Rental Income and Service Charges from Leasing Out Malls/Commercial Complex constitute ‘Business Income’: Bombay HC [Read Order]

Malls - Rental Income

In CIT Mumbai v. M/s.E-City Project Construction Pvt. Ltd, division bench of the Bombay High Court held that rental income and service charges received by the assesse from leasing out malls/commercial complex constitute ‘business income’ under the Income Tax Act, 1961.

Assessee engaged in the business of constructing malls/commercial complex and lease it from the year 2001. Assesse treated the amount collected from leasing out the above properties as their business income and had filed the returns disclosing the income as “Profit and Gains from Business and Profession”.

After demerger of the Company, the Assessing Officer refused to accept the same as business income and held that the entire income is rent income except the other paltry sum received by the interest on fixed deposits and sale of scrap.

On appeal, ITAT allowed the contentions of the assessee by applying the principle of consistency.

Challenging the ITAT order, the department approached the High Court contending that the income constitute rental income in view of Apex Court’s ruling in many cases including the recent decision in Raj Dadarkar & Associates v. Assistant Commissioner of Income Tax.

Justices Gangapurwala and A.M Badar upheld the findings of the lower authorities.

The bench relied on the findings of the Tribunal that the operational income received by the assesse from various malls built by them, in the form of rent, and other service charges was consistently offered to tax as its business income in the earlier years and the same was accepted by the Department as a business income. After demerger, both the Assessee Companies took over the assets and liabilities of the demerged Company and continued the same business of operating and running the malls.

The bench dismissed the departmental and observed that the facts of the present case are much similar to the case of Chennai Properties and Investments Limited, Chennai.

The Tribunal has considered the nature of the business activities of the Assessee Company, as well as, terms and conditions of the relevant agreements, under which the commercial space in the mall was given on hire by the Assessee Companies to the concerned parties. It also considered the various services provided by the Assessing Companies during the course of operation and running of the Family Entertainment Centre cum malls. On appreciation of facts, the Commissioner (Appeals) and the Tribunal have concurrently arrived at a conclusion that the intention of the Assessing Companies was to commercially exploit the property by way of complex commercial activities and it was not a case of letting out the property simplicitor. The rental income and the service charges thus were received by the Assessee Company as business income during the course of business carried out by them of operating and running a Mall as a commercial activity,” it said.

Read the full text of the Order below.

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