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| DATE: | July 5, 2011 (Date of publication) |
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| Click here to download the judgement (shanaya_rental_income_house_property_business.pdf) |
Property Rental assessable as “business profits” if commercial activities carried out
The assessee let out its studio to production houses for shooting TV serials etc and offered the hire charges to tax as “business income”. The AO relied on Sultan Brothers vs. CIT 51 ITR 353 (SC) & CIT vs. Shambhu Investments 263 ITR 143 (SC) and held that as the “main intention” was letting out of property, the hire charges was assessable as “Income from house property“. The AO noted that TDS on the hire charges was deducted u/s 194-I. On appeal, the CIT (A) reversed the AO on the ground that the assessee had “exploited the property by way of commercial activity” and the receipts constituted “business income“. On appeal by the department to the Tribunal, HELD dismissing the appeal:
(i) The law laid down in CIT vs. Shambhu Investment 249 ITR 7 (Cal) approved in 263 ITR 143 (SC) is that merely because income is attached to immovable property cannot be the sole factor for assessment of such income as income from property. What has to be seen is the primary object of the assessee while exploiting the property. If the main intention is to let out the property, the income is assessable as “income from house property” while if the main intention is to exploit the immovable property by way of complex commercial activities, the income is assessable as business income {Sultan Brothers 51 ITR 353 (SC) explained as not being in conflict with Shambhu Investments 263 ITR 143 (SC)};
(ii) On facts, the case was not one of simplicitor renting of premises but there was significant value addition to the premises by providing all incidental and support services to facilitate cine shooting and related activities. The assessee had exploited the property by way of “complex commercial activities”. It was a “commercial adventure” involving marketing and promotions as also appropriate improvisations on a case to case basis. Accordingly, the hire charges were assessable as “business profits”. The fact that tax was deducted u/s 194-I was irrelevant.
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