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Judgment
Since common question of law are involved in these appeals, all the appeals are heard together and disposed of by this common order. The common question of law raised in all these appeals is, whether the ITAT was justified in holding that the Mall upkeep and promotional fees received by the assessee were liable to be assessed as ''business income'' instead of ''income received from house property'', as held by the assessing officer.
The assessment years involved herein are assessment years 2004-05, 2005-06 and 2006-07.
The assessee is in the business of building and developing residential and commercial complexes. The assessee is also running a Mall under the name ''R Mall'' situate at Mulund, Mumbai.
The assessee had constructed an area of nearly 2,68,000 sq. ft. at Mulund, out of which an area admeasuring 60,000 sq. ft. has been sold on outright basis to various parties. The assessee has given major portion of the remaining area i.e. about 1.9 lac. sq. ft. on lease to various persons who are running shops, cinema halls, eating places, etc. in the Mall. Under the agreements entered into by and between the assessee and the lessees, the assessee has been collecting business conducting fees and business facility charges which are all offered to tax under the head ''income from house properties''. In addition to the above charges, the assessee has been collecting maintenance charges from the lessees as also from the persons to whom the premises are sold, towards the promotion and upkeep of the Mall. The said maintenance charges collected from the lessees and premises owners have been offered to tax under the head ''income from business''. The assessing officer was, however, of the opinion that the Mall upkeep and promotional charges originated from the property itself and, therefore, the said receipts are liable to be taxed as ''income from house property'' and not under the head ''income from business''.
On appeal filed by the assessee, the CIT(A) allowed the claim of the assessee by holding that the agreement on Mall upkeep is basically a contract to ensure a well maintained, modern secured and quality premises and to have a top class support system to maximize footfalls in the Mall. The CIT(A) held that the Mall upkeep charges are distinct and independent from the business conducting fees and business facility charges. The CIT(A) further held that the agreement on Mall upkeep is meant to promote the Mall, whereas the other two agreements are only for handing over the premises on lease.
Being aggrieved by the aforesaid order, the revenue filed appeals before the ITAT and the ITAT upheld the order passed by the CIT(A) and dismissed the appeal filed by the revenue. The ITAT followed the judgment of the Kolkata ''A'' Bench in the case if PFH Mall & Retail Management Ltd. v. ITO [2008] 110 ITD 337 (Kol) wherein it is held that where the main intention is simply letting out of property, the resultant income must be assessed as income from house property and if on the other hand, the main intention is found to be the exploitation of the immovable property by way of commercial activities, then the resultant income must be held to be business income. Challenging the aforesaid order, the present appeals are filed by the revenue u/s 260A of the Income Tax Act, 1961.
The basic argument of the learned counsel for the revenue is that though the assessee has collected amounts from the lessees by using different nomenclature, they are nothing but the rent in respect of the promises rented out by the lessees and, therefore, the amounts received by the assessee towards maintenance charges are lease rent assessable under the head ''income from house property''. It is further contended that on perusal of the various agreements it is seen that the said agreements were to run concurrently with the term for which the premises were given on lease and, therefore, the ITAT ought to have held that the maintenance charges received by the assessee were rental income assessable under the head ''income from house property''.
We see no merit in the aforesaid contention. The fact that the assessee apart from carrying on the construction activity, is in fact carrying on the business of running a Mall in the name of ''R Mall'' is not in dispute. Admittedly, part of the premises constructed by the assessee have been sold to third parties on outright sale basis. It is also not in dispute that maintenance charges for promotion and upkeep of the Mall has been collected not only from the persons to whom the premises have been given on lease basis but also from persons to whom the premises have been sold on out right sale basis. Obviously, no rent could be recovered from the persons to whom the premises were given on outright sale basis. Therefore, the Tribunal was justified in holding that the maintenance charges received were towards the maintenance and promotion of the common area and the amounts received towards maintenance charges were business receipts liable to be assessed under the head "income from business''.
Moreover, perusal of clause (6) in the business conducting agreement clearly shows that the maintenance charges collected by the assessee not only relates to the open area / common area, repair and maintenance of equipment, land, atrium, fire fighting equipments, transformers, air conditioner plants, water tank and other services in the common areas of the complex, but also towards the cost of security services and overall house keeping of the common area. The fact that the quantum of maintenance charges under the agreement are based on the area of the premises given on lease / sale basis cannot be a ground to hold that the maintenance charges received were part and parcel of the rent payable in respect of the leased premises.
In these circumstances, the decision of the ITAT in holding that the maintenance charges recovered by the assessee towards the promotion and upkeep of the Mall, from the persons to whom the premises are let out and also from the persons to whom the premises were sold are attributable to conducting the business activity of running the Mall and therefore, the amount of maintenance charges received were business receipts assessable under the head ''business income'' cannot be faulted. In the result, we see no merit in the appeals and the same are hereby dismissed with no order as to costs.