) of the Income tax Act, 1961. 2.

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding, expressly or impliedly, that the assessee is not an owner or deemed owner of the commercial complex for the purposes of section 22, ignoring the long-term development cum-lease arrangement with MSRTC under which the assessee has constructed the building at its own cost, enjoys exclusive possession and commercial exploitation for 30 years and appropriates all rentals, and thereby failing to apply the deeming fiction in section 27(iiib) read with the principles laid down by the Honble Supreme Court in Podar Cement (P.) Ltd., Mysore Minerals Ltd., East India Housing & Land Development Trust Ltd., Shambhu Investment (P.) Ltd. and Raj Dadarkar& Associates.

3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in disregarding the settled judicial principle that where income essentially arises from leasing of immovable property and collection of rent, such income is normally assessable under the head Income from House Property, and has instead treated the lease rentals as business income merely on the basis of the assessees description of its objects and activities, contrary to the ratio of the Honble Supreme Court in East India Housing & Land Development Trust Ltd. (42 ITR 49), Shambhu Investment (P.) Ltd. (263 ITR 143) and Raj Dadarkar& Associates (394 ITR 592), which clearly apply on the facts of the present case.

4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that, once the receipts are classifiable under the head Income from House Property, the allowability of deductions is governed exclusively by section 24 of the Act (standard deduction at 30 per cent of Net Annual Value and interest on borrowed capital as per section 24(b)), and that the Ld. AO was correct in computing income from house property on lease rentals of Rs. 9,87,57,515 and disallowing the balance interest and finance charges claimed as business expenditure. Thus the impugned order effectively permits deductions not envisaged by section 24 and results in an unwarranted erosion of the tax base.

5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in treating earlier orders of the CIT(A) and the Honble ITAT in the assessees own case for A.Ys. 2009-10 to 2014-15 as conclusive for A.Y. 2018-19, without independently examining the correct legal position under sections 22, 23, 24 and 27(iiib) in the light of binding Supreme Court decisions, and without appreciating that each assessment year is a separate unit and that the principle of consistency cannot be invoked to perpetuate an error of law to the prejudice of the Revenue.”

3. Brief facts of the case are that, the Assessee is an AOP/BOI which is engaged in the business of development of property for commercial purpose and had filed return of income for the year under consideration dated 22/09/2018 declaring total loss at Rs. NIL. The Assessee’s case was selected for limited scrutiny assessment under e-assessment Scheme 2019 on the following issues:

4. Notice u/s 143(2) and 142(1) were duly issued and served upon the Assessee. The Ld. A.O. observed that the Assessee has constructed commercial complex in the property owned by Mumbai State Road Transport Corporation (‘MSRTC’) in Thane and has been receiving rentalincome from the said properties but the same has not been offered to tax under the head income from house property. Further, it is observed that for the preceding Assessment Years 2016-17 and 2017-18, the rental income was treated as income from house property during the assessment proceeding. The Ld. A.O. observed that the Assessee has received a total rental of Rs. 9,87,57,515/- for which the deductors have also duly deducted TDS on such payment u/s 194IA and IB as per Form 26AS. The Assessee’s contention was that it was a joint venture company where the properties belonging to ‘MSRTC’ was developed for the purpose of renting out commercial spaces for about 30 years and as per the terms of agreement, the Assessee cannot sell the said properties and can only rent the same but contends that such rental income from the property is notincome from house property. The Ld. A.O. rejected the Assessee’s contention and passed the assessment order dated 06/03/2021 u/s 143(3) r.w. Section 143(3A) and 143(3B) of the Act thereby determining total income at Rs. 9,94,49,213/-, after making an addition of Rs. 9,87,57,515/- as income from house property without allowing deduction on municipal taxes for the reason that the Assessee has not claimed the same in its return of income.

5. Aggrieved, the assessee was in appeal before the first appellate authority who vide order dated 09/10/2025, allowed the appeal filed by the Assessee on the ground that his predecessor had decided this issue in favour of the Assessee for Assessment Years 2009-10 to 2014-15 and also the Tribunal upheld the Ld. CIT(A)’s order for Assessment Year 2009-10.

6. The Revenue aggrieved by the order of the Ld. CIT(A) is in appeal before us.

7. We have heard the rival submissions and perused the materials available on record. It is observed that the Assessee has entered into an agreement to develop with M/s SMC Infrastructure Pvt. Ltd. and Maharashtra State Road Transport Corporation (for short ‘ MSRTC’), wherein the latter was granted development rights for construction of bus station and commercial complex including all infrastructures at Thane, where M/s SMC Infrastructure Pvt. Ltd. was to develop the said land at its own cost, the bus stand as well as the infrastructure for MSTRC, for a consideration by way of constructing a commercial complex and leasing out the same for a period of 30 years. Subsequently, there was a joint venture agreement between M/s SMC Infrastructure Pvt. Ltd. and M/s Arnav Properties Pvt. Ltd. for carrying out the said project in the name of Akruti SMC, i.e. the Assessee. This issue was dealt with by the Tribunal in Assessment Year 2009-10 in ITA No. 2950/Del/2014, where the Tribunal decided this issue in favour of the Assessee by holding that the income from leasing of the property was to be taxed under the head “business income” within and not as “income from house property”. The relevant extract of the said decision cited hereunder for ease of reference:

“9. We have perused the relevant clauses of the „Agreement to develop‟, dated 18.03.2012 that was entered into between MSRTC and M/s SMC Infrastructure Pvt. Ltd. As observed by us hereinabove, it is discernible from the agreement that the lessor viz. MSRTC would continue to be the owner of both the land and the commercial space developed on it by the developer, while for the developer would remain vested with the limited right to lease the commercial space developed for a limited period of 30 years. After the expiry of the period of 30 years the lessee/sub-lessee were to deliver the peaceful and vacant possession of the premises in good condition to the lessor viz. MSRTC. We have deliberated at length on the observations of the CIT(A) in context of the issue under consideration and are persuaded to subscribe to his view that the lease income enjoyed by the assessee J.V by commercially exploiting the commercial space developed by it for a period of 30 years was rightly shown by it as its „business income‟. On a perusal of the facts, we find that the assessee viz. Akruti SMC, J.V was not the owner of the commercial complex but after constructing the MSRTC project at its own cost was collecting the rent/lease in lieu of the terms of the “Agreement to develop”, which allowed it to commercially exploit the said premises for a period of 30 years. The aforesaid facts are clearly discernible from a perusal of Clause 28.1 of the „Agreement to develop‟, dated 18.03.2012. As per the said clause the developer was to complete the project at its own cost, and in lieu thereof it was entitled to lease the commercial space so developed by it, subject to the provision that the title of the land and the building thereon shall always remain with the lessor viz. MSRTC. We are of a strong conviction that mere enjoyment of the rent/lease by the developer san the ownership of the property viz. commercial complex developed by it could not have been brought to tax under the head “Income from house property”. As per Sec. 22 of the I.T Act, it is only where the assessee is the “Owner” of the property that the „annual lettable value‟ of the same can be brought to tax in his hands under the head “Income from house property”. We find that the assessee developer viz. Akruti SMC J.V who is only in receipt of the rent/lease in terms of the „Agreement to develop‟, dated 18.03.2012 in lieu of consideration for constructing the project for MSRTC at its own cost does not fit in the definition of the “Owner” as contemplated in Sec. 27 of the I.T Act. We thus are of the considered view that as the assessee was not the owner of the property under consideration, therefore, the rent/lease received therefrom could not have been assessed in its hands under the head „Income from house property‟.

10. We shall now advert to the aspect as to whether the assessee was right in law and the facts of the case in subjecting the rent/lease income to tax as its „business income‟. As observed by us hereinabove, the assessee viz. Akruti SMC, J.V had came into being as per the Joint venture agreement, dated 30.04.2006 for the express purpose of construction and commercial exploitation of the commercial complex built by it for MSRTC. We are of the considered view that as the „Agreement to develop‟, dated 18.03.2012 which formed the foundation for the construction and subsequent leasing out of the commercial complex clearly demonstrates that the said activity was entered into by the assessee as a part and parcel of the business for which the Joint venture viz. Akruti SMC, J.V was formed, thus the rent/lease received by the assessee pursuant to exploitation of the commercial complex constructed by it for MSRTC was rightly shown by it as its „business income‟. 10. We shall now advert to the aspect that as to whether the CIT(A) was right in law and facts of the case in subscribing to the claim of the assessee M/s Akruti SMC Joint Venture Vs. ACIT 20(1), Mumbai – A.Y 2009-10 and A.Y 2010-11 ACIT 20(1), Mumbai vs M/s Akruti SMC Joint Venture, Mumbai – A.Y 2009-10 12 ITA Nos. 3968, 2950 & 5067/Mum/2014 that “Service charges” received for the facilities and amenities provided to the lessees of the commercial complex were liable to be assessed as its „business income‟, and had wrongly been brought to tax by the A.O under the head “Income from other sources”. On a perusal of the orders of the lower authorities it emerges that the assessee had entered into two separate agreements with the lessees viz. (i). leave and license agreement; and (ii). facilities and amenities agreement. As per the facilities and amenities agreement, the assessee was to provide multiple services/amenities viz. (i) connectivity; (ii). Diesel Generator back-up; (iii). insurance; (iv). general maintenance and maintenance for fire detection system; (v). security and house keeping; and (vi) maintenance of lifts in the complex. Apart therefrom, the assessee had also undertaken the responsibility for putting up signage, maintaining the electrical, plumbing, sewage treatment and pumping systems etc. We find that two issues had weighed in the mind of the A.O while dislodging the aforesaid claim of the assessee and bringing the receipts to tax under the head “Income from other sources” viz. (i). that though the assessee in the facilities and amenities agreement with the lessees had inter alia agreed to provide diesel generator backup, however a perusal of the „fixed asset‟ schedule of the assessee did not reveal any diesel generator set; and (ii). though the assessee in the facilities and amenities agreement with the lessees had inter alia agreed to provide security services, however no security service charges paid by the assessee were discernible from its final accounts. In sum and substance, the A.O had as a matter of fact doubted the very authenticity of the facilities and amenities agreement. On the basis of his aforesaid deliberations the A.O had assessed the “Service charges” to tax as the income of the assessee from “Other sources”.

11. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to subscribe to the view taken by the A.O. Admittedly, the services which the assessee had agreed to provide to the lessees were inextricably interwoven or rather interlinked with the leasing of the commercial space and were clearly inseparable from the leasing of the property itself. Rather, it was the claim of the assessee that the service M/s Akruti SMC Joint Venture Vs. ACIT 20(1), Mumbai – A.Y 2009-10 and A.Y 2010-11 ACIT 20(1), Mumbai vs M/s Akruti SMC Joint Venture, Mumbai – A.Y 2009-10 13 ITA Nos. 3968, 2950 & 5067/Mum/2014 charges were receivable only as a consequence of the commercial exploitation of the complex. In other words, the composite services provided by the assessee could not have been enjoyed in isolation and were rather inextricably linked with the leasing of the property. Insofar, the adverse inferences that had been drawn by the A.O as regards the authenticity of the facilities and amenities agreement, the same does not find favour with us. In our considered view the A.O merely on the basis that the assessee did not own a diesel generator set and no service charges stood debited in its profit & loss account, had hushed through the matter and without making any further verifications as regards the services that were claimed by the assessee to have been rendered to the lessees had drawn adverse inferences as regards the same on the basis of premature observations. In fact, the assessee had submitted before the CIT(A) that in order to provide the facility of Diesel generator back up, it had hired a diesel generator set during the year under consideration. The assessee in order to fortify its aforesaid claim had placed on his record the copy of the ledger account for the expenses incurred under the head “Hiring of DG Set”, wherein expenses of Rs. 5,49,895/- on the said count stood debited. Be that as it may, we are of the considered view that the “Service charges” of Rs. 2,09,80,741/- received by the assessee for providing facilities and amenities to the lessees are inextricably interwoven with the leasing of the commercial property itself. As observed by us hereinabove, the assessee had came into being for the express purpose of construction and commercial exploitation of the commercial complex built by it. We have hereinabove concluded that the lease income received by the assessee, keeping in view the nature of receipts and the business of the assessee was liable to be assessed as its „business income‟. In our considered view, as the service charges received by the assessee in lieu of providing facilities and amenities to the lessees are inextricably interwoven and rather inseparable from the commercial exploitation of the property by the lessees, thus the same could not have been brought to tax under the residual head of income viz. “Other sources”, and had rightly been shown by the assessee as its „business income‟. Before parting, we may herein observe that the judgment of the Hon’ble Supreme M/s Akruti SMC Joint Venture Vs. ACIT 20(1), Mumbai – A.Y 2009-10 and A.Y 2010-11 ACIT 20(1), Mumbai vs M/s Akruti SMC Joint Venture, Mumbai – A.Y 2009-10 14 ITA Nos. 3968, 2950 & 5067/Mum/2014 Court in the case of Raj Dadarkar& Associates Vs. ACIT (2017) 81 taxmann.com 193 (SC) as had been relied upon the ld. D.R, being distinguishable on facts would thus not assist the case of the revenue. In the case before the Honable Apex Court the assessee had acquired leasehold rights in the land from the Municipal Corporation of Greater Mumbai for a period of more than 12 years. Subsequently, the assessee had constructed various shops and stalls on the said land and sub-licensed the same to various persons. The assessee had claimed the income generated from sublicensing as its “business income”, which however did not find favour with the Honable Apex Court on two grounds viz. (i). the assessee who had taken the land on lease for a period in excess of 12 years was thus a „deemed ownera of the property under Sec. 27(iiib) of the I.T Act.; and (ii). that the letting out of the property was not the business of the assessee. It was observed by the Honable Apex Court that wherever there is an income from leasing out of premises and collecting rent, normally such an income is to be treated as income from house property, in case provisions of Sec. 22 of the I.T Act are satisfied with the primary ingredient that the assessee is the owner of the said building or land appurtenant thereto. We shall now deliberate on the facts of the case before us in the backdrop of the aforesaid judgment of the Honable Apex Court in the case of Raj Dadarkar (supra). Admittedly, in the case before us the assessee was neither the „Ownera of the land or the commercial space developed on it. Rather, as observed by us at length hereinabove, the assessee viz. Akruti SMC, J.V having constructed the project for MSRTC at its own cost was as per the terms of the „Agreement to develop‟, dated 18.03.2012 only vested with the right to lease the commercial space developed by it for a period of 30 years, after expiry of which period the lessees/sub-lessees were to deliver vacant and peaceful possession of the property to MSRTC. Apart therefrom, though the assessee was entitled to lease the commercial space so developed by it, however the title of the land and the building was always to remain vested with the lessor viz. MSRTC. In our considered view, as the assessee was neither the „ ownera or the „deemed ownera of the property under consideration, hence the aforesaid judgment of the Honable Apex Court being clearly distinguishable on facts would not assist the case of the revenue. Apart therefrom, the assessee in the case before us viz. Akruti SMC, J.V had came into being for the express purpose of construction and commercial exploitation of the commercial complex built by it. It can thus safely be concluded that the assessee had ventured into construction of a commercial complex and systematic commercial exploitation of the same by leasing it alongwith provision of composite services to the lessees. We thus are of the considered view that as the assessee was not into simpliciter renting of the property, but rather in the business of commercially exploiting the same in furtherance of the purpose for which it had came into being, thus the same on the said count also satisfied the test laid down by the Honable Apex Court in the aforesaid case of Raj Dadarkar (supra) for being assessed to tax as its „business income‟. We thus in terms of our aforesaid observations being in agreement with the view taken by the CIT(A) that the income from leasing of the property and the service charges were rightly claimed by the assessee as assessable to tax under the head “business income”, uphold his order to the said extent. The Ground of appeal No. 1 raised by the revenue is dismissed.”

8. From the above observation, it is noted that the issue in dispute in the present appeal is not resintegra, where the Tribunal has dealt with the same at length on identical facts based on the same agreement and had held the income to be “business income” and not “income from house property”. With no change in facts and circumstances of the case, we deem it fit to hold that the income received by the Assessee out of leasing out of commercial complex developed by it to be “business income” and not “income from house property”. Pertinently the Tribunal has also upheld the same view on this issue for Assessment Year 2017-18 by following the order of the Co-ordinate Bench of the Tribunal for Assessment Year 2009-10. We deem it fit to dismiss the grounds of appeal raised by the Revenue, as a matter of consistency, with no change in facts and circumstances of the case.

9. In the result, the appeal filed by the Revenue is hereby dismissed.

The following order is pronounced on 01/ 06/2026 as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963.