ORDER
Per K.C. Singhal, Judicial Member. - Though various grounds have been raised in this appeal, the substance of these grounds is whether the income from running of the business centre should be assessed as business income or under the head 'Income from house property' or 'Income from other sources'.
2. Briefly stated, the facts are these. The assessee was running business centres in the names of two proprietary concerns viz., Mehta Business Centre and Pravhar Business Centre. All the receipts and expenditures were routed through the Profit & Loss Account and the net amount was offered as business income. The assessee declared the business income at Rs. 50,49,590. In the course of the assessment proceedings, it was noted by the Assessing Officer that the property in which business centre was carried on under the name and style of 'Mehta Business Centre' was owned by the assessee while the property in which the business centre was run under the name and style of 'Pravhar Business Centre' was taken on lease by the assessee. The receipts credited to Profit & Loss Account represented the amount received by the assessee from its customers for using the space of the assessee along with other facilities which were shown as service charges. The assessee was asked to explain as to why the gross service charges received by it should not be taken into consideration for computing the income under the head 'Income from house property' since the source of the receipt was from letting out of the house property. The explanation of the assessee as noted by the Assessing Officer at page 2 of the assessment order was "the primary intention is to rent various business service centre facilities and incidentally the premises are allowed to be used. As such, the assessee is providing business centre services and not falling in the category of letting out the premises. The premises is allowed to be used or occupied incidentally for the purpose of utilising the business service facilities. Thus, in the circumstances of carrying on the business of service centre, the assets get commercially exploited. Since, the income arising from commercial exploitation of the premises, the income arising therefrom has been offered for taxation as business income".
3. The above explanation of the assessee was rejected by the Assessing Officer. According to him, the assessee was the owner of the house property which had been let out to others for their use. The income arising therefrom by way of service charges, or by whatever name it is called is in the nature of rent, the genesis of which emerged from the ownership of the property let out. He also referred to the provisions of section 14 of the Income-tax Act, 1961 ('the Act') which classifies the heads of income under which total income is to be computed. He also referred to provisions of section 22 of the Act which provide that annual value of the property of which assessee is the owner shall be chargeable to tax under that head. Since the assessee was owner of the property, it was held by him that receipt arising from letting out of the property was assessable under the head 'Income from house property'. Regarding the receipt received from subletting the premises, it was held that the income therefrom was to be assessed under the head 'Income from other sources' since the assessee was not the owner of the property. It was further observed that service charges received with reference to the sublet premises was assessable under the head 'Income from other sources'. However, regarding service charges relating to owned property, it was held to be assessable under the head 'Income from house property' since entire amount was composite in nature. Reliance was placed on the decision of hon'ble Supreme Court in the case of Shambhu Investment (P.) Ltd. v. CIT [2003] 263 ITR 143 . Accordingly, the entire gross receipts in respect of owned property was assessed under the head 'Income from house property' while the gross rent in respect of sublet property was considered under the head 'Income from other sources' and remaining receipts were considered under the head 'Income from house property'.
4. The matter was carried in appeal before the CIT (A) before whom it was submitted that it was not a case of mere letting out of the immovable property but the property was exploited for providing various services and use of the property was incidental. The copy of the agreement was furnished before the CIT (A) to point out that the following features emerged from the agreement :
"(i)
The centre is operating at the centre premises for offering various business services/facilities on what is commonly known as business centre.
(ii)
In view of the other side being desirous of availing itself of the services thus offered by the centre at the centre premises, the parties have entered into an agreement.
(iii)
Under the agreement the appellant has granted to the company permission to use the services offered by him as a business centre services/facilities.
(iv)
For that purpose the company is allowed to occupy a particular portion of the premises.
(v)
The services offered are of use of office furniture like tables, chair, fans, etc., as also electric and electronic installations like air-conditioners, telephone, fax machine etc.
(vi)
Certain services are jointly given to all the persons who enter into similar agreements. The services are offered by the centre for an aggregate period of certain weeks.
(vii)
The customer is provided with air-conditioner, telephone system, fax machine, tube-lights, tables, electric call bells etc.
(viii)
In addition to the above mentioned items provided by the centre, the centre also provides office-
cum-reception room of the centre premises, one receptionist's desk with a chair, a telephone operator and two telephone connections.
(ix)
The centre also provides one peon and one sweeper and for maintenance supervisor for the purpose of cleaning the centre premises.
(x)
A waiting room of the premises is also allowed to be used.
(xi)
For all the services to be rendered the customer has to pay by way of service charges.
(xii)
It is specifically declared that the company will be allowed to occupy the premises and it is hereby expressly agreed by and between the parties hereto that none of the provisions contained herein shall be construed as giving tenancy rights."
In support of his contention, the assessee relied on the decision of hon'ble Supreme Court in the case of Sultan Bros. (P.) Ltd. v. CIT [1964] 51 ITR 353 . It was further submitted that it is the intention of the assessee which is to be seen in deciding the issue as held by the hon'ble Calcutta High Court in the case of CIT v. Shambhu Investment (P.) Ltd. [2001] 249 ITR 47 which has been affirmed by the hon'ble Supreme Court in Shambhu Investment (P.) Ltd. v. CIT [2003] 263 ITR 143 . It was also submitted that in the earlier years the income from such business centre was assessed as 'business income' and, therefore, rule of consistency should be followed. For this proposition, reliance was placed on the decision of hon'ble Delhi High Court in the case of Commissioner Of Income-Tax v. Neo Poly Pack (P.) Ltd. [2000] 245 ITR 492 .
5. After considering the submissions of the assessee in the light of the agreement placed before him, the CIT (A) was of the view that the assessee had essentially let out office premises (though certain charges were also collected for certain services. According to him, the facts of the case of the assessee are identical to the facts of the case before the hon'ble Supreme Court in the case of Shambhu Investment (P.) Ltd. (supra). Therefore, the receipts arising from the letting out of the owned property was assessable under the head 'Income from house property'. It was also held by him that no complex or specialised services had been provided by the assessee. According to him, the term 'complex' is equated with specialised services as stated in the case of National Storage Ltd., or those in a hospital building, theatre, etc. According to him, mere provision of bare minimum furniture would not amount to any specialised services. He also rejected the contention of the assessee regarding rule of consistency on the ground that each year is a different year. The order of the Assessing Officer was, therefore, confirmed by him. Aggrieved by the same, the assessee is in further appeal before the Tribunal.
6. The learned counsel for the assessee has submitted before us that the intention of the assessee is not to let out the building or any part thereof but the intention is to provide space along with other facilities to its customers for their use for a specified period. It was also submitted that it is not a case where the property is let out to the other parties as a permanent lessee. According to him, the space in property is given on short-term basis subject to availability of space and the customers keep on changing from time to time. In support of this submission, he has placed a chart before us which reveals that certain spaces in the building whether owned by the assessee or taken on lease were provided to different customers for small periods. It reveals that the charges are per week and in some cases, it is per month also. He also referred to the services provided by the assessee which have been noted by the CIT (A) in his order. Therefore, it was pleaded that the decision of the hon'ble Supreme Court in the case of Shambhu Investment (P.) Ltd. (supra) is distinguishable on facts. On the contrary, the legal position laid down by hon'ble Calcutta High Court in the said case supports the assessee. In response to a Bench query, it was explained that the two units of the assessee were centrally air-conditioned while the other unit known as Nirma Plaza was not central air-conditioned. According to him, it is not a mere letting out of building or furniture but it is a case of providing various facilities. He drew our attention to the fact that a receptionist is provided to attend the customers. The telephone operator is there to receive and connect the telephone calls of the customers. Various staff is employed who are engaged in the upkeep of the premises used by the customers. Common waiting room attached with all facilities is provided which can be used for receiving the guests. The ultimate control over the premises is with the assessee as keys of the centre always remain with the assessee. Certain common facilities are also provided to the customers like central air-conditioning in two of the three business centres. Accordingly, it is pleaded that the intention of the assessee is to run the business centre by exploiting the property and, therefore, income therefrom should be held to be assessable as business income. Lastly, he drew our attention to the infirmity in the assessment order to the effect that even the service charges in respect of leased property have been treated as 'income from house property' even though in the main body of the order, the Assessing Officer held it to be 'income from other sources' and thus, the expenditure incurred for earning service charges in respect of these properties has been denied. On the other hand, the learned DR has relied on the reasonings given by the lower authorities and the judgment of hon'ble Supreme Court in the case of Shambhu Investment (P.) Ltd. (supra).
7. Rival submissions of the parties have been considered carefully. The question for our consideration is whether the income accruing to the assessee should be assessed as 'business income' as claimed by the assessee or partly as 'income from house property' and partly as 'income from other sources' as held by the Assessing Officer. At the outset, we may mention that the Assessing Officer has committed a mistake in computing the income arising from sublet property inasmuch as service charges received have been considered under the head 'Income from house property'. Having held that gross receipts received in respect of sublet property is chargeable to tax under the head 'Income from other sources', the Assessing Officer could not consider the same under the head 'Income from house property'. Thus, the expenditure related to such charges stood disallowed. This mistake needs rectification if it is held that such charges are assessable under the head 'Income from other sources'.
8. Now let us adjudicate the real issue. Whether a receipt is a business receipt or a receipt from mere letting out of an immovable property would depend on the facts of the case. If the property, whether furnished or unfurnished, is let out with the intention to have rental income, it would be assessable as 'income from house property' as held by the Apex Court in the case of Shambhu Investment (P.) Ltd. (supra). On the other hand, if the primary object is to exploit the property by 'complex' commercial activities, then income from the same should be considered as business income. This test has been laid down by the hon'ble Calcutta High Court in the case of Shambhu Investment (P.) Ltd. (supra) which has been approved by the Apex Court (supra). The relevant observations of the hon'ble High Court are being reproduced as under :
"Merely because income is attached to any immovable property, that cannot be the sole factor for assessment of such income as income from property. If the main intention of the assessee is to let out the property or any portion thereof the income must be considered as rental income or income from property whereas if the primary object is to exploit the immovable property by way of complex commercial activities in that event it must be held as business income."
9. The legal position laid down in the above case is binding on us. However, on facts, we find that the facts of the present case are different from the facts before the hon'ble Supreme Court in the case of Shambhu Investment (P.) Ltd. (supra). In the case before the hon'ble Supreme Court, the assessee had let out the furnished accommodation without any other facilities. However in the present case, various facilities are provided as noted by the CIT (A) as well as by us in this order such as, receptionist and a telephone operator to attend the customers and their telephone calls, use of common waiting/guestroom with attached toilets etc., for use of the customers and guests of the customers, use of central air conditioning, services of attendants, sweeper, etc., use of telephone and fax machine and furniture, etc. Further, ultimate control over the premises is with the assessee. Further, there is no intention of mere letting out the property and earn the rental income since customers keep on changing from time to time. The space is provided to the customers on weekly/monthly basis for carrying out their work of assignment or for completing the specific work. A business centre has a peculiar characteristic. In big cities, there is always shortage of space. Even the businessman for carrying out some specific work requires temporary space where business like facilities are provided. Even hotels are used for such purposes. To meet out such requirement, some businessmen open business centres where space is provided for temporary period along with business like facilities. For example, space is provided for holding conferences, exhibitions, seminars, etc. Sometimes, space is provided for weeks/months so that the customers may complete their assignment during that period. For example, a foreign enterprise may hire such premises for providing training to its constituents or to certain other persons. Sometimes, a businessman may require the space for carrying out some project which may be completed in few months. There are only illustrations to prove the point that temporary space is provided by business centres to suit the requirement of their customers. Sometimes, there may be no customer and space may remain vacant. In such cases, the activity is to run business centre as a commercial activity like hotels and hospitals and use of the property is incidental to carrying on such business activity. Section 22 of the Act specifically excludes those cases where property is used for business purposes. Therefore, considering the facts of the case, we are of the view, that the object of the assessee is to run the business centre by exploiting the property and not mere letting out the property. Consequently, the receipts from such activity must be considered as business receipts. Accordingly, we hold so.
10. The view taken by us is fortified by the decision of hon'ble Gujarat High Court in the case of Assistant Commissioner Of Income-Tax v. Saptarshi Services Ltd. [2004] 265 ITR 379 . In that case, one 'K' had leasehold rights over a land on which part construction was done. 'K' subleased the property to the assessee under which the assessee could develop the said property into a business centre. After developing the said property, the assessee carried on the business as business centre by providing the following services :
(a)
Services of lift;
(b)
Services of receptionist to greet the visitors of members and accept the message on behalf of the members;
(c)
Telephone services for directing the calls;
(d)
Secretarial services/assistance like steno services;
(e)
Data processing and word processing facility;
(f)
Conference room facility; and
(g)
Message service and local transport facility.
The assessee declared the income as business income while the Assessing Officer treated the same as 'income from house property'. The Tribunal found that assessee was not the owner of the property and therefore, question of assessing the income as 'income from house property' did not arise. Further, it was found that charges received by the assessee were not only for space but also for various commercial activities and therefore, income was assessable as business income. On appeal, the High Court held that no question of law arose from the order of the Tribunal.
11. In view of the above discussion, the order of the CIT (A) is set aside and consequently, the Assessing Officer is directed to compute the income under the head "Profits and gains from business or profession."
12. In the result, appeal of the assessee is allowed.