Assessment of income from running of business centre

TG Team 23 Feb 2009 370 Views 0 comment Print Income Tax | Judiciary

Case Law Details

Case Name : Harvinderpal Mehta HUF Vs DCIT (ITAT Mumbai)

Appeal Number : Appeal No.: ITA No. 7159/Mum/05

Date of Judgement/Order : 22/05/2008

Related Assessment Year : 2002- 2003

RELEVANT PARAGRAPHS:

7. Rival submissions of the parties have been considered carefully. The question for our consideration is whether the income accruing to the assessee should be assessed as `business income’ as claimed by the assessee or partly as `income from house property’ and partly as `income from other sources’ as held by the Assessing Officer Officer. At the outset, we may mention that the Assessing Officer has committed-a mistake in computing the income arising from sublet property inasmuch as service charges received have been considered under the head ‘income from house property’. Having held that gross receipts received in respect of sublet property is chargeable to tax under the head ‘income from other sources’, the Assessing Officer could not consider the same under the head ‘income from house property’. Thus, the expenditure related to such charges stood disallowed. This mistake needs rectification if it is held that such charges are asses sable under the head ‘income from other sources’.

8. Now let us adjudicate the real issue. Whether a receipt is a business receipt or a receipt from mere letting out of an immovable property would depend on the facts of the case. If the property, whether furnished or unfurnished, is let out with the intention to have rental income, it would be asses sable ,as ‘income from house property’ as held by the Apex Court in the case of Shambhu Investments Pvt. Ltd. (supra). On the other hand, if the primary object is to exploit the property by ‘complex’ commercial activities, then income from the same should be considered as business income. This test has been laid down by the Hon’ble Calcutta High Court in the case of Shambhu Investments Pvt. Ltd. which has been approved by the Apex Court (supra). The relevant observations of the Hon’ble High Court are being reproduced as under:

“Merely because income is attached to any immovable property, that cannot be the sole factor for assessment of such income as income from property. If the main intention of the assessee is to let out the property or any, portion thereof the income must be considered as rental income or income from property whereas if the primary object is to exploit the immovable property by way of complex commercial activities in that event it must be held as business income. “

9. The legal position laid down in the above case is binding on us. However, on facts, we find that the facts of the present case are different from the facts before the Honorable Supreme Court in the case of Shambhu Investments Pvt. Ltd. (supra). In the case before the Honorable Supreme Court, the assessee had let out the furnished accommodation without any other facilities. However, in the present case, various facilities are provided as noted by the CIT (A) as well as by us in this order such as, receptionist and a telephone operator to attend the customers and their telephone calls, use of common waiting/ guestroom with attached toilets etc., for use of the customers and guests of the customers, use of central air-conditioning, services of attendants, sweeper, etc., use of telephone and fax machine and furniture, etc. Further, ultimate control over the premises is with the assessee. Further, there is no intention of mere letting out the property and earn the rental income since customers keep on changing from time to time. The space is provided to the customers on weekly/ monthly basis for carrying out their work of assignment or for completing the specific work. A business center has a peculiar characteristic. In big cities, there is always shortage of space. Even the businessman for carrying out some specific work requires temporary space where business like facilities are provided. Even hotels are used for such purposes. To meet out such requirement, some businessmen open business centers where space is provided for temporary period along with business like facilities. For example, space is provided for holding conferences, exhibitions, seminars, etc. Sometimes, space is provided for weeks/ months so that the customers may complete their assignment during that period. For example, a foreign enterprise may hire such premises for providing training to its constituents or to certain other persons. Sometimes, a businessman may require the space for carrying out some project which may be completed in few months. There are only illustrations to prove the point that temporary space is provided by business centers to suit the requirement of their customers. Sometimes, there may be no customer and space may remain vacant. In such cases, the activity is to run business center as a commercial activity like hotels and hospitals and use of the property is incidental to carrying on such business activity. Section 22 of the Act specifically excludes those cases where property is used for business purposes. Therefore, considering the facts of the case, we are of the view that the object of the assessee is to run the business centre by exploiting the property and not mere letting out the property. Consequently, the receipts from such activity must be considered as business receipts. Accordingly, we hold so.