Rent of shops let out in Mall if business income or income from house property? SC dismissed Revenue’s SLP

Rent of shops let out in shopping Mall if business income or income from house property – SC dismissed Revenue’s SLP

ABCAUS Case Law Citation
ABCAUS 3407 (2020) (10) SC

Important case law relied upon by the parties:
Raj Dadarkar & Associates v. Assistant Commissioner of Income-tax
Principal Commissioner of Income v. Krome Planet Interiors (P.) Ltd [2019] 107 taxmann.com 443 (Bombay)

In the instant case, the Revenue had challenged the order passed by the Income Tax Appellate Tribunal (ITAT/Tribunal) in holding that the assessee had exploited its property commercially   by   way   of   complex   commercial activities and hence, the rental income received by the assessee to be taxable as income from business and not under the head Income from House Property.

The Respondent – Assessee was a private  limited   company incorporated with an object of construction and running of commercial and shopping malls.

The Respondent set up a commercial complex-cum-shopping mall and the operations commenced during the relevant financial year.

According to the assessee the total project cost was from its own funds and loan facilities. The mall /commercial complex had 6 floors and a Multiplex and also a parking lot and an auditorium for public entertainment.

The assessee had let out various shops in the said commercial complex/mall dealing with various products. Apart from letting out the premises, the respondent assessee provided various services to the occupants of the said premises such as security services, housekeeping, maintenance, lightening, air   condition repairing, marketing and promotional   activities, advertisement and other activities.

For the relevant assessment year   the assessee declared its income under the head Income from Business.

The Assessing Officer (AO), however, treated the same as Income from House Property. The Commissioner of Income Tax (Appeals) dismissed   the appeal of the assessee. Thereafter, the   assessee filed an Income Tax Appeal before Tribunal, which was allowed by the impugned order.

The Hon’ble High Court observed that though the decision of the Tribunal was not an elaborate one the Tribunal made reference to all the relevant facts which were necessary to make distinction between a Income from Business and the Income from House Property and once those factors have been referred to as existing, it cannot be straight away concluded that the impugned order was not a reasoned to give rise to question of law.

The Hon’ble High Court observed that it had considered a similar case in identical facts of a commercial complex and mall and took into consideration the various facilities provided by the assessee therein.  

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Rent of shops let out in Mall if business income or income from house property?

In the instant case, the Hon’ble High Court observed that as per Memorandum of Association of the company clearly the objects with which the assessee was incorporated were to derive income from running and maintaining the shopping mall.

The Hon’ble High Court further observed that the assessee had provided even marketing and promotional activities and was also organising   various   events   and programs. This being done by the assessee also in the context of the revenue sharing agreement.

The Hon’ble High Court opined that the Intention of the assessee was also a material circumstance and the objects of the company, the kind of services  rendered clearly pointed out that the Income was from Business.

The Hon’ble High Court stated that all the factors cumulatively taken demonstrated that the assessee had intended to enter into a Business of renting out commercial space to interested parties.  The other income was only dividend from the deposits received from the Business income.

Accordingly, the Hon’ble High Court dismissed the appeal filed by the Revenue holding that the appeal did not give rise to any substantial question of law.

Aggrieved by the decision of the Hon’ble High Court, the Income Tax Department had filed a Special Leave Petition (SLP before the Hon’ble Supreme Court which was dismissed   

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