Income Tax Appellate Tribunal - Hyderabad
Vijay Infotech Ventures, Sec'Bad, ... vs Dcit, Circle-10(1), Hyd, Hyderabad on 30 December, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
S.No. ITA No. AY Appellant Respondent
1. 1199/H/15 2011-12 Vijay Infotech Commissioner of
Ventures, Income-tax
Secunderabad. (OSD), Range-
10, Hyderabad
PAN -
AAFFV6464Q
2. 1200/H/15 2012-13 -do- -do-
3. 1211/H/15 2011-12 Dy. Vijay Infotech
Commissioner of Ventures,
Income-tax, Secunderabad.
Circle - 10(1),
Hyd. PAN -
AAFFV6464Q
4 1212/H/15 2012-13 -do- -do-
Assessee by : Shri Laxminiwas Sharma
Revenue by : Smt. U. Minichandran
Date of hearing : 21-11-2016
Date of pronouncement : 30-12-2016
O RDE R
PER S. RIFAUR RAHMAN, A.M.:
These appeals are cross appeals filed by the assessee as well as revenue directed against the orders of CIT(A)- VI, Hyderabad, dated 15/07/2015 for AYs 2011-12 and 2012-13. As identical issues are involved in these appeals, they were clubbed and heard together, therefore, a common order is passed for the sake of convenience.
2. To dispose of these appeals, we refer to the facts from AY 2011-12 being ITA No. 1199/H/15.
2 ITA No. 1199/H/15 and othersVijay Infotech Ventures, Sec'bad
3. Briefly the facts of the case are that the assessee firm which derives income from owning a software park at Kondapur, Hyderabad filed its return of income on 22/07/2011, declaring loss of Rs. 2,98,73,840/-. The AO made an assessment on a total income of Rs. 2,28,73,150/- by determining the receipts towards lease rentals as 'income from house property' and disallowed depreciation and other business expenditure.
3.1 During scrutiny proceeding it was seen that the assessee-firm had shown a receipt of Rs.16,30,06,552/- towards lease rentals from Software Technology Park, Rs.1,16,81,004/- towards operations and maintenance of the same, besides other income of Rs.49,24,626/-. It claimed interest expenses of Rs.10,61,00,409/- on term loan, Rs. 7,63,60,6.48/- towards depreciation, Rs.47,45,790/- towards security expenses, Rs.54,23,712/- towards finance processing charges and Rs.46,01,863/- towards annual maintenance charges besides other expenses. The Assessing Officer did not accept the contention of the assessee and held that, as per the scheduler system of taxation, the annual value of a house property was liable to be taxed under the head 'income from house property'. Consequently, he computed the income accordingly and, did not allow deduction for depreciation of Rs. 7,63,60,648/ - and other expenses claimed in the profit and loss account. He charged rental income under the head 'income from House Property'. For the reasons discussed in the assessment order (refer para 7), he assessed the receipt of maintenance charges of Rs.1,16,81,004/- and interest income of Rs.45,38,427/- under the head 'Income From Other Sources'.
4. Aggrieved against the order of the Assessing Officer, the assessee has preferred the appeal before the CIT(A).
5. Before the CIT(A), it was submitted that the issue was covered in assessee's favour by the decision of the ITAT in its own case for 3 ITA No. 1199/H/15 and others Vijay Infotech Ventures, Sec'bad AYs 2008-09, 2009-10 and 2010-11. The assessee also relied on various decisions of ITAT, which were mentioned at page 4 by the CIT(A) in his order and also the decision of the Hon'ble Supreme Court in the case of Chennai Properties and Investments Ltd. Vs. CIT to submit that the income/loss should be computed under the head profit and gains of business or profession.
6. After considering the submissions of the assessee, the CIT(A) observed that the decision was rendered by the ITAT on consideration of the fact that the assessee was maintaining and operating an industrial park which had been approved by the competent authority for purposes of deduction u/s 80-IA of the Act. The approval to the park had been accorded to the developer, namely, Meenakshi Infrastructure Pvt. Ltd. from whom the assessee had acquired it and the transfer had also been approved by the competent authority. He observed that the argument of the assessee before the Hon'ble ITAT was that, since the deduction u/s 80-IA is available in respect of the profit derived from an eligible business and, since industrial park is treated as eligible business, the profit/loss from the same is required to be computed under the head 'Profit and gains of business or profession'. That logic had found favour with the Hon'ble ITAT. It is, however, noticed that the initial approval given to M/s. Meenakshi Infrastructure Private Limited stands rescinded with effect from the date it was given, i.e. 31.08.2006. The approval was rescinded because "the undertaking has failed to adhere to the terms and conditions as laid down in the Industrial Park Scheme and by the Central Government vide the Ministry of Finance, Department of Revenue's Notification number S.O.No.3466, dated the 21 st August, 2006 published in the Gazette 01. India, Part II, Section 3, Sub- section (ii) and Ministry of Commerce and Industry, Department of Industrial Policy and Promotion's approval letter no.15/12/2006- ID dated 10'" April, 2007" (Ref. CBDT notification No. 37/2015, dt.10.04.2015). Hence, according to him, any argument to the effect 4 ITA No. 1199/H/15 and others Vijay Infotech Ventures, Sec'bad that the income should be treated as profits from business because the undertaking had been approved by the competent authority for purposes of deduction u/s 80IA(4) [which may have found favour in the past] does not hold good anymore. For the same reason, he held that the decision of the Hon'ble ITAT in assessee's favour in the past is not applicable.
6.1 As regards the other decisions relied on by the assessee, the CIT(A) observed that the common ratio of those decisions is that, if the main object of the company holding a property is to lease it out and earn rental income, such income may be treated as profit of business, The assessee has cited these decisions but has not shown that its main object is that unless the facts of the case are shown to be identical to the facts on consideration of which those decisions were rendered, the ratio of those decisions cannot be applied and benefit of the same cannot be given to the assessee.
6.2 The CIT(A) observed that the general proposition of the law is that, in scheduler system of computation of income, heads of income are mutually exclusive and, if an income can be computed under a specified head, it must be compute under that head . Income from house property is a specified head of income and it takes within its ambit "The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him" (Ref. Section 22 of the I.T. Act). The rental income earned by the assessee by leasing out the premises in question falls squarely under that head. The assessee has raised an additional ground that income should be treated as profits from business on the grounds of consistency. That argument is not acceptable because, as discussed above, the decision of the Hon'ble ITAT in this case in the past is not applicable any more in view of the material change in the relevant 5 ITA No. 1199/H/15 and others Vijay Infotech Ventures, Sec'bad facts and the other exceptional consideration for which the income/loss could be computed under the head 'profit and gains of business or profession' is not shown to apply in this case. In view of the above observations, the CIT(A) held that the income is chargeable as 'Income from House Property" and confirmed the AO's action.
6.3 As regards the receipt by way of operation and maintenance charges, CIT(A) observed that the same may not be part of the rental income per se, more so because the assessee may be rendering specific services to the lessees. It would therefore, be appropriate to treat such receipt as receipt of business and assessee the income/loss arising therefrom after making allowance for the expenditure incurred wholly and exclusively for purposes of provision of such services. It needs to be clarified that deduction for depreciation cannot be allowed because that relates to ownership of the asset and the income attributable to the ownership, i.e. rent is to be assessed under the head 'Income from House Property' after allowing flat deduction of 30% of the annual value. It also needs to be clarified that the flat, deduction u/s 24 takes care of repairs and maintenance of the premises and, hence, any expenditure of that nature should not be allowed as deduction separately against the receipt by way of operation and maintenance. It is only the expenditure incurred wholly and exclusively for purposes of rendering specific services to the lessees in course of their occupation of the premises that should be allowed as deduction against such receipt. He, therefore, directed the AO to compute profit and gains of business following his observations.
7. Aggrieved by the order of the CIT(A) both assessee as well as revenue are in appeal before us raising the following grounds of appeal, which are common in both the years under consideration:
6 ITA No. 1199/H/15 and othersVijay Infotech Ventures, Sec'bad Assessee's Grounds of appeal:
1. The learned CIT (A)-VI erred in facts and law while passing assessment order.
2. The learned CIT (A)-VI erred in making the assessment under head income from house property when the income is from business and depreciation & other expenditure are allowable.
3. The learned CIT (A)-VI erred in not appreciating that operation and maintenance of infrastructure project is eligible for depreciation and other expenses.
4. The learned CIT (A)-VI erred in ignoring the order passed by Honorable ITAT on similar issues in assesses own case for A Y 08-09, 09-10 & 10-11 on the grounds that this decision of the ITAT is not applicable anymore due to the fact that 80-IA deduction has been withdrawn and Cit(A) erred in not considereing the case law submitted in case.
5. The learned CIT (A)-VI erred in separating the receipts from operation and maintenance of the infrastructure project without taking into consideration that these services are rendered only in connection with the business of letting out.
6. The learned CIT (A)-VI erred in not considering the main object of the assessee is to lease out the property to earn rental income as stated in its Partnership Deed.
7. For these & other ground which may be raised during or before the appeal is heard, it is prayed that the relief be granted."
7.1 The assessee has also raised an additional ground before us, which is as under:
"CIT(A) erred in ignoring the principle of consistency wherein the income of the assessee has been assessed as income from business from AY 2006-07 to AY 2010-11."
Revenue's grounds of appeal:
" 1. Under the facts and circumstances of the case, whether the CIT(A) is correct in holding that the Income derived from operation and maintenance is assessable under the head "Income from business when the A.O's treatment of the income earned from letting out, which is the main income of the 7 ITA No. 1199/H/15 and others Vijay Infotech Ventures, Sec'bad assessee, as income from house property has been upheld by the CIT(A).
2. Under the facts and circumstances of the case, whether the CIT(A) has not erred in treating the incidental income as 'Income from business", while holding the main income from letting out as income from "House property" after rejecting the assessee's claim that it is assessable as "Income from business".
3. Any other ground that may be urged at the time of hearing."
8. Ld. AR submitted that upto AY 2010-11, the income of the assessee was assessed as 'business income. The assessee is in the same business of letting out the property and there is no change in the method of operation of the assessee. He submitted that in the AY 2008-09, 2009-10 and 2010-11, the department raised similar issue and also denied the benefit u/s 80IA. Assessee carried the matter to ITAT, the ITAT has adjudicated the issue in favour of the assessee. He further submitted that in the given AYs. 2011-12 and 2012-13, the assessee has carried on the same activity but due to non-compliance of terms of approval for deduction u/s 80IA, the Ministry of Finance has rescinded the approval Accordingly, the assessee also not claimed any benefit. He submitted that these facts were brought to the notice of CIT(A), who failed to appreciate the facts in this case and adjudicated that the activities of the assessee are not eligible business, hence, it could be assessed under the head "income from house property".
8.1 Ld. AR brought to our notice the partnership deed in which the objective clause of the partnership is to carry on the business ventures in software technology parks, industrial parks, all types of infrastructure development, operating and maintenance (refer pages 65-70 of paper book). He submitted that the assessee is doing business of letting the said property and doing eligible business. He further submitted before us the decisions of Hon'ble Supreme Court in the case of Rayala Corporation Pvt. Ltd. Vs. ACIT (Civil Appeal No. 6437 of 2016, dt. 11/08/16) and M/s Chennai Properties & 8 ITA No. 1199/H/15 and others Vijay Infotech Ventures, Sec'bad Investments Ltd., (Civil Appeal No. 4494 of 2004, dt. 09/04/2015) to submit that when the assessee carries on the eligible business, the income should be assessed only as business income not under the head 'income from house property'.
8.2 Ld. AR further submitted that the assessee was following the activities consistently and the income should be assessed as business income as the assessee was following the same activities consistently over the years.
9. Ld. DR relied on the findings of CIT(A) in para 8 of the order. He submitted that in consequent to rescindment of approval granted to carry on the operation of industrial park, the assessee does not have any other business, the income earned and expenditure should be assessed under the head 'income from other sources'. He further relied on the orders of lower authorities.
10. Considered the rival submissions and perused the material facts on record. The assessee was receiving lease rentals from software technology park and income from operations and maintenance of software park. Apart from rent, it has received maintenance and interest income. Assessee had treated the rental income and maintenance charges as business income. AO treated the rental income as income from house property as the same was charged to tax by following the scheduler system of taxation specified in the income tax Act. AO treated the other income as income from others sources. Ld. CIT(A) confirmed the scheduler system of taxation by observing that the assessee was getting benefit u/s 80IA in the earlier years and subsequent to rescindment of approval to claim deduction u/s 80IA, he considered that the assessee looses to be eligible undertaking. The income was treated as profit from business because the undertaking was approved by competent authority for the purpose of deduction u/s 80IA. Subsequent to rescindment of approval, the undertaking does not hold to be carrying on eligible business.
9 ITA No. 1199/H/15 and othersVijay Infotech Ventures, Sec'bad 10.1 The mute question before us is whether the activities carried on by the assessee is eligible business for the purpose of treating the profit as business profit or not. The assessee was carrying the same activities of leasing the building for software technology and earning maintenance charges before rescindment of approval for deduction u/s 80IA and later years. There is no change in the activities during the year of deduction u/s 80IA and later years. Merely, because the deduction u/s 80IA withdrawn, whether the activities can be regarded as different (?). Ld. AR brought to our notice the partnership deed, as per which, the main object of running the business is to venture in software technology parks, all nature of real estate business. It is evident from the financial statement of the assessee that the main income is from leasing out of the property and related income from maintenance of the property. In case, the main object of the assessee is to lease out the property, then, it can be regarded as the business income. This is inferred from the judgment of the Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd. (supra) and Rayala Corporation Pvt. Ltd. (supra). The above two cases are relating to company, whereas the case in question, relates to partnership firm. The objects of creating the company and partnership firm are similar. Hence, the conclusion can be drawn that both are created to carry on the business of leasing out the properties to make profit. In our considered view, the object of running business to make profit by leasing out the property will be charged to tax only under the head 'income from business and not income from house property. The assessee has established the business only to earn income from leasing out the property, hence, assessee is eligible to treat the rental income as business income and eligible to claim the related expenditure as business expenditure. Accordingly, the grounds raised by the assessee is allowed in both the years under consideration and since we have adjudicated the ground raised by the assessee in its favour, consequent to that the ground raised by revenue in both the years under consideration is dismissed.
10 ITA No. 1199/H/15 and othersVijay Infotech Ventures, Sec'bad
11. In the result, both the assessee's appeals are allowed and revenue appeals are dismissed.
Pronounced in the open court on 30 th December, 2016.
Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 30 th December, 2016
kv
Copy to:-
1) M/s Vijay Infotech Ventures, 402, Ground Floor, Surya Towers, S.P. Road, Secunderabad - 500 003.
2) CIT (OSD) Range - 10, Hyderabad
3) CIT(A) - VI, Hyderabad 4 Pr. CIT - 6, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File