The ITAT, Delhi, in a recent ruling, held that license fee from lease of retail space in the shopping mall is assessable under the head “income from house property” under the provisions of the Income Tax Act, 1961.
Assessee-Company engaged in the business of development/ construction of shopping malls, office complex and multiplex, etc. During the relevant assessment year, assessee maintained a commercial complex where assessee let out places such as Shopping mall, Retail space, Service apartments, Office space, Multiplex Parking, Surplus business space for general/common use etc.
While filing income tax return, assessee offered all the receipts except the license fee from letting out of retail space to tax under the head “Business Income”. Regarding the receipt from letting out of retail space, assessee declared the same under the head “Income from House Property”. However, the Assessing Officer rejected the return and held that the same is taxable under the head ‘Business income.’ along with the other income.
The Tribunal noted that the assessee was not carrying on any systematic or organized activity of providing service to the occupiers of the shops, albeit other service charges pertaining to the common maintenance, event and advertising, parking fees, etc., has been offered separately for tax under the head profits and gains of business of profession. “So far as retail space is concerned, it is lease rent simplicitor, which is evident from the copy of sample lease deed which has been placed by the assessee in its paper book from pages 157 to 187 and also the copies of MoU, the copy of which are appearing at pages 149 to 156 of the paper book.”
“Ostensibly when assessee has constructed a property solely with an intention and purpose to give it on lease and to earn rental income/ license fee, then the income has to be assessed under the head ‘income from house property’, because right from the stage of conception of the project and construction, the intention was only to exploit the property for lease rent,” the bench said.
Relying upon the recent Apex Court decision in Raj Dadarkar & Associates vs. ACIT , the bench held that the receipts from the lease rent/license fee from lease of retail space in the shopping mall is to be taxed under the head “income from house property” under section 22 of the Income Tax Act. Consequently, deduction under section 24(a) and other deductions of interest of pre-construction period and interest on loan which are to be allowed while computing the income from house property were allowed to the assessee while computing the income from house property.
Read the full text of the Order below.