HIGH COURT OF MADRAS

A.R. Complex

v.

Income-tax Officer

P.D. Dinakaran and P.P.S. Janarthana Raja, JJ.

Tax Case (Appeal) Nos. 75 and 176 of 2004

June 12, 2007

Section 22 of the Income-tax Act, 1961 - Income from house property -Chargeable as - Assessment year 1999-2000 - Whether mere letting out property and earning income from it should be assessed only under head ‘Income from house property’ - Held, yes - Assessee-firm was engaged in constructing commercial complexes and running them as business centers - It also provided occupants services in nature of providing security, supervisor etc., under an agreement and occupants had to pay service charges to assessee - Assessing Officer assessed entire receipt as income from house property and not under head ‘Business’ - Assessee’s case was that authorities should bifurcate receipts which also included service charges and quantified portion of receipts for rendering services and such apportioned amount should be assessed under head ‘Income from business’ or ‘Income from other sources’ - Whether since there was no proper consideration of details regarding providing services as well as amount received for same by authorities below, matter was to be remanded to Assessing Officer - Held, yes

Facts

The assessee-firm was engaged in developing, constructing commercial complexes and running them as business centers. The business also included providing occupants, services in the nature of providing security, supervisor, sweeper as well as amount received for providing lighting in all common areas, the overhead tank etc., for the peaceful, smooth, effective and conducive conduct of business of the occupants; and to provide such other services such as common reception, telephone booth, generator etc., as might be required by the occupants and agreed upon by both the parties from time to time. There were also a service-cum-lease agreements entered by the assessee and the occupants. The assessee filed a return of income, disclosing income under the head ‘Business’. The Assessing Officer observed that entire receipts shown by the assessee were only from rentals and taking the view that the rental income had to be treated as ‘income from house property’ and assessed the rental receipts under the head ‘House property’. The Commissioner (Appeals) as well as the Tribunal upheld the order of the Assessing Officer.

In appeal, the assessee contended that the assessee constructed business centers and let out the same and continued providing its services, as business activity, and that since the assessee was constituted only for the purpose of carrying on business activity, the receipts constituted only business receipts. An alternative argument was also advanced that the whole receipt amount should not be assessed under the head ‘Income from house property’ on the ground that certain portion of the amount was related to services provided as per the agreements which were independent ones; and the authorities ought to have bifurcated the receipts and quantified a portion of the receipts for rendering services and, the same should be assessed under head ‘Income from business’ or ‘Income from other sources’.

Held

Mere letting out the property and deriving income from it should be assessed only under the head ‘Income from house property’ . Hence, the Tribunal rightly held that the income derived from the commercial complex was to be treated as income from the house property. [Para 9]

From a reading of the clauses of service-cum-lease agreement, it was clear that the assessee had to provide certain services. For the purpose of providing such services, the occupant had to pay a consolidated charge of certain sum per month. There was no dispute regarding the actual services provided by the assessee and the revenue also did not deny the same. The only reason given by the Tribunal was that the assessee failed to substantiate its claim. [Para 11]

The profit and loss account as well as balance-sheet were filed before the authorities wherein all the details regarding expenditure as well as receipts were reflected. There was no proper consideration of the details regarding providing services as well as receipt of the same by the authorities below. The authorities ought to have considered the same. If it was necessary, they had to bifurcate a portion of the rental receipt into various heads. In such circumstances, in the interest of justice, the Assessing Officer was directed to consider the details regarding the services provided as well as the amount received for the same and the said amounts derived from providing services might be considered under the head ‘Income from other sources’ or under the head ‘Income from business’ and pass orders in accordance with law after giving opportunity to the assessee. [Para 12]