I.t.a v. On The Other Hand, Learned Counsel For Theassessee/Respondent Invited Our Attention To The Relevantprovisions In The Act And Contended That The Amount

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI WEDNESDAY,THE 27TH DAY OF MARCH 2019 / 6TH CHAITHRA, 1941 ITA.No. 166 of 2016 AGAINST THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHINBENCH IN ITA NO.369/COCH/2013 DATED 06/06/2016 FOR THE ASSESSMENTYEAR 2009-10 APPELLANT/RESPONDENT/RESPONDENT/REVENUE THE COMMISSIONER OF INCOME TAXTHIRUVANANTHAPURAM BY ADVS.SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENTSRI.K.M.V.PANDALAI INCOME TAX DEPARTMENT RESPONDENT/APPELLANT/APPELLANT/ASSESSEE: M/S. OBERON EDIFICES & ESTATES (P) LTDTHE ARCADE, KARAMANA, TRIVANDRUM. BY ADVS.SRI.NEMISH NIRANJAN ZAVERISRI.SHERRY SAMUEL OOMMENSRI.SUKUMAR NAINAN OOMMEN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 20.03.2019,THE COURT ON 27.03.2019 DELIVERED THE FOLLOWING: 'C.R' C.K.ABDUL REHIM & R.NARAYANA PISHARADI, JJ. ************************** I.T.Appeal No.166 of 2016 ---------------------------------------------- Dated this the 27[th] day of March, 2019 J U D G M E N T R.Narayana Pisharadi, J Shopping is no longer mere purchasing products. Shopping malls have transformed what was once an activitymerely based on need and necessity to an experience ofenjoyment and entertainment. 2. What is the head of income – whether it be "income from house property" or "profits and gains of business" –under which the rental charges received by the assesseecompany on letting out the shop rooms in the mallconstructed by it is liable to be assessed under the IncomeTax Act, 1961 (hereinafter referred to as 'the Act')? This isthe substantial question of law that needs to be answered inthis appeal filed by the revenue. 3. The assessee is a company engaged in the businessof construction and promotion of residential and commercialcomplexes. The assessee constructed a shopping mall byname 'Oberon Mall' in Kochi in the property owned by itssister concern and let out the shop rooms. In the revisedreturn of income filed by the assessee on 06.04.2011(which was beyond the prescribed time) for the assessmentyear 2009-10, an amount of Rs.80,09,364/- received by iton letting out the shop rooms, was shown as income frombusiness. The assessing officer treated this amount asincome from house property and after deducting municipaltaxes and statutory benefit of 30%, computed tax on thebalance amount of Rs.54,41,293/- and passed assessmentorder dated 29.12.2011 under Section 143(3) of the Act. 4. The assessee challenged the assessment before theCommissioner of Income Tax (Appeals). But the appeal wasdismissed by order dated 27.03.2013. The assesseechallenged the aforesaid order before the Income TaxAppellate Tribunal. The Tribunal found that the disputedamount is business income of the assessee and allowed theappeal. The revenue has come up in appeal challenging the order of the Tribunal. 5. We have heard learned counsel for the appellant aswell as the respondent. 6. Learned counsel for the revenue has contended thatthe assessee had let out the rooms in the shopping mall andthe rental charges received by the assessee are liable to betreated as income from house property and not businessincome. Learned counsel would contend that the issue issquarely covered by the decision of this Court in AttukalShopping Complex Private Limited v. Commissioner ofIncome tax : [2003] 259 ITR 567 and also the decisionof the Hon'ble Supreme Court in Shambhu InvestmentPrivate Limited v. Commissioner of Income Tax :[2003] 263 ITR 143. Learned counsel for the revenue hasalso placed heavy reliance upon the decision of the ApexCourt in Raj Dadarkar v. Assistant Commissioner ofIncome Tax : [2017] 394 ITR 592 in support of hiscontention. 7. On the other hand, learned counsel for theassessee/respondent invited our attention to the relevantprovisions in the Act and contended that the amount 7. On the other hand, learned counsel for theassessee/respondent invited our attention to the relevantprovisions in the Act and contended that the amount received by the assessee by letting out the rooms in theshopping mall cannot be considered as income from houseproperty. Learned counsel would contend that letting outthe shop rooms in the mall amounts to commercialexploitation of the building constructed by the assessee andit is a part of the business activity of the assessee company.Learned counsel has cited a plethora of decisions in supportof his contentions. 8. Section 22 of the Act reads as follows: 9. "22. Income from house property.- The annual value of property consisting ofany buildings or lands appurtenant theretoof which the assessee is the owner, otherthan such portions of such property as hemay occupy for the purposes of anybusiness or profession carried on by himthe profits of which are chargeable toincome-tax, shall be chargeable to income-tax under the head 'Income from houseproperty''. A bare reading of Section 22 of the Act would show that, in order to attract that provision, the assesseemust be the owner of the building or the land appurtenantto it and he shall not be occupying it for the purpose of any business or profession carried on by him the profits of whichare chargeable to income tax. Section 22 of the Act itselfindicates that merely because a person is the owner of theproperty it does not follow that the income therefrom shouldbe assessed under the head “income from house property”.Exception is made in the Section itself for the portions ofthe property as may be occupied for the purpose ofbusiness or profession carried on by the assessee, theprofits of which are chargeable to income tax. 10. In Commissioner of Income Tax v. M/s Poddar Cement Private Limited : AIR 1997 SC 2523,the Hon'ble Supreme Court has held that, inspite of thesettled position that under the common law 'owner' meansa person who has got valid title legally conveyed to himafter complying with the requirements of law, in the contextof Section 22 of the Act, having regard to the groundrealities and further having regard to the object of theIncome Tax Act, namely, 'to tax the income', owner is aperson who is entitled to receive income from the propertyin his own right. Therefore, in the instant case, we are notconcerned whether the assessee is the real owner of the land in which the shopping mall is constructed. It is anadmitted fact that the assessee was entitled to receive therental charges of the shop rooms leased out and it hadreceived such charges. It follows that the assessee is theowner of the shop rooms let out, for the purpose of Section22 of the Act. 11. Now, the question arises whether letting out of theshop rooms in the mall by the assessee was part of itsbusiness activity or not. Section 9(i) of the Income Tax Act,1922 was substantially the same as Section 22 of the newAct. Dealing with the scope of Section 9 of the old Act, inSultan Brothers Private Limited v. Commissioner ofIncome Tax : AIR 1964 SC 1389, the Constitution Benchhas held that, whether a particular letting, is business hasto be decided in the circumstances of each case. Each casehas to be looked at from a businessman's point of view tofind out whether the letting was the doing of a business orthe exploitation of his property by an owner. 12. In Karanpura Development Company v.Commissioner of Income Tax : AIR 1962 SC 429, theApex Court has held that, in the case of a company with its 12. In Karanpura Development Company v.Commissioner of Income Tax : AIR 1962 SC 429, theApex Court has held that, in the case of a company with its professed objects and the manner of its activities and thenature of its dealing with its property, it is possible to findthe nature of its operations and to what head the income isto be assigned. A company formed with the specific objectof acquiring properties not with the view to leasing them asproperty but to selling them or turning them to accounteven by way of leasing them out as an integral part of itsbusiness, cannot be said to treat them as landowner but astrader. It has been held that in deciding whether a companydealt with its properties as owner, one must see not to theform which it gave to the transaction but to the substanceof the matter. 13. InKarnaniPropertiesLimited v.Commissioner of Income Tax : AIR 1972 SC 2315, thequestion referred to the High Court for its opinion waswhether on the facts and in the circumstances of the case,the Income Tax Appellate Tribunal was justified in holdingthat the services rendered to the tenants, by supplyingelectrical energy, hot and cold water and maintenance oflifts and other amenities, constituted a business activity ofthe assessee and as such the income arising therefrom was assessable under Section 10 of the Income Tax Act, 1922.The High Court answered the question in the negative andin favour of the revenue. The assessee took up the matterin appeal to the Apex Court. Allowing the appeal, the ApexCourt held that the services rendered by the assessee to itstenants were the result of its activities carried oncontinuously, in an organized manner, with a set purposeand with a view to earn profits and therefore, thoseactivities have to be considered as business activities. 14. In Universal Plast Limited v. Commissioner of Income Tax : AIR 1999 SC 1641, the Hon'ble SupremeCourt has held that no precise test can be laid down toascertain whether income (referred to by whatevernomenclature, lease amount, rents, licence fee) received byan assessee from leasing or letting out of assets would fallunder the head "profits and gains of business or profession"and that it is a mixed question of law and fact and has to bedetermined from the point of view of a businessman in thatbusiness on the facts and in the circumstances of each caseincluding true interpretation of the agreement under whichthe assets are let out. 15. In Raj Dadarkar (supra), the Apex Court hasheld that, merely because there is an entry in the objectclause of the business showing a particular object, it wouldnot be a determinative factor to arrive at a conclusion thatthe income has to be treated as 'income from business'. Ithas been held that such a question would depend upon thecircumstances of each case and the matter has to bedetermined on the facts of each case. 16. The decision of the Constitution Bench in Sultan Brothers (supra) was taken note of by the Apex Court inthe decision in Chennai Properties and InvestmentsLimited v. Commissioner of Income Tax : [2015] 373ITR 673. In that case, the main object of the assesseecompany, as stated in the memorandum of association, wasto acquire properties in the City of Madras and to let outthose properties. The assessee had rented out twoproperties and the rental income received thereby wasshown as income received from business in the return filedby it. The Apex Court observed that the assessee had noother income except the income from letting out the twoproperties. Upon considering the main object of the company, the Apex Court held that the income from rentought to be treated as business income. Brothers (supra) was taken note of by the Apex Court inthe decision in Chennai Properties and InvestmentsLimited v. Commissioner of Income Tax : [2015] 373ITR 673. In that case, the main object of the assesseecompany, as stated in the memorandum of association, wasto acquire properties in the City of Madras and to let outthose properties. The assessee had rented out twoproperties and the rental income received thereby wasshown as income received from business in the return filedby it. The Apex Court observed that the assessee had noother income except the income from letting out the twoproperties. Upon considering the main object of the company, the Apex Court held that the income from rentought to be treated as business income. 17. A conspectus of the decisions referred to abovemakes it evident that each case has to be considered on itsown facts to determine whether the income obtained byletting out property constitutes income from house propertyor business income. An owner of a commercial asset isentitled to exploit it to the best advantage. He may do soeither by using it by himself or by letting it out. Whether aparticular income received by the assessee as a result ofthe activities carried on by him is business income orrental income depends upon the manner of exploitationof the assets. In each case, the intention has to begathered as to whether the asset was intended to becommercially exploited by the assessee or whether it wasintended to be used by mere letting out. If it is found thatthe main intention is to simply let out the property or anypart of it, resultant income must be assessed as incomefrom house property. But if the main intention is found tobe exploitation of property by way of commercial activities,then resultant income must be held as business income. 18. In the instant case, in the memorandum ofassociation of the assessee company, the main objective ofthe company is stated as follows: "To carry on the business of builders andpromoters of residential and commercialcomplexes, to carry on the business ofconstruction of all type of industrial,commercial, residential and institutionalprojects and to purchase, construct and marketland, houses, flats, commercial complexes andreal estates and to act as agents anddistributors and suppliers and dealers ofbuilding materials, construction equipments,electrical and sanitary equipments." 19. Learned counsel for the respondent has made great emphasis on the aforesaid objective of the companystated in its memorandum of association. He has contendedthat the main business of the company is construction andpromotion of residential and commercial complexes andletting out of the shop rooms in the shopping mallconstitutes part of its business activity. 20. It is stated that the assessee company ismanaging and conducting the shopping mall. It is statedthat the company is actively engaged in the day to day operations and the management of the mall which includeshouse keeping services, customer support, technical andelectrical support, security, car parking facilities,maintenance of lifts and escalators etc. It is stated that theassessee is not merely a passive owner of the shopping mallwho has let out the rooms and who only collects the rent.It is also stated that the assessee has employed more than100 persons in the shopping mall for the operation andmanagement of the mall. 21. The Income Tax Appellate Tribunal has taken into 20. It is stated that the assessee company ismanaging and conducting the shopping mall. It is statedthat the company is actively engaged in the day to day operations and the management of the mall which includeshouse keeping services, customer support, technical andelectrical support, security, car parking facilities,maintenance of lifts and escalators etc. It is stated that theassessee is not merely a passive owner of the shopping mallwho has let out the rooms and who only collects the rent.It is also stated that the assessee has employed more than100 persons in the shopping mall for the operation andmanagement of the mall. 21. The Income Tax Appellate Tribunal has taken into consideration the fact that the assessee has exploitedimmovable property for commercial activities. The Tribunalhas observed that providing shopping facilities tocustomers is a commercial activity. The Tribunal has furthernoted that it is the responsibility of the assessee companyto maintain and upkeep the common areas in the mall andprovide the facilities in the mall. In such circumstances, theTribunal has found that the disputed income of the assesseeis from exploitation of the immovable property for businesspurposes and it is essentially business income. 22. Learned counsel for the revenue has not been able to show that the findings made by the Tribunal are in anyway perverse. The Income Tax Appellate Tribunal, being thelast forum in so far as factual determination is concerned,the findings made by it on factual aspects have to betreated as final, unless they are perverse. 23. Learned counsel for the revenue has placed heavy reliance upon the decisions in Attukal Shopping Complex(supra), Shambhu Investment(supra) andRajDadarkar (supra) and contended that the issue involved issquarely covered by these decisions. 24. In Shambhu Investment (supra), the Hon'bleSupreme Court has not laid down any dictum with regard tocharging of income to tax under any particular head. TheApex Court has only affirmed the decision of the CalcuttaHigh Court in Commissioner of Income Tax v. ShambhuInvestment Private Limited : [2001] 249 ITR 47, inwhich, on the facts of that case the High Court had heldthat the income of the assessee shall be treated as incomefrom house property. But, it is to be noted that the dictumlaid down by the Calcutta High Court in the aforesaiddecision is as follows: “What has to be seen is what is the primaryobject of the assessee while exploiting theproperty. If it is found applying such test thatthe main intention is for letting out theproperty or any portion thereof, the samemust be considered as rental income orincome from property. In case it is found thatthe main intention is to exploit the immovableproperty by way of complex commercialactivities, in that event it must be held asbusiness income”. The dictum laid down as above by the Calcutta High Court, which stands affirmed by the Apex Court, does not in anyway support the contentions of the revenue in the presentcase. Rather, the aforesaid dictum, on the facts andcircumstances of the present case, is in favour of theassessee. 25. Attukal Shopping Complex (supra) has dealt with a different fact situation. It was a case in which theassessee had purchased immovable property andconstructed shop rooms and let them out. The Income TaxAppellate Tribunal in that case found that the income of theassessee had to be divided as income from property andincome from business. The decision of the Tribunal was upheld by this Court. Therefore, the decision in AttukalShopping Complex (supra) cannot be found applicable tothe facts of the present case. which stands affirmed by the Apex Court, does not in anyway support the contentions of the revenue in the presentcase. Rather, the aforesaid dictum, on the facts andcircumstances of the present case, is in favour of theassessee. 25. Attukal Shopping Complex (supra) has dealt with a different fact situation. It was a case in which theassessee had purchased immovable property andconstructed shop rooms and let them out. The Income TaxAppellate Tribunal in that case found that the income of theassessee had to be divided as income from property andincome from business. The decision of the Tribunal was upheld by this Court. Therefore, the decision in AttukalShopping Complex (supra) cannot be found applicable tothe facts of the present case. 26.Learned counsel for the revenue has also placedheavy reliance upon the decision of the Apex Court in RajDadarkar (supra). In that case there was a clear findingmade by the Income Tax Appellate Tribunal that theassessee did not establish that he was engaged in anysystematic or organised activity of providing service to theoccupiers of the shops/stalls so as to constitute the receiptsfrom them as business income and on that basis theTribunal had found that the assessee received income byletting out shops/stalls and the income has to be treated asincome from house property. After taking note of theaforesaid findings made by the Income Tax AppellateTribunal, the Apex Court held that the Income Tax AppellateTribunal, being the last forum in so far as factualdetermination is concerned, those findings had attainedfinality and no effort was made to show that the aforesaidfindings were perverse. The Apex Court also took note ofthe fact that the assessee did not produce sufficient materials on record to show that its entire income orsubstantial income was from letting out of the propertywhich was the principal business activity of it. The situationin the present case is different. It is to be noted that in thepresent case, the finding of the Tribunal, which is the finalauthority on facts, is in favour of the assessee. 27. In the instant case, it is not a letting out ofproperty simpliciter, without anything more. A host ofservices are being provided by the assessee at the shoppingmall. The assessee is engaged in a complex set of activitiesat the shopping mall. Management of the shopping mall isdone by the assessee. The basic purpose is commercialexploitation of the property. The assessee has earned theincome not merely by letting out the shop rooms but alsoby providing amenities and facilities at the shopping mall.Such amenities and facilities are not the basic facilitiesrequired for occupation of a shop room by a tenant. Theyare the special facilities for running the shopping mall andare meant to attract the customers and provide them thecomfort and convenience of shopping. In cases where theincome received is not from the bare letting out the property but on account of the facilities and servicesrendered, the operations involved in such letting out is inthe nature of business and the income derived therefromhas to be treated as business income and not income fromproperty. The income derived by the assessee cannot beregarded as simply from the exercise of property right.Where the assessee company has developed the shoppingmall and let out the same by providing a variety of services,facilities and amenities in the mall, it can be found that theprimary intention of the assessee was commercialexploitation of the property and where it has derivedsubstantial part of its income by such activity, whichconstitutes its main business, the income so derived wouldbe business income of the assessee. We, therefore, agreewith the view of the Tribunal that the income derived by theassessee by letting out the shops in the mall has to beassessed as income from business and not as income fromhouse property. 28.On the basis of the discussion above, we findthat the amount received by the assessee company onletting out the shop rooms in the mall constructed by it has to be treated as business income and it has to be assessed to tax under the head ''profits and gains of business'' andnot under the head ''income from house property''. Thesubstantial question of law is answered in favour of theassessee and against the revenue. Consequently, the appeal is dismissed. No costs. (sd/-) C.K.ABDUL REHIM, JUDGE jsr (sd/-) R.NARAYANA PISHARADI, JUDGE True Copy PS to Judge