Paharpur Pragnya Tech Park (P) Ltd., Hyderabad V. ACIT, Circle -16(3), Hyderabad

ITA 355/HYD/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6269 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-07-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 06-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: S RAGHUNATHAN
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 355 & 356/HYD/2012 ASSESSMENT YEARS: 2007-08 & 2008-09 PAHARPUR PRAGNYA TECH PARK (P) LTD., HYDERABAD 500 081 PAN AABCL0590N VS. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 16(3), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAGHUNATHAN REVENUE BY : SHRI K. J. RAO DATE OF HEARING 04-07-2016 DATE OF PRONOUNCEMENT 27-07-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS ARE PREFERRED BY THE ASSESSEE A GAINST SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCO ME-TAX(A) - V, HYDERABAD, BOTH, DATED 01/11/2011 FOR AYS 2007-08 AND 2008-09. AS COMMON ISSUE IS INVOLVED IN BOTH THE APPEALS, THEY ARE CLUBBED AND HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PA SSED FOR THE SAKE OF CONVENIENCE. 2. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FAC TS FROM AY 2007-08 BEING ITA NO. 355/HYD/12. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS A SPECIAL PURPOSE VEHICLE OF L&T INFOCITY LTD. FOR DE VELOPMENT OF CUSTOM BUILT FACILITY CENTRE FOR HDPI LTD. IT FILED RETURN OF INCOME FOR THE AY 2007-08 ON 30/20/2007 ADMITTING TOTAL INCOME OF RS. 3,54,080/-. THE 2 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., RETURN OF INCOME WAS PROCESSED U/S 143(1). SUBSEQUE NTLY, THE ASSESSMENT WAS REOPENED BY ISSUE OF NOTICE U/S 148. THE AO COMPLETED THE ASSESSMENT U/S 143(3) R.W.S. 147 BY T REATING THE INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS AGAINST BUSINESS INCOME AS ADMITTED BY THE ASSES SEE. 3.1. THE ASSESSEE COMPANY WAS GETTING INCOME BY WAY OF LEASE RENTALS. ALTHOUGH THE ARTICLES OF ASSOCIATION OF TH E COMPANY INDICATED THAT IT WAS IN THE BUSINESS OF DEVELOPMENT AND OPER ATION OF INDUSTRIAL PARK/SOFTWARE TECHNOLOGY PARKS, HOWEVER, THE ASSESS ING OFFICER NOTICED THAT DURING THE YEAR THE COMPANY ONLY RECEI VED LEASE RENT FROM M/S HDPI LIMITED TO WHOM IT HAD GIVEN ITS BUIL DING ON LEASE FOR 9 YEARS. THE BACKGROUND IS THAT A LAND OF 3.542 ACRES WAS ALLOTTED TO THE ASSESSEE BY WEST BENGAL ELECTRONIC INDUSTRY DEV ELOPMENT CORPORATION FOR A PERIOD OF 99 FEARS. THE CORPORATI ON ASKED THE ASSESSEE TO DEVELOP A BUILDING AND ITS RELATED INFR ASTRUCTURE TO 1,80,000 SQ.FT. WITH SPECIFIC PARAMETERS FOR AN IT COMPLEX. THE ASSESSEE DEVELOPED THE SAME AND GAVE IT ON LEASE TO M/S HDPI LIMITED. THE ASSESSING OFFICER HELD THAT IN PROVIDI NG THE COMPLEX ON LEASE, THE APPELLANT DID NOT CARRY OUT ANY ACTIVITY WHICH WOULD CONSTITUTE A BUSINESS. ACCORDINGLY, HE HELD THE LEA SE RENTALS RECEIVED BY THE ASSESSEE TO BE INCOME FROM HOUSE PROPERTY. 3.2 BEFORE THE AO, THE ASSESSEE SUBMITTED AS UNDER: THE ISSUE OF CLASSIFICATION OF INCOME HAS BEEN A SU BJECT MATTER OF EXTENSIVE LITIGATION AND IS A VERY CONTENTIOUS I SSUE. IN THE CASE OF SULTAN BROTHERS PVT.LTD. V.CIT[1964] 51 ITR 353, 354 AND IN UNIVERSAL PLAST LTD. V. CIT [1999-] 237 ITR 454,459 [THE PRINCIPLE FORMULATED BY THE APEX COURT IS AS UNDER: 'WHETHER A PARTICULAR LETTING IS BUSINESS, HAS TO B E DECIDED IN THE CIRCUMSTANCES OF EACH CASE. EACH CASE HAS TO BE LOO KED AT FROM A BUSINESSMAN'S POINT OF VIEW TO FIND OUT WHETHER T HE LETTING WAS THE DOING OF A BUSINESS OR THE EXPLOITATION OF HIS PROPERTY BY AN OWNER ... AS STATED EARLIER, IT IS THE INTENTION OF GOVERNMEN T OF WEST BENGAL TO PROMOTE IT INDUSTRY IN THE STATE OF WEST BENGAL AND TO 3 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., FACILITATE THIS OBJECTIVE IT HAS TAKEN INITIATIVE F OR SETTING UP THE IT PARK WITH THE ASSOCIATION OF HSBC AND L&T. THE INTE NTION OF THE GOVERNMENT IS NOT EXPLOITATION OF THE LAND AS OWNER BUT TO PROMOTE INDUSTRY AND COMMERCE. THEREFORE RESTRICTIV E CONDITIONS FOR USE OF LAND HAVE BEEN LAID DOWN IN THE LAND LEA SE DOCUMENT AND LTIIL CAN NOT HAVE ANY OTHER INTENTION DIFFEREN T FROM THAT OF THE GOVERNMENT. THUS, THE FOUNDATION OF THE BUSINESS IS THE 'BOUQUE T' OF INFRASTRUCTURE FACILITIES NEEDED FOR CARRYING OUT I T/ITES BUSINESS ACTIVITY. IT IS A SYSTEMATIC AND SOPHISTICATED BUSINESS ACTIV ITY THROUGH WHICH ASSESSEE SUPPORTS BUSINESS FUNCTION OF ITS CU STOMERS. IT IS A CONTEMPORANEOUS COMMERCIAL ACTIVITY WHEREIN THE A SSESSEE HAS TO KEEP ITSELF UPDATED AND AWARE OF THE NEEDS O F OTHER IT BUSINESS HOUSES E.G. INDUSTRIAL CABLING, SECURITY S YSTEMS, UNINTERRUPTED CENTRALIZED POWER SYSTEM, BUILDING MA NAGEMENT SYSTEM, TELECOMMUNICATION SERVICES, SEWERAGE AND WA TER TREATMENT SYSTEM ETC. THUS THE ACTIVITY OF ASSESSEE IS MUCH BEYOND MERE LETTING OF A BUILDING AND ENJOYING RENT AL INCOME AS OWNER OF THE BUILDING. IN FINDING OUT WHETHER A LEA SE OF ASSETS AMOUNTS TO BUSINESS, WHAT IS RELEVANT IS THE INTENT ION OF THE ASSESSEE. IT HAS TO BE ASCERTAINED WHETHER THE ASSE SSEE INTENDED TO USE THE ASSET AS A BUSINESS ASSET OR OT HERWISE DURING THE RELEVANT PERIOD. THE YIELD OF INCOME BY A COMMERCIAL ASSET IS THE PROFIT OF A BUSINESS IRRESPECTIVE OF T HE MANNER IN WHICH THE ASSET IS EXPLOITED BY THE OWNER OF THE BU SINESS. FURTHER THE NATURE OF PROPERTY AS PER RECORDS OF MU NICIPAL CORPORATION IS ALSO 'COMMERCIAL PROPERTY ASSESSEE SUBMITTED A PLETHORA OF JUDICIAL PRECEDENT S WHICH HAVE HELD IN CASES SIMILAR TO THAT OF ASSESSEE COMPANY, THAT WHERE THE US OF PROPERTY IS AS A BUSINESS ASSET ALONG WITH PR OVISION OF COMMERCIAL SERVICES THEN THE INCOME WOULD BE TAXABL E UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION '. FURTHER, IN THIS REGARD, ASSESSEE PLACED RELIANCE O N FOLLOWING THE JUDICIAL PRONOUNCEMENTS: IN COMMISSIONER OF INCOME-TAX VS. NATIONAL STORAG E PVT. LTD. [1967J 66 ITR 596 (SC). CIT VS AP SMALL SCALE INDUSTRIAL DEVELOPMENT CORPOR ATION [1989J 175 ITR 352 (AP) ELNET TECHNOLOGIES LIMITED V. DCIT 1606 (MDS)/1999 (ASSESSMENT YEAR 1996-1997). PFH MALLAND RETAIL MANAGEMENT LTD. VS. ITO [2008J 1 10 ITO 337 (KOL) 4 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., IN COMMISSIONER OF INCOME-TAX VS. HALAI MEMON ASS OCIATION [2000J 243 ITR 439 (MAD) BALAJI ENTERPRISES VS. COMMISSIONER OF INCOME-TAX [ 1997] 225 ITR 471 (KAR.) 3.3 THE AO GAVE THE FOLLOWING REASONS FOR TREATING THE RENTAL INCOME SHOWN BY THE ASSESSEE AS THE INCOME FROM HO USE PROPERTY: I. THERE IS A SINGLE TENANT OCCUPYING THE BUILDING FOR WHOM THE CONSTRUCTION HAS BEEN MADE AND THE TENANCY IS FOR A FAIRLY LONG PERIOD. II. THE ASSESSEE BY ITSELF HAS NOT EXPLOITED THE BU ILDING AS A COMMERCIAL ASSET AT ANY TIME PRIOR TO LETTING OUT O F THE PROPERTY. III. THE WHOLE CONSTRUCTION HAS BEEN UNDERTAKEN FOR THE PURPOSE OF LETTING OUT TO A TENANT. IV. THE CONSTRUCTION SPECIFICATIONS DO NOT INDICATE ANY SPECIAL TRAITS ASSOCIATED WITH CONSTRUCTION OF A COMMERCIAL ASSET, THOUGH THE BUILDING FACILITATES HOUSING IT. AND IT. ENABLE D SERVICES. NO ADDITIONAL FEATURES ARE INDICATED IN THE SPECIFICAT IONS OF CONSTRUCTION WHICH ENABLE INTERPRETATION OF THE CON STRUCTION AS BUSINESS ACTIVITY. V. THE TENANT HAS DEDUCTED TAX AT SOURCE UNDER SECT ION 194I. VI. THE COMPANY IS A SPECIAL PURPOSE VEHICLE OF L & T. INFOCITY LIMITED FOR CONSTRUCTION OF A STAND ALONE BUILDING THAT COULD BE RENTED OUT; ALBEIT FOR I.T. PURPOSES. VII. IN THIS CONNECTION, RELIANCE IS PLACED ON THE DECISIONS OF THE JURISDICTIONAL TRIBUNAL. IN THE CASE OF B. RAMA CHA NDRA REDDY IN ITA NO. 171/HYD/2006 DATED 25.01.2008 AND ALSO THE DECISION OF THIS TRIBUNAL IN THE CASE OF ITO VS. SUSHEELARAM EN TERPRISES (2002) 83 ITD 372 (HYD). RELIANCE IS ALSO PLACED ON THE JUDGEMENT OF MADRAS HIGH COURT IN THE CASE OF CIT V S. CHENNAI PROPERTIES & INVESTMENTS LTD. (2004) 266 ITR 685 AN D THE JUDGEMENT OF APEX COURT IN THE CASE OF CIT, VS. POD AR CEMENT PVT. LTD. AND OTHERS (1997) 226 ITR 625. RELIANCE I S ALSO PLACED ON THE JUDGEMENT OF AP. HIGH COURT IN THE CASE OF C IT VS. PHABIOMAL & SONS (1986) 158 ITR 773 AND ALSO IN THE CASE OF VEERABHADRA INDUSTRIES (1999) 240 ITR 5. RELIANCE I S ALSO PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. SHAMBHU INVESTMENTS PVT. LTD. R EPORTED IN (2001) 263 ITR 143. 3.4 AO FURTHER OBSERVED AS BELOW: 5 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., I. THE GOVERNMENT OF WEST BENGAL ENTERED INTO AN AGREEMENT WITH THE ASSESSEE COMPANY THROUGH THE INF ORMATION TECHNOLOGY DEPARTMENT, GOVERNMENT OF WEST BENGAL FO R THE, DEVELOPMENT OF 1,80,000 SQ.FT. OF BUILDING WITH RES PECT TO BACK OFFICE PROCESSING / CALL CENTRE PROJECT TO BE ESTAB LISHED BY HDPI, IT IS ALSO A FACT THAT THE ASSESSEE COMPANY HAS EXP ERIENCE IN DEVELOPING SIMILAR PROJECTS. II. THE ASSESSEE WAS GIVEN A LEASE OF 99 YEAR OVER A PLOT OF LAND MEASURING 3.542 ACRES IN SALT LAKE CITY FOR TH E EXCLUSIVE PURPOSE OF SETTING OUT THE BUILDING, CUSTOM BUILT F OR CLIENTS LIKE HDPI. III. THEREAFTER, A LEASE AGREEMENT WAS ENTERED INTO WITH THE HDPI FOR A PERIOD OF 9 YEARS SUBJECT TO RENEWAL HAV ING A MINIMUM LOCKING IN PERIOD OF 6 YEARS. IV. THE MAIN OBJECTS OF ITS INCORPORATION ARE TO PR OMOTE, SETUP, ETC. INFRASTRUCTURE PROJECTS AS THE PRESENT ONE. HOWEVER, IT IS NOT THE MEMORANDUM OF ASSOCIATION WHICH DETERMIN ES THE HEAD OF THE INCOME EARNED UNDER THE INCOME TAX ACT. RATHER, IT IS THE NATURE AND EXTENT OF ACTUAL ACTIVITIES BEING CARRIED OUT WHICH DETERMINE WHETHER THE ASSESSEE HAD CONDUCTED ANY BUSINESS DURING THE FINANCIAL YEAR OR NOT. V. THE BUILDING IT HAS MADE IS FOR A SPECIFIC I.T. INDUSTRY AND CANNOT BE USED FOR ANY OTHER PURPOSE. AS PER AGREEM ENT IT CANNOT USE THE BUILDING FOR RESIDENTIAL OR OTHER CO MMERCIAL PURPOSE. THE SPECIFICATIONS OF THE BUILDING OR A CA VEAT IMPOSED ON ITS USE WHICH DETERMINES WHETHER THE INCOME EARN ED FROM BUILDING IS BUSINESS INCOME OR NOT. RATHER IT IS TH E NATURE AND EXTENT OF ACTIVITIES CARRIED OUT BY THE ASSESSEE WH ICH ARE THE DETERMINING FACTORS. VI. THE ASSESSEE HAS STATED THAT IT HAS PROVIDED 2 00 SURFACE CAR PARKING SPACES AND 250 MOTOR CYCLE PARKING SPAC ES. IT HAS PROVIDED CENTRAL AIR CONDITIONING FACILITIES THROUG H CHILLING PLANTS. IT HAS PROVIDED SEWERAGE TREATMENT AND DISPOSAL ARR ANGEMENTS ALONG WITH WATER FACILITIES. TELEPHONE AND INTERNET CABLE HAS ALSO BEEN PROVIDED APART FROM SOFTWARE INDUSTRY FRIENDLY BUILDING CONSTRUCTION, CORRIDORS AND ROOM LAYOUT PLANS. THE ASSESSEE STATED THAT IT HAS ALSO PROVIDED SECURITY SYSTEMS A ND DG SETS BACK UP. THE ASSESSEE HAS EMPHASIZED THAT THE ABOVE FACILITIES ARE COMPLETELY REQUIRED IN IT. RELATED INFRASTRUCTU RE PROJECT AND THEREFORE, ITS INCOME SHOULD BE TREATED AS BUSINESS INCOME. AN ANALYSIS OF THE ABOVE ARGUMENTS OF THE ASSESSEE IND ICATES THAT NONE OF THE AFOREMENTIONED ITEMS TANTAMOUNT TO AN O NGOING ACTIVITY. THESE ARE MERELY SPECIFICATIONS OF THE BU ILDING CONSTRUCTED BY THE ASSESSEE. MOREOVER, THINGS LIKE WATER SUPPLY ARRANGEMENTS, SEWERAGE DISPOSAL ARRANGEMENTS. DC SE T BACK UP, TELEPHONE AND INTERNET CABLING ARE FIRSTLY FAIRLY G ENERIC IN ALL 6 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., MODERN CONSTRUCTIONS. SECONDLY, THERE IS NO ELEMENT OF ANY ACTIVITY IN THESE SPECIFICATIONS. THESE ARE NOT 'FA CILITIES' PROVIDED BY THE ASSESSEE. THE ASSESSEE HAS ONLY PROVIDED A D G GENERATOR. ASSESSEE DOES NOT OPERATE OR MAINTAINED IT. HE HAS PROVIDED CABLING FOR TELEPHONE CONNECTIONS. ASSESSE E DOES NOT MAINTAIN OR OPERATE SUCH SERVICES. 3.5 AO FURTHER OBSERVED THAT AS PER THE MEMORANDUM OF UNDERSTANDING BETWEEN THE ASSESSEE AND THE GOVERNME NT OF WEST BENGAL, CLAUSE B(V), IS REPRODUCED AS UNDER: '(V)LTIL IS A COMPANY POSSESSING A WIDE EXPERIENCE AND IS A PIONEER IN ESTABLISHING IT AND RELATED INFRASTRUCTU RE DEVELOPMENT PROJECTS IN INDIA AND ELSEWHERE THROUGH ITS SUBSIDI ARIES/ ASSOCIATED COMPANIES. LTIL HAS BEEN APPROACHED BY H DPI, FOR DEVELOPMENT OF AN IT FACILITY OF 1,80,000 SQ. FT. I N KOLKOTA, AT THE SIDE MADE AVAILABLE BY THE GOWB, FOR A BACK OFFICE PROCESSING / CALL CENTRE PROJECT TO BE ESTABLISHED BY HDPI. LTIL HAS AGREED FOR DEVELOPMENT OF THE SAID IT FACILITY, CUSTOM BUI LT TO THE REQUIREMENTS OF HDPI FOR THEIR EXCLUSIVE USE.' 3.6 AO OBSERVED, IT IS CLEAR THAT IT HAS NEVER BEEN THE INTENTION OF THE GOVT. OF WEST BENGAL THAT THE ASSESSEE SHOULD C ARRYON ANY BUSINESS IN THE BUILDING. READ WITH FURTHER CLAUSES OF THE MOU WILL MAKE THE INTENT OF THE ENTIRE MOU VERY CLEAR. '1. LTIL AGREES TO UNDERTAKE THE CONSTRUCTION OF GP C AT THE SITE IN THE TIME FRAME AND UPON AND SUBJECT TO THE TERMS LAND CONDITIONS SET OUT IN PART A OF THE SCHEDULE HERETO SO AS TO ENABLE HDPI TO ESTABLISH AND OPERATE A GPC AT THE S ITE. 2. HDPI AGREES TO LEASE THE GPC FROM LTIL UPON AND SUBJECT TO THE TERMS AND CONDITIONS SET OUT IN PART B OF THE S CHEDULE HERETO. 3. EACH OF THE PARTIES AGREES TO MAINTAIN THE CONFI DENTIALITY OF ANY INFORMATION AND / OR THE CONTENTS OF ANY DOCUME NTS PROVIDED OR OTHERWISE MADE AVAILABLE TO IT BY THE OTHER IN C ONNECTION WITH. THE PROJECT AND SHALL NOT, WITHOUT THE PRIOR WRITTE N CONSENT OF THE OTHER, DISCLOSE THE SAME TO ANY THIRD PARTY. 4. THIS MOU, OTHER THAN CLAUSES 3,5 AND 6, DOES NOT CONSTITUTE A CONTRACT OR AN AGREEMENT TO ENTER INTO A CONTRACT A ND DOES NOT CREATE AN OBLIGATION AT LAW AND IS NOT AND WILL NOT BECOME LEGALLY BINDING ON THE PARTIES. INSTEAD THIS MOU IS INTENDE D TO PROVIDE A MEANS FOR THE PARTIES TO SET OUT AND UNDERSTAND THE IR RESPECTIVE INTENTIONS AND EXPECTATIONS WITH REGARDS TO THE PRO JECT. ACCORDINGLY NEITHER PARTY SHALL BE UNDER ANY OBLIGA TION TO THE 7 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., OTHER TO REACH ANY FORMAL, BINDING AGREEMENT OR TO ENTER INTO ANY CONTRACT OR COMMITMENT IN CONNECTION WITH THE PROJE CT. 5. EACH PART WILL BEAR ITS OWN COSTS INCURRED PRIOR TO THE EARLIER OF (I) THE DATE OF THE EXECUTION OF ANY FORMAL AGREEME NT BETWEEN THE PARTIES; AND (II) THE DATE THE PARTIES AGREE NO T TO PROCEED WITH THE PROJECT. 6. THE PARTIES AGREE THAT ANY PUBLICITY IN RELATION TO THE PROJECT IS AGREED IN WRITING BETWEEN THEM BOTH AS TO THE TERMS OF THE CONTENT AND THE TIMING. 7. THE LAWS OF INDIA WILL GOVERN THIS MOU AND THE C OURTS OF KOLKATA SHALL HAVE JURISDICTION TO SETTLE ANY DISPU TES IN CONNECTION WITH THIS MOU.' IT IS ABSOLUTELY CLEAR THAT THE GOVT. OF WEST BENGA L WANTED HOPI TO RUN ITS BUSINESS OF BACK OFFICE PROCESSING OPERA TIONS. FOR THIS END, A LAND OF 3.5 ACRES WAS SUB LEASED TO THE ASSE SSEE FOR BUILDING AN OFFICE COMPLEX SPECIFICALLY FOR THE REQ UIREMENTS OF CONCERNS LIKE HDPI. ONCE THIS BUILDING HAS BEEN CON STRUCTED ALONG WITH DG SETS IT HAS BEEN COMPLETELY HANDED OV ER TO HDPI WITH NO DAY TO DAY ACTIVITY BEING CARRIED OUT BY TH E ASSESSEE. THE BUSINESS IN THIS BUILDING IS BEING CARRIED ON B Y THE HDPI, THE TENANT. 3.7 THE ABOVE POINT IS ONCE AGAIN EMPHASIZED IN PAR A F OF THE MOU BETWEEN THE ASSESSEE AND HDPI AS BELOW: '(F) LTIL, A COMPANY PROCESSING WIDE EXPERIENCE AND A PIONEER IN ESTABLISHING IT AND RELATED INFRASTRUCTURE DEVEL OPMENT PROJECTS IN INDIA AND ELSEWHERE THROUGH IT SUBSIDIARIES, PAR ENT AND ASSOCIATED COMPANIES, HAS BEEN APPROACHED BY HDPI T O UTILIZE ITS EXPERIENCE, EXPERTISE, COMMITMENT AND FINANCIAL CAPABILITIES IN THE DEVELOPMENT OF AN IT FACILITY OF 1,80,000 SQ . FT. AT THE SITE, FOR A BACK OFFICE PROCESS CALL CENTRE FOR HDPI (THE 'PROJECT') IN ACCORDANCE WITH THE SPECIFICATIONS AND REQUIREMENTS OF HDPI.' 3.8 THE RENTAL AGREEMENT BETWEEN HDPI AND THE ASSE SSEE IS AS BELOW: '1. HDPI IS TO ENTER INTO A LEASE WITH LTIL FOR THE LEASE OF THE GPC AT THE SITE, THE TERMS OF WHICH LEASE ARE TO IN CLUDE THE FOLLOWING TERMS: (A) TERM - MINIMUM TERM OF 9 YEAR, WITH A LOCK-IN O F 6 YEARS, FROM THE DATE THE GPC IS READY FOR OCCUPATION. 8 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., (B) DEPOSIT - INTEREST FREE, REFUNDABLE DEPOSIT OF 12 MONTHS LEASE RENTALS, PAYABLE BY HDPI AT THE COMMENCEMENT OF CON STRUCTION OF THE GPC (C) RENT - PAYABLE ON A LETTABLE AREA OF NOT MORE T HAN 1,80,000 SQUARE FEET GROSS. - RENT PAYABLE TO COVER AND INCLUDE THE USE OF THE 200 SURFACE CAR-PARKING SPACES AND 250 SURFACE MOTORCYCLE-PARKI NG SPACES. - HDPI TO PAY INITIAL RENTAL OF INR 21.75 PER SQUAR E FOOT PER CALENDAR MONTH FOR THE FIRST 3 YEAR OF THE TERM OF THE LET (THE 'INITIAL TERM'} NET OF SERVICE LOX ON CONSTRUCTION SERVICES, IF LEVIED BY THE GOVERNMENT OF INDIA. IF THE SERVICE T AX IS LEVIED, THIS WOULD INCREASE THE MONTH RENTAL BY INR 1.80 PE R SQUARE FOOT. - FOLLOWING THE EXPIRATION OF THE INITIAL TERM, LTI L IS ENTITLED TO INCREASE THE RENT PAYABLE LAND THE SECURITY DEPOSIT BY 18 % FOR THE NEXT 3 YEAR OF THE LET (A 'SUBSEQUENT TERM') AN D THEREAFTER SHALL BE ENTITLED TO INCASE THE RENT PAYABLE- SECUR ITY DEPOSIT BY 18% OF THE THEN RENTAL AT THE END OF EACH SUCH SUBS EQUENT TERM. - FIRST RENTAL PAYMENT TO BE MADE FROM THE BEGINNIN G OF THE 12TH MONTH FROM THE START OF CONSTRUCTION (THE 'RENT COM MENCEMENT DATE'), IN RESPECT OF THE FIRST CALENDAR MONTH OR P ART THEREOF, PROVIDED ALWAYS THAT (AA) STRUCTURAL WORK BEING UND ERTAKEN BY LTIL IS COMPLETED WITHIN EIGHT AND A HALF MONTHS FR OM THE START OF CONSTRUCTION FOR THE 'HANDOVER' OF THE INTERNAL SPA CE TO HDPI; AND (BB) THE GLAZING WORK BEING UNDERTAKEN BY LTIL ON THE GPC IS COMPLETED WITHIN PERIOD OF 15 DAYS. IN THE EVENT THAT EITHER OF THE AFOREMENTIONED 'COMPLETION' DATES AREN'T ADHERE D TO OTHENVISE THAN BY REASON OF A 'FORCE MAJEURE' EVENT , INCLUDING BUT NOT LIMITED TO POLITICAL TURMOIL OR ANY EXTERNAL HI NDRANCES TO THE SMOOTH IMPLEMENTATION OF CONSTRUCTION ACTIVITIES, T HEN: LTIL WILL PAY HDPI A SUM BYWAY OF LIQUIDATED DAMAGE S EQUIVALENT TO ONE DAY'S RENT FOR LONE DAY'S DELAY F OR THE DURATION OF THE TERM OF ANY SUCH DELAY (BEING THE PERIOD COM MENCING ON THE CONTRACTED 'COMPLETION' DATE AND ENDING ON THE ACTUAL 'COMPLETION' DATE) (THE 'DELAY PERIOD); AND THE RENT COMMENCEMENT DATE WILL BE AMENDED SO AS T O BE THE DATE, WHICH NEXT FALLS IF ONE ADDS THE DELAY PERIOD TO THE RENT COMMENCEMENT DATE. (D) UTILITIES - HDPI TO BE RESPONSIBLE FOR THE PAYM ENT OF ALL CHARGES FOR ALL UTILITIES (INCLUDING WATER AND ELEC TRICITY) PROVIDED TO THE GPC PAYABLE ON AN 'ACTUAL' BASIS. (E) SUB-LETTING - HDPI TO BE ENTITLED TO SUB-LET TH E GPC IN WHOLE OR IN PART AS WELL AS ASSIGN IT ANY TIME DURING TH E TERM OF THE 9 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., LEASE (WITH THE PRIOR APPROVAL OF IT DEPARTMENT, GO VERNMENT OF WEST BENGAL). (J) SIGNAGE - HDPI TO BE HAVE UNFETTERED SIGNAGE RI GHTS AT THE GPC' AO CONCLUDED THAT IT IS VERY CLEAR THAT THE ENTIRE AGREEMENT IS FOR A RENTAL AGREEMENT WITH NO PROVISION FOR ANY SE RVICES WHATSOEVER. THE ASSESSEE HAS RECEIVED A 12 MONTHS L EASE RENTAL 21.75 PER SQ. FT. ALONG WITH PROVISIONS FOR INCREAS E IN LEASE RENTAL OVER THE YEARS. HDPI IS TO BE RESPONSIBLE FOR PAYME NT OF ALL UTILITY CHARGES LIKE WATER, ELECTRICITY, ETC. HDPI ALSO HAS UNFETTERED SIGNAGE RIGHTS AND EVEN RIGHTS TO SUB LEASE AND SUB RENT THE BUILDING. THE ENTIRE AGREEMENT DOES NOT HAVE EVEN O NE CLAUSE REGARDING ANY SERVICES TO BE PROVIDED BY THE ASSESS EE. IN SCHEDULE PART-A OF THE AFOREMENTIONED LEASE AGREEME NT, IT HAS BEEN CLEARLY MENTIONED THAT THE ASSESSEE SHALL BE R ESPONSIBLE FOR THE COST OF 2000KV A TRANSFORMER FOR THE SITE A ND NOTHING ELSE. IT IS THEREFORE, CLEAR FROM ABOVE, THAT THE A SSESSEE HAS CONSTRUCTED THE BUILDING AS PER CERTAIN SPECIFICATI ONS WHICH INCLUDE PROVIDING A 2000KV A GEN SET AND HAS HANDED OVER THE SAME TO HDPI. IT IS FURTHER NOTICED THAT THE TENANT HDPI HAS DEDUCTED TAX AT SOURCE U/S 194-I OF THE I. T. ACT A ND THE ENTIRE CONSTRUCTION HAS BEEN DONE WITH THE PURPOSE OF LETT ING IT OUT TO HDPI. 3.9 IN VIEW OF THE ABOVE OBSERVATIONS, THE AO HELD THAT THE CLAIM OF THE ASSESSEE FOR TAXING THE RENTAL INCOME UNDER THE HEAD 'BUSINESS INCOME' IS REJECTED AND THE RENTAL INCOME IS TAXED UNDER THE HEAD' INCOME FROM HOUSE PROPERTY. 4. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE T HE CIT(A) AND CONTENDED THAT IT WAS CARRYING OUT BUSINESS AND ITS ACTIVITIES/INCOME COULD NOT BE CLASSIFIED AS INCOME FROM HOUSE PROPER TY. 5. THE CIT(A), FOLLOWING HIS DECISION IN AY 2008-09 , HELD THAT THE AO HAS CORRECTLY APPRECIATED THE FACT THAT IT IS TH E ACTUAL ACTIVITIES WHICH WOULD DETERMINE THE NATURE OF INCOME EARNED R ATHER THAN WHATEVER IS MENTIONED IN THE MEMORANDUM OF ASSOCIAT ION. ACCORDINGLY, HE CONFIRMED THE ACTION OF THE AO. 6. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 10 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., 7. ASSESSEE HAS RAISED FIVE GROUNDS OF APPEAL, OUT OF WHICH ASSESSEE HAS PRESSED ONLY GROUND NOS. 1 & 2, WHICH ARE AS FOLLOWS: 1) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT (A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE ORDER PASSED BY THE ASSESSING OFFICER ASSESSING THE INCOME DERIV ED BY THE APPELLANT FROM LEASING OF AN 1. T. PARK UNDER THE H EAD 'INCOME FROM HOUSE PROPERTY' AS OPPOSED TO PROFITS & GAINS OF BUSINESS AS RETURNED BY THE APPELLANT. 2) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE AUTHORITIES BELOW WERE UNJUSTIFIED IN LAW & ON FACT S IN ASSESSING INCOME FROM EXPLOITATION OF LT. INFRASTRUCTURE UNDE R THE HEAD 'INCOME FROM HOUSE PROPERTY' IGNORING THE FACT THAT THE APPELLANT WAS SELECTED BY THE STATE GOVERNMENT AUTHORITIES TO DEVELOP THE I T INFRASTRUCTURE AT KOLKATA CONSIDERING TECHNICAL EXPERTISE AND EXPERIENCE WHICH THE APPELLANT POSSESSED IN THE FIE LD OF DEVELOPMENT OF IT INFRASTRUCTURAL PROJECTS. ACCORDINGLY, GROUND NOS. 3, 4 & 5 ARE DISMISSED AS NOT PRESSED. 8. THE LD. AR OF THE ASSESSEE SUBMITTED BEFORE US T HAT THE REVENUE AUTHORITIES FAILED TO APPRECIATE THAT LEASI NG OF THE IT INFRASTRUCTURE DEVELOPED BY THE ASSESSEE WAS ONE OF THE MODE IN WHICH THE ASSESSEE EXPLOITED ITS CORE BUSINESS EXPE RTISE AND THEREFORE THE INCOME DERIVED FROM SUCH COMMERCIAL E XPLOITATION SHOULD HAVE BEEN ASSESSED UNDER THE HEAD PROFITS & GAINS OF BUSINESS AND NOT UNDER THE HEAD INCOME FROM HOUSE P ROPERTY. HE FURTHER SUBMITTED THAT ASSESSEES ACTIVITY OF DEVEL OPING AND SETTING UP OF IT INFRASTRUCTURE BEING IDENTICAL TO THE ACTIVIT Y OF SETTING UP INDUSTRIAL PARKS AS DEFINED IN SECTION 80IA(4) OF T HE IT ACT, THE REVENUE AUTHORITIES OUGHT TO HAVE ASSESSED THE INCO ME DERIVED BY THE ASSESSEE FROM LEASING OF THE IT INFRASTRUCTURE UNDE R THE HEAD PROFITS AND GAINS OF BUSINESS. 8.1 THE LD. AR FURTHER SUBMITTED THAT THE LAND HAS BEEN ALLOTTED TO LTIIL BY THE GOVERNMENT OF WEST BENGAL FOR THE PURP OSE OF SETTING UP AN IT FACILITY - TO PROMOTE ITS POLICY OF DEVELOPME NT OF IT INDUSTRY IN THE STATE FOR GENERATION OF EMPLOYMENT AND ATTRACT INVESTMENTS. HENCE IT IS A COMMERCIAL BUSINESS ACTIVITY UNDERTAK EN BY LTILL TO 11 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., BUILD AND OPERATE THE IT FACILITY AT THE INSTANCE O F THE GOVERNMENT OF WEST BENGAL. THERE IS NO PERMISSION FROM THE GOVERN MENT TO TAKE UP ANY ACTIVITY ON THE LAND OTHER THAN SETTING UP THE IT FACILITY. INITIALLY, HDPI HAS AGREED TO TAKE IT ON LEASE FOR 9 YEARS AS PER THE MOU (ANNEXURE A) WITH THE GOWB, IN CASE HDPI VACATING T HE SAID PREMISES ON COMPLETION OF THE LEASE PERIOD OR OTHER WISE, LTILL SHALL BE FREE TO LEASE THE PREMISES TO OTHER IT OR ITES C OMPANIES ONLY, SUBJECT, TO PRIOR APPROVAL FROM THE IT DEPARTMENT, GOVERNMENT OF WEST BENGAL. SINCE HDPI HAS TAKEN THE LEAD AND CAM E FORWARD TO SET UP ITS BUSINESS, IT WAS LEASED OUT TO THEM ONLY, IN FUTURE, THERE CAN BE MORE THAN ONE LESSEE ONLY FROM IT OR ITES COMPANIES . 8.2 THE LD. AR SUBMITTED THAT AS STIPULATED IN THE MEMORANDUM OF ASSOCIATION OF THE COMPANY, THE MAIN OBJECTS FOR W HICH LTILL WAS INCORPORATED WERE TO CARRY ON THE BUSINESS OF 'TO PROMOTE, SET UP, CONSTRUCT, DEVELOP, BUILD, OW N, LEASE, SELL, TRANSFER, OPERATE, MANAGE, SERVICE, UPGRADE, AND FO R MAINTAIN INFORMATION TECHNOLOGY PARKS, TELECOMMUNICATION, EN GINEERING AND CONSULTANCY PARKS, CITIES, COMPLEXES, INFRASTRU CTURE PROJECTS, SOFTWARE TECHNOLOGY PARKS, ELECTRONIC AND HARDWARE TECHNOLOGY PARKS OR ANY OTHER INFRASTRUCTURE DEVELO PMENT PROJECTS WITH OR WITHOUT INDUSTRIAL ESTATE, PARKS, TOWNSHIPS, FACTORIES, COMMERCIAL OFFICES, RESIDENTIAL COMPLEXE S AND OTHER ALLIED FACILITIES AND AMENITIES SUCH AS INTERNAL RO ADS, HELIPAD, SATELLITE COMMUNICATION FACILITIES, SHOPS, GARDENS, SWIMMING POOLS. IN ANY PLACE WHETHER IN INDIA OR OUTSIDE IND IA, AND UNDERTAKING CONSULTANCY AND PROJECT MANAGEMENT FOR SETTING UP OF THE ABOVE ACTIVITIES. 8.3 LD. AR SUBMITTED THAT DEVELOPING, OPERATING AN D MAINTAINING AN IT FACILITY HAS BEEN CLEARLY REGARDED AS BUSINESS A CTIVITY UNDER MANY OF THE SECTIONS OF INCOME TAX ACT LIKE 80IA, 80IAB ETC AND THE DEDUCTIONS ARE ALLOWED FROM THE BUSINESS INCOME. HE NCE THE BUILDINGS OF LTILL ARE PURELY COMMERCIAL ASSETS MEA NT TO AUGMENT THE 12 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., PURPOSES OF COMMERCE AND INDUSTRY AND NOT MEANT FOR RESIDENTIAL PURPOSES AND THE COMPANY DOES NOT POSSESS ABSOLUTE RIGHTS TO USE THE PROPERTY AS PER ITS OWN DISCRETION. THE COMPANY DOES NOT POSSESS ABSOLUTE RIGHTS TO USE THE PROPERTY AS PER ITS OWN DISCRETION. 8.4 THE LD. AR RELIED ON THE FOLLOWING CASES: 1. CHENNAI PROPERTIES & INVESTMENTS LTD. VS. CIT, VIDE CIVIL APPEAL NO. 4494 OF 2004. 2. DCIT VS. ALEXANDRIA KNOWLEDGE PARK (P) LTD., IT A NO. 142/HYD/15, DATED 29 TH APRIL, 2016. 9. THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DERS OF REVENUE AUTHORITIES AND RELIED ON THE DECISION OF THE ITAT HYDERABAD BENCH IN ASSESSEES OWN CASE FOR AY 2006-07 VIDE ORDER DATED 28/06/12. 10. CONSIDERED THE SUBMISSIONS OF THE PARTIES AND P ERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE DECISIONS C ITED. THE AO TREATED THE RENTAL INCOME RECEIVED BY THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS AGAINST THE ASSESSEE S CLAIM OF BUSINESS INCOME FOR TAXING PURPOSES, ON THE GROUND THAT PROVIDING THE COMPLEX ON LEASE, THE ASSESSEE DID NOT CARRY OUT AN Y ACTIVITY WHICH WOULD CONSTITUTE A BUSINESS. ACCORDING TO THE ASSE SSEE, IT WAS CARRYING OUT BUSINESS AND THE SAME COULD NOT BE CLA SSIFIED AS INCOME FROM HOUSE PROPERTY. THE ISSUE BEFORE US IS WHETHER THE RENTAL INCOME RECEIVED BY THE ASSESSEE IS A BUSINESS INCOM E OR NOT ? 10.1 IN THE CASE OF M/S CHENNAI PROPERTIES & INVEST MENTS LTD., (SUPRA), ON WHICH RELIANCE PLACED BY THE ASSESSEE, THE HONBLE SUPREME COURT HELD AS FOLLOWS: WE HAVE HEARD THE LEARNED COUNSEL FOR THE PARTIES ON THE AFORESAID ISSUE. BEFORE WE NARRATE THE LEGAL PRINCIPLE THAT NEEDS TO BE APPLIE D TO GIVE THE ANSWER TO THE AFORESAID QUESTION, WE WOULD LIKE TO RECAPITULATE SOME SEMINA L FEATURES OF THE PRESENT CASE. THE MEMORANDUM OF ASSOCIATION OF THE APPELLANT-COMPANY WHICH IS PLACED ON RECORD MENTIONS MAIN OBJECTS AS WELL AS INCIDENTAL OR ANCI LLARY OBJECTS IN CLAUSE III. (A) AND (B) RESPECTIVELY. THE MAIN OBJECT OF THE APPELLANT COMP ANY IS TO ACQUIRE AND HOLD THE PROPERTIES KNOWN AS CHENNAI HOUSE AND FIRHAVIN E STATE BOTH IN CHENNAI AND TO LET OUT THOSE PROPERTIES AS WELL AS MAKE ADVANCES UPON THE SECURITY OF LANDS AND BUILDINGS OR OTHER PROPERTIES OR ANY INTEREST THEREIN. WHAT W E EMPHASISE IS THAT HOLDING THE 13 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., AFORESAID PROPERTIES AND EARNING INCOME BY LETTING OUT THOSE PROPERTIES IS THE MAIN OBJECTIVE OF THE COMPANY. IT MAY FURTHER BE RECORDE D THAT IN THE RETURN THAT WAS FILED, ENTIRE INCOME WHICH ACCRUED AND WAS ASSESSED IN THE SAID RETURN WAS FROM LETTING OUT OF THESE PROPERTIES. IT IS SO RECORDED AND ACCEPTED BY THE ASSESSING OFFICER HIMSELF IN HIS ORDER. IT TRANSPIRES THAT THE RETURN OF A TOTAL INC OME OF RS.244030 WAS FILED FOR THE ASSESSMENT YEAR IN QUESTION THAT IS ASSESSMENT YEAR 1983-1984 AND THE ENTIRE INCOME WAS THROUGH LETTING OUT OF THE AFORESAID TWO PROPER TIES NAMELY, CHENNAI HOUSE AND FIRHAVIN ESTATE. THUS, THERE IS NO OTHER INCOME O F THE ASSESSEE EXCEPT THE INCOME FROM LETTING OUT OF THESE TWO PROPERTIES. WE HAVE TO DEC IDE THE ISSUE KEEPING IN MIND THE AFORESAID ASPECTS. WITH THIS BACKGROUND, WE FIRST R EFER TO THE JUDGMENT OF THIS COURT IN EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD.' S CASE WHICH HAS BEEN RELIED UPON BY THE HIGH COURT. THAT WAS A CASE WHERE THE COMPAN Y WAS INCORPORATED WITH THE OBJECT OF BUYING AND DEVELOPING LANDED PROPERTIES AND PROM OTING AND DEVELOPING MARKETS. THUS, THE MAIN OBJECTIVE OF THE COMPANY WAS TO DEVE LOP THE LANDED PROPERTIES INTO MARKETS. IT SO HAPPENED THAT SOME SHOPS AND STALLS, WHICH WERE DEVELOPED BY IT, HAD BEEN RENTED OUT AND INCOME WAS DERIVED FROM THE REN TING OF THE SAID SHOPS AND STALLS. IN THOSE FACTS, THE QUESTION AROSE FOR CONSIDERATION W AS: WHETHER THE RENTAL INCOME THAT IS RECEIVED WAS TO BE TREATED AS INCOME FROM THE HOUSE PROPERTY OR THE INCOME FROM THE BUSINESS. THIS COURT WHILE HOLDING THAT THE INCOME SHALL BE TREATED AS INCOME FROM THE HOUSE PROPERTY, RESTED ITS DECISION IN THE CONTEXT OF THE MAIN OBJECTIVE OF THE COMPANY AND TOOK NOTE OF THE FACT THAT LETTING OUT OF THE P ROPERTY WAS NOT THE OBJECT OF THE COMPANY AT ALL. THE COURT WAS THEREFORE, OF THE OPI NION THAT THE CHARACTER OF THAT INCOME WHICH WAS FROM THE HOUSE PROPERTY HAD NOT ALTERED B ECAUSE IT WAS RECEIVED BY THE COMPANY FORMED WITH THE OBJECT OF DEVELOPING AND SE TTING UP PROPERTIES. BEFORE WE REFER TO THE CONSTITUTION BENCH JUDGMENT IN THE CAS E OF SULTAN BROTHERS (P) LTD., WE WOULD BE WELL ADVISED TO DISCUSS THE LAW LAID DOWN AUTHORITATIVELY AND SUCCINCTLY BY THIS COURT IN 'KARANPURA DEVELOPMENT CO. LTD. V. COMMISS IONER OF INCOME TAX, WEST BENGAL' [44 ITR 362 (SC)]. THAT WAS ALSO A CASE WHERE THE C OMPANY, WHICH WAS THE ASSESSEE, WAS FORMED WITH THE OBJECT, INTER ALIA, OF ACQUIRING AN D DISPOSING OF THE UNDERGROUND COAL MINING RIGHTS IN CERTAIN COAL FIELDS AND IT HAD RES TRICTED ITS ACTIVITIES TO ACQUIRING COAL MINING LEASES OVER LARGE AREAS, DEVELOPING THEM AS COAL FIELDS AND THEN SUB-LEASING THEM TO COLLIERIES AND OTHER COMPANIES. THUS, IN THE SAI D CASE, THE LEASING OUT OF THE COAL FIELDS TO THE COLLIERIES AND OTHER COMPANIES WAS THE BUSIN ESS OF THE ASSESSEE. THE INCOME WHICH WAS RECEIVED FROM LETTING OUT OF THOSE MINING C.A. NO. 4494/2004 ETC. 5 HTTP://WWW.ITATONLINE.ORG PAGE 6 LEASES WAS SHOWN A S BUSINESS INCOME. DEPARTMENT TOOK THE POSITION THAT IT IS TO BE TREATED AS INCOM E FROM THE HOUSE PROPERTY. IT WOULD BE THUS, CLEAR THAT IN SIMILAR CIRCUMSTANCES, IDENTICA L ISSUE AROSE BEFORE THE COURT. THIS COURT FIRST DISCUSSED THE SCHEME OF THE INCOME TAX ACT AND PARTICULARLY SIX HEADS UNDER WHICH INCOME CAN BE CATEGORISED / CLASSIFIED. IT WA S POINTED OUT THAT BEFORE INCOME, PROFITS OR GAINS CAN BE BROUGHT TO COMPUTATION, THE Y HAVE TO BE ASSIGNED TO ONE OR THE OTHER HEAD. THESE HEADS ARE IN A SENSE EXCLUSIVE OF ONE ANOTHER AND INCOME WHICH FALLS WITHIN ONE HEAD CANNOT BE ASSIGNED TO, OR TAXED UND ER, ANOTHER HEAD. THEREAFTER, THE COURT POINTED OUT THAT THE DECIDING FACTOR IS NOT T HE OWNERSHIP OF LAND OR LEASES BUT THE NATURE OF THE ACTIVITY OF THE ASSESSEE AND THE NATU RE OF THE OPERATIONS IN RELATION TO THEM. IT WAS HIGHLIGHTED AND STRESSED THAT THE OBJE CTS OF THE COMPANY MUST ALSO BE KEPT IN VIEW TO INTERPRET THE ACTIVITIES. IN SUPPORT OF THE AFORESAID PROPOSITION, NUMBER OF JUDGMENTS OF OTHER JURISDICTIONS, I.E. PRIVY COUNSE L, HOUSE OF LORDS IN ENGLAND AND US COURTS WERE TAKEN NOTE OF. THE POSITION IN LAW, ULT IMATELY, IS SUMMED UP IN THE FOLLOWING WORDS: - AS HAS BEEN ALREADY POINTED OUT IN CONNEC TION WITH THE OTHER TWO CASES WHERE THERE IS A LETTING OUT OF PREMISES AND COLLECTION O F RENTS THE ASSESSMENT ON PROPERTY BASIS MAY BE CORRECT BUT NOT SO, WHERE THE LETTING OR SUB -LETTING IS PART OF A TRADING OPERATION. 14 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., THE DIVING LINE IS DIFFICULT TO FIND; BUT IN THE CA SE OF A COMPANY WITH ITS PROFESSED OBJECTS AND THE MANNER OF ITS ACTIVITIES AND THE NATURE OF ITS DEALINGS WITH ITS PROPERTY, IT IS POSSIBLE TO SAY ON WHICH SIDE THE OPERATIONS FALL A ND TO WHAT HEAD THE INCOME IS TO BE ASSIGNED. AFTER APPLYING THE AFORESAID PRINCIPLE T O THE FACTS, WHICH WERE THERE BEFORE THE COURT, IT CAME TO THE CONCLUSION THAT INCOME HA D TO BE TREATED AS INCOME FROM BUSINESS AND NOT AS INCOME FROM HOUSE PROPERTY. WE ARE OF THE OPINION THAT THE AFORESAID JUDGMENT IN KARANPURA DEVELOPMENT CO. LTD .'S CASE SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE. NO DOUBT IN SULTAN BROTH ERS (P) LTD.'S CASE, CONSTITUTION BENCH JUDGMENT OF THIS COURT HAS CLARIFIED THAT MERELY AN ENTRY IN THE OBJECT CLAUSE SHOWING A PARTICULAR OBJECT WOULD NOT BE THE DETERMINATIVE FA CTOR TO ARRIVE AT AN CONCLUSION WHETHER THE INCOME IS TO BE TREATED AS INCOME FROM BUSINESS AND SUCH A QUESTION WOULD DEPEND UPON THE CIRCUMSTANCES OF EACH CASE, VIZ., W HETHER A PARTICULAR BUSINESS IS LETTING OR NOT. THIS IS SO STATED IN THE FOLLOWING WORDS: - WE THINK EACH CASE HAS TO BE LOOKED AT FROM A BUSINESSMAN'S POINT OF VIEW TO FIND OUT WHET HER THE LETTING WAS THE DOING OF A BUSINESS OR THE EXPLOITATION OF HIS PROPERTY BY AN OWNER. WE DO NOT FURTHER THINK THAT A THING CAN BY ITS VERY NATURE BE A COMMERCIAL ASSET. A COMMERCIAL ASSET IS ONLY AN ASSET USED IN A BUSINESS AND NOTHING ELSE, AND BUSINESS M AY BE CARRIED ON WITH PRACTICALLY ALL THINGS. THEREFORE, IT IS NOT POSSIBLE TO SAY THAT A PARTICULAR ACTIVITY IS BUSINESS BECAUSE IT IS CONCERNED WITH AN ASSET WITH WHICH TRADE IS COMM ONLY CARRIED ON. WE FIND NOTHING IN THE CASES REFERRED, TO SUPPORT THE PROPOSITION THAT CERTAIN ASSETS ARE COMMERCIAL ASSETS IN THEIR VERY NATURE. WE ARE CONSCIOUS OF THE AFOR ESAID DICTA LAID DOWN IN THE CONSTITUTION BENCH JUDGMENT. IT IS FOR THIS REASON, WE HAVE, AT THE BEGINNING OF THIS JUDGMENT, STATED THE CIRCUMSTANCES OF THE PRESENT C ASE FROM WHICH WE ARRIVE AT IRRESISTIBLE CONCLUSION THAT IN THIS CASE, LETTING OF THE PROPERTIES IS IN FACT IS THE BUSINESS OF THE ASSESSEE. THE ASSESSEE THEREFORE, RIGHTLY DI SCLOSED THE INCOME UNDER THE HEAD INCOME FROM BUSINESS. IT CANNOT BE TREATED AS 'INCO ME FROM THE HOUSE PROPERTY'. WE, ACCORDINGLY, ALLOW THIS APPEAL AND SET ASIDE THE JU DGMENT OF THE HIGH COURT AND RESTORE THAT OF THE INCOME TAX APPELLATE TRIBUNAL. NO ORDER S AS TO COSTS. 10.2 EVEN AS PER THE MOU OF THE ASSESSEE COMPANY, T HE MAIN OBJECTS FOR WHICH LTIIL WAS INCORPORATED WERE TO CA RRY ON THE BUSINESS OF TO PROMOTE, SET UP, CONSTRUCT, DEVELOP , BUILD, OWN, LEASE, SELL, TRANSFER, OPERATE, MANAGE, SERVICE, UPGRADE, AND /OR MAINTAIN INFORMATION TECHNOLOGY PARKS, TELECOMMUNICATION, EN GINEERING AND CONSULTANCY PARKS, CITIES, COMPLEXES, INFRASTRUCTUR E PROJECTS, SOFTWARE TECHNOLOGY PARKS, ELECTRONIC AND HARDWARE TECHNOLOGY PARKS OR ANY OTHER INFRASTRUCTURE DEVELOPMENT PROJE CTS WITH OR WITHOUT INDUSTRIAL ESTATE, PARKS, TOWNSHIPS, FACTORIES, COM MERCIAL OFFICES, RESIDENTIAL COMPLEXES AND OTHER ALLIED FACILITIES A ND AMENITIES SUCH AS INTERNAL ROADS, HELIPAD, SATELLITE COMMUNICATION FA CILITIES, SHOPS, GARDENS, SWIMMING POOLS. IN ANY PLACE WHETHER IN IN DIA OR OUTSIDE INDIA, AND UNDERTAKING CONSULTANCY AND PROJECT MANA GEMENT FOR SETTING UP OF THE ABOVE ACTIVITIES.' 15 ITA NOS. 355 & 356 /H/12 PAHAPUR PRAGNYA TECH (PARK) (P) LTD., 10.3 THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S CHENNAI PROPERTIES & INVESTMENTS LTD. (SUPRA) AND THE DECISION OF THE COORDINATE BEN CH IN THE CASE OF ALEXANDIRA KNOWLEDGE PARK (P) LTD. (SUPRA), IT IS O BSERVED THAT THE IMPORTANT IS THE INTENTION OF THE ASSESSEE WHETHER THE ASSET WAS USED TO EARN THE RENTAL INCOME OR THE INTENTION WAS TO E XPLOIT THE PROPERTY FOR COMMERCIAL PURPOSE. IN THE GIVEN CASE, ASSESSEE HAD LEASED OUT THE PROPERTY ONLY TO BE USED FOR THE PURPOSE OF IT & ITES BUSINESS PURPOSE. MOREOVER, THERE IS A CONDITION FROM THE G OWB THAT IT HAS TO BE LEASED OUT ONLY TO THE IT & ITES BUSINESS. ACCOR DINGLY, WE SET ASIDE THE ORDERS OF REVENUE AUTHORITIES AND DIRECT THE AO TO TREAT THE RENTAL INCOME AS BUSINESS INCOME. 11. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . 12. AS THE ISSUE IS MATERIALLY IDENTICAL IN AY 2008 -09 TO THAT OF AY 2007-08, FOLLOWING THE CONCLUSIONS DRAWN THEREIN, W E ALLOW THE ASSESSEES APPEAL IN THIS YEAR ALSO. 13. TO SUM UP BOTH THE APPEALS UNDER CONSIDERATION ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 27 TH JULY, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 27 TH JULY, 2016 KV COPY TO:- 1) PAHARPUR PRAGNYA TECH PARK (P) LTD., 3 RD FLOOR, UNIT I, BLOCK II, CYBER PEARL, HITEC CITY, MADHAPUR, H YD 81. 2) ACIT, CIRCLE 16(3), HYDERABAD 3) CIT(A) - V, HYDERABAD 4) CIT, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.