ACIT-24(1), MUMBAI, PIRAMAL CHAMBER V. AKRUTI SMC JOINT VENTURE, MUMBAI

ITA 4567/MUM/2025

AI Insights

The case involves Akruti SMC Joint Venture, which is engaged in project development and had entered into lease agreements showing lease income as business income. The AO reclassified this income under 'Income from House Property' and 'Income from Other Sources', which was contested by the assessee. The CIT(A) reversed the AO's decision, leading to the revenue's appeal to the Tribunal. The Tribunal, referencing a similar case and the specific terms of the agreements, upheld the CIT(A)'s decision, affirming that the income should be treated as business income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 792568 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Appeal Filed On: 17-07-2025
• Other Referred Cases: CIT Vs. M/s Ansal Housing leasing finance Co Ltd (354 ITR 180), Raj Dadarkar & Associates Vs. ACIT (2017) 81 taxmann.com 193 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDRA MOHAN
• Assessee Lawyers: NEELKANTH KHANDELWAL
• Keywords: Business income
• Section: 27

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, VP & MS PADMAVATHY S, AM I.T.A. No. 4567/Mum/2025 (Assessment Year: 2017-18) ACIT-24(1), Room No. 601, 6th Floor, Piramal Chambers, Lalbaug, Parel, Mumbai-400012. Vs. Akruti SMC Joint Venture, 101, Akruti SMC, LBS Marg, Khopat, Thane (West), Mumbai-400601. PAN: AAAAA7862R Revenue) : Assessee) Revenue by : Shri Surendra Mohan, Sr. DR Assessee by : Shri Neelkanth Khandelwal (Virtually appear) Date of Hearing : 18.11.2025 Date of Pronouncement : 02.12.2025 O R D E R Per Padmavathy S, AM: This appeal by the by the revenue is against the order of the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC), Delhi [In short 'CIT(A)'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 02.04.2025 for Assessment Years (AY) 2017-18. The revenue raised the following grounds of appeal: Printed from counselvise.com 2 ITA No. 4567/Mum/2025 Akruti SMC Joint Venture “1. On the facts and circumstances of the case and in law, Ld.CIT(A) has erred in deleting the amount of service charge received of Rs. 5,82,66,180/- without appreciating the fact the AO has taxed the same amount under the head income from other source as against the business head claimed by the assessee.\" 2. On the facts and circumstances of the case and in law, Ld CIT(A) has erred in passing vague order by allowing the appeal of the assessee without discussing the merits of the case. 3. On the facts and circumstances of the case and in law. Ld CIT(A) has erred in ignoring the fact that as per the section 27(iiib) of the Act, the assessee is a 'deemed owner of the property as the lease period is for a term of 30 years(more than 12 years) and hence is covered under the scope of 'transfer' as defined by the provisions of section 27(iiib) r.w.s. 269UA(f) and therefore the rent income derived from the same has to be offered and taxed as income from house property and not business income.” 2. The assessee is an AOP- Joint Venture and engaged in the business of project development. The assessee filed the return of income for AY 2017-18 on 02.11.2017 declaring a loss of Rs. 24,81,025/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The AO noticed that the assessee has entered into lease agreements with various parties and has shown the lease income as Business Income. The total lease income consists of the rental income of Rs. 2,26,87,764/- and service charges of Rs. 5,82,66,180/-. The AO issued a show cause notice to the assessee as to why the income cannot be taxed under the head \"Income from House Property\". The assessee submitted that the it is engaged in the business of development of properties and had constructed and operating a business premises in Thane since 2008. The assessee further submitted that in lieu of the terms of contract entered into with MSRTC, the assessee had been granted permission to use the commercial premises for 30 years to recover the costs incurred by it to construct the business premises. The assessee also submitted that it is earning its income and recovering its cost through the business Printed from counselvise.com 3 ITA No. 4567/Mum/2025 Akruti SMC Joint Venture of leasing of the commercial property and providing interconnected embedded services by way of operating and maintenance of business premises. The assessee accordingly submitted that the lease rental income earned towards rendering complex commercial services is offered to tax as business income. The AO did not accept the submissions of the assessee and held that the income earned by the assessee is to be taxed under the head \"Income from House Property\". The AO relied on the decision of Hon'ble Delhi High Court in the case of CIT Vs. M/s Ansal Housing leasing finance Co Ltd (354 ITR 180) in this regard. The AO treated the lease income as \"Income from House Property\" and the service charges as \"Income from Other Sources\" to make addition accordingly. Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) deleted the additions made by the AO on the ground that the issue is covered by the order of the CIT(A) in assessee's own case for AY 2009-10 to AY 2014-15 and by the order of the Co- ordinate Bench for AY 2009-10. The revenue is in appeal before the Tribunal against the order of the CIT(A). 3. We heard the parties and perused the material on record. We notice that this is a recurring issue in assessee's case and the Co-ordinate Bench while considering the identical issue for AY 2009-10 (ITA No. 3968/Mum/2014 dated 28.12.2018) and held that “8. Briefly stated, the core issue involved in the present appeal pertains to recharacterization of the „rental income‟ and „service charges‟ received by the assessee JV and shown by it under the head “business income”, as income from “house property” and “income from other sources”, respectively, by the A.O. The genesis of the issue under consideration is that an “Agreement to develop”, dated 18.03.2012 was entered into between “Maharashtra State Road Transport Corporation” (for short “MSRTC”) and M/s SMC Infrastructure Pvt. Ltd., wherein the latter was granted development rights for the construction of a bus station and a commercial complex along with necessary infrastructure on a portion of land situated at the junction of LBS Marg and Pokhran Road No. 1, Thane. As per the Printed from counselvise.com 4 ITA No. 4567/Mum/2025 Akruti SMC Joint Venture said agreement M/s SMC Infrastructure Pvt. Ltd. was to develop this land by constructing at its own cost and expense the bus station building as well as infrastructure for MSRTC, and in consideration was to be awarded the right to construct a commercial complex building and to lease out the same to the prospective lessees for a period of 30 years. M/s SMC Infrastructure Pvt. Ltd. in terms of the agreement constructed the bus station building. Subsequently, M/s SMC Infrastructure Pvt. Ltd. entered into a „Joint Venture Agreement‟ (for short “J.V agreement”), dated 30.04.2006 with M/s Arnav Properties Pvt. Ltd, which specified that the project of construction and development of the commercial complex building would be executed and carried out by the said joint venture under the name of Akruti SMC, J.V i.e the assessee. The said J.V agreement between the assessee and M/s Arnav Properties Pvt. Ltd. was ratified by MSRTC. In sum and substance, the assessee i.e Akruti SMC, J.V came into being for the express purpose of construction and commercial exploitation of the commercial complex that was to be built by it. As per the terms of the „Agreement to develop‟, dated 18.03.2012 between MSRTC and M/s SMC Infrastructure Pvt. Ltd., the developer after constructing the bus station building and the commercial complex alongwith the required infrastructure was to hand over the same to MSRTC free of cost within 30 months of the date of the notification of award. As per the „Agreement to develop‟ the ownership of the property developed by SMC/Akruti would continue to remain vested with MSRTC, as lessor, and the developer, who though was entitled to lease the commercial space developed for a period of 30 years, was however in no way to be construed as the owner of either the land or the building. Apart therefrom, the exploitation of the commercial complex developed by the developer by leasing the same and enjoying the lease income was for a period of 30 years, after which the lessee/sub-lessee were to hand over the peaceful and vacant possession of the premises in good working condition to the lessor viz. MSRTC. In essence, while for the ownership of the land as well as the commercial space developed on the same remained vested with the lessor viz. MSRTC, while for the developer viz. Akruti SMC J.V which had came into being for the express purpose of construction and commercial exploitation of the commercial complex built by it was vested with the limited rights of leasing the commercial space developed by it for a period of 30 years, after expiry of which period the peaceful and vacant possession of the premises was to be delivered to the lessor viz. MSRTC. 9. We have perused the relevant clauses of the „Agreement to develop‟, dated 18.03.2012 that was entered into between MSRTC and M/s SMC Infrastructure Pvt. Ltd. As observed by us hereinabove, it is discernible from the agreement that the lessor viz. MSRTC would continue to be the owner of both the land and the commercial space developed on it by the developer, while for the developer would Printed from counselvise.com 5 ITA No. 4567/Mum/2025 Akruti SMC Joint Venture remain vested with the limited right to lease the commercial space developed for a limited period of 30 years. After the expiry of the period of 30 years the lessee/sub- lessee were to deliver the peaceful and vacant possession of the premises in good condition to the lessor viz. MSRTC. We have deliberated at length on the observations of the CIT(A) in context of the issue under consideration and are persuaded to subscribe to his view that the lease income enjoyed by the assessee J.V by commercially exploiting the commercial space developed by it for a period of 30 years was rightly shown by it as its „business income‟. On a perusal of the facts, we find that the assessee viz. Akruti SMC, J.V was not the owner of the commercial complex but after constructing the MSRTC project at its own cost was collecting the rent/lease in lieu of the terms of the “Agreement to develop”, which allowed it to commercially exploit the said premises for a period of 30 years. The aforesaid facts are clearly discernible from a perusal of Clause 28.1 of the „Agreement to develop‟, dated 18.03.2012. As per the said clause the developer was to complete the project at its own cost, and in lieu thereof it was entitled to lease the commercial space so developed by it, subject to the provision that the title of the land and the building thereon shall always remain with the lessor viz. MSRTC. We are of a strong conviction that mere enjoyment of the rent/lease by the developer san the ownership of the property viz. commercial complex developed by it could not have been brought to tax under the head “Income from house property”. As per Sec. 22 of the I.T Act, it is only where the assessee is the “Owner” of the property that the „annual lettable value‟ of the same can be brought to tax in his hands under the head “Income from house property”. We find that the assessee developer viz. Akruti SMC J.V who is only in receipt of the rent/lease in terms of the „Agreement to develop‟, dated 18.03.2012 in lieu of consideration for constructing the project for MSRTC at its own cost does not fit in the definition of the “Owner” as contemplated in Sec. 27 of the I.T Act. We thus are of the considered view that as the assessee was not the owner of the property under consideration, therefore, the rent/lease received therefrom could not have been assessed in its hands under the head „Income from house property‟. We shall now advert to the aspect as to whether the assessee was right in law and the facts of the case in subjecting the rent/lease income to tax as its „business income‟. As observed by us hereinabove, the assessee viz. Akruti SMC, J.V had came into being as per the Joint venture agreement, dated 30.04.2006 for the express purpose of construction and commercial exploitation of the commercial complex built by it for MSRTC. We are of the considered view that as the „Agreement to develop‟, dated 18.03.2012 which formed the foundation for the construction and subsequent leasing out of the commercial complex clearly demonstrates that the said activity was entered into by the assessee as a part and parcel of the business for which the Joint venture viz. Akruti SMC, J.V was formed, thus the rent/lease received by the Printed from counselvise.com 6 ITA No. 4567/Mum/2025 Akruti SMC Joint Venture assessee pursuant to exploitation of the commercial complex constructed by it for MSRTC was rightly shown by it as its „business income‟. 10. We shall now advert to the aspect that as to whether the CIT(A) was right in law and facts of the case in subscribing to the claim of the assessee that “Service charges” received for the facilities and amenities provided to the lessees of the commercial complex were liable to be assessed as its „business income‟, and had wrongly been brought to tax by the A.O under the head “Income from other sources”. On a perusal of the orders of the lower authorities it emerges that the assessee had entered into two separate agreements with the lessees viz. (i). leave and license agreement; and (ii). facilities and amenities agreement. As per the facilities and amenities agreement, the assessee was to provide multiple services/amenities viz. (i) connectivity; (ii). Diesel Generator back-up; (iii). insurance; (iv). general maintenance and maintenance for fire detection system; (v). security and house keeping; and (vi) maintenance of lifts in the complex. Apart therefrom, the assessee had also undertaken the responsibility for putting up signage, maintaining the electrical, plumbing, sewage treatment and pumping systems etc. We find that two issues had weighed in the mind of the A.O while dislodging the aforesaid claim of the assessee and bringing the receipts to tax under the head “Income from other sources” viz. (i). that though the assessee in the facilities and amenities agreement with the lessees had inter alia agreed to provide diesel generator backup, however a perusal of the „fixed asset‟ schedule of the assessee did not reveal any diesel generator set; and (ii). though the assessee in the facilities and amenities agreement with the lessees had inter alia agreed to provide security services, however no security service charges paid by the assessee were discernible from its final accounts. In sum and substance, the A.O had as a matter of fact doubted the very authenticity of the facilities and amenities agreement. On the basis of his aforesaid deliberations the A.O had assessed the “Service charges” to tax as the income of the assessee from “Other sources”. 11. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to subscribe to the view taken by the A.O. Admittedly, the services which the assessee had agreed to provide to the lessees were inextricably interwoven or rather interlinked with the leasing of the commercial space and were clearly inseparable from the leasing of the property itself. Rather, it was the claim of the assessee that the service charges were receivable only as a consequence of the commercial exploitation of the complex. In other words, the composite services provided by the assessee could not have been enjoyed in isolation and were rather inextricably linked with the leasing of the property. Insofar, the adverse inferences that had been drawn by the A.O as regards the authenticity of the facilities and Printed from counselvise.com 7 ITA No. 4567/Mum/2025 Akruti SMC Joint Venture amenities agreement, the same does not find favour with us. In our considered view the A.O merely on the basis that the assessee did not own a diesel generator set and no service charges stood debited in its profit & loss account, had hushed through the matter and without making any further verifications as regards the services that were claimed by the assessee to have been rendered to the lessees had drawn adverse inferences as regards the same on the basis of premature observations. In fact, the assessee had submitted before the CIT(A) that in order to provide the facility of Diesel generator back up, it had hired a diesel generator set during the year under consideration. The assessee in order to fortify its aforesaid claim had placed on his record the copy of the ledger account for the expenses incurred under the head “Hiring of DG Set”, wherein expenses of Rs. 5,49,895/- on the said count stood debited. Be that as it may, we are of the considered view that the “Service charges” of Rs. 2,09,80,741/- received by the assessee for providing facilities and amenities to the lessees are inextricably interwoven with the leasing of the commercial property itself. As observed by us hereinabove, the assessee had came into being for the express purpose of construction and commercial exploitation of the commercial complex built by it. We have hereinabove concluded that the lease income received by the assessee, keeping in view the nature of receipts and the business of the assessee was liable to be assessed as its „business income‟. In our considered view, as the service charges received by the assessee in lieu of providing facilities and amenities to the lessees are inextricably interwoven and rather inseparable from the commercial exploitation of the property by the lessees, thus the same could not have been brought to tax under the residual head of income viz. “Other sources”, and had rightly been shown by the assessee as its „business income‟. Before parting, we may herein observe that the judgment of the Hon’ble Supreme Court in the case of Raj Dadarkar & Associates Vs. ACIT (2017) 81 taxmann.com 193 (SC) as had been relied upon the ld. D.R, being distinguishable on facts would thus not assist the case of the revenue. In the case before the Hon‟ble Apex Court the assessee had acquired leasehold rights in the land from the Municipal Corporation of Greater Mumbai for a period of more than 12 years. Subsequently, the assessee had constructed various shops and stalls on the said land and sub-licensed the same to various persons. The assessee had claimed the income generated from sublicensing as its “business income”, which however did not find favour with the Hon‟ble Apex Court on two grounds viz. (i). the assessee who had taken the land on lease for a period in excess of 12 years was thus a „deemed owner‟ of the property under Sec. 27(iiib) of the I.T Act.; and (ii). that the letting out of the property was not the business of the assessee. It was observed by the Hon‟ble Apex Court that wherever there is an income from leasing out of premises and collecting rent, normally such an income is to be treated as income from house property, in case provisions of Sec. 22 of the I.T Act are satisfied with the primary ingredient that the assessee is the owner of the said Printed from counselvise.com 8 ITA No. 4567/Mum/2025 Akruti SMC Joint Venture building or land appurtenant thereto. We shall now deliberate on the facts of the case before us in the backdrop of the aforesaid judgment of the Hon‟ble Apex Court in the case of Raj Dadarkar (supra). Admittedly, in the case before us the assessee was neither the „Owner‟ of the land or the commercial space developed on it. Rather, as observed by us at length hereinabove, the assessee viz. Akruti SMC, J.V having constructed the project for MSRTC at its own cost was as per the terms of the „Agreement to develop‟, dated 18.03.2012 only vested with the right to lease the commercial space developed by it for a period of 30 years, after expiry of which period the lessees/sub-lessees were to deliver vacant and peaceful possession of the property to MSRTC. Apart therefrom, though the assessee was entitled to lease the commercial space so developed by it, however the title of the land and the building was always to remain vested with the lessor viz. MSRTC. In our considered view, as the assessee was neither the „owner‟ or the „deemed owner‟ of the property under consideration, hence the aforesaid judgment of the Hon‟ble Apex Court being clearly distinguishable on facts would not assist the case of the revenue. Apart therefrom, the assessee in the case before us viz. Akruti SMC, J.V had came into being for the express purpose of construction and commercial exploitation of the commercial complex built by it. It can thus safely be concluded that the assessee had ventured into construction of a commercial complex and systematic commercial exploitation of the same by leasing it alongwith provision of composite services to the lessees. We thus are of the considered view that as the assessee was not into simpliciter renting of the property, but rather in the business of commercially exploiting the same in furtherance of the purpose for which it had came into being, thus the same on the said count also satisfied the test laid down by the Hon‟ble Apex Court in the aforesaid case of Raj Dadarkar (supra) for being assessed to tax as its „business income‟. We thus in terms of our aforesaid observations being in agreement with the view taken by the CIT(A) that the income from leasing of the property and the service charges were rightly claimed by the assessee as assessable to tax under the head “business income”, uphold his order to the said extent. The Ground of appeal No. 1 raised by the revenue is dismissed.” 4. Facts for the year under consideration being identical respectfully following the above decision of the Co-ordinate Bench, we hold that there is no infirmity in the order of the CIT(A) in deleting the additions made by the AO. Printed from counselvise.com 9 ITA No. 4567/Mum/2025 Akruti SMC Joint Venture 5. In result, the appeal of the revenue is dismissed. Order pronounced in the open court on 02-12-2025. Sd/- Sd/- (SAKTIJIT DEY) (PADMAVATHY S) Vice-President Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "