Stellar Developers P. Ltd, Mumbai vs Department Of Income Tax

ITA No.4891/Mum/2008 ( Assessment Year :2005-06) ACIT Rg.5(3), Mumbai Vs.M/s Steller Developer P. Ltd., 103, Sangeeta Enclave, Sarvodaya Nagar, Mulund (W ), Mumbai-80. PAN/GIR No. : AABCS 1078 C ( Appellant) .. ( Respondent) AND ITA No.6635/Mum/2009 ( Assessment Year :200 6-07) ITO Rg.5(3)(2), Mumbai-20 Vs.M/s Steller Developer P. Ltd., 821, Parekh Market, Mama Parmand Marg, Opera House, Mumbai. PAN/GIR No. : AABCS 1078 C ( Appellant) .. ( Respondent) AND ITA Nos.126 to 128/Mum/2010 ( Assessment Year :2001-02. 2002-03 & 2004-05) ACIT Rg.5(3), Mumbai Vs.M/s Steller Developer P. Ltd., 103, Sangeeta Enclave, Sarvodaya Nagar, Mulund (W ), Mumbai-80. PAN/GIR No. : AABCS 1078 C ( Appellant) .. ( Respondent) 2 ITA Nos.4891/08, 6635/09 126 to 128/10 & 7636/2012

AND ITA No.7636/Mum/2012 ( Assessment Year :200 9-10) M/s Steller Developer P. Vs. ACIT Rg.5(3), Mumbai Ltd., 103, Sangeeta Enclave, Sarvodaya Nagar, Mulund (W ), Mumbai-80. PAN/GIR No. : AABCS 1078 C ( Appellant) .. ( Respondent)

/Revenue by : Shri Jitendra Kumar /Assessee by : Ms. Vasanti Patel & Shri Nilesh Joshi Date of Hearing : 06/01/2015 Date of Pronouncement : 21/01/2015 ORDER

PER R.C.SHARMA (A.M.) :

These are the appeals field by the Revenue and assessee against

the order of CIT(A) for assessment years 2001-02, 2002-03, 2004-05,

2005-06, 2006-07 & 2009-10, respectively.

2. Since the only common issue involved in all the years under

consideration, relates to treating the income from house property as

business income, therefore, all these appeals were heard together and

are now disposed of by this consolidated order.

3. We have heard rival contentions and perused the record. Facts in

brief are that the assessee is a private limited company is engaged in

the business of buying properties on ownership or lease or rental basis

and to give on long lease, sublease and/or rental basis. The source of

income of the assessee company is rental income which is part and

parcel of the activities of the company. Since 2000, the assessee 3 ITA Nos.4891/08, 6635/09 126 to 128/10 & 7636/2012

company is duly reflecting such rental income as income from business or

profession and the same. The assessee has also duly reflected these

assets as business assets and also claimed depreciation in each and

every year. During the year under consideration, the AO has treated the

income offered by the assessee as business gain, as income from house

property. By the impugned order the CIT(A) held that income was derived

from operation of business after having the following observations :-

"6.1 Now coming to the facts and circumstances of the instant case, I find that there is no dispute that as per memorandum of Association of the company it is the main object of the company to purchase and/or acquire property and to give on lease and/or on license basis along with complex commercial activities and that is how the company has declared its apparently rental income as their business income. The agreement with the lessee for the impugned property does not mention the word tenant for the occupier in it and therefore there is no simple landlord and tenant relationship between the appellant company and the lessee. Since, there is no change of the party in the lease agreement i.e. M/sper Stop Ltd. and since there is no fresh agreement also for the same even after acquiring the property, it is clear that the intention of the appellant has not gone for a change and it remains the earlier one ony i.e. to exploit commercially by way of complex commercial activities generating the business income as earlier as it is part and parcel of the appellant's business activity only. Thus, it is held that the income has rightly been assessed in the earlier years as business income and even in view of the decision of the Hon'ble Supreme court in the case of M/s Shambhu Investment Pvt. Ltd. that has upheld all the findings and ratio of Hon'ble Calcutta High Court (supra), th eimpugned income is assessable as business income in the instant year also. The assessing officer is not correct in saying that the facts of the assessee are exactly similar to the facts of Shambhu Investment Pvt. Ltd. (supra). In that case, the Hon'ble High Court found from a plain reading of the agreement that it was apparent that the intention of the parties to the said agreement was clear and unambiguous by which the first party had allowed the second party to enjoy the said table space upon payment of the comprehensive monthly rent. The Hon'ble High Curt in that case did not find that M/s Shambhu Investment Pvt. Ltd. was in the business of acquiring the properties either by way of ownership or on lease to sublet or lease it out to others with an intention of commercial exploitation of the same with complex commercial activities. This view is also upheld in the recent decision of Hon'ble ITAT Calcutta in the case of PFH Mall and retail Management Ltd.

Vs. ITO in ITA Nos.435 & 2068/Kol/2006, dated 11-5-2007, 16 SOT 4 ITA Nos.4891/08, 6635/09 126 to 128/10 & 7636/2012

(83) (Kol). Thus, in view of the above discussion and in the facts and circumstances of the instant case, the Ld. A.O. is directed to accept the disclosed business income by way of lease rent. The appeal is allowed on this ground.

7. The next ground is that the Ld. AO. has erred in charging interest u/s.234A, 234B and 234C. I find that these grounds are consequential in nature and therefore dismissed accordingly. However, the Ld. Assessing officer is directed to follow the law laid down by Hon'ble Supreme Court in the case of CIT Vs. Ranchi Club Ltd. (2001) 114 Taxman 414 (SC)/Ranchi Club Ltd. Vs. CIT{1996] 217 ITS 72/85 Taxman 201 (Pat) & CIT Vs. Kwality Biscuits Ltd. (2006) 155 Taxman 658 (SC) while charging the interest u/s.234A, 234B & 234C.

In the result, the appeal is partly allowed."

4. Learned DR relied on the order of the AO and submitted that the

assessee is the owner of the premises and has given the same on lease

rent, therefore, the income earned from the same should be held as

income from property. Ld. DR further submitted that the Memorandum of

Association of the assessee company is not final and the objects stated in

the Memorandum of Association is what the assessee is permitted to do,

which assessee has not done so far. For this purpose, ld. DR relied on the

decision of Hon'ble Supreme Court in the case of Oriental Investment Co.

Ltd. Vs. CIT, 32 ITR 664 (SC).

5. On the other hand, learned AR, relying on the various judicial

authorities, submitted that the main objects of the assessee company are

to buy properties, develop and to lease out the property and the income

received from letting out properties should be assessed as business

income. Ld. AR further submitted that the assessee has reflected in its

regular books of accounts from time to time the said assets as 5 ITA Nos.4891/08, 6635/09 126 to 128/10 & 7636/2012

commercial assets or business assets, and which is duly accepted by the

department from time to time, and the said assets also include various

amenities such as electricity, cooling, towers, elevators car parking for the

lessee and/or visitors etc. The said services and amenities are provided

by the assessee company are inseparable and the same has to be

provided along with the buildings and as such services, amenities are also

co-terminus and co-existent with the principal subject matter of the

property. Therefore, the income reflected as income from business and

profession is to be treated as under the same head and not in the head of

income from house property.

6. We have considered rival contentions and gone through the orders

of the authorities below. From the record we found that the AO treated

the income from commercial exploitation of assets as income from house

property on the plea that impugned property has been acquired by the

assessee during the year whereas the same, was taken by them on lease

in earlier year. Merely because income is attached to a property it cannot

be a sole factor for assessing such income as income from house

property and it has to be seen that whether it was the primary objective of

the assessee to exploit the property in a simple manner or to exploit it

commercially i.e. to exploit it by way of complex commercial activities to

arrive at the generation of income that could be taxed under the head

income from house property or as income from business. If it is found that

main intention is to simply let out property or any part of it, resultant

income must be assured assessed as income from house property but if

main intention is found to be exploitation of property by way of commercial 6 ITA Nos.4891/08, 6635/09 126 to 128/10 & 7636/2012

activities, then resultant income must be held as business income. Where

assessee company has developed shopping malls/business centres on

properties owned by it and let out same by providing host of

services/facilities/amenities in the said mall/business centres, it can be

said that basic intention of assessee was commercial exploitation of its

properties by developing them as shopping malls/business centres,

therefore, income derived therefrom is assessable as business income. In

the instant case before us there is no dispute that as per memorandum of

Association of the company it is the main object of the company to

purchase and/or acquire property and to give on lease and/or on license

basis along with complex commercial activities and that is how the

company has declared its income from such property as their business

income. Even the agreement executed with the lessee of the impugned

property does not mention the word "tenant", therefore there is no simple

landlord and tenant relationship between the assessee company and the

lessee. Since, there is no change of the party in the lease agreement i.e.

M/s Shopper Stop Ltd. and since there is no fresh agreement also for the

same even after acquiring the property, it is clear that the intention of the

assessee has not gone for a change and it remains the earlier one only

i.e. to exploit commercially by way of complex commercial activities

generating the business income as part and parcel of the assessee's

business activity only.

7. The Hon'ble Supreme Court in the case of Karnani Properties Ltd.

v. CIT, (1971) 82 ITR 547 very succinctly enunciated the unique

characteristics of a business activity. The Apex Court has laid down 7 ITA Nos.4891/08, 6635/09 126 to 128/10 & 7636/2012

precise tests that are necessary to determine whether the services

rendered by an assessee to its tenants/recipients of service, are in the

nature of business activities and income generated therefrom assessable

as business income, or not. The Hon'ble Court expressed the view that if

the services rendered by the assessee are the results of its activities

carried on continuously in an organized manner, with a set purpose and

with a view to earn profits, those activities would constitute business

activities and the income arising therefrom would be assessable as

business income under section 28 of the 1961 Act.

8. A perusal of the agreements entered by assessee would show that

the activities involved in providing the various services/facilities/amenities

meet all the aforesaid four requirements laid down by Hon'ble Supreme

Court to qualify as business activities. Hence, we do not find any reason

to deviate from the findings recorded by the CIT(A). Accordingly, we

uphold the order of the CIT(A) and dismiss the appeals of the Revenue

and allow the appeal of the assessee on the issue of treatment of income

declared by assessee as income from business.

7. In the result, appeals of the revenue are dismissed, whereas appeal of the assessee (i.e. ITA No.7636/Mum/2012) is allowed, Order pronounced in the open court on this 21st January.2015.

21st Jan,2015

Sd/- Sd/- ( ) ( ) (VIVEK VARMA) (R.C.SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER Mumbai; Dated 21/01/2015 /pkm, PS 8 ITA Nos.4891/08, 6635/09 126 to 128/10 & 7636/2012

Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. / The CIT(A)-X, Mumbai. 4. / CIT 5. / DR, ITAT, Mumbai / BY ORDER, 6. Guard file.

//True Copy//

(Asstt. Registrar) / ITAT, Mumbai