House Property Rent or Business Income-Activity not ownership is decisive. ITAT Chennai, following Supreme Court Judgment upheld bifurcation of rent received from commercial complex into rent and business income.
Case Law Details:
ITA No.402/Mds/2013 Assessment Year : 2003-04
DCIT vs. M/s Keyaram Hotel Pvt. Ltd
ITA Nos.2215 & 2216/Mds/2015 Assessment Years : 2006-07 & 2009-10
M/s Keyaram Developers & Hotels Pvt. Ltd. (Formerly, M/s Keyaram Hotels Pvt. Ltd) vs. DCIT
Date of Judgment: 01/06/2016
Brief Facts of the Case:
The assessee-company was a joint owner of a commercial complex. The assessee let out the said complex along with amenities to various persons and received rental income and charges for amenities. In the earlier assessment year, the assessee claimed the entire income as income from business. However, the Assessing Officer classified the entire rental income as income from house property. On further appeal, the same was also confirmed by this Tribunal and the Madras High Court. The Madras High Court placed its reliance on the earlier Division Bench judgment in CIT v. Chennai Properties and Investments Ltd. (2004) 266 ITR 685. For the assessment years 2004-05, 2005-06, 2007-08 and 2008-09, the matter again came before the High Court in Keyaram Hotels Pvt. Ltd. v. DCIT (2015) 373 ITR 494 and by placing reliance on Chennai Properties and Investments Ltd. (supra) and on the assessee’s own case for assessment year 2001-02 (supra), the High Court confirmed the order of this Tribunal by holding that the entire rental income has to be assessed as income from house property.
These appeals has arisen after the judgment of Madars High Court was reversed in M/s Chennai Properties and Investments Ltd. was reversed by the Supreme Court.
ITA No.402/Mds/2013
For the assessment year 2003-04, the Tribunal, remitted the case back to the file of the Assessing Officer for consideration of activity of the assessee with regard to other services, namely, maintenance of the building, day-to-day requirements, maintenance of lift, common facilities, security, etc. However, the AO, again held that the income had to be assessed as income from house property. On appeal before the CIT(Appeals), the CIT(Appeals) observed that the assessee had not just let out the property, but undertaken to maintain the same by providing indispensable amenities. Therefore, the assessee had to make compulsory expenditure in day-to-day maintenance of amenities provided and security system, etc. The CIT(Appeals) further observed that the assessee itself accepted 75% of the total rental income as income from house property and the balance 25% was claimed as income from business. Accordingly, for the assessment year 2003-04 the CIT(Appeals) allowed 75% of the rental receipt as income from house property and the balance 25% as business income. Against this order of the CIT(Appeals), for the assessment year 2003-04, the Revenue had filed the appeal.
ITA Nos.2215 & 2216/Mds/2015
For the assessment years 2010-11, 2006-07 and 2009-10, the CIT(Appeals) confirmed the order of the Assessing Officer holding that the rental income from letting out the commercial complex, including the amenities, is assessable under the head “income from house property” and not under the head “business income”. Against these orders of the CIT(Appeals), the assessee has also filed the present appeals.
Contentions of the assessee:
The assessee contended that it had not only provided lift to the building but it is also maintaining the lift, providing internal security to the building, regulating the car parking and also taking care of day-to-day maintenance. Therefore, apart from letting out the building, the assessee was systematically engaged in managing the amenities such as security services, common area maintenance, lift operation, maintenance of meeting room, reading room and waiting room, etc. These facilities had to be undertaken in a systematic manner, therefore, part of the rental income had to be considered as income from business. Also, in view of this judgment of the Supreme Court which found that the deciding factor is not the ownership of the land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them, the earlier judgments of Madras High Court in the assessee’s own case for assessment year 2001-02 and 2004-05, 2005-06, 2007-08 and 2008-09 no longer applicable to the facts of the case.
Important Excerpts from ITAT Judgment:
…… As rightly submitted by the Ld.counsel for the assessee, the Apex Court considered the correctness of the judgment of the Madras High Court in Chennai Properties and Investments Ltd. (supra). The Apex Court found that the ownership of land or leases cannot be a deciding factor but the nature of activities of the assessee and nature of operation in relation to them would be the deciding factor. After referring to the judgment of Privy Council and House of Lords in England and the judgment of Apex Court in Karanpura Development Co. Ltd. (supra), the Apex Court found that the facts of the case in Chennai Properties and Investments Ltd. (supra) squarely falls within the judgment in Karanpura Development Co. Ltd. (supra). Accordingly, the judgment of Madras High Court in Chennai Properties and Investments Ltd. (supra) was set aside and the decision of this Tribunal was restored holding that the rental income has to be assessed as income from business….
Since, in the earlier judgment in assessee’s own case, the Madras High Court decided based upon its judgment in Chennai Properties and Investments Ltd. (supra) and the same was reversed by the Apex Court, this Tribunal is of the considered opinion that the judgment of Madras High Court in the assessee’s own case for earlier assessment years may not be applicable to the facts of the case. The law laid down by the Apex Court is binding on all the authorities including the Tribunal under Article 141 of the Constitution of India. Therefore, this Tribunal is expected to follow the judgment of Apex Court in Chennai Properties and Investments Ltd. (supra) rather than the judgment of Madras High Court in the assessee’s own case….
Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly found that 75% of the rental income has to be assessed as income from house property and the balance 25% as income from business. By respectfully following the law laid down by the Apex Court in Chennai Properties and Investments Ltd. (supra), we hold that the rental income has to be bifurcated and 75% of the same has to be classified as income from house property and 25% has to be classified as income from business.
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