Income Tax Appellate Tribunal - Chennai
Rr Industries Ltd., Chennai vs Department Of Income Tax on 8 November, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH, CHENNAI
BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND
SHRI N.S. SAINI, ACCOUNTANT MEMBER
I.T.A. Nos. 2194, 2195, 2196, 2197, 2198 & 2199/Mds/2010
(Assessment Years : 2002-03 to 2007-08)
The Income Tax Officer (OSD), M/s RR Industries Ltd.,
Company Circle V(4), Thiruvika Estate, Guindy,
Chennai - 600 034. v. Chennai - 600 032.
PAN : AAACR5694H
(Appellant) (Respondent)
Appellant by : Shri B. Jena, CIT-DR
Respondent by : Shri Sriram Seshadri, CA
Date of Hearing : 08.11.2011
Date of Pronouncement : 18.11.2011
O R D E R
PER BENCH :
All these six appeals filed by the Revenue are directed against the common order dated 04.10.2010 of Commissioner of Income Tax (Appeals)-V, Chennai, for assessment years 2002-03 to 2007-08.2 I.T.A. Nos. 2194 to 2199/Mds/10
2. In all the six appeals, Revenue has raised following common grounds:-
"2.1. The learned CIT(A) has erred in allowing the assessee's appeal against the A.O.'s action in treatment of rental income from Industrial park buildings as 'Income from house property' and directed the A.O. to treat the income derived from letting out of IT industrial park as 'income from business'.
2.2. It is submitted that in the TDS certificate furnished by the assessee, the nature of payment mentioned is shown as the category for which TDS to be effected u/s 1941 of the Income-tax Act. The respective S.1941 deal purely with deduction of tax on payment of Rent at a specified rate. In this context, reliance is placed on the ITAT Chennai's decision in the case of M/s Ananda Enterprise ITA No.254/10/Mds/ 'A' Bench dated 26.5.2010 where the Hon'ble ITAT has held that when the rent paid by tenant is deducted at source at the rates applicable to "Rent", the income received should be treated as income from House property, but not "Income from Business or Profession" as claimed by the assessee.
2.3. The learned CIT(A) has failed to note that the assessee neither engages in any trade, commerce nor indulges in any manufacturing activity nor involves in any adventure nor concerns in the nature of trade, commerce or manufacture as per definition u/s 2(13) of the Act. The additional facilities or amenities provided to the tenants are mainly for the purpose of charging higher rent as 3 I.T.A. Nos. 2194 to 2199/Mds/10 well as attraction of tenants. Mere getting loan from banks and financial organization against mortgage of the property and the future rent receivable will not amount to getting into risk or involves in some adventurous activities.
2.4. The revenue relied on the following judgements which have confirmed the treatment of rent received from similar property in the similar situations as "Income from House Property"
instead of business income. -
a) The recent Decision of ITAT Chennai in the case of Ananda enterprises in ITA No.254/Mds/10 'A' Bench dated 26.5.2010.
b) Shambu Investments (P) Ltd. vs CIT(SC) 23 ITR 143.
c) The Hon'ble Madras High Court in the case of CIT vs Chennai Properties & Investments Ltd.
266 ITR 685 (Mad)
d) Supreme Court Decision in 51 ITR 353 (SC), in the case of SULTAN BROS Ltd.; in CIT vs VIKRANT COTTON MILLS LTD (169 ITR 597 (SC) and CEPT vs Shri Lakshmi Silk Mills Ltd.
(20 ITR 451 (SC): CIT vs Calcutta National Bank Ltd 37 ITR 171 (SC).
e) Karnani Properties (82 ITR 547 (SC)
f) Universal Plast Ltd (237 ITR 454 (SC)
g) HON'BLE ANDHRA PRADESH HIGH COURT in the case of CIT vs Veerabhadra Industries 240 ITR 5 (AP)
h) The Hon'ble ITAT's Decision in the case of Subhra Motel (P) Ltd. vs CIT (64 ITD 134) 4 I.T.A. Nos. 2194 to 2199/Mds/10
i) The Hon'ble Madras High Court's decision in CIT vs Baba Estate (24 ITR 415 (Mad) and New India Maritime Agencies (P) Ltd (256 ITR 513 (Mad).
2.5 It is held by the Hon'ble Madras High Court [CIT vs Baba Estate (244 ITR 413 (Mad) and New India Maritime Agencies (P) Ltd. (256 ITR 513 (Mad)] that such rental income was to be assessed as "Income from House Property" when those assets had not been used in the business of the assessee but they were only let out. It was further held that no part of the premises from which the assessee received rent in the assessment year was used for the business purposes."
3. However, the sole issue involved is these appeals is that the ld. CIT(A) erred in directing the Assessing Officer to treat the income derived from letting out of Industrial park buildings as 'income from business' as against the treatment by the Assessing Officer of the same as 'Income from house property'.
4. The Assessing Officer has observed in his order as under:
5.5 The assessee submitted that in the case of CIT Vs Sanmar Holdings Ltd., (272 ITR 341), the jurisdictional High Court of the assessee is able to establish that the property in question was a commercial asset, then the income derived from such asset can be treated as 'business income'. 5 I.T.A. Nos. 2194 to 2199/Mds/10 Then the assessee went on to elaborate the facilities available in each building which it has let out to the tenant namely, car parking space, general lighting on all sides, landscape garden, rain water drain, sewage connection, toilets, lift, storage space, lights and fans etc. Hence, it is requested to treat its property as a commercial asset and the income as business income.
5.6 The assessee's submissions were carefully considered. The assessee never tried to make out a case as to why rental income should be treated as 'business income'. The list of facilities which were provided to the tenants as mentioned in the assessee's reply dated 09.02.2005 no way helps to change the characteristics of the activity of the assessee. Any modem property which is let out will contain all these facilities. 5.7 The facts of the case law cited by the assessee in the case of CIT Vs Sanmar Holdings Ltd., [272 ITR 341] are different from that of the assessee's own. In the case, the court relied on the decision in the case of 'Kamapura Development Co. Ltd., Vs CIT 1962 [44 ITR 362] which laid down the law as under:
"Earlier, on a consideration of the memorandum of association relating to the main object of the company, it has been found that its object is to acquire and possess property. What is significant is that in the MOA, there is 6 I.T.A. Nos. 2194 to 2199/Mds/10 no indication that the assessee company intended to sell those properties or even turn them to account by way of leasing them as part of its business activities. We may mention in passing that in the course of the order of the Appellate Asst. Commissioner, a clear finding had been recorded to the effect that on a perusal of the records of the assessee-company, the assessee-company had not carried on any business in real estate. We, therefore, hold that the assessee company cannot be regarded as having acquired the properties as commercial assets for the purpose of any business can be done by it, and, therefore, the receipt of income from the properties held by the assessee-company cannot be referred to a substituted user of the commercial asset by the assessee company as claimed by it, so as to constitute the income from the properties 'profits and gains of the business' carried on by the assessee company- In as much as we have come to the conclusion that the properties were not held by the assessee company as part of its business assets, it follows that the income from those properties were rightly assessed under the head 'income from property', subject to the deduction provided u/s. 24 of the Act. In the view we have taken, it is unnecessary to refer to the several decisions relied on by counsel on both sides. We, therefore, answer the common question 7 I.T.A. Nos. 2194 to 2199/Mds/10 referred to us in the affirmative and against the assessee company".
There, the assessee was engaged in purchase and sale of properties. The court referred only those properties which were purchased and sold in the real estate business as 'commercial property' and not the property which was let out for commercial purposes. In this case, assessee is not involved in real-estate business. However, in the assessee's case, it developed its property with the sole object of letting it out and earning rental income.
Hence, the above ratio is inapplicable to this case. The following case laws are applicable to the facts of this case and hence they are relied.
1. CIT Vs Chennai Properties & Investments Ltd. (266 U1R
685) - company was - formed with the object of dealing in property - income from letting out buildings belonging to it assessable as income from property.
2. Indian Overseas Bank Ltd . Vs CIT (246 IlR 206-Mdsl - Portion of the building owned by the company let out to tenants - Rent received from tenants - No link between tenants and banking-business carried on by the assessee - income from property rightly assessed under head 'income 8 I.T.A. Nos. 2194 to 2199/Mds/10 from House Property'
3. M/s. Shambu Investments P Ltd .• Vs CIT (263 ITR 143-SC) - The Supreme Court has held that income from properties let out to occupants .with furniture and fixtures and lights and air-conditioners and providing service like ward arid ward, staff, electricity and water and other common amenities was assessable in the hands of the assessee as income from house property and not business. The facts of this case are exactly similar to the facts of the assessee.
5.8 Similar view in the assessee's own case is upheld by the CIT(A)-V in ITA No. 51/2003-04 for the A.Y. 1999-00. 5.9 The assessee submitted that it has obtained the approval from the Ministry of Commerce & Industry for construction of an Industrial Park and stated that it is eligible to claim deduction u/s 80-IA. It is necessary at this juncture to reiterate that the assessee was allotted plots inside Thiru-Vi- Ka Indl Estate, Guindy by the State Government for setting up industrial Unit as early as in 1990s. Later on, the assessee could not continues its business for various reasons and ceased its business of leather exports. In order to utilize the building & and the vacant plot, the assessee constructed another building and let it out to Ws. Alcatel Development 9 I.T.A. Nos. 2194 to 2199/Mds/10 Centre (Chennai) P Ltd., The location of the subject property is already inside the industrial Park. fu that case it is strange to understand how the assessee's claim that it will develop an Industrial Park. The idea behind developing an industrial park is to develop infrastructure facilities like roads, street lights and, other amenities involved in Town Planning. In this case, the assessee just constructed a building with required fixtures and let it out to its tenant. Hence the assessee's claim that it is eligible to claim deduction u/s 80IA is not acceptable. Further, the assessee can claim this deduction only when there is an income under the head 'business'."
5. In appeal, the ld. CIT(A) held as under:
"9.28 I have analyzed the cases and the facts presented before me and I observe the following in the overall conduct of the appellant:
1. The Appellant has borrowed large sums of monies from time to time from the financial institutions against mortgage of the property and also against the future rent receivables. This demonstrates that the appellant has undertaken large credit risks in its venture.
2. The Appellant has invested these monies in to developing state 10 I.T.A. Nos. 2194 to 2199/Mds/10 of the art infrastructure which goes much beyond the building-
in providing a 'plug and play' environment for the software companies - where the lessee could start its operations with their computers. In other words, it is carrying on an activity in the realm of infrastructure development. It has purchased several capital items for this purpose and developed this infrastructure. This demonstrates that the appellant was not merely exploiting a property as an owner, but was venturing into the realm of business by providing an environment for software companies to work. It is a facility service provider and not a landlord.
3. It has applied and obtained recognition for its infrastructure under the Industrial Park, scheme of the Government of India. This scheme was notified by the Ministry of Commerce and Industry in December 1999 in exercise of its power under section 80IA(4)(iii) of the Act for the purpose of infrastructure development in the Country. This scheme has defined the "undertaking" to mean any undertaking which is engaged in the business of developing ' developing and operating or maintaining and operating an industrial park notified by the Central Government in accordance with this scheme. In other words, the Ministry' of Commerce empowered under the Act itself recognizes the activity as business activity. 11 I.T.A. Nos. 2194 to 2199/Mds/10 9.29 In view of the above decisions and considering the amount of investment made by the appellant, loans borrowed from the banks and financial institutions the nature of the building, the kind of facilities, amenities and services provided by the appellant, which are evident from the lease agreements, approval letter from Ministry of Commerce and other records filed by the appellant, it is clear the appellant is engaged in the business of development and operation of industrial park, which is a commercial asset, let out with a view to earn profits."
The ld. D.R. of the Revenue supported the order of the Assessing Officer and argued that as the payer of the amount on deducted TDS u/s 194(1) of the Act and therefore, the income in the hands of the assessee was income from rent and assessable under the head 'income from house property'.
7. On the other hand, the ld. A.R. submitted that the ld. CIT(A) has rightly held the income earned by the assessee from I.T. Technology Part as business income in view of the fact that the assessee has constructed a property providing all kinds of facilities and amenities for its use as I.T. Software Development by the 12 I.T.A. Nos. 2194 to 2199/Mds/10 persons to whom they have been let out. The action of the ld. CIT(A) is supported by the decision of the Bangalore 'B' Bench of the Tribunal in the case of DCIT Vs. M/s Golflink Software Park P. Ltd. reported in 2011-TIOL-660-ITAT-Bang and another decision of the Bangalore 'A' Bench of the Tribunal in the case of Global Tech Park [P] Ltd Vs. ACIT reported in 2008-(ID2)-GJX-0363-TBAN. Photocopies of these orders have been filed before us.
8. Further, regarding the submission of the ld. D.R. that TDS was deducted from payments made to the assessee by payees u/s 194(1) of the Act and therefore, the income was income from house property. He relied on the decision of the Rajkot Bench of the Tribunal in the case of ITO Vs. Tejmalbhai & Co. reported in 2005- (ID2)-GJX-0577-TRJK and submitted that the Tribunal in that case has held that eventhough the customers making payment to assessee booked the expenditure in their books of account under the head 'rental expenditure /payment' and deducted TDS thereon u/s 194(1), yet the income so received is assessable in the assessee's hand as income from business and not as income from 13 I.T.A. Nos. 2194 to 2199/Mds/10 rent or income from house property because, irrespective of the head under which the persons making payment book such expenditure/payment in its books of account or the nature or treatment given by him is not necessarily required to be same in the hands of the recipient of income or payment of income. He further argued that the ld. CIT(A) has held that even if the income is assessed under the head income from house property, the assessee was entitled to deduction u/s 80I of the Act in view of the decision of the Hon'ble Supreme Court in the case of Kokonada Radhaswamy reported in 57 ITR 306 [SC] where it has been held that the head of income under which an income is assessed is not relevant for the purpose of claiming exemption under the head. He submitted that the Revenue in the present appeals has not challenged this finding of the ld. CIT(A). Therefore, the appeal filed by the Revenue has no tax deducted and is only an academic exercise because irrespective of the head under which the income is assessed the assessee is entitled to deduction u/s 80IA of the Act.
9. We have heard the rival submissions and perused the orders of lower authorities and material on record. In the instant case, the 14 I.T.A. Nos. 2194 to 2199/Mds/10 assessee company earned rent income from letting out premises RR Tower - I comprising of 35,975 sq.ft. and RR Tower - II comprising of 70,000 sq.ft. to Alcatel Development Centre Pvt. Ltd. Such rent income earned was `.2,88,17,608/- in the assessment year 2002-03, `.2,55,22,103/- in the assessment year 2003-04. In the assessment year 2004-05, the rent income was earned from namely Alcatel Development Centre, Chennai P. Ltd. `.2,29,84,099/-, Aithent Technologies P. Ltd. `.7,96,935/-, Lapiz Digital Services `.48,66,518/- totaling to `.2,79,30,311/-. In the assessment year 2005-06, the assessee earned rent income of `.4,53,43,205/-. In the assessment year 2006-07, the assessee earned rent income of `.9,61,11,439/-. In the assessment year 2007-08, the assessee earned rent income of `.11,76,03,103/-. The assessee treated the above rent income as its business income and also claimed deduction under section 80IA(4)(iii) of the Act of such income. On a show cause from the Assessing Officer that why this income should not be treated as income from House Property, the assessee relied on the decision of the Hon'ble Madras High Court in the case of CIT vs. Sanmar Holding Pvt. Ltd. 272 ITR 341, where it was held that if 15 I.T.A. Nos. 2194 to 2199/Mds/10 the assessee is able to establish that the property was a commercial asset, then the income derived from such asset can be treated as business income. The assessee submitted that in its case also the facilities made available to the tenants in each of the building namely, car parking space, general lighting on all sides, landscape garden, rain water drain, sewage connection, toilets, storage space, lights and fans, etc. makes the building a commercial asset and hence income there from was business income.
10. According to the Assessing Officer, the assessee had not made out a case for treating rent income as business income. The list of facilities provided to tenants does not change the character of the activities of the assessee in as much as any modern property let out will contain all these facilities. The Assessing Officer distinguished the decision of the Hon'ble Madras High Court in the case of Sanmar Holdings Pvt. Ltd. (supra) relied on by the assessee observing that in that case the assessee was engaged in purchase and sale of properties and court referred to only those properties, which were purchased and sold in the real estate business as commercial properties and not the property which was let out for commercial 16 I.T.A. Nos. 2194 to 2199/Mds/10 purposes. The Assessing Officer relied on the decision in the case of CIT vs. Chennai Properties & Investments Ltd. 226 ITR 685; Indian Overseas Bank Ltd. v. CIT 246 ITR 206 (Mad); Sambhu Investments P Ltd. v. CIT 263 ITR 143 (SC) and held that the income in question was income from house property of the assessee.
11. On appeal, the ld. CIT(A), referring to the letter No. 15(8)/2001-IP & ID of Government of India, Ministry of Commerce and Industry, Department of Industry Policy & Promotion, Secretariat for Industrial Assistance, Investment Promotion and Infrastructure Development Cell dated 1st August, 2001 held that the Ministry unequivocally has stated that the assessee was eligible for deduction under section 80IA(4)(iii) of the Act, which specifically refers to developing, operating and maintaining of an Industrial Park and that the scheme recognizes the activity of an undertaking engaged in development of infrastructural facilities or built-up space with common facilities in any area allotted or earmarked for software development as an eligible Industrial Park and also regards such activity as business activity, held the income in question as business income of the assessee. 17 I.T.A. Nos. 2194 to 2199/Mds/10
12. Before us, the Revenue disputed the findings of the ld. CIT(A) to the extent the ld. CIT(A) held that the rental income derived by the assessee is to be assessed under the head "profit and gains of business". Thus, the only issue, which requires adjudication by us is that the rental income derived by the assessee from letting out is to be assessed under the head "income from House Property" or under the head "Profit and Gains of business or profession".
13. The ld. DR relied upon the order of the Assessing Officer and submitted that the facilities provided by the assessee were provided by any owner of the house property and were incidental to the letting out of the property and therefore, the rental income should be held as assessable under the head "income from house property". The ld. DR also submitted that the deduction of tax at source on the rental income derived by the assessee was made under section 194 I of the Act and therefore, such rental income are to be assessed under the head "house property".
14. On the other hand, the ld. AR of the assessee supported the order of the ld. CIT(A) and submitted that the decision of the ld. CIT(A) finds support from the decision of the Bangalore Bench of the 18 I.T.A. Nos. 2194 to 2199/Mds/10 Tribunal in the case of Global Tech Park (P.) Ltd. v. ACIT 2008- (199)-TTJ-0421-TBAN and in the case of DCIT vs. M/s. Gloflink Software Park P. Ltd. 2011-TIOL-660-ITAT-BANG. He also pointed out that under the scheme of the Income Tax Act, rental income can be assessed as business income as evident from the provisions of section 80IA(4)(iii) of the Act. We find that section 194 I provides for deduction of tax at source when rent as defined in that section is paid by the person specified in that section exceeding the limit prescribed in that section. As per the provisions of section 194 I, the TDS is to be made not only in respect of rent of house property, but also for rent of machinery or equipments, etc. Therefore, we do not find any force in the arguments of the ld. DR that as tax was deducted under section 194 I of the Act on the rental income derived by the assessee and therefore, such rental income must be assessed under the head "income from house property".
15. We are in agreement with the submissions of the ld. AR of the assessee to the extent that income derived by developing and operating or maintaining an industrial park is assessable under the head Profit and Gains of business or profession as can be inferred 19 I.T.A. Nos. 2194 to 2199/Mds/10 from the provisions of section 80IA(4)(iii). However, we find that the ld. CIT(A) has opined that the Government of India, Ministry of Commerce and Industry, Department of Industry Policy & Promotion, Secretariat for Industrial Assistance Investment Promotion and Infrastructure Development Cell dated 1st August, 2001 has held that the assessee is eligible to deduction under section 80IA(4)(iii) on its income derived from letting out of the property in question as the property in question is an industrial park within the meaning of section 80IA(4)(iii) of the Act. We find that the copy of the aforesaid letter dated 01.08.2001 is placed at page 1 to 2 of the paper book filed by the assessee. The said letter reads as under:
No. 15(8)/2001-IP & ID Government of India Ministry of Commerce and Industry Department of Industry Policy & Promotion Secretariat for Industrial Assistance Investment Promotion & and Infrastructure Development Cell Udyog Bhavan, New Delhi - 110 011 Dated: August 01, 2001 To, M/s R.R.lndustries limited, 94-95, Block- VI, THIRU-VI-KA-INDUSTRIAL ESTATE, Guindy, Chennai - 600 032.
Sub: Application for setting up of Industrial Park (SIA Regn No.08/SIA/IP/2001 dated 25.06.2001) under the scheme notified by 20 I.T.A. Nos. 2194 to 2199/Mds/10 this Ministry (S.O. No. 1201 (E) dated 01.12.99). Ref: Your application dated 21.06.2001 acknowledged vide SIA Ref. No. No.08/SIA/IP/2001 dated 25.06.2001 and subsequent clarifications vide letters dated 02.07.2001, 12.07.2001 and 16.07.2001. Sir, I am directed to refer to your application on the above mentioned subject and to convey the approval of the Government of India to your proposal for setting up of an Industrial park, in terms of the scheme notified by this Ministry in exercise of the powers under section 80 IA, Sub section 4(iii) of the Income-tax Act, 196/, subject to the following terms and conditions:
1. (i) Name of the Industrial Undertaking : M/s. R.R. Industries Limited
(ii) Proposed location Address : 94-95, Block-VI, Thiru-Vi-Ka-Industrial Estate Guindy, Chennai 600 032, Tamil Nadu.
(iii) Proposed area of Industrial Park : 8593.46 sq.m.
(iv) Proposed activities:
Nature of industrial activity with NIC code NIC Code Description S.No. Section Division Group Class A 8 89 892 - Data processing, Software development and computer consultancy services.
B 8 89 893 - Business and management consultancy activities C 8 89 895 - Technical testing and analysis services D 6 60 609 - Wholesale trade in textiles and textile products.
(v) Percentage of allocable area : 100%
Proposed for industrial use
(vi) Percentage of land ear-marked for : 0%
commercial use
(vii) Proposed No. of industrial units : 30 Units
(viii) Total investment proposed : `.7.0 Crores
(ix) Investment on built up space for : `.4.0 Crores
Industrial use
21 I.T.A. Nos. 2194 to 2199/Mds/10
(x) Investment on Infrastructure : `.6.5 Crores
Development including investment
on built up space for industrial use
2. Necessary approvals including that for Foreign Direct Investment/Non-
Resident Indian Investment by the Foreign Investment Promotion Board/ Reserve Bank of India, shall be taken separately as per the policy and procedures in force.
3. You shall continue to operate the Industrial park during the period in which the benefits under Sub Section 4(iii) of Section 80 I A of the Income-tax Act are to be availed by you.
4. You shall submit a half-yearly report on the 1st January & 1st July of the year to the undersigned in the IPS-II form enclosed with this letter.
5. The conditions mentioned in para I above, are as per the proposal made by the undertaking and are within the provisions of the scheme notified by this Department vide S.O.No. 1201(E) dated 01.12.1999. The conditions in para I and others included in this letter should be adhered to. The Government may withdraw the above approval in case of failure to comply with any of the conditions.
6. You are requested to confirm acceptance of the above terms & conditions to the undersigned within one months of the issuance of this letter.
Yours faithfully, Signed/-
(Ashish Sharma) Desk officer Tel: No: 011- 3018356 Fax: No: 011- 301 1770 Copy to:
I. Joint Secretary (TPL-II). C.B.D.T., Ministry of Finance, Department of Revenue, North Block, New Delhi (2 copies), along with a copy of the original application dated 21.06.2001 and subsequent letters as detailed on page I.
2. Chief Secretary. Govt. of Tamil Nadu. Fort St. George, Chennai - 600 009.
3. Guard File.
Signed/-
(Ashish Sharma) Desk officer 22 I.T.A. Nos. 2194 to 2199/Mds/10
16. Thus, a perusal of the above shows that the assessee was only granted approval for setting up of an industrial park. From the above letter it cannot be held that the establishment or infrastructure created by the assessee was actually held as an industrial park within the meaning of section 80IA(4)(iii) of the Act by the Government of India, Ministry of Commerce and Industry, Department of Industry Policy & Promotion, Secretariat for Industrial Assistance Investment Promotion and Infrastructure Development Cell. The above letter also does not provide that the assessee is eligible for deduction under section 80IA(4)(iii) of the Act and the said letter merely conveys its approval of the proposal of the assessee to set up an industrial park.
17. Further, we find that Rule 18C of the Income Tax Rules provides that the undertaking and the industrial park shall be notified by the Central Government under the Industrial Park Scheme 2008 and the undertaking shall continue to fulfill the conditions envisaged in the Industrial Park Scheme 2008. Thus, in our considered opinion, merely on the basis of the above approval letter, it cannot be concluded as to whether the assessee's 23 I.T.A. Nos. 2194 to 2199/Mds/10 premises was an industrial park within the meaning of section 80IA(4)(iii) or not.
18. We find that in the case of DCIT vs. M/s. Golflink Software Park P Ltd. (supra), the Tribunal found that the tax payer was not only letting out its building for rent, but also carried on a complex commercial activity of setting up of software technology park in which various amenities had been provided. The Tribunal has held as under:
"9.1 It is an undisputed fact that the assessee had developed a technology park wherein a number of elite I.T. companies have been housed. It was also a fact that the assessee had not merely let-out its buildings for rent, but also carried on a complex commercial activity of setting up a software technology park in which various amenities and fit-outs have been provided.
9.2. In this connection we recall the ruling of the highest judiciary of the land in distinguishing V the significance of merely letting out a bare building and a building braced up with various amenities in the case of CIT, Bombay City 1 v. National Storage Pvt. Ltd. reported in 66 ITR 596 (SC) wherein after analyzing the issue at length, the Hon'ble Court had visualized that -
"In our view, the High Court was right in holding that the assessee was carrying on an adventure or concern in the nature of trade. The assessee not only constructed vaults of special design and special doors and electric fittings, but it also rendered other services to the vault- holders. It installed fire alarm and was incurring expenditure for the maintenance of fire alarm by paying charges to the municipality. Two railway booking offices 24 I.T.A. Nos. 2194 to 2199/Mds/10 were opened in the premises for the dispatch and receipt of film parcels. This, it appears to us, is a valuable service. It also maintained a regular staff consisting of a secretary, a peon, a watchman and a sweeper, and apart from that it paid for the entire staff of the Indian Motion Picture Distributors' Association an amount of Rs. 800 per month for services rendered to the licensees. These vaults could only be used for the specific purpose of storing of films and other activities connected with the examination, repairs, cleaning, waxing and rewinding of the films."
9.2.1. Further, an identical issue to that of the present one had cropped up before the earlier Hon'ble Bangalore Bench in the case of Global Tech Park (P) Ltd. v. ACIT - reported in (2008) 119 IT) (Bang) 421 - wherein it was observed that -
"The assessee having been incorporated with the sole intention of developing Technology Park for which it obtained leasehold land from KIDC and also obtained loan from bank for constructing superstructure thereon, it could not be considered as having made investment in a property for earning rental income only. The lease of the property was shown as part of the business activity, thus, the income received there from cannot be said as income received as a land owner but as a trader............ The activity was done by the assessee as a business venture and was in accordance with the main object of the company. The intention of any prudent businessman is to earn; profit at a maximum level and investment made in the business never lost its main intention for which it was incorporated.............The assessee is providing ward and watch, maintenance of common area, maintenance of light in the common area, supply of water, providing lift, installation of electric transformer, power to the lessees, providing generator, over-head water tanks, maintenance of drainage etc., This clearly establishes that the entire activity is in organized manner to earn profit out of investment made by the assessee as a commercial venture. In view 25 I.T.A. Nos. 2194 to 2199/Mds/10 thereof, the AO is directed to assess the rental income as from business ....."
9.2.2. As the issue before the earlier Bench was similar to that of the present case wherein the Hon'ble Bench took cognizance of the fact that "The assessee is providing ward and watch, maintenance of common area, maintenance of light in the common area, supply of water, providing lift, installation of electric transformer, power to the lessees, providing generator, over-head water tanks, maintenance of drainage etc., This clearly establishes that the entire activity is in organized manner to earn profit out of investment made by the assessee as a commercial venture' and, accordingly, arrived at a conclusion that the rental receipts of the assessee is to be assessed as 'business income'. In conformity with the finding of the earlier Bench as well as ruling of the Hon'ble Apex Court cited supra, we are of the considered view that the Ld. CIT (A) was justified in arriving at such a conclusion. It is ordered accordingly.
9.2.3. Before parting with the issue, we would like to emphasis that we have duly perused the case laws on which the Revenue had placed its strong reliance, chiefly, in the case of CIT v. Bhoopalam Commercial Complex and industries Pvt. Ltd. [262 ITR 517 (Kar)]. In that case, the issue, in brief, was that the assessee was a Private Limited Company and one of its directors had taken certain extent of lands situated at Bangalore on a longterm lease of 36 years under a registered lease-deed and executed a registered deed of transfer In favour of the assessee-company transferring his leasehold rights. Subsequently, the assessee-company built a commercial complex on the said land and allotted the same to various parties and earned income there-from.
For the year 1985-86 and 86-87, the assessee filed its returns of income showing losses for which the AO completed the assessments making minor adjustments in computing the losses. The CIT initiated suo motto proceedings u/s 263 and after such proceedings directed the AO to make fresh assessments computing the income from rentals received from the 26 I.T.A. Nos. 2194 to 2199/Mds/10 commercial complex under the head "Income 'from house property."
On an appeal by the assessee, the Tribunal held that the income derived by the assessee could have been assessed only as income from business and not under the head "Income from house property". According to the Tribunal, since the land over which the property had been built is a leasehold land, the assessee cannot be treated as the owner of the land which is a condition precedent for treating the income as income from house property under section 22 of the Act.
The Hon'ble Court, taking cue from the ruling of the Hon'ble Supreme court in the case of CIT v. Podar Cement (P.) Ltd. [1997J 226 ITR 625 = (2002-TIOL-445-SC-IT), had held that the income derived by the company from shops and stalls Is income received from property and falls under the specific head described in section 9.
9.2.4. We would like to point out that the case law relied on by the Revenue is clearly distinguishable to the facts of the issue on hand in the sense that the present assessee, apart from providing bare building, had also provided various amenities such as fit-outs, central air conditioning, generator back ups, street lights, roads, drainage facilities, garden, security, water facilities, sewerage and water treatment plant, sub-station for electricity, water treatment plant etc., which were not made available to the tenants In the case Bhoopalam Commercial Complex case cited supra.
9.3. In the case of Shambhu Investment P. Ltd. v. CIT reported in (2003) 263 ITR 143 (SC), the issue, in brief, was that the assessee owned an immovable property, a portion of which was in Its possession and let out the rest to be used as 'table space' to occupants with furniture and fixtures and lights and air conditioners. The assessee provided services like watch and ward staff, electricity, water and other common amenities. The monthly rent payable was inclusive of all charges. The assessee had also recovered by way of security from the occupants. The Hon'ble High Court of Calcutta [249 ITR 47 27 I.T.A. Nos. 2194 to 2199/Mds/10 (Cal)] held that the Income from the property was assessable in the hands of the assessee as Income from house property. When the issue came up on appeal before the Hon'ble Highest Judiciary of the land, the appeal was dismissed, holding that there was no reason to Interfere with the conclusion arrived at by the High Court.
9.3.1. We would like to point out that the Issue before the Hon'ble High Court was that the occupants were allowed to use a portion of property as 'table space' with furniture and fixtures, lights, air-conditioners etc., and the monthly rent payable was Inclusive of all charges whereas the Issue on hand is entirely on different footing, namely, the assessee had developed about 4.7 million square foot of a technology park in a sprawling area of more than 55 acres by providing various amenities such as roads, street lights, drainage facilities, gardens, high connectivity facilities such as telecommunication towers, sewerage and water treatment tanks, water treatment plants to attain the status of a Soft-ware Technology Park whereas in the case of Shambhu Investment P. Ltd., the immovable was a tiny property and the so called amenities provided to the occupants only as against the amenities provided In a STP to feed a special purpose. Letting out of a building In a STP is incidental whereas the fact in the case of Sambhu Investment was rather predominant and, thus, Sambhu Investment case cannot, at any stretch of Imagination, be equated with that of the present assessee.
9.4. Taking into account the facts and circumstances of the issue, we are, therefore, of the firm view that the case laws on which the Revenue placed reliance cannot come to its rescue."
19. Thus, from the reading of the aforesaid decisions, we find that the decision of the Hon'ble Supreme Court in the case of Shambhu Investments P. Ltd. (supra) was found distinguishable from the facts before the Tribunal in the above cases in as much as in the 28 I.T.A. Nos. 2194 to 2199/Mds/10 case of M/s. Shambhu Investment letting out was found to be predominant and in the case before the Tribunal letting out of a building in an I T Park was only incidental. It was found that the assessee developed 4.7 million sq.ft. of IT Park in a sprawling area of more than 55 acres by providing various amenities such as roads, streets, lights, etc. On the above facts, the Tribunal held that the letting out of building along with such amenities amounted complex commercial venture of the tax payer and had to be taxed under head "Profit and Gains of business or profession".
20. Thus, reading of the aforesaid decisions shows that when various amenities provided by an industrial park or software technology park is predominant in letting out of the housing unit, then the rental income is to be assessed under the head "profit and gains of business or profession" and in a case where letting out of building is predominant and the other amenities are merely incidental to such letting out then the rental income is to be assessed under the head "income from house property".
21. Coming to the facts of the present case, we find that both the parties have not brought any material before us to show that the 29 I.T.A. Nos. 2194 to 2199/Mds/10 facilities developed by the assessee after completion of the development was treated as an industrial park by any authority. From the records before us, it is not clear whether the alleged industrial park was so notified by the Central Government or not. Further, from the facts available on record, it is not clear that whether the letting out of the building was predominant in the transaction between the assessee and the tenants or whether predominant was of the industrial park comprised of various amenities and letting out of a building, as such park was merely incidental. In the above circumstances, in our considered opinion, it shall be fair and in the interest of justice to restore this issue back to the file of the Assessing Officer for proper verification in the light of the discussion made hereinabove and to readjudicate the issue afresh as per law. We order accordingly. Needless to mention that proper opportunity of hearing shall be allowed to the assessee before readjudicating the issue afresh.
22. In the result, all the appeals of the Revenue are allowed for statistical purposes.
30 I.T.A. Nos. 2194 to 2199/Mds/10The order was pronounced in the Court on 18.11.2011.
Sd/- Sd/-
(Hari Om Maratha) (N.S. Saini)
Judicial Member Accountant Member
Chennai,
Dated the 18th November, 2011.
VL
Copy to: (1) Appellant
(2) Respondent
(3) CIT(A)-V, Chennai-34
(4) CIT, Chennai-III, Chennai
(5) D.R.
(6) Guard file