By TIOL News Service

MUMBAI, JAN 08, 2014: THE issues before the Bench are - Whether rental income can be considered as business income when this was not a case of simple letting out of a premises but the assessee had developed and prepared the premises as a fitness centre/gymnasium by installing the all requisite equipments, machines and other facilities and Whether disallowance of Municipal taxes by invoking section 43B is justified when the amount has been paid on or before the due date of filing the return of income u/s 139. And the verdict goes against the Revenue.

Facts of the case

The assessee company is initially in ship-breaking business and subsequently the company changed its business to conducting gymnasium and fitness business centre. The assessee also changed its name. The assessee entered into two separate business centre agreements for giving the premises for running a fitness centre. The A.O found that the assessee had received rental income of Rs. 18,75,000/-. The assessee computed the said rental income as business income. The AO treated the rental income as income from other sources and thereby disallowed various expenses such as depreciation on car and municipal tax which were not paid during the year. The CIT(A) confirmed the action of the AO.

On appeal before the Tribunal the AR submitted that for the purpose of setting up of gymnasium and fitness centre the assessee had developed the premises by spending huge amount on interior, electricity fittings, gym equipment, water connections etc. This entire exercise of developing the premises as fitness centre clearly showed that the assessee had carried out all these work as commercial venture. The assessee had not leased out the premises rather it had entered into business agreement.

Having heard the parties, the Tribunal held that,

++ this is not a case of simple letting out of a premises but the assessee has developed and prepared the premises as a fitness centre/gymnasium by installing the all requisite equipments, machines and other facilities. Therefore, the primary purpose and intention of the assessee to lease out the assets comprising the premises as well as the equipments is to earn the income by exploiting the asset being earning apparatus. The assessee has also undertaken the various activity of maintenance providing staff and other facilities for smooth functioning of the fitness centre. Except the year under consideration the Revenue has accepted the claim of the assessee. When there is no change in the facts and circumstances then the principle of consistency has to be followed. The claim of the Assessee Allowed;

++ on the issue of disallowance of Municipal taxes by invoking section 43B, there is no dispute on the point of allowability if the amount has been paid on or before the due date of filing the return of income u/s 139. Accordingly, the A.O is directed to allow the claim of the assessee if the amount has been paid before the due date of filing the return;

++ on the issue of interest income treated as income from other sources, the substantial income of the assessee is from the activity of advancing the loan and in the form of interest. This income has been offered by the assessee as business income which has been accepted by the Revenue since 2003-04 to 2011-12 except the A.Y 2007-08. The action of the A.O is contrary to rule of consistency and therefore not sustainable.

(See 2014-TIOL-22-ITAT-MUM)