Taxability of Income from Leasing of Hotel with amenities & maintenance services

Tax ability of Income from Leasing of Hotel with provision and maintenance of various facilities and amenities

M/s. Kenton Leisure Services, P. Ltd. Vs. DCIT (ITAT Cochin)- It was held that lease rental income arising from agreements for letting on lease hostel premises along with provision and maintenance of various facilities and amenities would be taxable under the head ‘Income from Business’ as against ‘Income from House Property’. The characteristic of lease rental income as ‘Income from Business’ comes as a relief to taxpayers who lease out property along with provision of facilities / amenities. However, this issue is fact specific and it would be important for taxpayers to bear the above principles in mind while determining the tax ability of such revenue streams.

It would also be relevant to note that the Bangalore Tribunal in two recent rulings in the case of ITO v. Information Technology Park Ltd [2012-TIOL-01-ITAT-Bang] and DCIT Vs. Golflink Software Park P Ltd [2011-TIOL-660-ITAT-Bang] relied on their earlier decision in the case of Global Tech Park (P) Ltd’ and have held that lease rental income arising from a complex commercial activity which includes provision of space along with provision of facilities/ amenities would be taxable under the head ‘Income from Business’ as against ‘Income from House Property’. The proposed Direct Taxes Code seeks to tax such lease rental income as ‘Income from House Property’ as against ‘Income from Business’ with a specific exclusion to developers of Special Economic Zones.

Where agreement for construction of hostel building, agreement for lease of hostel building and agreement for provision of facilities in hostel building during lease period were part of one composite arrangement for provision of hostel facilities by assessee to lessee, entire income under three agreements was to be assessed as business income.

INCOME TAX APPELLATE TRIBUNAL, COCHIN

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