FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal filed by the assessee. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax-33, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
2. The ground of appeal filed by the assessee reads as under:
On the facts and in law, the Ld. CIT(A) erred in upholding the rental income of Rs.41,80,000/- received from M/s Dezens Products, for display of commercial advertisement on the appellants’ undergoing real estate building project at Louis Mansion, Mahim, Mumbai to be in the nature of income from other sources, instead of income from house property as declared by the appellant, by holding the appellant to be not the owner of the said property, not appreciating that the appellant has obtained conveyance of the said property and is therefore owner of the Louis Mansion property at Mahim, Mumbai and the income is required to be assessed as ‘Income from House Property’ only.
3. Briefly stated, the facts are that the assessee is a partnership firm engaged in the business of builders and developers. During the course of assessment proceedings the Assessing Officer (AO) observed that the assessee had received hoarding charges of Rs.41,80,000/- from M/s Dezen Products (in short ‘DP’) for advertising display on boundary walls and the same was offered for taxation under the head “Income from House Property”. In response to a query raised by the AO to explain as to why the receipts on account of advertising display charges should not be assessed under the head “Income from Other Sources” instead of “Income from House Property”, the assessee filed a reply stating that the compound wall/building wall is an integral part of the building and it had satisfied all the conditions of section 22 of the Act to treat the rental income as “Income from House Property”. However, the AO was not convinced with the said explanation of the assessee for the reason that section 22 of the Act prescribes the following three conditions for taxing any income under the head “Income from House Property”-
(a) the property should consists of any building or land appurtenant thereto,
(b) the assessee should be the owner of the property,
(c) the property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to tax.
The AO further observed that the advertising display was made by the assessee with DP on 18.03.2009 whereas DP was allowed to erect G.I. Sheets Structure from the ground along with periphery/compound boundary of the re-developing property and a temporary advertising wrap can be amounted/put up/installed and be used for displaying commercial advertisement hoardings. Thus the AO observed that the assessee did not let out any building or land appurtenant thereto to the assessee but only provided some space of land to erect a G.I. Sheet for displaying advertisement/hoarding. Therefore, he held that the receipt of hoarding charges was not in the nature of income from house property. Thus the AO brought to tax the hoarding charges of Rs.41,80,000/- under the head “Income from Other Sources”.
4. In appeal, the Ld. CIT(A) observed that the ownership of the said property at Louis Mansion, Mahim consisting of the buildings and the land appurtenant belong to the society only and not with the appellant. As per him the appellant has got limited re-development rights over the property as a result of entering into re-development agreement and it does not have exclusive bundle of rights associated with the ownership of the property i.e. right to posses, right to use and enjoy, right to manage, right to its income and right to alienate the said property. As per the Ld. CIT(A) these rights are vested with the Society only and even the advertisement display agreement specified the appellant as the “developer” of the property and not “owner” of the property. Referring to the audit report, the Ld. CIT(A) observes that the appellant was a developer instead of being owner. Therefore, the Ld. CIT(A) came to finding that the appellant cannot be treated as “owner” for the purpose of annual let out value of the property, including land appurtenant for display of commercial advertisement on the compound boundary of the project at Louis Mansion, Mahim to DP and therefore, the income is to be charged under the head “Income from Other Sources”. Thus the Ld. CIT(A) confirmed the order of the AO in treating the hoarding charges of Rs.41,80,000/- received from M/s Dezens Products under the head ‘Income from Other Sources’.
5. Before u/s the Ld. counsel of the assessee submits that the appellant is the “owner” of the concerned property at Louis Mansion, bearing F.P. No. 1224-A of TPS-IV at Mahim, Mumbai. As per him, this is evident from a copy of conveyance agreement dated 01.04.2005, enclosed at page No. 73 to 86 of the paper book (P/B) filed. Therefore, it is stated that as the appellant is the “owner” of the concerned property, the cause for denial of deduction u/s 24 of the Act is legally unjustified. In this regard reliance is placed by him on the decision in Niagara Hotels & Builders (P.) Ltd. v. CIT 60 taxmann.com 83 (Delhi) (2015), Matru Ashish Co-operative Housing Society Ltd. v. ITO 144 TTJ 446 (Mum) (2012), Kohinoor Industrial Premises Co-operative Society Ltd. v. ITO 173 ITD 263 (Mum) (2018), Citi Centre Premises Co-op. Society Ltd. v. ITO, ITA No. 3029 & 3030/Mum/2018 by SMC Bench, ITAT, Mumbai dated 01.02.2019.
6. On the other hand, the Ld. DR submits that the assessee did not let out any building or land appurtenant thereto to the lessee but only provided some space of land to erect a G.I. Sheet for displaying advertisement/hoarding. Referring to the fact that the assessee received hoarding charges of Rs.41,80,000/- from DP for advertising display on boundary walls only, the Ld. DR submits that the Ld. CIT(A) has rightly confirmed the same as income from other sources.
7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. A perusal of the conveyance agreement dated 01.04.2005 (page 73 to 86) of the P/B filed by assessee clearly indicates that the appellant is the “owner” of the concerned property at Louis Mansion, bearing F.P. No. 1224-A of TPS-IV at Mahim, Mumbai. The above documents were also filed before the AO. The appellant had obtained development rights of the re-development project at Louis Mansion, Mahim and therefore, is the owner of the re-development rights of the said society. The provisions of section 22 of the Act, defining income from house property reads as under:
“22. The annual value of property consisting of any building or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purpose of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head “Income from house property”.
In the case of Niagara Hotels & Builders (P.) Ltd. (supra), the assessee company was absolute owner of a terrace floor. It entered into an agreement with a telecom company and gave said floor on license as space for mounting tower and antenna. The assessee claimed the amount of license fee as ‘Income from House Property’. The AO opined that since the property was reflected as ‘commercial asset’, income derived there from was to be assessed as business income. The Hon’ble High Court held that :
“The crucial test was as to whether the letting out has a definite nexus with the business of the assessee. In the opinion of instant court the approach of both the Assessing Officer and the Tribunal in the case at hand has been totally misdirected. Wrong classification of the licensed space in the books of account as stock-in-trade cannot change the character of the transaction concerning its eventual exploitation. The use of the expression ‘leave and license’ in the agreement entered with ‘A’ Ltd. (Telecommunication) may be debatable. The fact remains that the use of the terrace floor has been handed over to the licensee not only for setting up the tower/mast on which antenna was to be mounted but also for construction of a room where the watch/ward staff can be stationed and space used for storage purposes.”
Similar view has been taken in the order of the Tribunal in the case of Matru Ashish Co-operative Housing Society Ltd. (supra), Kohinoor Industrial Premises Co-operative Society Ltd. (supra), Citi Centre Premises Co-op. Society Ltd. (supra).
As the appellant in the instant case is the “owner” of the concerned property at Louis Mansion at Mahim, Mumbai as evident from the conveyance agreement dated 01.04.2005, following the ratio laid down in Niagara Hotels & Builders (P.) Ltd. (supra), we hold the rental income of Rs.41,80,000/- received from M/s Dezens Products as income from house property and direct the AO to allow deduction u/s 24 of the Act.
8. In the result, the appeal is allowed.