DCIT 10(1), MUMBAI V. INTERNATIONAL BIOTECH PARK LTD, MUMBAI

ITA 224/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9331 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 17-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 11-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V KRISHNAMOORTHY
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI . . , , ! '#$% , & ' BEFORE S/SHRI DINESH KUMAR AGARW AL,JM AND N.K. BILLAIYA, AM ./I.T.A. NO.224/MUM/2010 ( ( ( ( ( / ASSESSMENT YEAR :2006-07 THE ACIT, RANGE 10(1), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. INTERNATIONAL BIOTECH PARK LTD., 5 TH FLOOR, METROPOLITAN BLDG., BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 ) & ./ *+ ./PAN/GIR NO. : AABCI 1236J ( ), /APPELLANT ) .. ( -.), / RESPONDENT ) ), / / APPELLANT BY: SHRI V. KRISHNAMOORTHY -.), 0 / / RESPONDENT BY : SHRI NIRAJ SHETH 0 1& / DATE OF HEARING : 08.11.2012 23( 0 1& / DATE OF PRONOUNCEMENT :23.11.2012 4 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-21, MUMBAI DT.30.10.2009 PERTAINING TO A.Y. 2006-07. 2. THE REVENUE HAS RAISED FOLLOWING SUBSTANTIVE GRO UNDS OF APPEAL: I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ID. CIT(A) FAILED TO APPRECIATE THAT THE INCOME FROM SUB-LEASI NG OF LAND WAS NOT BUSINESS INCOME OF THE ASSESSEE AS THE MAIN BUSINES S ACTIVITY OF THE ASSESSEE COMPANY IS DEVELOPMENT OF BIOTECH PARK AND NOT SUB-LEASING OF LAND. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ID. CIT(A) FAILED TO APPRECIATE THAT THE EXPENSES DEBITED TO T HE P&L A/C WERE ITA NO. 224/MUM/2010 2 INCURRED IN RELATION TO THE CONSTRUCTION WIP AND NO T TOWARDS SUB-LEASE OF LAND AND THEREFORE, THE DISALLOWANCE WAS RIGHTLY MADE IN THE ASSESSMENT ORDER ON PROPORTIONATE BASIS. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) FAILED TO APPRECIATE THAT EVEN THE CONSTRUCTION WIP WAS BEING TRANSFERRED BY THE ASSESSEE COMPANY TO INVESTMENTS, THEREBY OFFERING RENTAL INCOME AS INCOME FROM HOUSE PROPERTY AND NO BUSINESS INCOME WAS BEING OFFERED TO TAX EVEN IN THE SUBSEQUENT YEA RS IV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN DIRECTING TO ALLOW SET-OFF OF B/F BUSINESS LOSS WITHOUT APPRECIATING THAT THERE IS NO BUSINESS INCOME ASSES SED DURING THE YEAR AND THAT THE TREATMENT OF INCOME FROM SUB-LEASE OF LAND AS BUSINESS INCOME IS NOT ACCEPTED. V. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF APPLICABILITY OF SEC TION 32(2) OF THE ACT WITHOUT APPRECIATING THAT THERE WAS NO BUSINESS ACT IVITY AND HENCE, NO DEPRECIATION OR UNABSORBED DEPRECIATION COULD HAVE BEEN ALLOWED. 3. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF BIOTECH PARK, CONSTR UCTION, LEASING AND SALE OF COMMERCIAL PROPERTIES. DURING THE YEAR UNDER CONSI DERATION, THE ASSESSEE HAS SHOWN INCOME ON SUB-LEASE OF LAND AT RS. 4,05,2 9,208/-, RENTAL INCOME AT RS. 16,46,710/-, MAINTENANCE INCOME AT RS. 2,68,702 /-, OTHER INCOME AT RS. 16,90,625/- AND THE NET LOSS HAS BEEN COMPUTED AT R S. 63,77,261/-. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSES SING OFFICER SOUGHT EXPLANATION FROM THE ASSESSEE AS TO WHY THE EXPENSE S CHARGED TO THE PROFIT AND LOSS ACCOUNT SHOULD NOT BE CAPITALIZED WITH THE VARIOUS PENDING PROJECTS AND FURTHER THE AO ASKED THE ASSESSEE WHY THE SUBLE ASE INCOME SHOULD NOT BE TREATED AS INCOME FROM OTHER SOURCES AS THE SAME WAS NOT THE BUSINESS ACTIVITY OF THE ASSESSEE. THE ASSESSEE FILED A DET AILED REPLY VIDE LETTER DT. 12.12.2008. IT WAS EXPLAINED BY THE ASSESSEE THAT AS PER THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE ASSESSEE COMPANY , ONE OF THE ACTIVITIES OF THE ASSESSEE COMPANY IS TO SUBLEASE OF THE BUSINESS , MOVEABLE OR IMMOVABLE OF THE PROPERTY, RIGHTS AND EFFECTS FOR THE TIME BE ING OF THE COMPANY. IT WAS ITA NO. 224/MUM/2010 3 EXPLAINED THAT IN LINE WITH THE OBJECT CLAUSE OF TH E COMPANY, THE SUBLEASE INCOME HAS BEEN SHOWN AS BUSINESS INCOME OF THE ASS ESSEE COMPANY. SO FAR AS CLAIM OF EXPENSES ARE CONCERNED, THE ASSESSEE EX PLAINED THAT THE EXPENSES PERTAIN TO THE LAND SUB-LEASED AND THE 15 ACRES OF LAND TAKEN BACK BY MIDC. 3.1 AFTER CONSIDERING THE SUBMISSIONS MADE BY THE A SSESSEE, THE AO WAS OF THE OPINION THAT THE ANCILLARY ACTIVITIES OF THE ASSESSEE COMPANY CANNOT BE CONSIDERED AS ITS MAIN OBJECTS AS THE SAME ARE JUST FORMING PART OF THE MEMORANDUM. ACCORDING TO THE AO, THE MAIN OBJECT O F THE COMPANY IS IN THE WORK-IN-PROGRESS STAGE AND SUB-LEASING OF THE LAN D CANNOT BE TREATED AS THE ANCILLARY ACTIVITY OF THE ASSESSEE COMPANY AS BY SU B-LEASING, THE ASSESSEE COMPANY CANNOT ACHIEVE ITS MAIN OBJECTIVE WHICH IS CONSTRUCTION AND DEVELOPMENT OF BIO-TECHNOLOGY PARK. ACCORDINGLY, T HE AO DISMISSED THE CLAIM OF THE ASSESSEE THAT SUBLEASING OF LAND IS BUSINESS ACTIVITY OF THE ASSESSEE COMPANY. 3.2 THE AO FURTHER WENT ON TO ALLOCATE THE EXPENSES TO BE ALLOWED AS DEDUCTION FROM THE SUBLEASE INCOME. THE AO THEN AL LOCATED EXPENSES AS DEMONSTRATED ON PAGE 3 & 4 OF THE ASSESSMENT ORDER WHICH INCLUDED COST OF LAND SUBLEASED RS. 3,48,97,700/-, PERSONNEL EXPENSE S RS. 1,72,954/-, OPERATING EXPENSES RS. 5,77,640/- AND MISCELLANEOUS EXPENSES RS. 2,28,590/- AND COMPLETED THE ASSESSMENT AT RS. 74,6 9,200/- AFTER ALLOWING SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION AT RS. 2,95,145/- ONLY. 4. BEING AGGRIEVED BY THE DECISION OF THE AO, ASSES SEE CARRIED THE MATTER BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A), IT W AS CONTENDED BY THE ASSESSEE THAT ITS MAIN OBJECT IS TO CONSTRUCT, DEVE LOP, ESTABLISH , RUN OR ASSIST IN CONSTRUCTING, DEVELOPING, ESTABLISHING AND RUNNI NG QUALITY FACILITIES FOR BIO TECHNOLOGY AND LIFE SCIENCE. IT WAS EXPLAINED TO T HE LD. CIT(A) THAT IN ORDER TO PROVIDE QUALITY INFRASTRUCTURE FACILITY ACQUISIT ION OF LAND AND ITS DEVELOPMENT TO MAKE THE SAME SUITABLE FOR USE AND F OR SUBLEASE WAS THE PART OF THE MAIN OBJECT OF THE ASSESSEE COMPANY. TO SUBS TANTIATE ITS CLAIM, THE ITA NO. 224/MUM/2010 4 ASSESSEE FURTHER EXPLAINED TO THE LD. CIT(A) THAT I T ACQUIRED TOOK ON LEASE LAND DURING A.Y. 2005-06 UNDER AGREEMENT WITH MIDC. THE LAND SO TAKEN ON LEASE FROM MIDC WAS TO BE DEVELOPED AND THEN ONLY T O BE SUB-LEASED FOR WHICH THE ASSESSEE HAD TO SPENT SIZEABLE AMOUNT ON DEVELOPMENT OF LAND. THE ASSESSEE FURTHER EXPLAIN THAT IT DEVELOPED LAN D AND ALSO SUB-LEASED LAND TO THOSE UNITS/CORPORATION WHO WERE IN THE SAME BU SINESS OF DEVELOPMENT AND PROMOTION OF BIO TECHNOLOGY AND LIFE SCIENCE IN DUSTRY AND EARNED INCOME ON SUB-LEASE. THE ASSESSEE THEREFORE CONTENDED BEF ORE THE LD. CIT(A) THAT ITS BUSINESS WAS DULY SET UP DURING THE F.Y. 2004-0 5. 4.1 AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND THE JUDICIAL PRONOUNCEMENT RELIED UPON BY THE ASSESSEE, THE LD. CIT(A) HELD THAT THE ASSESSEE WAS FORMED AS A RESULT OF JOINT VENTURE BE TWEEN MIDC AND TCG URBAN INFRASTRUCTURE HOLDING LTD WITH THE MAIN OBJEC TIVE OF DEVELOPMENT OF BIOTECHNOLOGY PARK, TECHNOLOGY PARK, BUSINESS PARKS AND INDUSTRIAL DEVELOPMENT CENTRES TO FACILITATE THE BIOTECHNOLOGY AND LIFE SCIENCE INDUSTRY. THE LD. CIT(A) FURTHER OBSERVED THAT FOR THE PURPOS E OF ASSUMING ITS OBJECTIVE, THE ASSESSEE WAS TO DEVELOP THE LAND , C REATE INFRASTRUCTURAL FACILITIES THEREON WHICH WERE TO BE MADE AVAILABLE TO OTHER PARTIES FOR CARRYING OUT MANUFACTURING/PRODUCTION ACTIVITIES IN THE FIEL D OF TECHNOLOGY/BIOTECHNOLOGY. THE LD. CIT(A) FURTHER GA VE SPECIFIC FINDING THAT AS THE ASSESSEE COMPANY WAS NOT HAVING ANY LAND OF ITS OWN, THE LAND FOR THIS PURPOSE WAS MADE AVAILABLE TO THE ASSESSEE COMPANY BY THE MIDC ON LEASE BASIS AND SINCE THE ASSESSEE COMPANY ITSELF WAS IN POSSESSION OF LAND ON LEASE BASIS, THEREFORE IT COULD NOT SELL THE DEVELO PED LAND OR THE BUILDING SITUATED THEREON ON OWNERSHIP BASIS TO THE OTHER PA RTIES. THE LD. CIT(A) FINALLY CONCLUDED THAT WITH THE PURCHASE OF LAND AN D INCURRING VARIOUS EXPENSES THEREON FOR DEVELOPMENT OF LAND, THE ASSES SEE SAID TO HAVE SET UP/COMMENCED ITS ACTIVITY. AS THE ASSESSEE COULD HA VE TRANSFERRED THE LAND TO OTHER PARTIES ONLY ON SUBLEASE BASIS, THEREFORE, TH E INCOME RECEIVED ON ACCOUNT OF SUBLEASE WAS ITS BUSINESS INCOME. AFTER DISCUSSING ALL THE FACTS ITA NO. 224/MUM/2010 5 INTO TOTALITY, THE LD. CIT(A) HELD THAT THE SUBLEAS ED INCOME RECEIVED BY THE ASSESSEE WAS ITS BUSINESS INCOME. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE R ELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES AND ALSO RELIED U PON THE DECISION OF HONBLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF CIT VS. SPONGE IRON INDIA LTD. (1993) 201 ITR 770. THE LD. COUNSEL FOR THE ASSESS EE REITERATED WHAT HAS BEEN STATED/ARGUED BEFORE THE LD. CIT(A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO CAREFULLY CONS IDERED THE CASE LAWS CITED BY THE LD. DR. WE HAVE ALSO CAREFULLY PERUSED THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY, ITS MAIN OBJEC T AND THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MA IN OBJECTS. WE HAVE ALSO GONE THROUGH THE LEASE DEED DT. 26 TH MARCH, 2004 BETWEEN ASSESSEE COMPANY AND MIDC. THE ASSESSEE COMPANY HAS BEEN INC ORPORATED AS PER THE CERTIFICATE OF INCORPORATION ISSUED BY THE REGI STRAR OF COMPANIES, MAHARASHTRA, MUMBAI WHICH IS DT. 9.7.2003. THE REGI STRAR OF COMPANIES, MAHARASHTRA, MUMBAI FURTHER ISSUED CERTIFICATE FOR COMMENCEMENT OF BUSINESS DT. 17 TH JULY, 2003. THUS, IT IS ESTABLISHED THAT THE ASSE SSEE COMPANY COMMENCED ITS BUSINESS ACTIVITIES FROM 17 TH JULY, 2003. THE ASSESSEE COMPANY TOOK LAND ON LEASE, DEVELOPED THE LAND AND FURTHER SUBLEASED FROM WHICH IT DERIVED SUBLEASE INCOME WHI CH IS IN LINE WITH THE JOINT VENUTURE AGREEMENT AND THE LEASE AGREEMENT WITH MID C. IT WOULD BE PERTINENT TO EXHIBIT CLAUSE (E) OF PARA-2 OF THE SA ID LEASE DEED CUM JVA EXHIBITED AT PAGE-32 OF THE PAPER BOOK. SUBJECT TO THE PROVISIONS OF CLAUSE 6(E) HEREINBEL OW TO USE THE DEMISED PREMISES ONLY FOR ASSIGNING/SUB-LEASING/LIC ENSING ANY PORTION OF THE LAND TO UNITS ENGAGED IN BIOTECHNOLO GY OR DEVELOPING THE LAND TO PLAN AND CONSTRUCT BUILDINGS AND UNITS ENGAGED IN BIOTECHNOLOGY AND TO SUB-LEASE/LICENCE S UCH BUILDINGS AND UNITS TO THIRD PARTIES FOR SUCH PURPO SES AS SPECIFIED IN AND IN ACCORDANCE WITH THE JVA, WHICH ARE SET OUT IN THE FIFTH SCHEDULE HERETO. ITA NO. 224/MUM/2010 6 THUS, AS PER THE ABOVE CLAUSE, THE ASSESSEE COULD SUBLEASE PORTION OF LAND TO UNITS ENGAGED IN BIOTECHNOLOGY OR DEVELOPIN G THE LAND TO PLAN AND CONSTRUCT BUILDINGS AND UNITS ENGAGED IN BIOTECHNOL OGY. IT IS TO BE REMEMBERED THAT THE ASSESSEE COMPANY WAS NOT FORMED WITH AN OBJECTIVE OF CARRYING OUT ANY MANUFACTURING PRODUCTION OR SERVIC E ACTIVITY. THE ASSESSEE COMPANY WAS FORMED TO DEVELOP TECHNOLOGY PARK/BIOTE CHNOLOGY PARK FOR THE PURPOSE OF ACHIEVING ITS OBJECTIVE. 7. THE LD. CIT(A) HAS GIVEN A CORRECT FINDING THAT AS THE ASSESSEE COMPANY WAS NOT HAVING ANY LAND OF ITS OWN, THEREFO RE IT COULD ONLY SUBLEASE THE LAND WHICH HAS BEEN MADE AVAILABLE TO THE ASSES SEE-COMPANY BY MIDC ON LEASE BASIS. THEREFORE, IN OUR CONSIDERATE VIEW ANY INCOME DERIVED FROM SUCH SUBLEASE OF LAND CAN ONLY BE TAXED UNDER THE H EAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. AFTER CONSIDERING THE FACT S AND THE DOCUMENTS AVAILABLE ON RECORD IN TOTALITY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF THE LD. CIT(A). RELIANCE ON THE DECISIO N OF THE HONBLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF SPONGE IRON INDIA L TD. (SUPRA) BY THE LD. DR IS ALSO MISPLACED AS IN THAT CASE THE HONBLE HI GH COURT CONFIRMED THE FINDINGS OF THE AUTHORITIES BELOW THAT THE ASSESSEE HAD NOT COMMENCED THE BUSINESS DURING THE YEAR IN QUESTION THEREFORE INTE REST RECEIVED ON THE SHORT TERM DEPOSIT CAPITAL IS RIGHTLY CHARGED AS INCOME F ROM OTHER SOURCES. THE OBSERVATION OF THE HONBLE HIGH COURT THAT MERE INC LUSION OF BUSINESS IN THE MAIN OBJECTIVE CLAUSE IN MEMORANDUM OF ASSOCIATION IS NOT ENOUGH TO CONCLUDE THAT BUSINESS HAS COMMENCED, BUSINESS PURS UANT TO OBJECT CLAUSE SHOULD HAVE BEEN ACTUALLY STARTED, IS ALSO AGAINST THE FACTS OF THE PRESENT CASE WHEREIN IT HAS BEEN ACCEPTED BY THE REVENUE THAT BU SINESS WAS SET UP DURING FINANCIAL YEAR 2004-05 RELEVANT TO A.Y. 2005-06 IN THE ASSESSMENT MADE U/S. 143(3) OF THE ACT BY THE JCIT WHO ALLOWED THE BENEF IT OF CARRY FORWARD OF BUSINESS LOSS AND DEPRECIATION ALLOWANCE TO THE NEX T ASSESSMENT YEAR I.E. YEAR UNDER CONSIDERATION. THEREFORE, ON THESE FACT S, IT CAN BE SAFELY CONCLUDED THAT THE BUSINESS OF THE ASSESSEE HAS BEE N STARTED IN F.Y. 2004-05 RELEVANT TO A.Y. 2005-06. ACCORDINGLY, WE DIRECT TH E AO TO TREAT THE SUBLEASE ITA NO. 224/MUM/2010 7 INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. THIS GROUND OF THE REVENUE IS DISMISSED. 8. THE NEXT GROUND RELATES TO THE DIRECTION OF THE LD. CIT(A) WHO ALLOWED SET OFF OF BROUGHT FORWARD BUSINESS LAWS. AS WE HA VE ALREADY HELD THAT THE BUSINESS HAS BEEN SET UP IN FINANCIAL YEAR 2004-05 RELEVANT TO A.Y. 2005-06, WE DO NOT FIND ANY INFIRMITY WITH THE FINDINGS OF T HE LD. CIT(A) THAT THE ASSESSEE IS ELIGIBLE FOR SET OFF OF BROUGHT FORWARD BUSINESS LAWS AS INCOME FROM SUBLEASE OF LAND HAS BEEN DIRECTED TO BE TREAT ED UNDER THE HEAD OF PROFIT AND GAINS OF BUSINESS OR PROFESSION. THIS G ROUND OF THE APPEAL IS ACCORDINGLY DISMISSED. 9. THE NEXT GROUND RELATES TO THE ALLOWABILITY OF D EPRECIATION U/S. 32(2) OF THE ACT. THIS GROUND IS ALSO RELATED TO THE FINDIN GS OF THE AFORESAID GROUNDS. AS WE HAVE HELD THAT THE INCOME FROM SUBLEASE OF L AND IS TO BE TREATED AS BUSINESS INCOME, THEREFORE, THE ASSESSEE IS ENTITLE D FOR CLAIM OF DEPRECIATION AND SET OFF OF UNABSORBED DEPRECIATION. THIS GROUN D OF THE APPEAL IS ALSO DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. 5 16 * 0 7 &5* 0 *1 8$ ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD NOVEMBER, 2012 . 4 0 3( & 7 9 6 23.11.2012 3 0 : SD/- SD/- (DINESH KUMAR AGARWAL) (N .K. BILLAIYA) / JUDICIAL MEMBER & / ACCOUNTANT MEMBER MUMBAI; 9 DATED 23.11.2012 . . ./ RJ , SR. PS ITA NO. 224/MUM/2010 8 4 4 4 4 0 00 0 -1' -1' -1' -1' '(1 '(1 '(1 '(1 / COPY OF THE ORDER FORWARDED TO : 1. ), / THE APPELLANT 2. -.), / THE RESPONDENT. 3. ; ( ) / THE CIT(A)- 4. ; / CIT 5. '<: -1 , , / DR, ITAT, MUMBAI 6. : = / GUARD FILE. 4 4 4 4 / BY ORDER, .'1 -1 //TRUE COPY// > >> > / 8 8 8 8 * * * * (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI