Pankaj Enterprises Vs DCIT (ITAT Mumbai)
Mumbai Tribunal comprising delivered a significant ruling on classification of receipts arising from rental & facility agreements, while also deciding on several connected issues including municipal taxes, interest disallowance, insurance premium & ALV determination.
Assessee, a partnership firm engaged in providing call centre facilities & leasing out premises, had entered into a Leave & Licence Agreement dated 01.02.2013 with Aditya Birla Minacs Worldwide Ltd. for letting out units in Symphony IT Park. In addition, Assessee entered into a separate Facilities Agreement dated 01.03.2013 for providing functional infrastructure including civil work, furniture, electricals, HVAC, fire safety, etc. Assessee declared rental income of ₹2.42 crore as “Income from House Property” while facility charges of ₹1.21 crore & common area maintenance charges of ₹30.53 lakh were offered as “Business Income”. AO held that the facilities were inseparable from letting of premises & therefore reclassified receipts as “House Property” income, disallowing related business expenses. CIT(A) upheld AO’s view.
On appeal, Tribunal carefully analysed both agreements & observed that facilities were optional & distinct from letting of premises. Relying on Supreme Court in Sultan Brothers (P) Ltd. & Gujarat High Court in Sarabhai Pvt. Ltd., Tribunal held that rental income is assessable as “House Property” whereas facility charges & CAM receipts are taxable as “Business Income”. AO was directed to recompute income accordingly.
