Maintenance Charges Taxable as Business Income If Separately Agreed | ITAT

Case Details: Bindumalyam Panduranga Allanharinarayan vs. Income-tax Officer - [2025] 175 taxmann.com 388 (Bangalore-Trib.)

Judiciary and Counsel Details

• Waseem Ahmed, Accountant Member & Keshav Dubey, Judicial Member
• Bharadwaj Sheshadri, AR for the Appellant.
• Smt Neha Sahay, D.R. for the Respondent.

Facts of the Case

The assessee owned a property that was let out to a tenant under a lease agreement. The assessee received rent and maintenance charges from the tenant. The assessee treated income from maintenance charges as ‘income from business’. During the assessment proceedings, the Assessing Officer (AO) held that income from maintenance charges received had a direct nexus with the property and derived from the property only.

Thus, maintenance charges are to be taxed under the heading ‘income from house property’. Aggrieved assessee filed the instant appeal before the CIT(A), wherein the CIT(A) upheld the order of the AO.

The matter then reached the Bangalore Tribunal.

ITAT Held

The Tribunal held that in a single lease deed, the assessee had entered into two separate agreements, one for renting the premises on lease and another for providing maintenance services. The list of services related to the maintenance charges is such that the assessee could have provided merely as a facility management services provider, even if it were not the owner of the relevant immovable property.

Further, if the assessee had not agreed to provide the maintenance services, then that could be provided by some other third party separately as an independent business. According to section 2(13), the term ‘business’ includes any trade, commerce, manufacture, adventure, or concern in the nature of trade, commerce, or manufacture. The adventure or activities that may amount to business need not necessarily be by trade, commerce, or manufacture. They may even consist of rendering services, such as selling and managing agents, which may be multicoloured.

Therefore, the substance over the form principle is to be given importance. If the owner of a property carries on upon the property some activities which result in profits & gains arising, not from the ownership but from the use thereof, such profits & gains would be chargeable to tax as business income and not income under the head ‘income from house property’.

Undisputedly, the maintenance charges are being received by the assessee in return for providing specific services like external house-keeping, round-the-clock security, upkeepment of lifts, UPS, electrical fittings, borewell, pump sets, CCTV, Firefighting systems, Digisets, Split ACs, etc., as mentioned in the lease deed.

It is not disputed by the revenue that these services by way of maintenance have not been rendered by the assessee. In the instant case, it is evident that the services are distinct from letting out the property. Therefore, the assessee is justified in asserting that the same be taxed as business income.

List of Cases Reviewed

• Commissioner of Income Tax v. Sarabhai (P.) Ltd. [2003] 129 Taxman 43/263 ITR 197 [Para 9.6] followed

List of Cases Referred to

• CIT v. Sarabhai (P.) Ltd. [2003] 129 Taxman 43/263 ITR 197 (Gujarat) (para 9.6)
• Kamal Kumar v. ACIT [2022] 140 taxmann.com 106/195 ITD 572 (Delhi – Trib.) (para 10).