ITAT, BANGALORE BENCH `B’,
Prestige Estate Projects Pvt. Ltd. Vs. DCIT,
Appeal No.: ITA No. 218/Bang/09,
Decided on: September 11, 2009
4.17 We have heard both the parties. As per the lease agreement, the assessee agreed to create a laase in favour of the tenant m respect of the premises, which is part of the building known as ‘The Forum’. The tenant as well as its bonafide visitors, guests, customers, clients, employees have a right of ingress to and egress from the premises by use of entrances, landings, passenger elevators, service elevators, escalators etc. The “tenants’ bonafide visitors, guests etc. are having the right to use of common toilet facilities in the building or on the floor on which the tenanted premises is located The tenant was also entitled to use the air-conditioning: system abd captive power system installed in the building. The tenant was required ta pay service and maintenance charges for the building and amenities in addition to the rent. As per the Tenants’ Leasing Handbook, the tenant has to get shop fitting design approved by the essessee. The tenant mqs to get approval of type of material proposed to be used for the shop fitting design. For carrying out any installation and partitions, the tenant was required to take the approval of the assessee. The tenant was to open and keep the premises open for business on all the server days of the week during the normal business, hours i.e. 10 AM to 9 PM. The tenant was required to use the premises only for the specified business for which the premises has been given to tenant. Thus, the assessee gave different premises to various tenants so that no two tenants may have the same type of business er may have the same trade name of business. By putting such conditions, the intention of the assessee was to commercially exploit the Forum Mall. The intention was not simply to earn the rental income.
4.18 Part of the building is owned by the land owner. There ore three groups which are owning the land and with one of the groups, the assessee has taken the built up area on lease. Hence, the rental receipt from such portion of the building cannot be taxed at all under the head ‘income from house property’ because the assessee is not the owner.
4.19 The Hon’ble Apex Court in the case of Karanpura Development Co. Ltd. v CIT 44 ITR 362 had an occasion to consider as to whether the salami received from sub-lessees is taxable under the head ‘income from property’ or ‘income from business. In that case the assessee was carrying out the activities of acquiring the coal mining leases over large areas, developing them as coal fields and then sub-lasing the coal lease to collieries and other companies. The assessee was paying salami of Rs.40 per bigha while it was realizing salami of Rs.400 per bigha from the sub-lessees. In that case, the Hon’ble Apex Court held that salami received from sub-lessees is income from business. The Hon’ble Apex Court observed at page 377 as under:-
“Ownership of property and leasing it out may be done as a part of business, or it may be done as land owner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another on rent. Where this happens, the appropriate head to apply is “income from property”, (section 9), even though the company may be doing extensive business otherwise. But a company formed with the specific object of acquiring properties not with the view to leading them as property but to Selling them or turning them to account even by way of leasing them out as an integral part of its business, cannot be aid to treat them as landowner but as trader. The cases which have been cited in this case both for and against the assessee company must be applied with this distinction properly borne in mind. In deciding} whether a company dealt with its properties as owner, one must see not to the form which it gave to the transaction but to the substance of the matter. The Californian Copper Syndicate case illustrates vividly dealings with mineral rights and concessions by a company as part of the objects of its business, or, in other words, in the holding of the business. The Calcutta cases and the case of Fry v Salisbury House Estates Ltd. illustrate the contrary proposition. There the property though dealt with by a company intending to do business, was dealt with as landowner. The intention in those cases was not to derive profit by business done with those properties but to derive income by renting them out. Where a company acquires properties which it sells or leases out with a view to acquiring other properties to be dealt with in the Same manner, the company is not treating to be enjoyed in the shape of rents which they yield but as a kind of circulating capital leading to profits of business, which profits may be either enjoyed or put back into the business to acquire more properties for further profitable exploitation” .
4.20 The Hon’ble Apex Court in the case of 5 G Mercantile Corporation P. Ltd. v CIT 83 ITR 700 had an occasion to consider as ta whether income from sub-letting by a company who is in the business of lease of property, development and subletting of sheps and stalls is to be t«xed under the head ‘business income* or ‘income from other sources’. The Hon’ble Apex Court observed as under:-
“It is, therefore, manifest that section 12 of the Act can be invoked in the present case only if we exclude the applicability of section 10 by holding that the income of the appellant company from the property in question is not income from business. The definition of the word ‘business’, as given in section 2(4) and reproduced above shows its wide amplitude and we agree with Mr. Chagla that it can embrace within itself dealing in real property as also the activity of taking a property on lease, setting up a market thereon and letting out the shops and stalls in the market. The important question which crises in the latter case is whether the acquisition of the property on lease and letting out of the. shops and stalls was in the course of investment or whether it was essentially a part of the business and trading operation of the assessee. The paramount consideration which would weigh Is whether the requtsitioir of the property was by way of investment and whether the property was let out because of the assessee having a title in the same or whether the acquisition end letting out of the property constituted the business and trading activity of the assessee. The question as to whether the above activity is being carried en by an individual or a company, and in the latter case, the further question as to whether the carrying on of the said activity was the object of the incorporation of the company as given in the memorandum of association would also have some relevance”.
4.21 In view of the above-referred judgement of the Hon’ble Apex Court, the income in respect of a portion of the building, which has been taken on lease by the assessee from the owner of the land and thereafter subleased, cannot be taxed under the head ‘income from house property’ but is to be taxed under the head ‘income from business’.