Income Tax Appellate Tribunal - Pune
Mudhol Land Holding Pvt. Ltd.,, vs Department Of Income Tax on 31 July, 2015
आयकर अपील
य अ धकरण] iq.ks यायपीठ "ए" iq.ks म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
ी आर. के. पांडा, लेखा सद य
एवं ी वकास अव थी, या!यक सद य के सम"
BEFORE SHRI R.K. PANDA, AM
AND SHRI VIKAS AWASTHY, JM
धनकर अपील सं. / WTA No.07/PN/2015
!नधा$रण वष$ / Assessment Year : 2008-09
ACIT, Circle-14, Pune .......... अपीलाथ /
Appellant
बनाम v/s
Mudhol Land Holding Pvt. Ltd., ..........
यथ /
111, Mudhol House, Respondent
Koregaon Park,
Pune - 411001
PAN No.AADCM6515E
नधा रती क ओर से / Assessee by : Shri D.S. Dandgaval
& Shri S.N. Doshi
यथ क ओर से / Department by : Shri.Dheeraj Jain
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing :30.07.2015 Date of Pronouncement:31.07.2015
आदे श / ORDER
PER R.K. PANDA, AM :
This appeal filed by the Revenue is directed against the order dated 30-09-2014 of the CWT(A)-I, Pune relating to Assessment Year 2008-09.
2. Facts of the case, in brief, are that the assessee in response to notice u/s.17(1) of the Wealth Tax Act, 1957 filed its return of net wealth on 20-03-2013 declaring wealth of Rs.5,70,200/-. During the course of assessment proceedings, the AO noted that 2 WTA No.07/PN/2015 the assessee has received rental income of Rs.52,89,426/- from letting out of commercial property. The value of the property at Rent Capitalisation Method comes to Rs.6,61,17,825/-. Apart from this the assessee also has motor car costing Rs.16,18,106/-. After allowing the statutory deduction of Rs.15 lakhs the net wealth comes to Rs.6,62,97,931/- which had escaped assessment for which the notice u/s.17(2) was issued. On being confronted by the AO during the course of assessment proceedings, it was submitted by the assessee that it does not have any taxable wealth as on 31- 03-2008. It was argued that the building is commercial as the building has been leased out and the vehicles owned by the company are against vehicle loan. However, the AO did not accept the above contention of the assessee. According to him, in the case of the assessee, property held by the assessee company for the year under consideration has been given on rent for a period less than 300 days and therefore it is an asset within the meaning of section 2(ea) of the Wealth Tax Act and accordingly liable to wealth tax. The AO therefore determined the net wealth of the assessee company at Rs.6,62,97,931/-.
3. Before CIT(A) it was submitted that the said building is a commercial property which was constructed as I.T. park and it is known as "cybernex". It was argued that the property was approved as an infrastructure service provider by the Software Technology Park of India by the Ministry of Communication and Information Technology, Government of India. The Directorate of Maharastra has registered unit Cybernex as I.T. Park and the building was designed inside out and built with advanced specifications meant for I.T. Park. It was submitted that the 3 WTA No.07/PN/2015 lessees Axis bank and HDFC bank are using the tenements as call centres and back office services which are IT enabled and another lessee SMS concast is into CAD/CMS of design plants. It was submitted that these lessees are certified by the Directorate of Industries to occupy and use space at Cybernex and additional services/end to end solutions are provided by Cybernex as under :
i. Cybernex Energy Management Services (CEMS)
ii. Cybernex Information Technology Services (CITS)
iii. High and Low side Air Monitoring Systems (HVAC) iv. Base Building Specifications (BBS)
4. It was argued that the lease amount is loaded with premium for these services and facilities provided. The major amount of license fees or lease rental is for the space and facilities in totality and not for the space alone and these special services provided by the assessee included lift services, security, power back up and cafeteria space to the clients for which additional bills are raised on monthly basis. It was accordingly argued that this is a commercial property and its exploitation gives rise to the business income and not the rental income and therefore the value of this building cannot be considered as liable under Wealth Tax Act.
5. As regards the objection of the AO that the property has been rented out for less than 300 days, it was argued that the said condition of letting out the property for less than 300 days is applicable to a residential house and in that case the residential property will be treated as an asset. However, the building in the instant case is a commercial property. It was submitted that in the assessment completed u/s.143(3) for A.Y. 2008-09 the AO had assessed the lease charges as business income. The CIT by 4 WTA No.07/PN/2015 invoking the provisions of section 263 set aside the assessment order with a direction to complete the assessment afresh. Subsequently, the AO treated the business income claimed by the assessee as "income from house property" and accordingly assessed the total income at Rs.33,58,700/-. On appeal by the assessee before the Tribunal against the order passed u/s.263 the Tribunal vide order dated 28-08-2014 in ITA No.987/PN/2013 quashed the 263 order. It was accordingly argued that the order of the WTO treating the said commercial complex/property as residential property and treating the same as asset within the meaning of section 2(ea) of the Wealth Tax Act, 1957 is incorrect and therefore the same may be set aside.
6. Based on the arguments advanced by the assessee and following the decision of the Tribunal in the 263 proceedings and various other decisions as mentioned in the appeal order the Ld.CWT(A) held that the AO is not justified in including the value of the said building "Cybernex" in the net wealth of the assessee for the year under consideration and directed the AO to exclude amount of Rs.6,61,17,825/- from the net wealth of the assessee.
7. Aggrieved with such order of the CWT(A) the Revenue is in appeal before us with the following grounds :
"1. Whether on the facts and circumstances of the case and in law, the CIT(A) erred in treating the building called Cybernex as not an asset with meaning of sub-clause (4) of clause (i) of section 2(ea) of Wealth Tax Act. ?
2. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in excluding the value of the said building 'Cybernex' in the net wealth of the assessee for the year under consideration?5 WTA No.07/PN/2015
3. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in holding that the property in question in the nature of commercial establishment or commercial complex as envisaged in sub clause (5) of clause (i) of section 2(ea) of the Wealth Tax Act. ?
4. The appellant craves leave to add, amend or alter any of the above grounds of appeal."
8. The Ld. Counsel for the assessee at the outset filed a copy of the order of the Tribunal in assessee's own case in the 263 proceedings wherein the Tribunal has quashed the 263 order passed by the CIT. Referring to the said order he submitted that the AO had initially passed the order u/s.143(3) treating the income from the property as business income which was set aside the CIT by passing order u/s.263 and since the Tribunal had quashed the said order, therefore, the property has to be treated as commercial complex and not as residential property as held by the WTO. He accordingly submitted that this being a covered matter in favour of the assessee the order of the CWT(A) be upheld and the grounds raised by the Revenue be dismissed.
9. The Ld. Departmental Representative on the other hand heavily relied on the order of the AO.
10. We have considered the rival arguments made by both the sides, perused the orders of the WTO and the CWT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the CWT(A) while deleting the addition made by the WTO to the net wealth of the assessee treating the commercial complex as an asset within the meaning of section 2(ea) of the I.T.Act has observed as under :
6WTA No.07/PN/2015
"4.3 The submissions made by the Ld. Counsel for the appellant are carefully examined with reference to the facts of the case and the material placed on record including the order of the ITAT, Pune dated 28/08/2014 passed in ITA No. 987/PN/2013. In the first place, it may be appropriate to refer to the relevant observations of the Tribunal in the order dated 28/08/2014, which are as follows:
"In this context, in our considered opinion, the issue as to whether impugned rental lease charges (rentals) is liable to be assessed as 'business income' or as 'income from house property' is an issue which is dependent upon the mode and manner in which the activities have been carried out by the assessee in order to earn such lease charges (rentals). Ostensibly, it is a settled proposition that where the intention is to exploit the immovable property by way of complex commercial activities, in that event the rental income must be held as a business income. The aforesaid proposition has been approved by the Hon'ble Supreme Court in the case of Shambhu Investments (P) Ltd. vs. CIT, 263 TTR 143 (SC) wherein the judgment of the Hon'ble Calcutta High Court in the same case reported in 249 ITR 47 has been approved. The material on record before the Assessing Officer, namely, lease arrangements with the lessees, the nature of activities undertaken by the assessee and the details of business receipts form the basis to examine whether or not the impugned intention of the assessee was to exploit the immovable property by way of complex commercial activities. All such material was before the Assessing Officer as he had duly called for such material. However, the difficulty is that there is no specific finding by the Assessing Officer in this context and therefore as per the Revenue, such an assessment order is liable to be treated as erroneous within the meaning of section 263 of the Act. In our considered opinion, having regard to the facts of the present case, it is difficult to support the proposition sought to be canvassed by the Commissioner. We say so for the reason that after having called for and examined the relevant material, the Assessing Officer has noted in the assessment order the business activities of the assessee. The business activities of the assessee has been specifically identified as leasing out floor space in the infrastructure facility, named as CYBERNEX. Though the discussion contained in the assessment order is quite short, but once the same is read in the background of the material which was 'available with the Assessing Officer as a result of his enquiries during the assessment proceedings, it cannot escape conclusion that the Assessing Officer did apply his mind vis-a-vis the manner in which assessee was earning the impugned lease charges (rentals). Therefore, on facts, we are unable to concur with the Commissioner that the impugned assessment order has been passed without application of mind. Though the Commissioner has set-up a case that the assessment is based on non-application of mind by the Assessing Officer, but in effect what the Commissioner has sought to show is that there was lack of adequate and proper enquiries by the Assessing Officer. Needless to say, lack of adequate enquiry is a charge which is quite distinct and separate from the charge of lack of enquiry. As per the Hon'ble Delhi High Court in the case of CIT vs. Leisure Wear Exports Ltd. (supra) and by the Hon'ble Bombay High Court in the case of Design Automation Engg. (supra) lack of adequate enquiries cannot be a ground to hold an assessment order erroneous within the meaning of section 263 of the Act. Therefore, having regard to 7 WTA No.07/PN/2015 entirety of facts and circumstances of the case, we are unable to uphold the impugned charge made by the Commissioner against the assessment order dated 11.10.2010 (supra). Before parting, we may also refer to another argument set-up by the assessee based on decision of the coordinate Bench of the Tribunal in the case of DCIT vs. Magarpatta Township Development & Construction Co. vide ITA No.822/PN/2011 dated 18.09.2012. The case set-up by the assessee is that in the case of Magarpatta Township Development & Construction Co. (supra), assessee was earning license fee from letting out of premises in an IT Park, which is quite similar to the activities undertaken by the assessee in the present case. As per the appellant, the Tribunal vide its order dated 18.19.2012 (supra) considered such activities and came to conclude that the income from such activities was liable to be assessed as 'business income' and not as 'income from house property' as sought to be canvassed by the Revenue.
..........
24. In view of the aforesaid precedent also we do not find any support for the stand of the Commissioner that the income from the impugned lease rentals was liable to be assessed as income from house property."
4.3.1 As could be seen from the above observations, the ITAT held that the business activities of the appellant had been specifically identified as leasing out floor space in the infrastructure facility, named as CYBERNEX and it does not find any support for the stand of the Commissioner that the income from the impugned lease rentals was liable to be assessed as income from house property. While taking such a view in the matter, the Tribunal also referred to its order in the case of DCIT vs. Magarpatta Township Development & Construction Co. vide ITA No.822/PN/2011 dated 18.09.2012, wherein it is held as under:
"11. .........The Hon'ble Allahabad High Court in the case of CIT vs. Goel Builders (2010) 235 CTR 472 (All.) wherein the assessee was operating the commercial complex named Goel Complex and it was held that from the very beginning the construction of the building itself was for commercial purposes and therefore, the rental income was held to be assessable as business income. The Hon'ble Bombay High Court in the case of Mohiddin Hotels (2006) 284 ITR 229 (Bom), has held that when the subject matter that is let out is not a bare tenement, but the complex one with infrastructure facilities, the income derived there from which is not separable from letting out of the building, such income shall not be treated as income from house property. ITAT Mumbai Bench in the case of Gesco Corporation Ltd. (2009) 31 SOT 32 (Mum) wherein assessee has let out commercial premises as business centre and a large number of specialized services and facilities were provided in these business centers, like air-conditioning, power backup, water filtration plant, security system through CCTV, state of art computer-telephone integration, video conferencing facilities, secretarial services, the Tribunal held as under:8 WTA No.07/PN/2015
"It was clearly discernible from the agreements that the parties had entered into the arrangement with the assessee with the intention of using the services and amenities. The assessee was giving space with services and facilities which were varied and wide and such activities together would definitely constitute an organized structure for making profits and would necessarily constitute a business. Thus the assessee had created a commercial infrastructure and the services rendered were complex commercial /business activities. A perusal of agreements and the stipulations contained therein would not leave any doubt about the commercial character of the relationship between the parties, as distinguished from that merely of a landlord and his tenant. Occupation of space was inseparable from the provision of services and amenities."
In Gesco Corporation Ltd., ITAT Mumbai Bench has distinguished the facts from Shambhu Investments Pvt. Ltd. (supra). In case of Prestige Estate Projects (P) Ltd. (2010) 129 TTJ 680 (Bangalore), following the decision of Gesco Corporaiton Ltd., and Harvindarpal Mehta (HUF) vs. DCIT (2009) 122 TTJ 163 (Mum), has decided the similar issue in favor of assessee. In the said decision, the premises was related to a business centre with multifarious facilities like central air- conditioning services, attendants, sweepers, fax machine, furniture, receptionists, telephone operators, common waiting/ guest room with attached toilets, etc. and it was held that the receipts from such activities along with these facilities was to be assessed under the head income from business rather than the income from house property or income from other sources, as the object of the assessee was to run the business centre by exploiting the property and not merely letting out the property.
The Hon'ble Gujarat High Court in the case of CIT vs. Saptarshi Services 265 ITR 379 (Guj), which also related to the leasing out a business centre with various services, has decided the issue in favor of the assesses and the SLP filed on behalf of the Revenue was dismissed by the Hon'ble Supreme Court as reported in 264 (ST) 36. In this background, it is clear that assessee has provided various complex integrated services as mentioned in Schedule-II to the lease agreement with the I.T. Company. The services are vast and the amenities provided were in the nature of plant and machinery as contended by the assessee and it has been established by the clauses of the agreements that the cost of providing these services was also included in the lease rent of Rs. 14.30 per sq. ft. The assessee also clarified that cost involved in the services provided to the particular company i.e., ex.1 Services.com was Rs. 2.83 crores which was almost 40% of the land and building cost of that tower. By no stretch of imagination such extensive and specialized services which could only be utilized by the IT/Software/BPOs businesses to be located in the I.T. Park could be treated as forming part of income from house property. It is certainly a constitution of organized structure for carrying out business activities. Section 22 provides only for rental income out of building or land appurtenant thereto, whereas in the case before us, complex and varied services provided and the huge investment therein were in the nature of plant and machinery which could be included within the expression building or land appurtenant thereto. Thus, the assessee has conducted systematic activity to earn profit and accordingly income was to be assessed as income from 9 WTA No.07/PN/2015 business. In view of the submissions made on behalf of the assessee, and analysis of various clauses and Schedule-II of the agreement entered with the I.T. company, CIT(A) was justified in holding that in assessee's case the said income was to be assessed as business income. This reasoned factual finding need no interference from our side. We uphold the same."
4.3.2 Thus, as held by the ITAT Pune in the above cases and the Hon'ble Bombay High Court in the case of Mohiddin Hotels (2006) 284 ITR 229 that when the subject matter that is let out is not a bare tenement, but the complex one with infrastructure facilities, the income derived there from which is not separable from letting out of the building shall not be treated as income from house property. In the present case also, as submitted by the Ld. Counsel and as noted by the ITAT in the aforesaid order, the building 'Cybernex' is not a bare tenement but it is a commercial complex with advanced specifications meant for IT Park and therefore it cannot be said to be a residential property. The building is being exploited commercially by letting out the space and other infrastructural facilities in the building to various IT enabled companies etc. and therefore in my considered opinion sub-clause (4) of clause (i) of sec. 2(ea) of Wealth Tax Act, is not applicable to the facts of the present case. The property in question in the nature of commercial establishment or commercial complex as envisaged in sub-clause (5) of clause (i) of sec. 2(ea) of Wealth Tax Act and therefore the same falls within the exclusions provided in clause
(i) of sec. 2(ea). On the facts of the case, the Assessing Officer is not justified in including the value of the said building 'Cybernex' in the net wealth of the appellant for the year under consideration and accordingly the Assessing Officer is directed to exclude the amount of Rs. 6,61,17,825/- from the net wealth of the appellant. Ground of appeal No. 1 succeeds."
11. Since the Ld.CWT(A) while treating the asset as a commercial property has followed the decision of the Tribunal in assessee's own case in the 263 proceedings and has also relied on various other decisions and since the Ld. Departmental Representative was unable to distinguish the findings given by the CWT(A) by placing any cogent material, therefore, we do not find any infirmity in the order of the CWT(A) deleting the addition made by the WTO. As already mentioned earlier, the AO in the order passed u/s.143(3) had treated the rental income from the property as "business income" which was set-aside by the CIT u/s.263 of the I.T. Act. On appeal by the assessee the Tribunal quashed the order passed u/s.263. Therefore, once the rental income from the property is 10 WTA No.07/PN/2015 treated as "business income" and the character of the asset remains as commercial establishment or commercial complex as envisaged in sub-section 5 of clause (i) of section 2(ea) of the Wealth Tax Act, the same cannot be brought into the ambit of Wealth as the same falls within the exclusions provided in clause
(i) of section 2(ea) of the Wealth Tax Act. In this view of the matter and in view of the detailed reasoning given by the CWT(A) and in absence of any distinguishable features brought to our notice by the Ld. Departmental Representative, we do not find any infirmity in the same. Accordingly, the same is upheld and the grounds raised by the revenue are dismissed.
12. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 31-07-2015.
Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER iq.ks Pune; $दनांक Dated : 31st July, 2015. lrh'k
आदे श क' (!त*ल प अ+े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. धनकर आयु)त(अपील)-I, iq.ks / The CWT(A)-I, Pune
4. धनकर आय) ु त-I, iq.ks / The CWT-, I, Pune
5. ,वभागीय त न/ध, आयकर अपील य अ/धकरण, "ए" iq.ks / DR, ITAT, "A" Pune;
6. गाड फाईल / Guard file.
आदे शानस ु ार/ BY ORDER,स या,पत स या,पत त //True Copy// स या,पत त //True Copy// व र3ठ नजी स/चव / Sr. Private Secretary आयकर अपील य अ/धकरण, iq.ks / ITAT, Pune