Case Law Details
1. During the assessment proceedings, the assessing officer found that the assessee had let out its property to Citigroup Information Technology O&S Ltd. (Citigroup) as per the Leave and license agreement dated 29-06-2006, the license fee for the year under consideration was Rs. 12.1 lakhs per month effective from 01-07-2006, that the assessee had also taken interest-free deposit of Rs. 72.7 lakhs, that during the earlier year the assessee had received total rent of Rs. 1.27 crores, that it had treated the rent under the head business income and had bifurcated the receipts as licensee fees and amenities fees, that after claiming various expenses against the income, the assessee disclosed net loss of Rs. 1.5 crores as business loss. He directed the assessee to explain as to why the income from the property should not be charged to tax under section 22 of the Act under the head income from house property. After considering the submission of the assessee, he referred to the cases of SG Mercantile Corporation Mercantile Private Ltd. 83 ITR 700 and Chennai Properties 266 ITR 685. He held that the assessee was incorporated on 27-03-2006, that it had taken a loan of Rs. 10.34 crores to acquire the property, that the claim of the assessee that it utilized its own business funds for purchasing the property was factually incorrect, that it had claimed that property was acquired with an intention to sell and make profit, that it was a commercial asset and was exploited to make income, that the claim made by the assessee that providing various facilities and amenities was in the nature of services, that income earned by the assessee from the letting out of the premises and providing amenities had to be assessed under section 22 of the Act.
2. Aggrieved by the order of the assessing officer, the assessee preferred an appeal before the First Appellate Authority (FAA). Before him, it was argued that the main object of the assessee was to carry on the business of selling, reselling, exchanging, repurchasing, letting out, granting licenses of the land/ building/ plants/ machinery/ factories, that in pursuance of the objectives the assessee had purchased a commercial property after obtaining loan, it decided to exploit the commercial property on Leave and license basis along with various amenities, that it was purely a commercial activity and was done in the course of business, that it had entered into two agreements with Citigroup, that the Leave and license agreement entered into with the tenant was not a Leave and license agreement for earning income from investments, that the assessee had agreed to provide services to the licensee, that the nature of asset which was given on leave and license was hundred percent commercial asset. The assessee relied upon certain case laws and argued that amount in dispute was wrongly assessed under the head income from house property by the assessing officer.
3. After considering the assessment order and submission of the assessee, the FAA held that the company was incorporated in March, 2006 with the main object of carrying on business of selling, reselling, letting out etc., that it had purchased the commercial property, that the unit had been used only for a specific business purpose of information and information technology enabled services, it had tried to develop its business but due to volatile market it could not start business activities, that it decided to exploit the commercial property on Leave and license basis along with other amenities, that the nature of asset was commercial. He referred to the cases of Krishna Land Developers Private Ltd. (ITA No. 1057/Mum/2010), PFH Mall and Retail Management Ltd. 110 ITD 337, Global Tech Park Private Ltd. 119 TTJ 421 and held that assessing officer was not justified in assessing the income received by the assessee under the head income from house property.
4. During the course of hearing before us, the Departmental Representative (DR) supported the order of the assessing officer and referred to the case of JST Realty Private Ltd. [IT Appeal No. 3974 (Mum.) of 2011, dt. 10-9-2014].
5. We have perused the material available on record. We find that the assessee had purchased a property and same was let out to Citigroup, that it had entered into two agreements with its tenant, that it had provided various amenities to the Citigroup, that the rental income received by it was offered under the head business income, that the assessing officer was of the opinion that Leave and license fees and charges received against the amenities were to be taxed under the head income from house property. It is a fact that the main object of the assessee, as evident from the memorandum of incorporation, was to deal in properties as well as to let them out. It had purchased a property, but could not sell it. Later on, it converted the property into commercial asset and provided various amenities to the tenant.
6. We find that the Honorable Bombay High Court in the case of CIT Vs. National Storage (P.) Ltd. (1963) 48 ITR 577 (Bombay), while laying down the principles to be followed in determining the particular head under which an income is to be assessed, has observed as under :–
“In cases where the income received is not from the bare letting of the tenement or from the letting accompanied by incidental services or facilities, but the subject hired out is a complex one and the income obtained is not so much because of the bare letting of the tenement but because of the facilities and services rendered, the operations involved in such letting of the property may be of the nature of business or trading operations and the income derived may be of the nature of business or trading operations and the income derived may be income not from exercise of property rights properly so-called so as to fall under section 9 but income from operations of a trading nature falling under section 10 of the Act.”
7. In the case under consideration the assessee had provided certain amenities and facilities to the tenants. It is a case of exploiting the asset commercially and not the case of mere letting it out. Therefore, in our opinion, the order of the FAA does not suffer from any legal infirmity. In our opinion, facts of JST Reality (supra) are distinguishable from the facts of the case under appeal. Considering the peculiar facts and circumstances of the case, we decide the effective ground of appeal against the assessing officer.
As a result, appeal filed by the assessing officer stands dismissed.
Author Bio
on commercial property, the Government is charging Service Tax, thus making it a commercial activity and should be treated as such should have been the main argument. They cannot treat the income from commercial property differently for purpose of service tax and income tax.