G CORP PRIVATE LIMITED ,BANGALORE V. ASSISTANT COMMISSIONER OF INCOME-TAX 3(1)(2), BANGALORE

ITA 849/BANG/2025

AI Insights

M/s. G Corp Pvt. Ltd. appealed against the order of the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre, which had partly upheld the Assistant Commissioner's assessment for the Assessment Year 2017-18. The primary contention was the taxability of 1% of rent/license fees and common area maintenance (CAM) charges as income from house property, which the assessee argued should not be included in the annual rental value as these were collected and retained by the mall manager, M/s. Lido Malls Management Pvt. Ltd. The Tribunal found that these charges were part of the business income of the mall manager and not taxable in the hands of the assessee under the head of income from house property. However, the Tribunal agreed with the lower authorities regarding the disallowance of interest on loans taken for construction, as the connection to the specific property could not be established.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 835376 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Appeal Filed On: 08-04-2025
• Other Referred Cases: Chennai Properties and Investment Ltd. vs. CIT, Royala Corporation Pvt. Ltd. vs. ACIT, CIT vs. DLF Office Developers, CIT vs. Runwal Developers (P.) Ltd., CIT vs. Shankaranarayana Hotels (P.) Ltd., Sharmila Tagore vs. JCIT, CIT vs. R.J. Wood Pvt. Ltd.
• Laws Referred To: Income-tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BALUSAMY N.
• Assessee Lawyers: KASHYAP
• Keywords: Business income; Tax effect; Capital Gains; Rectification of order; FORM 26AS
• Section: 143(3); 142(1); 154; 234B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER ITA No. 849/Bang/2025 Assessment Year : 2017-18 M/s. G Corp Pvt. Ltd., 21/19, Craig Park Layout, Off MG Road, Bangalore – 560 001. PAN: AABCG4084A Vs. The Assistant Commissioner of Income Tax, Circle – 3(1)(2), Bengaluru. APPELLANT RESPONDENT Assessee by : Shri Kashyap Revenue by : Shri Balusamy N., JCIT-DR Date of Hearing : 12-11-2025 Date of Pronouncement : 09-02-2026 ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER This is an appeal filed by the assessee challenging the order of the NFAC dated 14/02/2025 in respect of the A.Y. 2017-18 and raised the following grounds: “This Appeal is against to the order passed by Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [Commissioner of Income Tax (Appeals)] dated 14th February, 2025 disposing the assessee company's appeal against the order under section 143(3) dated 29th December, 2019 passed by the Assistant Commissioner of Income-tax 3(1)(2), Bangalore [Assessing Officer] for the AY 2017-18. Printed from counselvise.com Page 2 of 11 ITA No. 849/Bang/2025 Gr.No. Grounds of Appeal Tax effect relating to each Ground of Appeal (Rs.) 1 Both the lower authorities erred in holding that 1% of the rent/license fees Rs.15,07,869/-, received and retained by Lido Malls Management Private Limited (Lido) was taxable as Income from House Property in the hands of the Appellant. Rs. 4,98,547/- 2 Both the lower authorities failed to appreciate that 1% rent/license fees collected and retained by Lido was income diverted at source due to overriding title and was not taxable in the hands of the Appellant. 3 Both the lower authorities erred in holding that the Common Area Maintenance (CAM) charges of Rs.2,56,96,882/- were taxable in the hands of the Appellant as Income from House Property. Rs. 84,96,160/- 4 Both the lower authorities failed to appreciate that revenue from CAM charges constituted income of Lido and were not taxable in the hands of the Appellant. 5 Without prejudice to Ground Nos. 3 and 4, if it is held that CAM charges are taxable in the hands of the Appellant as Income from House Property, the Assessing Officer is required to allow full deduction for the same amount collected and retained by Lido while determining the Annual value of the property under section 23 of the Income-tax Act. 6 Without Prejudice to Ground Nos.3 to 5, CAM charges could only be taxed as Business Income in the hands of the Appellant and the Appellant is entitled to deduction for the CAM charges collected and retained by Lido, leading to Nil income chargeable to tax in the hands of the Appellant. 7 Both the lower authorities erred in disallowing interest of Rs.4,87,755/- claimed by the Appellant under section 24 of the Act. Rs.1,61,266/- Printed from counselvise.com Page 3 of 11 ITA No. 849/Bang/2025 2. The brief facts of the case are that the assessee is in the business of real estate development, real estate project management, construction of retail and commercial properties and letting the properties constructed by it on hire for rentals. The assessee filed their return of income on 28/10/2017. Thereafter the case was selected for scrutiny and notice u/s. 143(2) was issued. The case was selected for scrutiny to examine the expenses debited to the profit and loss account and large short term capital gains declared u/s. 111A. Thereafter notices u/s. 142(1) were issued and the assessee also submitted their reply to the said notices. 3. The assessee is having a share of 50% in “1 MG” Mall in M.G. Road, Bengaluru. From January 2014, the assessee entered into an agreement with M/s. Lido Malls Management Pvt. Ltd. for collecting the rental income and paying the same to the assessee after taking a commission of 2% as their fees. Insofar as the promotional income and parking fees etc., the same was collected by M/s. Lido Malls Management Pvt. Ltd. and it was agreed that the 75% of the said revenue would be taken by M/s. Lido Malls Management Pvt. Ltd. and the balance 25% would be given to the owners of “1MG” Mall. The mall manager also collected the common area maintenance charges received from the various tenants and retained the same for providing services such as for operations, maintenance and management of the mall. The mall manager has to incur the maintenance expenses out of the common area maintenance chares collected by them and the assessee had no role in the said collection of charges as well as the maintenance of the mall. The agreement executed with the mall manager would exhibits the above facts. The assessee is in the business of leasing of shopping malls and therefore the entire lease rent and other receipts from shopping malls are to be treated as business income but to avoid litigation with the department, the assessee had shown the income as income from house property. The AO had included the 1% of the license fees which was retained by the mall manager as fees to the annual value of the property of the assessee and taxed in the hands of the assessee. The AO also included the common area maintenance charges exclusively collected by the mall Printed from counselvise.com Page 4 of 11 ITA No. 849/Bang/2025 manager for the maintenance of the mall in the annual value of the property and subjected the same to tax under the provisions of the Act. The AO had originally added the entire common area maintenance charges into the annual value of the property of the assessee even though the assessee is having a share of only 50%. The AO had also disallowed the interest claimed by the assessee u/s. 24 of the Act. The municipal taxes paid by the assessee was also restricted and an addition was made on the basis of the mismatch of the rental receipts accounted by the assessee vis-à-vis form 26AS. The AO had also levied interest u/s. 234B as well as u/s. 234C of the Act. 4. The assessee challenged the said order of the AO before the Ld.CIT(A). The assessee also filed an application u/s. 154 of the Act before the AO and pointed out some mistakes in the assessment order. The AO had also considered the said rectification application and rectified the mistakes while the appeal was pending before the Ld.CIT(A). The AO in the rectification order, had revised the addition made on account of common area maintenance charges to 50% and the municipal taxes paid by the assessee has also been accepted. The interest on the borrowed capital was refixed at Rs. 4,87,755/-. The addition made on account of mismatch of the rental receipts accounted by the appellant vis-à-vis form 26AS has been accepted. The Ld.CIT(A) had partly allowed the appeal filed by the assessee. 5. As against the said order, the assessee is in appeal before this Tribunal. 6. At the time of hearing, the Ld.AR submitted that the addition of 1% which was treated as the fees for the mall manager is not correct since the agreement with the mall manager specified the activities which are to be done by the mall manager and the agreement also speaks about the remuneration given to the mall manager for collecting the license fees from the licensees and therefore the 2% of the license fee collected by the mall manager could not be added for the purpose of calculating the annual rental Printed from counselvise.com Page 5 of 11 ITA No. 849/Bang/2025 value of the property. The Ld.AR further submitted that the mall manager is not acting as an agent of the assessee but acted as a principle receiver of the amount based on the mall management agreement. The Ld.AR further made an alternate submission that the 1% retained by the mall manager would be eligible for deduction u/s. 23 of the Act and therefore submitted that the entire lease rent and other receipts from shopping malls are chargeable to tax as business income and not as income from house property and relied on the Hon’ble Supreme Court decision in the case of Chennai Properties and Investment Ltd. vs. CIT and Royala Corporation Pvt. Ltd. vs. ACIT. 7. The Ld.AR further submitted that the common area maintenance charges charged and collected by the mall manager from the lessees for rendering various services to the licensees of the malls would not be taken for the purpose of calculating the annual rental value of the property. The Ld.AR further submitted that the mall management agreement clause would exhibit that the mall manager would charge the maintenance charges from the lessees and out of the said funds collected, various maintenance works are to be carried out by them and therefore the same would not be added to the assessee for calculating the annual rental value. The Ld.AR further submitted that the common area maintenance charges are collected by the mall manager based on the agreement and therefore they are entitled to receive 100% of the charges. The Ld.AR also brought to our notice that the said mall manager has shown the said maintenance charges received from the licensees as his income in their return of income and therefore the same could not be added for the purpose of arriving the annual rental value of the assessee. The Ld.AR further submitted that the maintenance charges are directly collected by the mall manager and retained by him for the purpose of maintaining the mall and therefore the assessee had rightly not included the said sum while calculating the annual rental value of the property. The Ld.AR also distinguished the judgment of the Hon’ble Punjab & Haryana High Court reported in 73 taxmann.com 374 which was relied on by the AO and relied on the Hon’ble Delhi High Court judgment reported in 25 Printed from counselvise.com Page 6 of 11 ITA No. 849/Bang/2025 taxmann.com 258. The Ld.AR also submitted that the common area maintenance charges received by the mall manager are for hosting of various services provided to the licensees by it and not for using the premises licensed to the licensees. The Ld.AR also relied on the judgments of the Hon’ble High Courts as well as the Tribunal to the proposition that the maintenance charges could be treated as business income as an alternative argument. 8. Insofar as the interest portion is concerned, the Ld.AR submitted that the disallowance of the 1/5th of the preconstruction period interest is related to the loan availed for the construction of “1MG” Mall and relied on the sanction letters issued by the bankers and the statement of accounts. The Ld.AR therefore submitted that on mere suspicion, the disallowance could not be made in respect of the disallowance disallowing the deduction of interest u/s. 24 of the Act to an extent of Rs. 4,87,755/-. The Ld.AR also submitted that the levy of interest u/s. 234C is not required and prayed to delete the same. 9. The Ld.AR also filed a paper book compilation and enclosed the written submissions filed before the Ld.CIT(A) and the audited accounts and other details for the interest restriction. The Ld.AR also furnished the copy of the mall management agreement and the memorandum and articles of association of the assessee in support of their submissions. The Ld.AR also filed a compilation of case laws and prayed that the appeal may be allowed by following the above judgments of the Hon’ble High Courts as well as the orders of the other Tribunals. 10. The Ld.DR submitted that the AO had rightly added the 1% retained by the mall manager out of the rent received from the various licensees which is nothing but a rental income in the hands of the assessee. Similarly, the Ld.DR submitted that the common area maintenance charges collected by the mall manager from the licensees would also partake the character of rent and therefore it should be added for the purpose of Printed from counselvise.com Page 7 of 11 ITA No. 849/Bang/2025 calculating the annual rental value of the property. Insofar as the disallowance of preconstruction period interest, the Ld.DR submitted that the documents furnished by the assessee would not exhibit that the loan has been obtained only for the purpose of constructing the “1MG”Mall and therefore the AO had rightly restricted the interest claimed u/s. 24 of the Act. 11. We have heard the arguments of both sides and perused the materials available on record. 12. In the present appeal, there are three disputes raised by the assessee. 13. The first dispute is with regard to inclusion of 1% charges retained by the mall manager as their fees for collecting the rents from the licensees. We have perused the records and also perused the mall management agreement executed with the said M/s. Lido Malls Management Pvt. Ltd. and from which we found that the agreement is clear that the mall manager has to collect the rents from the licensees and transfer the 98% of the rental income to the assessees and retain the 2% of the rent as their fees for doing the said service. It is not the case of the department that the assessee had collected the 100% of rent and thereafter parted with 2% of the said amount to the mall manager for doing the services. From the records produced before us, we found that the owners of the “1MG” Mall i.e. the assessee and the others received as rent only 98% of the rental income from the mall manager. We have also perused the memorandum and articles of association furnished by the assessee and from the said document, we came to know that the assessee is having its main objects to create, construct, acquire, establish, lease, sell and to operate and maintain shopping malls, airport duty free shops, shopping orchards and retail outlets. Therefore the assessee is doing the business of leasing the shopping malls and receive the rental income from the licensees and therefore the 1% license fees retained by the mall manager would be an allowable deduction to the assessee. We have also considered the submission that the assessee in order to avoid Printed from counselvise.com Page 8 of 11 ITA No. 849/Bang/2025 litigation with the department had shown the said income as income from house property. We have also considered the said facts and we are of the view that the 1% license fee retained by the mall manager could not be added to the annual rental value of the assessee for the purpose of arriving the income from house property. We, therefore accept the case of the assessee insofar as this dispute is concerned and allow the appeal field by the assessee. 14. Insofar as the second issue of the common area maintenance charges collected and retained by the mall manager is concerned, the mall management agreement stipulated that the mall manager would collect the maintenance charges from the licensees as its service charges for managing, operating and maintain the mall. The agreement stipulates that the mall manager should ensure the maintenance of common areas, plants and machinery such as D.G.sets, chillers, pumps, escalators, elevators, etc. common amenities such as water supply, drainage, general lighting, landscaping etc out of the amounts collected by it by way of maintenance charges. The agreement further provides that the mall manager would be compensated for the said services by retaining the 100% of the common area maintenance charges collected from the licensees. The AO had relied on the judgment of the Hon’ble Punjab & Haryana High Court reported in 73 taxmann.com 374 and concluded that the common area maintenance charges would form part of the annual rental value of the property. On the other hand, the assessee relied on the Hon’ble Delhi High Court judgment reported in (2012) 25 taxmann.com 258 in the case of CIT vs. DLF Office Developers and also the Hon’ble Bombay High Court judgment reported in (2011) 15 taxmann.com 196 in the case of CIT vs. Runwal Developers (P.) Ltd. We have also considered the said judgments and in the Hon’ble Bombay High Court judgment, it was held that the maintenance charges recovered by the assessee towards the promotion and upkeep of the mall from the persons to whom the premises are let out, and also from the persons to whom the premises were sold are attributable to conducting the business activity of running the mall and therefore the amount of Printed from counselvise.com Page 9 of 11 ITA No. 849/Bang/2025 maintenance charges received were business receipts assessable under the head business income. Similarly, in the Hon’ble Delhi High Court judgment, it was held that maintenance charges paid to a separate company could not be treated as a part of the rent taxable in the hands of the assessee. 15. We have also perused the judgment of the Hon’ble Jurisdictional High Court reported in (1993) 201 ITR 138 in the case of CIT vs. Shankaranarayana Hotels (P.) Ltd. wherein it was held that the composite rent received by the assessee could be split up into the amount attributable to property under the head income from house property and the amount attributable to amenities under the head income from other sources. We have also perused the order of the Hon’ble Mumbai Tribunal reported in (2006) 150 Taxman 4 (Mumbai) in the case of Sharmila Tagore vs. JCIT wherein it was held that the maintenance charges had to be deducted while determining the annual value of the property u/s. 23 of the Act. We have also perused another judgment of the Hon’ble Delhi High Court relied on by the assessee reported in 334 ITR 358 in the case of CIT vs. R.J. Wood Pvt. Ltd. wherein it was held that the maintenance charges payable by the occupier to the agency which maintains the building would not be taken for the purpose of arriving the annual rental value of the property. Considering the above judgments and the principles laid down by the various Hon’ble High Courts, in the present case also, the mall manager had to maintain the mall for which they received the charges from the licensees and retained the same and did the maintenance expenses out of the said receipts and therefore it could not be treated as rent for the purpose of calculating the annual rental value of the property. The licensees are paying the maintenance charges directly to the 3rd party i.e. the mall manager who in turn provided the various services to the licensees and therefore at no stretch of imagination, the same could be added for the purpose of computing the annual rental value of the property of the assessee. We, therefore inclined to accept the plea of the assessee and deleted the common area maintenance charges received by the mall manager for the purpose of Printed from counselvise.com Page 10 of 11 ITA No. 849/Bang/2025 computing the annual rental value of the property of the assessee. Further, we have also considered the fact that the mall manager had directly received the maintenance charges from the licensees and utilised the said receipts towards the maintenance of the building and utilised the said funds for doing various expenses in maintaining the said mall. Therefore, the said charges would not be taken for the purpose of computing the annual rental value of the property of the assessee. 16. The 3rd dispute is with regard to the disallowance of the 1/5th of the preconstruction period interest. Even though the assessee had submitted that the loan has been obtained for the construction of “1MG” Mall, the documents furnished before us does not indicate any connection with the construction of “1MG” Mall. It is a fact that the assessee had received loan from the HDFC Bank but we could not correlate the said loan for the purpose of constructing the “1MG” Mall and therefore we do not agree with the submissions made by the assessee and therefore we are confirming the order of the lower authorities insofar as the disallowance of the preconstruction period interest is concerned. 17. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 09th February, 2026. Sd/- Sd/- (WASEEM AHMED) (SOUNDARARAJAN K.) Accountant Member Judicial Member Bangalore, Dated, the 09th February, 2026. /MS / Printed from counselvise.com Page 11 of 11 ITA No. 849/Bang/2025 Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file 6. CIT(A) By order Assistant Registrar, ITAT, Bangalore Printed from counselvise.com "