ITAT: Lease Rental from Commercial Complex Taxable as Business Income, Not House Property Income

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, ruled in favour of Akruti SMC Joint Venture for Assessment Year 2018-19 and rejected the Department’s appeal.

Akruti SMC Joint Venture was established to develop a project comprising a bus terminal and a commercial complex on MSRTC’s land. Under the agreement, the joint venture financed and constructed the entire project at its own expense. In exchange, it received the right to lease out the commercial portion of the complex and collect rental income for 30 years.

During the assessment proceedings, the AO noticed that the assessee had received lease rental income of approximately Rs. 9,94,49,213 but had not offered it to tax under the head “Income from House Property”. The AO took the view that the rental receipts were taxable as house property income and accordingly made an addition of about Rs. 9,87,57,515. The officer also noted that similar treatment had been given in certain earlier assessment years.

The assessee argued that it was not the owner of the property and that its entire activity was part of a business venture undertaken for the development and commercial exploitation of the project. According to the assessee, the rental income arose from its business operations and was therefore rightly offered under the head “Profits and Gains of Business or Profession“.

The CIT(A) accepted the assessee’s contention and deleted the addition. While doing so, the CIT(A) relied on earlier appellate orders in the assessee’s own case, where identical issues had already been decided in its favour. The Revenue challenged this decision before the Tribunal.

After considering all the facts and earlier judicial decisions in the assessee’s own case, the Tribunal observed that MSRTC continued to be the legal owner of both the land and the commercial complex. The assessee merely had the right to commercially exploit the property by leasing it out for a limited period of 30 years as compensation for constructing the project at its own expense. Therefore, the assessee could not be regarded as the owner or deemed owner of the property for taxation under the head “Income from House Property“.

The Tribunal referred to its earlier decisions in the same taxpayer’s case for Assessment Years 2009-10 and 2017-18. Since those cases involved the same development agreement and the same facts, the Tribunal had already ruled that the lease rental income should be taxed as business income and not as income from house property.

For AY 2018-19, the Tribunal noted that there was no change in the facts or the law. Therefore, following its earlier decisions, it saw no reason to take a different view.

As a result, the Tribunal upheld the order of the CIT(A), rejected all the Revenue’s objections, and held that the lease rental income earned by Akruti SMC Joint Venture should be taxed as business income.