Multiplex Lease Income Taxable as Business Income, Not House Property Income: ITAT

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that income earned from commercial exploitation of a multiplex complex cannot automatically be treated as “Income from House Property” merely because fixed lease rentals are received. The bench of Prashant Maharishi (Vice – President) has ruled that where a multiplex is commercially exploited as a business asset and the assessee remains actively involved in operation and maintenance of the facility, the receipts are taxable as “Profits and Gains of Business or Profession.” The assessee was subjected to a search under Section 132 of the Income Tax Act on 16 November 2017. During the search, authorities found certain loose sheets reflecting payments made to film producer Shri K. Manju, including cash payments of Rs. 30 lakh. The Assessing Officer treated the cash portion as unexplained money under Section 69A after concluding that the assessee failed to establish the source of the cash payments through supporting records such as cash books and cash flow statements. Apart from the addition relating to cash payments, the department also sought to recharacterize income received from leasing portions of the “Innovative Multiplex Complex.” The assessee had originally offered the receipts as business income after claiming expenditure towards maintenance and operations. However, the Assessing Officer held that the receipts were taxable under the head “Income from House Property,” relying on the Karnataka High Court judgment in CIT vs. Bhoopalam Commercial Complex & Industries (P.) Ltd. The Tribunal first dealt with the issue relating to completed or “unabated” assessment years. It observed that under the law laid down by the Supreme Court in Abhisar Buildwell Pvt. Ltd., additions in completed assessments under Section 153A can only be made on the basis of incriminating material found during search proceedings. After examining the seized material, the ITAT held that the loose sheets reflecting cash and cheque transactions with Shri K. Manju could not be regarded as incriminating material against the assessee in his individual capacity. The Tribunal noted that the department had accepted the cheque transactions as genuine business dealings of group entities and could not selectively treat only the cash component as unexplained personal income without further evidence. The Bench further held that the sub-lease agreements relating to the multiplex property also did not constitute incriminating material because the rental receipts had already been disclosed in regular books of account and consistently offered to tax by the assessee, though under the head “business income.” According to the Tribunal, a mere change in legal characterization of disclosed income cannot be equated with discovery of undisclosed income during search proceedings. For Assessment Years 2013-14 to 2016-17, which were treated as unabated years, the Tribunal therefore deleted the additions made by changing the head of income from business income to house property income. In relation to Assessment Years 2017-18 and 2018-19, the Tribunal separately examined the merits of the issue. It noted that the assessee had taken land on long-term lease, developed a multiplex structure through commercial arrangements, and later commercially exploited portions of the multiplex by leasing identified spaces such as cinema screens and commercial areas to Suresh Productions. The ITAT emphasized that the arrangement was not a simple case of passive letting of immovable property. It observed that the assessee remained involved in maintaining and operating the multiplex facility and incurred expenditure towards labour, security, upkeep and maintenance. The Tribunal held that selective letting of portions of a multiplex while continuing to commercially exploit the overall integrated business asset amounted to commercial exploitation of a business asset rather than passive enjoyment of rental income. Distinguishing the Karnataka High Court’s ruling in Bhoopalam Commercial Complex, the Tribunal observed that the present case involved leasehold land, development of a specialized multiplex asset, structured commercial arrangements, and continued commercial exploitation of the asset. Therefore, the ratio applicable to ordinary letting of constructed commercial property could not mechanically apply to the facts of the present case. The Tribunal also placed significant reliance on the principle of consistency. It noted that the assessee had consistently disclosed the receipts as business income in earlier years and the Revenue had accepted such treatment. Since no new incriminating material had emerged during the search to show that the nature of activity had changed, the Revenue was not justified in arbitrarily altering the settled position. The ITAT directed the Assessing Officer to assess the multiplex lease receipts under the head “Profits and Gains of Business or Profession” instead of “Income from House Property.” All six appeals were partly allowed in favour of the assessee. Case Details Case Title: Sarvana Prasad Versus DCIT Citation: JURISHOUR-1436-ITA-2026(BANG) Case No.: ITA No. 2799-2804/Bang/2025 Date: 26.05.2026 Counsel For Appellant: Ravishankar, Advocate Counsel For Respondent: Subramanian S, Addl. CIT Click Here To Read Order Read More: Capital Gains Taxability Must Follow Actual Date Of Property Transfer, Not Mere Sale Deed Registration Date: ITAT

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