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2007 Supreme(Mad) 1722
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE P.D. DINAKARAN & THE HONOURABLE MR. JUSTICE P.P.S. JANARTHANA RAJA
M/s. A.R. Complex, No.69, Arcot Road, Valasaravakkam, Chennai & Another
Versus
Income Tax Officer, Ward III(1), Chennai
Tax Case (Appeal) Nos.75 of 2004 & 176 of 2004
Decided On : 12-06-2007
For the Appellants:D. Trilokchand Chopda, Advocate. For the Respondent: N. Muralikumaran, Sr. Standing Counsel.
The main legal point established in the judgment is the classification of income derived from a commercial complex as income from property, and the need for assessing officers to consider and apportion rental receipts for services provided under the appropriate heads.
Headnote:
Income Tax - Commercial Complex - Income Tax Act, 1961, Section 260A - 286 ITR 685 - The court held that income derived from the commercial complex is to be treated as income from property. The court also discussed the issue of apportionment of rental receipts for services provided and the applicability of income from business or other sources.
Fact of the Case:
The assessees, partnership firms, developed commercial complexes and let them out, claiming the income as business receipts. The assessing officer treated the rental income as 'income from house property', leading to appeals and substantial questions of law.
Finding of the Court:
The court found that the income from the commercial complex should be treated as income from property, citing a previous judgment. The court also directed the assessing officer to consider the details regarding the services provided and the amount received for the same, and to assess the receipt amounts derived from providing services under the head 'income from other sources' or 'income from business'.
Issues: The main issues were whether the income derived from the commercial complex should be treated as income from property or business, and whether the assessing officer should have apportioned the rental receipts for services provided.
Ratio Decidendi: The court relied on a previous judgment to hold that income from the commercial complex should be treated as income from property. The court also emphasized the need for the assessing officer to consider the details regarding the services provided and the amount received for the same, and to assess the receipt amounts derived from providing services under the appropriate heads.
Final Decision: The court decided in favor of the Revenue, holding that the income derived from the commercial complex should be treated as income from property. The court also directed the assessing officer to consider the details regarding the services provided and the amount received for the same, and to assess the receipt amounts derived from providing services under the appropriate heads.
P.P.S. Janarthana Raja, J.
These appeals are filed under Section 260A of the Income Tax Act, 1961 by the assessees, against the order of the Income Tax Appellate Tribunal, Bench D, Chennai in I.T.A. No.2005 & 2007 (Mds)/2002 dated 09.06.2003. On 04.02.2004, this Court admitted T.C.(A) No.75 of 2004 and formulated the following substantial questions of law:-
1. Whether the Tribunal is right in law in holding that the income derived from the commercial complex is to be treated as income from property?
2. Having found that the commercial complex is a business asset of the appellant, whether the Tribunal went wrong in holding that income from exploitation of a business asset is income from property?
On 15.04.2004, this Court admitted T.C.(A)No.176 of 2004 and formulated the following substantial questions of law:-
1. Whether the Tribunal is right in law in passing the impugned order without considering the case in the proper perspective and the submissions made?
2. Whether the Tribunal is right in holding that the income derived from the commercial
complex is to be treated as income from property?
3. Having found that the commercial complex is a business asset of the appellant, whether the Tribunal went wrong in holding that income from exploitation of a business asset is income from property?
4. Whether the assessment in the status of a firm is sustainable in law, there being no business income?
2. Both these appeals have been filed by two different assessees who are sister concerns for an identical issue. Hence we are taking up both these appeals and disposing the same by a common judgment.
3. The facts leading to the above substantial questions of law are as under:-
T.C.(A) No.75 of 2004:-
The assessee is a partnership firm and it came into existence on 1st day of April 1992. It consisted of five partners. The business of the assessee is developing, constructing commercial complex and running them as business centers and such other business as may be mutually agreed amongst the partners. The business also include providing occupants services in the nature of providing security, supervisor, sweeper etc., providing lighting in all common areas, water and sanitation facilities and maintain the building, the common areas, the overhead tank, sump 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 may be required by the occupants and agreed upon by both the parties from time to time. There is also a Service-cum-Lease Agreement entered by the assessee and the occupant on 1st of April 1997. The relevant assessment year is 1999-2000 and the corresponding accounting year ended on 31.03.1999. The assessee filed Return of income on 22.03.2000 admitting an income of Rs.3,850/-under the head "business". It is seen from the profit and loss account accompanying the Return that the entire receipts were only from rentals. The Assessing Officer was of the view that the rental income has to be treated as "income from house property" and not under the head "business" and hence notice under Section 148 of the Income-tax Act ("Act" in short) was issued on 211. 2000. The assessee firm by its letter-dated 112. 2000 stated that the Return filed on 22.03.2000 might be treated as the one filed in response to the notice under Section 148 of the Act. Later, notice under Section 143(2) was issued to the assessee on 012. 2000 requiring the assessee to appear on 112. 2000. The assessment was completed under Section 143(3) r/w Section 147 of the Act and assessed the rental receipts under the head "house property" and determined a total income of Rs.2,21,540/-. Aggrieved by the order the assessee filed an appeal to the Commissioner of Income-tax (Appeals). The C.I.T.(A) dismissed the appeal and confirmed the order of the Assessing Officer. Aggrieved, the assessee filed an appeal to the Income-tax Appellate Tribu
