2015-VIL-1059-ITAT-MUM
Equivalent Citation: [2015] 42 ITR (Trib) 596 (ITAT [Mum])
Income Tax Appellate Tribunal MUMBAI
ITA No. 640/M/2014, ITA No. 2196/M/2013
Date: 14.08.2015
M/s . SHREEJI EXHIBITORS
Vs
ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -41, MUMBAI
For the Petitioner : Shri V. Mohan, A. R.
For the Respondent : Shri Neil Philip, D. R.
BENCH
Shri R. C. Sharma And Shri Sanjay Garg,JJ.
JUDGMENT
Per Sanjay Garg, Judicial Member:
The above titled appeals have been preferred by two different assessees against the orders of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] dated 10.12.2013 and 26.12.2012 respectively. Since the facts and issues involved therein are identical in nature, hence the same were heard together and are being disposed of by this common order. For the sake of convenience, facts have been taken from ITA No.640/M/2014.
2. The common issue raised in both the appeals is as to whether the income/loss from letting out of multiplex/shopping mall and cinema theatre along with amenities is to be assessed under head “Income from house property’ or as “business income’ of the assessee.
The assessee is a partnership firm (wrongly written by the AO as company) engaged into the business of construction and maintenance of mall, letting out premises on lease and providing amenities therein and exhibition of feature films at multiplex. The assessee constructed a Multiplex complex in Bhayander (West) comprising of multiplex theatres, shops, entertainment and game zone, kiosk, food court, etc. which was commissioned in the previous year ending on 31.03.2009 relevant to the assessment year 2009-10. The assessee offered income/loss from the above activity as under the head’ Income from business or profession’ whereas the Assessing Officer treated the same as “Income from house property.’ The above action of the AO has been further confirmed by the CIT(A). The assessee has thus come in appeal before us.
3. The Ld. AR of the assessee, has brought our attention to the written submissions filed before the Ld. CIT(A) wherein it has been explained that that the assessee is operating Multiplex with 6 screens and parking facilities and balance area is given on rent wherein food court and shops are located. He has been further explained that since, on the films exhibited in the Multiplex screens, entertainment tax is exempted for a period of 5 years from the date of commencement, the complex is required to comply with certain requirements with regard to facilities that are mandatorily to be provided and the entire complex is provided with amenities such as open area as per Municipal Regulations, escalators, air-conditioning facilities, interiors and electrical fittings as per the specifications of the occupants, uninterrupted power supply and security arrangements, which includes Closed Circuit TV Monitoring'(CCT'). It has been thus submitted that assessee’s prime motive in embarking on this project was not just to give property on rent but to exploit the same as a commercial venture with business motive and hence attached a lot of importance in concentrating more on providing added amenities with touch of world class facilities added to the venture which will be evident from the amount of investments made in construction and assembly of amenities that were to be made available to tenants. The following amounts were incurred towards capital cost for providing various amenities:
|
“Air-Conditioners |
Rs.3,54,40,455 |
|
Electrical Fittings |
Rs.6,38,53,663/- |
|
Escalator |
Rs.1,38,93,405/- |
|
Special Tiling |
Rs.1,09,81,232/- |
|
Hardware Materials |
Rs. 64,75,106/- |
|
---------------------- |
Rs.13,06,43,861/- |
The assessee has further explained that besides the above, substantial portion of Iron and Steel cost, Cement cost and labour cost incurred on the building construction is attributable to the amenities provided to tenants. It has been explained that substantial income has been received from the letting of premises/shops in the mall to the tenants and for amenities provided to them. During the previous year ended 31.03.2009, the assessee had the following gross receipts:
|
|
Rs. Rs. Rs. |
|
Leave and license fees received |
1,44,87,021 |
|
Compensation for amenities provided |
1,78,07,853 |
|
Charges recovered towards common area maintenance Godown rent |
1,13,53,129 |
|
Rental from Kiosk |
2,78,000 |
|
Compensation for use of antenna |
9,28,700, 15,00,396 4,63,55,104 |
|
Advertising bill receivable |
28,21,768 |
|
Corporate membership |
31,000 |
|
General membership |
31,000 |
|
Net collections |
3,63,11,865 |
|
TDO cards |
1,50,000 |
|
Theatre maintenance charges |
27,42,820 |
|
Discount |
1,871, 8,84,45,428 |
The assessee’s stand has been that with regard to the entire income from the complex, the same should be assessed under the head 'Business' since as the object behind pursuing the activity in the complex was with the view to carry on business activity and commercially exploit fixed assets deployed therein. The assessee also relied upon the following judicial decisions before the ld. CIT(A):
(i) DCIT vs. Manmit Arcade (P) Ltd. *Hon’ble ITAT, Bangalore+ 93 TTJ 463)
(ii) Sri Balaji Enterprises vs. CIT (1997) 140 CTR (Kar) 61
(iii) CIT vs. Bhoopalan Commercial Commercial Complex & Industries (P) Ltd. (2003) 183 CTR (Kar.) 275
(iv) S.G. Mercantile Corpn. (P) Ltd. vs. CIT 1972 CTR (SC) 8
(v) PFH Mall & Retail Management Ltd. vs. ITO, Ward 8(3), Kolkata (112 TTJ 523) (Honble ITAT, Kolkata)
(vi) ITO, Ward 19(3)(4), Mumbai vs. Shanaya Enterprises in ITA No.3648/M/2010 dated 30.06.2011 (Hon'bte ITAT, Mumbai)
(vii) Mukherjee Estates (P) Ltd. vs. CIT (244 ITR 1)
(viii) DCIT, Circle-3, Pune vs. Magarpatta Township Development & Construction Co. in ITA No.822/PN/2011 and C.O.No.04/PN/2012 dated 18.09.2012 (Hon'ble lTAT Pune)
(ix) CIT vs. Runwal Developers Pvt. Ltd. (Bombay High Court) (ITA No.4984, 4240 & 4241 of 2010)
(x) ACIT vs. Saptarshi Services Ltd. (265 ITR 379) (Guj)
(xi) CIT vs. Mohiddin Hotels (P) Lid. & Anr. (284 ITR 229) (Born.)
4. The Ld. CIT(A), however, has observed in the impugned order that the amenities provided by the assessee in the multiples were the normal facilities that were required to be provided in the building to make it fit for occupation by the tenant. He has further opined that certain other provisions/facilities viz. provision for firefighting equipments, sprinklers, hydrants, elevators etc. have been provided as required under rules and regulations of the local authority/municipal authority. He has further observed that even if certain cosmetic additions viz. false ceiling or glass facade etc. have been made to the building they are in the nature of cost incurred on the improvement of the building. The alleged amenities have no independent existence without the building which has been let out. He therefore held that the primary purpose of the assessee was to let out the building.
5. We have heard the rival contentions and have also gone through the records. The assessee is a partnership firm constituted by the partners for carrying out the business activity. The opening lines of the partnership deed, the copy of which has been placed on record, read as under:
“AND WHEREAS the abovementioned parties have decided to commence business in partnership as Construction of Real Estate, Multiplex Centre, Entertainment Complex, Commercial Centre, Marriage Hall, Restaurant, Builders and Land Developers and operation and management of Multiplex, Restaurant and Marriage Hall etc. and/or any other Business/Business mutually decided from time to time between the partners under the name and style of M/s. Shreeji Exhibitors with its place of business at Old S. No.677 (7A), New S.No.277, Near Timba Hospital, Fatak Road, Bhayander (West), Dist. Thane.401 101.’
(emphasis supplied)
Further the business activity of the assessee has also been explained under clause 3 of the deed,which read as under:
“3. Nature of Business:
The business of the partnership shall be that of Construction of Real Estate, Multiplex Center, Entertainment Complex, Commercial Center, Marriage Hall, Restaurant, Builders and Land Developers and operation and management of Multiplex, Restaurant and Marriage Hall etc. and/or any other Business/Business mutually decided from time to time between the partners.’
6. A perusal of the above reveals that not only the very purpose of formation of the assessee firm but also its objects specifically include the construction of Multiplex Center, Entertainment Complex, Commercial Center and their operation and management.
7. The otherwise undisputed facts of the case are that the assessee along with leasing of the premises is also earning substantial income from providing amenities and facilities. Such facilities are not the basic facilities required for occupation or renting of a building or premises, but these are the special facilities for running of the multiplex/ shopping mall and cinema theatre and food court etc. and are meant to attract the customers and provide comfort of shopping to them. These facilities can not be said to be basic/normal facilities required for occupation of the premises. The cost of common facilities has been embedded in the lease rentals whereas the assessee is also receiving substantial income for providing amenities/facilities to the occupants/tenants. The assessee’s activity thus can not be said to be mere letting of the building owned by it but its activity is a business activity of construction of mall, maintaining it, leasing the shops/ area for the purpose of commercial exploitation of the asset, arrange and provide the facilities and amenities not only to the occupants/lessees but also to provide and maintain facilities and amenities in the common areas for the attraction, convenience and comfort of the customers/visitors.
In our view, as per the modern day trends of retail business and customer preferences, not only the quantum of rent/income from the multiplex but also the very letting of the premises depends upon the provisions of facilities and amenities provided taking into consideration not only the need and requirements of the business entities/occupants but also the comfort zone of the customers/visitors. The activity of construction of multiplex and cinema theatre, its maintenance and providing amenities and facilities therein, thus can not be said to be mere letting out of the property but in our view is a composite business activity.
Merely because income is attached to a property it cannot be a sole factor for assessing such income as income from house property and it has to be seen that whether it was the primary objective of the assessee to exploit the property in a simple manner or to exploit it commercially i.e. to exploit it by way of complex commercial activities to arrive at the generation of income that could be taxed under the head income from house property or as income from business. If it is found that main intention is to simply let out property or any part of it, resultant income must be assessed as income from house property but if main intention is found to be exploitation of property by way of commercial activities, then resultant income must be held as business income.
8. The Hon'ble Supreme Court in the case of Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 has laid down the precise tests that are necessary to determine whether the services rendered by an assessee to its tenants/recipients of service, are in the nature of business activities and income generated therefrom assessable as business income, or not. The Hon'ble supreme Court has expressed the view that if the services rendered by the assessee are the results of its activities carried on continuously in an organized manner, with a set purpose and with a view to earn profits, those activities would constitute business activities and the income arising therefrom would be assessable as business income under section 28 of the Act.
The activities of the assessee in this case in providing the various services/facilities/amenities meet all the aforesaid four requirements laid down by Hon'ble Supreme Court to qualify as business activities.
9. In a very recent judgment, the Hon'ble Supreme Court in the case of “Chennai Properties & Investment Ltd.’ [2015] 373 ITR 673(SC) has noted that in its (Supreme court) earlier Judgment in the case of “Karanpura Development Co. Ltd. Vs. CIT’“ 44 ITR 362 (SC), the position of law on this issue has been summed up in the following words:-
"As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The diving line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned."
The Hon'ble Supreme Court thus has emphasized the professed objects and the manner of activities carried out by an assessee. It has also been pointed out that the nature of dealings with the property would also be factor to determine whether the activities fall for consideration under the head `'business income'' or "house property income". The Hon’ble Supreme Court thus noticed the aforesaid principle and applied the same to the facts of the case before it. The facts of the case before the Hon’ble Supreme Court were that as per the memorandum of association, the main objects of the appellant company was to acquire and hold the properties known as “Chennai House’ and “Firhavin Estate’ both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other properties or any interest therein. In the return that was filed, the entire income which accrued and was assessed in the said return was from letting out of those properties. The Hon’ble Supreme Court while relying upon its the various other decisions held that in such a case the irresistible conclusion would be that the letting of the properties was in fact the business of the assessee and the income arising therefrom was to be treated under the head “Income from Business’ and that it cannot be treated as income from House Property. What the Hon’ble Supreme Court emphasised upon was that the holding the aforesaid properties and earning income by letting out those properties was the main objective of the company.
The facts of the case of the assessee before us are on better footings. The assessee’s objects are not in respect of letting of any particular property, but it has the main objects of acquiring, constructing, operating and maintaining of the multiplexes, business center, marriage halls etc. The very object is the commercially exploitation of the properties. Besides that the assessee is also providing hosts of amenities and facilities, as discussed above, which amounts to composite business activity.
Thus the issue is squarely covered in favour of the assessee by the above noted decisions of the Hon’ble Supreme Court.
We therefore hold that the income/loss from the multiplex is liable to be assessed as “business income/loss and not as income from house property. The assessee consequently is also entitled to the claim of deductions in respect of expenditure incurred and depreciation on assets etc. in relation to such income.
ITA No.2196/M/2013
10. Since the facts and issues involved in this appeal are exactly identical except the figures of the amounts involved, hence, in view of our observations made above, this appeal of the assessee is also allowed in terms as noted above.
11. In the result, both the appeals are hereby allowed.
Order pronounced in the open court on 14.08.2015.
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