Rent received from Letting out Shop Rooms in Mall constitute “Business Income”: Kerala High Court [Read Judgment]

Rent - Shop Rooms - Kerala High Court - Taxscan

“Shopping is no longer mere purchasing products. Shopping malls have transformed what was once an activity merely based on need and necessity to an experience of enjoyment and entertainment.”

A two-judge bench of the Kerala High Court has held that the rent received by the Company from letting out the shop rooms in a mall would be chargeable to income tax as business income and not as house property income.

The question before the Court was under which head the rental charges received by the assessee company on letting out the shop rooms in the mall constructed by it is liable to be assessed under the Income Tax Act, 1961.

The assessee is a company engaged in the business of construction and promotion of residential and commercial complexes. The assessee constructed a shopping mall by name ‘Oberon Mall’ in Kochi in the property owned by its sister concern and let out the shop rooms. The assessee’s claim that the above amount constitute business income was rejected by the Assessing Officer and heal that the said amount is taxable as “Income from House Property.”

The bench comprising Justices Abdul Rehim and Narayana Pisharady noted that in the instant case, it is not a letting out of property simpliciter, without anything more.

“A host of services are being provided by the assessee at the shopping mall. The assessee is engaged in a complex set of activities at the shopping mall. Management of the shopping mall is done by the assessee. The basic purpose is commercial exploitation of the property. The assessee has earned the income not merely by letting out the shop rooms but also by providing amenities and facilities at the shopping mall. Such amenities and facilities are not the basic facilities required for occupation of a shop room by a tenant. They are the special facilities for running the shopping mall and are meant to attract the customers and provide them the comfort and convenience of shopping.”

Concurring with the order of the Tribunal, the High Court held that “In cases where the income received is not from the bare letting out the property but on account of the facilities and services rendered, the operations involved in such letting out is in the nature of business and the income derived therefrom has to be treated as business income and not income from property. The income derived by the assessee cannot be regarded as simply from the exercise of property right. Where the assessee company has developed the shopping mall and let out the same by providing a variety of services, facilities and amenities in the mall, it can be found that the primary intention of the assessee was commercial exploitation of the property and where it has derived substantial part of its income by such activity, which constitutes its main business, the income so derived would be business income of the assessee. We, therefore, agree with the view of the Tribunal that the income derived by the assessee by letting out the shops in the mall has to be assessed as income from business and not as income from house property.”

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