Income Tax Appellate Tribunal - Mumbai
Unique Estate Development Co. Ltd, ... vs Department Of Income Tax on 6 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI ' F ' BENCH
MUMBAI BENCHES, MUMBAI
BEFORE SHRI R S SYAL, AM & SHRI VIJAY PAL RAO, JM
ITA No.1537/Mum/2009(AY 2005-06)
ITA No.3212/Mum/2009 (AY 2006-07)
ITA No.6056/Mum/2010 (AY 2007-08)
The Dy Commr of Income Tax Vs M/s Unique Estate Development Co Ltd
Central Cir 23, Mumbai Construction House
B 2nd Floor
623 Linking Road,
Mumbai 400 052
(Appellant ) (Respondent)
PAN No. AAACU0699N
Assessee by Sh Subacham Ram
Revenue by Sh S D Purandare/Sh Mayur Makwana
Dt.of hearing 18th April 2012
Dt of pronouncement 30th,April 2012
ORDER
PER VIJAY PAL RAO, JM
These three appeals by the revenue are directed against three separate orders of Commissioner of Income Tax(Appeals) for the assessment year 2005-06, 2006 -07 and 2007-08 respectively.
2 The revenue has raised common grounds in these three appeals. The grounds raised for the assessment year 2005-06 are as under;
1 On the facts and in the circumstances of the case and in law, the Learned CIT(A) s erred in allowing the assessee's claim of no income on the 100% sale proceeds of 60 flats which are shown as advance receipts in the subject financial year by the assessee.
2 On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that receipts of Rs. 47,95,252/- from Infinity Mall was business income instead of rental income from house property as held by the Assessing Officer .
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M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) 3 On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing further depreciation of Rs. 14,55,649/- on building Infinity Mall, which was disallowed by the Assessing Officer as being disallowance to the extent the asset was used to earn rental income.
4 On the fact and in the circumstances of the case and in law, the CIT(A) erred in allowing assessee's claim for deduction of society charges of Rs. 68,302/- for computation of income under the head 'Income from House property'.
3 Ground No.1 regarding 100% sale proceeds of 60 flats assessed as income. 3.1 During the previous year relevant to the assessment year 2005-06, the assessee to receive hundred percent sale proceeds in respect of 60 flats but the assessee has estimated the gross profit @ 30% on agreement value of sales consideration only and on those flats, the possession was handed over to the buyers. The sale consideration in respect of 60 flats was shown by the assessee only as advanced from costumers. The Assessing Officer asked the assessee to show cause as to why the flats in respect of which 100% sales consideration have been received should be offered to tax.
3.2 In reply the assessee submitted that as it follows project completion method of accounting and the expenses are shown as capital work in progress, the income are shown as advance from the costumers in the balance sheet and both income and expenses are offered to tax in the year of completion of project. It was further submitted that the estimated gross profit is credited to work -in- progress account to offer income in the year in which 100% percent sale proceeds are received and sales are concluded and possession was given to the purchaser. 3.3 The Assessing Officer did not accept the contention of the assessee and assess the income by adopting gross profit rate of 30% on the 100% percent sale 3 M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) proceeds received during the year. The Assessing Officer was of the view that when the assessee has received 100% percent of sale value and there is no further financial transaction pending, the sale transaction was concluded. The Assessing Officer has also mentioned that similar issue arose in assessment year 2001-02, wherein the addition made by the Assessing Officer has been upheld by the CITA). On appeal the CIT(A) deleted the addition by following the order of this tribunal in assessee's own case for the assessment year 1999-00 and 2001-02. 4 We have a heard ld. DR as well as ld. AR and considered the relevant material on record. At the outset we note that this issue has been repeatedly considered and decided by this tribunal in assesse's own case for the assessment year 2001-02, 1998-99, 1999--00 and assessment year 2002-03. For the assessment year 2002-03 this tribunal has followed the earlier decision in assesse's own case for the assessment year 1999-00 and 2001-02 and decided the issue in para 7 as under:
7. We have perused the orders and also gone through the decision of the Tribunal in assessee's own case for A.Y. 1999-00 and AX. 2001-02. Vide paragraph 7 of its order for A.Y. 2001-02, this Tribunal had followed the co-
ordinate bench decision in assessee's own case for A.Y. 1999-00. We find from decision of this Tribunal for A.Y. 1999-00 vide para 11 thereof, that there was similar factual scenario wherein assessee had not shown income in respect of five flats for which it had received full consideration. Assessee had argued that occupation certificate was received only in subsequent year and therefore, it was following a method of accounting whereby income was accounted based on receipt of occupation certificate and handing over the physical possession to the buyer. This Tribunal had held that assessee's method of recognizing income in the year of delivery of possession to the buyer could not be considered to be improper or irrational. Respectfully following the decision of this Tribunal in assesse's own case for A.Y.1999-00 and 2000-02, we are inclined to accept ground No. 1 taken by the assessee. Assessing Officer had stated that the method used by the assessee was frivolous to postpone or defer the payment on taxes received. However, as aforesaid, this Tribunal had found in assessee's own case for A.Y. 1999-00 that such method used by the assessee was not irrational or improper and 4 M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) Assessing Officer should not have thrust his own basis on the assessee. Therefore, the addition of Rs.48,00,000I- is deleted. Assessee succeeds in it's Ground No. 1"
4.1 Following the decision of this Tribunal in assesses own case; we decide this issue in favour of the assesee and against the revenue. We further note that for the assessment year 1999-00 and 2001-02, the revenue filed appeal before Hon'ble Bombay High Court and the same was dismissed vide order dated 06.03.2012 for non-compliance of a conditional order for removal of office objection. Since the Commissioner of Income Tax (Appeals) decided the issue by following the orders of this tribunal; therefore, we do not find any reason to interfere with the same.
5 Ground no.2 regarding treatment of rental income as income from house property instead of business income offered by the assessee.
5.1 This assessee is a company carrying on business in real estate, construction and sale of residential Flats and commercial units. The assessee has developed a mall comprising shopping complex, multiplex theatres etc., under the name 'Infiniti mall' at Oshiwara Project. In its return of income the assessee has shown the receipts from the Mall as business income. The assessee has entered into three kinds of agreements such as the agreement for amenities, business conducting agreement and leave and license agreement. The agreement for leave and license relates to charges received in lieu of premises.
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M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) 5.2 The agreement for amenities relates to the services provided by the assessee such as lifts, escalators, centralised air-conditioning facility, atrium, food court, and entertainment, publicity, car parking, cleaning and maintaining staff, lightning, Internet and cable TV connection, generator/DG set etc. 5.3 The third agreement is called business conducting agreement whereby the assessee entered into a joint-venture with the tenant for retail and Supermarket business. The assessing officer show caused the assessee to explain as to why the above receipts from the Infiniti Mall should not be treated as income from house property as against the business income.
5.4 After considering the detailed reply filed by the assessee the Assessing Officer held that the receipts against the leave and license agreement as well as against providing amenities/services constitute and partake the character of rental receipt and therefore has to be taxed as income from house property. 5.5 As regards the receipts in respect of the agreement for carrying out a retail business the said receipts were considered by the Assessing Officer as business income.
5.6 On appeal the CIT (A) held that the receipts from mall are to be treated as business income.
6 Before us learned DR has submitted that the assessee has put on the rent approximately an area of 1,10,000 sq.ft. at ground and first floor of Mall to various soaping units. The second floor is let out to various food chains. Apart from this the assessee has also constructed and developed more than 2,50,000 sq.ft for the 6 M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) purpose of multiplex theatre. The assessee has entered into agreements which are for a minimum tenure of three years to maximum of nine years. Therefore the intention of doing business on the property cannot be anything but the assessee is driving the rental income from the property. He has further submitted that half of the mall is on a rent, the agreement is for longer tenure, therefore it can be concluded that the assessee has all the intentions for earning the income by putting the same on the rent. He has further submitted that the CIT(A) has misunderstood the provisions of law on the point and particularly on the provisions of section 22 of income tax act.
6.1 The ld. DR has referred the impugned order of CIT(A) and submitted that the decision of Hon'ble Supreme Court in case of Shambhu Investments Ltd v CIT was relied upon by the CIT appeal whereas the said decision is against the assessee. The ld. DR has submitted that in the case of Sambhu investment Private Limited, the assessee let-out the furnished premises on the monthly rental basis to various parties along with furniture fixtures light, air conditioner etc being used as table space. In the said case the assessee was providing services like watch and ward staff, electricity, water and other common amenities to the occupiers. The Hon'ble Supreme Court has held that these services are not separately charged, the entire cost of property already recovered by way of interest free advance by the assessee and therefore only intention was to let out the portion of the premises to respective occupants and the income derived from them was rightly held assessable as income from property and not business income. The ld DR has also relied upon the decision of Hon'ble Madras High Court in case of Commissioner of income tax vs Chennai properties and investment Ltd reported in 136 taxmen 202(Mad) and 7 M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) submitted that the Hon'ble High Court has held that section 22 does not confine its application only to house property but extends it to all buildings weather such buildings are used as dwelling houses or for other purposes. He has also relied upon the decision of Hon'ble Kerala High Court in case of Attukal Shopping complex Private Limited vs Commissioner of income tax reported in 125 Taxmen 881. The ld DR then placed reliance on the decision of this Tribunal in case of Deputy Commissioner of income tax versus Godrej properties and investment Ltd 93 ITD 308 (Mum), decision in case of a Universal textile water proof company Indian vs ACIT 20 SOT 275(MUM).
6.2 The ld DR has also relied upon the decision of Hon'ble jurisdictional High Court in case of Mangla homes Pvt Ltd reported in 182 Taxman 55(Bom) and submitted that in the said case a similar issue was came before the Hon'ble High Court where the assessee company incorporated with main object to carry on business of dealing with and investment in properties, flats, warehouse, shops, commercial and residential houses. The Hon'ble High Court has held that rental income earned by the assessee was an income from the house property. The ld DR has also relied upon the decision of the Hon'ble Supreme Court in the case of East India Housing & Land Development Trust Ltd vs CIT 42 ITR 49(SC) 6.3 On the other hand, the ld. AR of the assessee has submitted that the assessee is a developer of residential, industrial complexes, mall and shops. The assessee has modified its object clauses in the Memorandum of Association by inserting the clause 3B whereby the object of the assessee company has been expanded to set up, establish, own, run, maintain, manage and operate the business in India or outside India of markets, malls, shopping centres, departmental stores etc. 8 M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) Therefore, Infiniti mall has been constructed and developed for multipurpose of the complex, which is as per the object of the assessee company. Apart from the leave and license given to various parties in respect of the space allowed for doing the business, the assessee also provides various amenities to the occupants of the mall which includes lifts, escalators, centrally air-conditioning, harvesting rain water facility, power back up for arranging generator set, garbage disposal arrangement, intercom facility, internet, Cable TV connection, security system through watchman/security agency etc., maintenance and upkeep of staircases, maintenance of lightings, electric, telephone cables, transformers electrical panels and water, drainage and sewerage pipes, maintenance of electric sub-station, control room and meter room, DG set room, AC plant room, AHU room, car parking for the customers on 'pay and park' basis. He has further submitted that the activity of maintaining the mall is complex commercial activity and therefore, the income from mall is business income of the assessee. He has further submitted that the assessee, decides the working hours of the mall, at its own discretion, opening and closing time of the mall along with all other facilities are provided by the assessee and in the control of the assessee.
6.4 The assessee has entered into separate agreements called maintenance agreement with each and every licensee. Since the assessee could not do the retail business in the entire mall; therefore, the assessee has made the arrangement through leave and license and amenities agreement by doing the business through other parties. In some of the cases, the assessee entered into agreement as a joint venture for retail business.
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M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) 6.5 The ld AR of the assessee has submitted that in the case of Pantaloon Retail (India) Ltd, the assessee has entered into an agreement for conducing of super market through M/s Trent Ltd for conducting the retail business. All these activities including the business agreement, leave and license and amenities are part of the business activity of the assessee; therefore, cannot be separately treated. The assessee's primary object is to exploit the immovable properties for maximising the profit of the commercial venture. When the premises are rented out with the motive to exploit the commercial asset to maximise the profit; therefore, the intention of the assessee is business only. He has relied upon the decision of the Koltaka Bench of the Tribunal in the case of PFH Mal & Retail Management Ltd vs ITO reported in 110 ITD 337 (Kol) as well as the decision of the Mumbai Bench of the Tribunal in the case of Gesco Corporation Ltd ACIT reported in 31 SOT 132 (Mum). 7 We have considered the rival contention as well as the relevant material on record. As it has been noticed above that the assessee has entered into three agreements. First one is regarding leave and license of the space i.e. shops, showroom etc. to the occupants for business/commercial purposes. Second agreement is regarding providing the amenities, which are common to the occupants of the mall. The third agreement entered into by the assessee with the other parties is for business conducting agreement whereby the assessee is sharing the business activity to be conducted in certain part of the Mall in the nature of super market and retail business.
7.1 As far as the receipt against the business conducting agreement is concerned, the Assessing Officer has accepted the same as business income; therefore, there is no dispute before us on this point. The Assessing Officer has noted 10 M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) from the leave and license and amenities agreements that the assessee has entered into these agreements which are for a minimum tenure of three years to maximum of 9 years. Thus, it is clear that giving the space in the mall on leave and license was not a temporary in nature but for a long term. The half of the mall is on rent and therefore, the intention of the assessee, as far as it relates to leasing out of the portion of the mall on rent, is to earn the rental income and not to conduct any business. The Assessing Officer has also recorded the fact that the TDS certificate shows the nature of receipts as rental income only. Therefore, the receipts as understood by the parties are in the nature of rent and not business receipts. 8 In the case of Shambhu Investment Pvt. Ltd., the Hon'ble Supreme Court has upheld the decision of the Hon'ble Kolkata High Court. Therefore, it is relevant to see and consider the observations of the Hon'ble Kolkata High Court which has been upheld by the Hon'ble Supreme Court. The Hon'ble Koltaka High Court has observed at pages 52 & 53 as under:
"The services rendered to the various occupants according to the said agreement are not separately charged and the monthly rent payable is inclusive of all charges to the assessee.
To decide this issue we cannot overlook the fact that the cost of the property was Rs. 5,42,443. A portion of the said property is used by the assessee himself for his own business purpose. The rest of the said property has been let out to the various occupiers as stated hereinbefore. It further appears that the assessee had already recovered a sum of Rs.4,25,000 as and by way of security free advance from three occupants. Hence, the entire cost of the property let out to those occupiers has already been recovered as and by way of interest-free advance by the assessee. Hence, it cannot be said that the assessee is exploiting the property for its commercial business activities and such business activities are prime motive and letting out the property is a secondary one."
"As we have discussed hereinbefore that it is composite table space let out to various occupants, the amenities granted to those occupants includ- ing the user of the furniture and fixtures are attached to such letting out and the last question, in view of the same, must be answered in the negative.11
M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) Applying the said test we hold that by the said agreement the parties have intended that such letting out would be an inseparable one. Hence, we hold that the prime object of the assessee under the said agreement was to let out the portion of the said property to various occupants by giving them additional right of using the furniture and fixtures and other common facilities for which rent was being paid month by month in addition to the security free advance covering the entire cost of the said immovable property.
In view of the facts and law discussed above we hold that the income derived from the said property is an income from property and should be assessed as such.
In the light of our aforesaid discussion we answer question No. 1, in the negative, i.e., in favour of the Revenue and against the assessee. In fact there was a relationship of landlord and tenant between the assessee and the persons who hired the office accommodation."
8.1 The Hon'ble High Court after taking note of the fact that the primary object of the assessee was to let out the portion of the property to various occupants, providing additional facility would not change the nature of income. It is clear that in the case in hand; the assessee has entered into two separate agreements, one for letting out of the portion of the property to various occupants, and another one for providing amenities. Therefore, as far as the receipts for letting out of space/portion of the property is concerned, the primary object of the assessee under the agreement was to let out the property to the occupants and therefore, cannot be said that the assessee was exploiting the property for its commercial/business activities.
8.2 The Hon'ble Madras High Court in the case of CIT vs Chennai Properties & Investment Ltd reported in 136 Taxman 202 (Mad) has considered all the relevant decisions of the Hon'ble Supreme Court on the point and discussed in para 8 as under:
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M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) "The Constitution Bench in the case of Sulthan Brothers (supra) did not refer to the case of Karanpura (supra), but, specifically referred to and approved the reasoning in the case of East India Investment (supra). The law laid down in East India Investments (supra) is, therefore, required to be regarded as being entitled to the same weight as that of decision of Constitution Bench. It is of the interest to note that Hidayathulla, J., as he then was, a member of the Bench in all the three cases."
8.3 The Hon'ble High Court, after considering the decisions of the Supreme Court in the case of Karnani Properties Ltd v CIT reported in 82 ITR 547, has observed in para 10 as under:
"10. The law laid down in the case of Karnani Properties (supra), thus, was that rent derived from letting would be assessable as income from property. That decision is clearly in accordance with the decision of the Constitution Bench in the case of Sultan Brothers (supra) which had approved the decision of the three Judges Bench in the case of East India Investments (supra)."
8.4 In para 12 again the Hon'ble High Court has considered and referred the various decisions as under:
"12. In the case of Universal Plast Ltd. vs. CIT (1999) 153 CTR (SC) 95 : (1999) 237 ITR 454 (SC), a three Judge Bench considered the question as to whether income received by the owner of a factory by letting out the factory was assessable as income from business. The Court, after referring to the cases in Sulthan Brothers (P) Ltd. vs. CIT (supra), CIT vs. Vikram Cotton Mills Ltd. (1988) 67 CTR (SC) 169 : (1988) 169 ITR 597 (SC), CEPT vs. Lakshmi Silk Mills Ltd. (1951) 20 ITR 451 (SC), CIT vs. Calcutta National Bank Ltd. (1959) 37 ITR 171 (SC) and Narain Swadeshi Weaving Mills vs. CEPT (1954) 26 ITR 765 (SC) culled out the following proposition:
".....(1) no precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease amount, rent or licence fee) received by an assessee from leasing or letting out of assets would fall under the head 'Profits and gains of business or profession'; (2) it is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case, including true interpretation of the agreement under which the assets are let out; (3) where all the assets of the business are let out, the period for which the assets are let out is 13 M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back and restart the same; (4) if only a few of the business assets are let out temporarily, while the assessee is carrying on his other business activities, then it is a case of exploiting the business asset otherwise than employing them for his own use for making profit for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets."
On the facts of the case before it, the Court affirmed the findings of the High Court that income received by the assessee from the properties was not business income. "
8.5 After discussing the decisions on the point of definition of building/house, the Hon'ble High Court has held in para 21 as under:
"21. Although it was held by the Constitution Bench in the case of Sultan Brothers (supra) that whether a particular letting is business has to be decided in the circumstances of each case and that each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner, in all the cases which have come before the Court involving commercial or residential buildings owned by the assessee it has been held that the income realised by such owners by way of rental income from a building, whether commercial building or residential house, is assessable under the head 'income from house property'. The only exception are cases where the letting of building is inseparable from the letting of the machinery, plant and furniture. In such cases, it has been held that the rental would not have been realised but for the letting out of the machinery, plant or furniture along with such building and, therefore, the rental received for the building is to be assessed under the head 'income from other sources'."
8.6 In the case of DCIT vs Godrej Properties & Investments Ltd reported in 93 ITD 309 (Mum), the Tribunal had an occasion to consider and decide similar issue because the assessee in the said case was also engaged in the business of development and construction of properties, real estate, shops and complex etc. 14 M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) After considering various decisions of the Hon'ble Supreme Court and the Hon'ble High Courts, the Tribunal has reached to the conclusion in para 9 and 10 as under:
9. It is now necessary to refer to the judgment of the Bombay High Court in Great Eastern Shipping Co, Ltd. v. CIT [1994] 206 ITR 505'. One of the questions posed before the High Court was whether on the facts and in the circumstances of the case, the amount of deduction under section 33 by way of development rebate could be set off against the income from capital gains in the first instance. The High Court held that the classification under section 14 of the income of the assessee into different heads has been done for the purposes of charge of income-tax and computation of the total income. At page 507, the High Court observed as under:--
"It is well-settled that each head of income is a distinct head. Income under that head has to be computed in the manner laid down in the Act for that purpose, and it is the aggregate income under different heads computed in such manner which forms the "total income". In that view of the matter, we find it difficult to understand the logic of the argument of learned counsel for the assessee that the total income should be arrived first for the purpose of giving deduction under section 33 of the Act. It seems learned counsel is trying to put the cart before the horse. The argument of counsel goes counter to the clear scheme of the Act which provides for computation of income under each head first and sets out the manner of computation thereof including the various deductions and allowances permissible in the computation of such income. The question of aggregation of income from all sources to arrive at the total income can arise only thereafter.
Section 28 of the Act specifies the income that shall be chargeable to income-tax under the head "Profits and gains of business or profession".
Section 29 lays down the manner of computation of income from profits and gains of business or profession. It provides that the income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43A of the Act. Section 33 of the Act provides for allowance of a deduction of the sum computed in the manner laid down therein by way of development rebate. This deduction, evidently, is to be made as provided in section 29 while computing the income from business referred to in section 28 of the Act.
In that view of the matter, we do not find any merit in the contention of learned counsel for the assessee that the development rebate 15 M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) allowable under section 33 of the Act should be allowed as deduction from capital gains as claimed by it and not from business income."
10. Thus, there is ample authority for the proposition that once an item of income has been classified to fall under a particular head of income, the computation thereof has to be made only in accordance with the computation provisions relating to that head of income and no other. In view of the preponderance of the authorities, we are unable to give effect to the argument of the Id. representative for the assessee based on the judgment of the Gujarat High Court in Laxmi Agents (P.) Ltd. s case (supra) that the assessee should be allowed depreciation under section 32 in respect of the properties, the rental income from which is assessed under the head "income from house property". The judgments of the Calcutta High Court cited by him are all on the question of computing the deduction under section 80-M. In National and Grindlays Bank Ltd's case (supra), the ITO restricted the deduction by apportioning a part of the expenditure incurred by the assessee towards earning of the dividend income. The High Court noted that the entire business of the assessee was to deal in shares and the dividends were earned in the course of such business and though because of the provisions of section 56 the dividend is assessed under the head "other sources" the expenditure does not cease to be related to the business of the assessee as a whole and therefore no part of the same can be apportioned towards the earning of dividend income. The view taken by the other judgments of the Calcutta High Court, cited by the assessee, is the same. This principle is quite different from what we are considering in the present case. Accordingly, the first ground in the Cross Objection is rejected."
8.7 Therefore, in view of the above discussion and particularly on the facts of the case when the assessee has let-out the space/portion of the Mall against monthly rent, then the intention is only to earn rental income and not to earn the income by doing any activity involving risk or uncertainty in the nature of business. Therefore, it is a simple case of earning rental income by letting out the premises to the occupants. 9 Now, we turn to the receipts against the amenities agreement. 9.1 As per the agreement dated 3.8.2004, the assessee has agreed to provide various services/amenities in the building/mall as enumerated in para 3A of the agreement as under:
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M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) "3A. Unique shall provide at its own costs and shall maintain at the costs of the users thereof the following amenities and facilities which will cater generally to the Super Market Area and such other shops, units, areas, premises and spaces comprised in the said Building as Unique shall from time to time determine:
(i) Seven Lifts (to he located at the places shown marked as Lift Shaft Nos. L5 to L9 and CLI and CL2 on the Plan Annexure 'CL' hereto).
Unique will entrust the contract for the comprehensive maintenance of the said Lifts to an authorised service agent of the manufacturer thereof.
(ii) Four Escalators (to be located at the places shown marked as ES 1 to ES4 on the Plans Annexures 'Cl' and 'C2' hereto). Unique will entrust the contract for the comprehensive maintenance of the said Escalators to an authorised service agent of the manufacturer thereof.
(iii) Centrally Air-conditioning plants to cater to shops, units, areas and premises in the said Building (other than the Multiplex Area and most of the units, areas and premises in the basements), with electrical panels, chilled water pumps, piping, cooling towers and other equipments upto the air handling units. The portion of the Super Market Area in the upper basement will not have Air-conditioning facility. Unique will entrust the contract for the comprehensive maintenance of the said Air conditioning plants to an authorised service agent of the manufacturer thereof.
(iv) Rain Water Harvesting Tanks and Sewerage Treatment Plant to support water arrangements for toilet, flushing, etc. (through underground water storage tanks and overhead water storage tanks) with water pumps to pump water to overhead water storage tanks and pump room to accommodate the same.
(v) Generator! D. G Set which in case of disruption in electric supply will act as a back up to provide limited electric supply to the Super Market Area in common with such other shops, units, areas and premises in the said Building as Unique shall decide. Such Generator/ D. G. Set will in case of disruption in electric supply, act as a back up to support fifty per cent of the load of lighting in the Super Market Area and one- hundred per cent of the load of refrigeration equipments meant for storage of perishable products being displayed and marketed in the Super Market Area. The change-over switch required for use of such back up of Generator! D. G. Set shall be installed by Pantaloon at its own costs in the main electrical panel in the Super Market Area.
(vi) Garbage disposal arrangement for disposal of garbage and refuse deposited at the designated spot! Garbage collection room by the concerned persons in use of the various shops, units, areas and premises in the said Building (including the Super Market Area).
(vii) Intercom facility through EPABX to the users of various shops, units, areas and premises in the said Building may be installed by Unique. If 17 M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) such intercom facility is provided, then two extensions thereof would be made available by Unique to Pantaloon.
(viii) Cable TV connection.
(ix) Building management system and Security system of common areas, amenities and facilities through watchmen/security agencies with related equipments.
(x) Maintenance and upkeep of staircases (shown marked STI to ST4 on the I Plans Annexures 'Cl' and 'C2' hereto), lobbies and passages, ducts and wet risers, façade/elevation, landscape, drive way, open areas, watchman's cabin, entrance gates and compound wall through contractors, staff or agency.
(xi) Maintenance of lighting, electric & telephone cables, transformers, \electrical panels and water, drainage and sewerage pipes, except those within any shop, unit or premises.
(xii) Maintenance of electric sub-station, control room and meter room, D. G. set room, AC plant room, AHU rooms (other than those within any shop, unit or premises), utility room, lift machine rooms, garbage room, pump room, administrative office, common toilets, U. G. tanks, OH. tanks, earthing pits, fire alarm, fire fighting system and related equipments."
9.2 Apart from these amenities, the assessee has also allowed Pantaloon to put up Signage and show window space in the building as per clause 1A of the agreement as under:
"1A. Unique hereby permits Pantaloon to put up Signages of any type including neon signs, glow signs, display boards (herein referred to as the "Signages") at the following places:
(i) at three Signage spaces on the external façade of the said Building (herein referred to as the "Signage spaces"), shown shaded yellow and marked Signage space Nos.FL7 and FLI8 on the Plan annexed and marked as Annexure "Al" hereto and marked Signage space No.FL4 on the Plan annexed and marked as Annexure "A2" hereto.
(ii) at one Show window space in the said Building (herein referred to as the "Show window"), shown shaded blue and marked Show Window No.D15 on the Plan annexed and marked as Annexure "A3"
hereto."
18
M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) 9.3 So far as the displaying its trade name/logo, food bazaar of Pantaloon by using Signage window show, the receipt against the said facilities is not truly for providing any amenities or service; but it is for the use of space in the building/property. Therefore, to that extent, the receipt is similar in the nature as for leave and license.
9.4 Similarly, the charge for the use of car parking space is also not an amenities or service; but is in the nature of leave and license. It is pertinent to note that the assessee is charging monthly charges for all these facilities/space provided. Apart from monthly charges, the assessee has also received interest free security deposits from each and every occupant as per clause 8A of the agreement as under:
8A For the due and faithful observance and performance of the terms and conditions contained herein, Pantaloon has paid to Unique a sum of ` 44,00,000/-(Rupees Forty four lakhs only) as interest free security deposit on the execution of this Agreement (the receipt whereof Unique hereby admits and acknowledges).
9.5 The nature of facilities/amenities provided by the assessee are common and inseparable from mall. Therefore, these facilities are part and parcel of the Mall itself and cannot be provided as per the choice of the occupants. When these facilities like security, maintenance of lifts, central air-conditioning power back, Telephone and internet facilities are common in nature and cannot be separated as per the requirement of each and every occupant, then despite having separate agreements for these facilities, the nature of service/facilities cannot be considered as altogether separate from the mall itself.19
M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) 9.6 Moreover, when the assessee is receiving interest free deposits from the occupants, that itself shows that the assessee has received its investment by way of these interest free deposits and therefore, the activity of providing these facilities/services cannot be said in the nature of adventure as in the case of business activity.
9.7 Sine no risk of loosing the capital or incurring loss is involved in the activity of letting out the space as well as providing the services/amenities it lacks essential ingredients of business activity.
10 The Hon'ble Kolkota High Court in the case of Shambhu Investment Pvt. Ltd.,(supra) has also observed that the fact cannot be overlooked that the assessee had already recovered the cost of the property by way of interest free security deposits from the occupants.
10.1 Further, the amenities provided by the assessee are only connected with the Mall premises and therefore, the same is only incidental to the letting out of the space as all the amenities are common in nature for the occupants of the respective space in the Mall. These amenities cannot be at the option of the occupants; but are otherwise the basic requirement of the Mall and for better, optimum and smooth functioning and enjoyment of the let out space. Therefore, the charges received against these facilities/services cannot be treated as income 20 M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) from business; but only in lieu of exploiting of the property let out. Hence, it cannot be said that the assessee is exploiting the premises for its business activity. 11 In view of these facts and circumstances of the case and the above discussion, we are of the considered opinion that the receipts against the leave and license as well as amenities agreements are only for the use of the property in question and not in the nature of business activity. Accordingly, the order of the CIT(A) is set aside and the order of the Assessing Officer is restored on this issue. 12 Ground no.3 is regarding depreciation on the Mall.
12.1 We have heard the ld DR as well as the ld AR of the assessee and considered the relevant material on record. In view of our finding that the income from Mall is not a business income; but assessable under the head "income from house property", this issue is consequential and accordingly dismissed. 13 Next issue is regarding society charges.
13.1 We have heard the ld DR as well as the ld AR of the assessee and considered the relevant material on record. This issue is also consequential in nature and since we have already given our finding that the Mall receipts are in the nature of income from house property and not business income; therefore, no deduction 21 M/s Unique Estate Development Co Ltd ITA No.1537/Mum/2009(AY 2005-06) ITA No.3212/Mum/2009 (AY 2006-07) ITA No.6056/Mum/2010 (AY 2007-08) other than specified u/s 24 of the IT Act are allowable against the income from house property.
13.2 It is to be noted that sec. 24 has been amended w.e.f. 01-04-2002. Before the amendment, various categories of expenditure like collection charges, insurance premium, ground rent, land revenue, etc., were allowable, but after the amendment, only two types of deductions are possible, namely, 30% of the total annual value and amount of interest paid for acquisition of property. No other deduction is possible and accordingly we hold that the amount of expenditure incurred on account of society charges for the property is not allowable under the head 'income from house property'.
14 In the result, appeals filed by the revenue are partly allowed.
Order pronounced on this 30th, day of April 2012
Sd/ Sd/-
( R S SYAL ) ( VIJAY PAL RAO )
Accountant Member Judicial Member
Place: Mumbai : Dated: 30th, April 2012Raj*
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai