Commissioner of Income Tax vs Chamundi Industrial Estate

This Income Tax Appeal is directed against the order dated 13.07.2007 passed by the Income Tax Appellate Tribunal, Bangalore Bench-''B'' (for short ''the Tribunal''), in ITA No. 302/2006, pertaining to the Assessment year 2002-2003, whereby the orders passed by the Assessing Officer dated 31.03.2005 and by the 1st Appellate Authority dated 17.02.2006 have been reversed. The Authorities below held that income received by the respondent-assessee from letting out the commercial complex can be brought to tax under the head ''income from house property'' and that the maintenance charges can be brought to tax under the head ''income from other sources''. Thus, the Authorities below held that the entire income of the assessee earned from letting out the commercial complex should be brought to tax under the head ''income from house property''. These findings of the Authorities below have been reversed by the Tribunal holding that the income earned by the assessee from letting out the commercial complex should be brought to tax under the head ''income from business''. Our attention was drawn to the judgment of this Court in Commissioner of Income Tax-III Vs. Velankani Information Systems (P.) Ltd., , to contend that if the assessee is in the business of taking land and putting up commercial buildings thereon and letting out such buildings with all furniture as his profession or business, then notwithstanding the fact that he has constructed a building and he has also provided other facilities and even if there are two separate rental deeds, it does not fall within the heading of income from house property. The relevant, observations reads thus:--

xxxxxxxxxxx. "If the intention is to exploit commercial property by putting up construction and letting it out for the purpose of getting rental income, then notwithstanding the fact that the furniture and fittings are provided to the lessee, the income from the building fall under the head ''income from house property''. But if the assessee is in the business of taking land and putting up commercial buildings thereon and letting out such buildings with all furniture as his profession or business, then notwithstanding the fact that he has constructed a building and he has also provided other facilities and even if there are two separate rental deeds, it does not fall within the heading of income from house property. Therefore, firstly what is the intention behind the lease and secondly, what are the facilities given along with the buildings and documents executed in respect of each of them is to be seen. Thirdly, it is to be found out whether it is inseparable or not. If they are inseparable and the intention is to carry on the business of letting out the commercial property and caring at complex commercial activity and getting rental income therefrom, the such a rental income falls under the heading of profits and gains of business or profession".

In this backdrop, we have perused the orders passed by the Authorities below and the Tribunal and we find reference to the commercial complex measuring 60,000 sq.ft., other than the Chamundi Estate, having been acquired by the assessee and they are receiving rental income therefrom. We also noticed from the record that the assessee has also made a payment to M/s. Venkateshwara Developers towards the purchase of another 45,000 sq.ft. of super built-up areas to let out after getting possession thereof.

Mr. Aravind, learned counsel for the Revenue, submitted that though there is reference to these two properties other than the Chamundi Estate, there is absolutely no material on record in support of the claim of the assessee in respect of other two properties so as to claim that they let out such buildings/ properties as their profession or business.

On the other hand, Mr. Parthasarathi, learned counsel for the respondent-assessee, placed before us, copies of the return of income filed by the assessee for the Assessment years 2003-04, 2004-05 and 2005-06, to contend that the assessee is in the business of acquiring and letting out properties.

In this backdrop, learned counsel for the parties have stated that since the material placed on record does not clearly show that the assessee had other properties and that they are in the business of acquiring the properties and letting them out, this matter may be remanded to the Assessing Officer to verify and/or to examine the case of the assessee, whether they are in the business of taking land and putting up commercial buildings thereon and letting out such buildings as their profession or business. In other words, they prayed for remand of the matter to examine the case of the assessee, whether the assessee comply all the tests laid down by this Court in Velankani Information Systems (P.) Ltd.''s case (supra). They further stated that we need not record any further reasons for passing such order. Hence, we pass the following order:--

(i) The order passed by the Tribunal dated 13.07.2007 as well as the orders passed by the Authorities below dated 17.02.2006 and 31.03.2005 are set aside. The matter is restored to the file of Assessing Officer.

(ii) The Assessing Officer, shall examine the case of the assessee afresh, in the light of the judgment of this Court in Velankani Information Systems (P.) Ltd. case (supra) and while doing so, shall allow the parties to place additional material/evidence on record in support of their contentions.

(iii) The Tribunal while deciding the matter afresh, shall bear in view the substantial question of law framed by this Court at the time of admission of the appeal vide order dated 11.06.2008, which reads thus:--

"Whether the Tribunal was right in holding that income received from letting out the commercial complex cannot be brought to tax under the head "income from house property" and the maintenance charges cannot be brought to tax under the head "income from other sources" and the entire income should be brought to tax under the head "income from business?"

(iv) All contentions of the parties are kept open. No costs.

Appeal is disposed of accordingly.