DCIT Vs Arham IT Infrastructure Pvt Ltd (ITAT Delhi)
Conclusion: Common maintenance charges received from tenants of property were towards maintenance and promotion of common area and the same were business receipts liable to be assessed under the head ‘Income from business’.
Held: Assessee was the owner of a multi-stories properties comprising of ground plus six floors. Assessee had shown revenue from operation of Rs. 2,99,57,551/- and miscellaneous income of Rs. 13,67,06,889/-. During the assessment proceedings, it was explained that income from revenue operation was from common area maintenance charges received from the tenants. Assessee was asked to justify treating income from revenue operation as ‘income from business’. Assessee explained that it was working as contractor for providing repair and maintenance only at the common area and in contracts, these were based on cost plus method, which might fluctuate. AO treated the receipt from common area maintenance charges as ‘income from house property’. It was held that assessee had agreement with the tenants and in such agreement, there was specific clause in respect of common area maintenance charges and in the agreement it has been specifically mentioned that maintenance charges shall be payable from rent commencement date. Following the decision in the case of Runwal Developers Pvt Ltd 115 com 196 it was held that maintenance charges received were towards maintenance and promotion of common area and the amounts received towards maintenance charges were business receipts liable to be assessed under the head ‘Income from business”.
FULL TEXT OF THE ORDER OF ITAT DELHI
With this appeal, the Revenue has challenged the correctness of the order of the CIT(A) – I, New Delhi dated 22.07.2016 pertaining to A.Y 2013-14.
2. The grievances of the Revenue read as under:
1. The Ld. CIT(A) erred in law and facts in directing the Assessing Officer to treat Rs. 2,99,57,551/- being common area maintenance charges as business income for “House Property” as held by the Assessing Officer.
2. The Ld. CIT(A) erred in law and facts in directing the Assessing Officer to allow lease rental of Rs. 6,47,130/- paid to Noida authority in respect of property as revenue expenditure.”
3. Briefly stated, the facts of the case are that the assessee is the owner of a multi-stories properties comprising of ground plus six floors named as ‘Tapasya Corps Height in Sector 126, Noida. The assessee has shown revenue from operation of Rs. 2,99,57,551/- and miscellaneous income of Rs. 13,67,06,889/-. It was explained that miscellaneous income corresponds to the rental income of Rs. 13,47,68,214/- and income from other sources Rs. 19,36,852/-.
4. During the assessment proceedings, it was explained that income from revenue operation is from common area maintenance charges received from the tenants. The assessee was asked to justify treating income from revenue operation as ‘income from business’,
5. In its reply, the assessee explained that it is working as contractor for providing repair and maintenance only at the common area and in contracts, these are based on cost plus method, which may fluctuate. The assessee also referred to the relevant clause of the agreement which is as under:
“The Lessee shall pay to the Less or the maintenance charges on the basis of actual cost plus 20% thereon which is currently worked out as Rs. T5/- (Rupees Fifteen Only) per sq. ft. on super built up area of 2808 sq. ft., which calculation is based on the presumption that the Lessee shall use the said Premises for 72 hours per week based on average 12 hours per day. Further, the Lessee shall also pay Rs. 5000/- per hour for every extra hour beyond the above said time period. For extra hours of operations, the Lessee shall give prior information in writing at least 12 hours before its requirement. Maintenance Charges shall be payable from the Rent Commencement Date. However for rent free period of one month.”
6. The Assessing Officer dismissed the contention of the assessee by observing as under:
“The assessee contention of treating common area maintenance charges as income from Business and Profession cannot be accepted because of the following reasons:-
(i) The common area maintenance charges are derived from same set of persons to whom the property had been given on rent.
(ii) The charges are variable. Variableness of the charges does not intend to change the character of the income received.
(iii) The method of calculation of the charges also does not intend to change the character of the income received.
(iv) The common area maintenance charges form part of the same agreement, on the basis of which rent had been received.
(v) If there are no tenants, from whom the common area maintenance charges would have been received, this means thereby there is full dependence of the common area maintenance charges as income on “the income from house property”
(vi) The stream of income of common area maintenance charges cannot stand on its own. It is fully dependent on “the income from house property”
7. After referring to various judicial decisions, the Assessing Officer treated the receipt from common area maintenance charges as ‘income from house property’. The Assessing Officer disallowed the claim of payment of lease rental to Noida authority amounting to Rs. 6,47,130/-.
8. The assessee assailed the matter before the ld. CIT(A) and vehemently contended that the stand taken by the Assessing Officer is not correct and distinguished the decisions relied upon by the Assessing Officer in reaching his findings. It would be pertinent to extract the submissions made before the ld. CIT(A) which read as under:
“At the outset, this is to be submitted that the appellant owns property which has let out to various persons. The income from letting out from the property has been offered to tax under the head “Income from house property”. The appellant has also undertaken maintenance of the common area as well as other infrastructure facilities like providing security services, maintenance of lift, house-keeping of common area, providing undisrupted electricity and water supply. For this purpose the appellant has to maintain complete infrastructure and man power. Undoubtedly expenses are required to be incurred for maintenance of infrastructure and man power. The appellant has to receive maintenance charges separately from tenants and the expenses incurred are debited from the maintenance charges received. It is pertinent to point out that the maintenance charges are worked out and charges on the basis of cost plus method. The income derived under this head is offered as “income from business and profession. ” The offer of income under different heads i.e Rental Income under the head income from house property and the income from maintenance under the head income from business and profession had been continuously offered and being accepted by the department except for the year under consideration. The assessing officer has rejected the claim of the appellant for the reasons reproduced above. The Ld. AO has not appreciated the facts of the case while giving the findings and abruptly passed the assessment order without giving proper opportunity to the appellant.
