Income from renting of shops and other space within Mall held taxable under the head of “income from business” not income from house property.
In a recent judgment, Hon’ble Supreme Court income affirmed the judgment of Hon’ble Madhya Pradesh High Court that where letting out the property was the main object of the company, income from renting of shops and other space within Mall is taxable under the head of “income from business” not income from house property.
ABCAUS Case Law Citation:
4318 (2024) (11) abcaus.in SC
Case laws relied upon by the Parties:
Shamboo Investment Private Limited v. CIT (2003) 263 ITR 143 (SC)
Raj Dadarkar and Associates v. ACIT-CC-46 (2017) 14 SCC 476
Properties and Investment Limited, Chennai v. Commissioner of Income Tax (2015) 14 SCC 793
Rayala Corporation Private Limited v. Assistant Commissioner of Income Tax (2016) 15 SCC 201
Sultan Brothers Private Limited v. CIT (1964) 5 SCR 807
In the instant case, the Income Tax Department (ITD/Revenue) had challenged the order passed by the Hon’ble High Court of Madhya Pradesh holding that income from letting shops/spaces in mall was income taxable as business income u/s 28 of the Income Tax Act, 1961 (the Act).
The respondent assessee was a private limited company engaged in real estate development. The case of the assessee came under the scrutiny through Computer Assisted Security Selection (CASS).
During the assessment proceedings, the Income Tax Assessing Officer observed that the assessee Company had constructed a shopping-cum-entertainment Mall and in the return of income declared the nature of business as “to carry on the business of purchase for development of the land, estates structure and rented income from immovable properties”.
The AO further observed that during these Assessment Years, only a construction of portion of Mall was completed and assessee started deriving the income by renting the shops and other space within the Mall. The assessee had shown all its income / loss from the business activities.
However, the AO was of the opinion that the income should have been bifurcated under the heads of “income of house property” and “income from business and profession”. The A.O. vide assessment order u/s 143(3) of the Act proportionally restricted the claim of depreciation at the rate of 51.6% of the occupied area on the Mall.
Being aggrieved by the aforesaid assessment order passed by the Assessing Officer, the respondent assessee preferred an appeal before the Commissioner of Income Tax (CIT) (Appeals) who allowed the appeal of the assessee and deleted the additions by holding that any income from leasing or letting out the properties in such Mall were essentially required to be computed only as an income from the business under Section 28 of the Act and it cannot be treated as income from the house property.
Being dissatisfied with the order passed by the CIT(A), the Income Tax Department preferred an appeal before the ITAT.
The Tribunal found that the main object of the assessee was the business of constructing, owning, acquiring, developing, managing, running, hiring, letting out, selling out or leasing multiplex, cineplex, cinema hall, theater, shop, shopping mall etc. as per Memorandum of Article and Association, which was liable to be categorized as income derived from the shopping mall under the head of “income from business” under Section 28 of the Income Tax Act. The assessee owned a building in the name of Mall and getting it furnished and thereafter let out to various persons with all furniture, fixtures, light or air conditioner for being used as table space by executing a rent agreement.
Relying on the judgment of the Hon’ble Supreme Court affirmed and held that where the letting out the property was the main object of a company, its income is to be computed under the head “income from business” and it cannot be treated as “income from house property”, affirmed the order passed by the CIT (A) and dismissed the appeal.
The Revenue challenged the order of the ITAT before the Hon’ble High Court.
The Hon’ble High Court observed that the Apex Court held that each case has to be looked at from the businessman’s point of view to find out whether the letting was the doing of business or exploitation of the property by the owner, it it not possible to say that particular activity is a business because it is concerned with an asset with which the trade is commonly carried on.
The Hon’ble High Court further observed that the in another case, the Apex Court found that the entire income of the appellant was through letting out of the two properties it owned and there was no other income of the assessee except the income from letting out the said properties,which was the business of the assessee. Under a same situation in yet another case the Hon’ble Supreme Court while holding that the income shall be treated as “income from the house property”, rested its decision in the context of main object of the company and took noted the fact that letting out the property was not the object of the company at all.
The Hon’ble High Court noted that the aforesaid two judgments were distinguished in another case because the assessee therein did not produce sufficient material on record to show its entire income or substantial income was from letting out the properties which was the principal business activities of the appellant.
The Hon’ble High Court observed that in the present case, the AO did not find any material against the respondent assessee to come to the conclusion that sub-leasing of the premises was only a part of its predominant object of the assessee. The respondent’s right from the construction of mall till the matter was taken into scrutiny had been offering income from the business of constructing, owning, acquiring, developing, managing, running, hiring, letting out, selling out or leasing multiplex, cineplex, cinema hall, theater, shop, shopping mall etc., sub-licence by it under the head “profit and gain of business or profession” of the Income Tax Act. Therefore, the CIT (A) as well as ITAT had rightly set aside the order of AO.
The Hon’ble High Court also noted that the Apex Court had held that ITAT being a last forum insofar as factual determination is concerned, these findings have attained finality. Even otherwise no material were produced to show how the aforesaid findings were perverse. The order passed by learned A.O. nowhere showed that the entire income or substantial income of the assessee was from letting out of the properties, which was admittedly not the principal business activity of the assessee.
Therefore, the Hon’ble High Court dismissed the appeal of the Revenue holding that no substantial question of law was involved in the appeal.
Still not satisfied, the Revenue against the judgment of the Hon’ble High Court filed a Special Leave Petition (SLP) before the Hon’ble Supreme Court.
However, the Hon’ble Supreme Court dismissed the appeal observing that “we see no reason to interfere with the impugned order passed by the High Court”.
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