ACIT, CHENNAI V. Ambattur Infra Developers, CHENNAI

ITA 376/CHNY/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7319 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 18-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N GOPIKRISHNA IRS
• Assessee Lawyers: T BANUSEKAR
• Keywords: Business income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , !' . #$#% , & '' ( [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NOS.195 & 196/CHNY/2016 / ASSESSMENT YEAR : 2011-12 & 2012-13. AMBATTUR INFRA DEVELOPERS, NO.86, E-2, INDUSTRIAL ESTATE, AMBATTUR, CHENNAI 600 058 VS. THE DEPUTY COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE XIII, CHENNAI. ( )* / APPELLANT) ( +,)* /RESPONDENT) ./I.T.A. NOS.376 & 377 /CHNY/2016 / ASSESSMENT YEAR : 2011-12 & 2012-13 THE DEPUTY COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE XIII, CHENNAI. VS. AMBATTUR INFRA DEVELOPERS, NO.86, E-2, INDUSTRIAL ESTATE, AMBATTUR, CHENNAI 600 058 [PAN AANFA 6447L] ( )* / APPELLANT) ( +,)* /RESPONDENT) ASSESSEE BY : SHRI. T. BANUSEKAR, C.A. DEPARTMENT BY : SHRI. N. GOPIKRISHNA, IRS, JCIT /DATE OF HEARING : 19-07-2018 /DATE OF PRONOUNCEMENT. : 23-07-2018 ITA NOS.195,196, 376 & 377/16 :- 2 -: / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE APPEALS AND CROSS APPEALS OF THE ASSES SEE AND REVENUE RESPECTIVELY FOR THE IMPUGNED ASSESSMEN T YEARS 2011-12 AND 2012-2013. BEFORE ADVERTING TO THE GROU NDS TAKEN BY THE RESPECTIVE PARTIES, IT WILL BE APPROPRIATE T O HAVE A LOOK AT THE FACTS LEADING TO THESE APPEALS. 2. ASSESSEE ENGAGED IN THE BUSINESS OF BUILDING, SELLI NG AND LEASING OUT INFORMATION TECHNOLOGY PARKS HAD GIVE N OUT ON RENT AN IT PARK CALLED AMBIT IT PARK TO VARIOUS PART IES LIKE CSS CORPORATION, AKSHYA FOODS AND SERVICES PVT. LTD, PR IZM PAYMENT SERVICES PVT. LTD AND LOPEX TECHNOLOGIES. FROM THE AGREEMENTS WITH THESE PARTIES, IT WAS NOTED BY THE LD. ASSESS ING OFFICER THAT ASSESSEE HAD RECEIVED RENTAL RECEIPTS AS WELL AS MA INTENANCE CHARGES FROM LESSEES. ASSESSEE HAD SHOWN ITS INCOME UNDER THE HEAD INCOME FROM BUSINESS/PROFESSION. HOWEVER , LD. ASSESSING OFFICER NOTED THAT LESSEES HAD DEDUCTED TAX U/S.19 4I OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON THE PAYMENTS MADE TO THE ASSESSEE AND HENCE AS PER THE LD. ASSESSING OFFICER, THE INCOME HAD TO BE CLASSIFIED UNDER THE HEAD INCOME FROM HOUSE ITA NOS.195,196, 376 & 377/16 :- 3 -: PROPERTY. ASSESSEE DID SUBMIT BEFORE THE LD. ASSE SSING OFFICER THAT THE IT PARK WAS TAKEN ON LEASE BY THE COMPANI ES NOT ONLY FOR THE SPACE BUT ALSO DUE TO THE HOST OF SUPPORTIN G FEATURES LIKE UNINTERRUPTED POWER SUPPLY, AIR CONDITIONING, VOICE AND DATA COMMUNICATION NETWORK ETC. HOWEVER LD. ASSESSING OFFICER TOOK A VIEW THAT THE SERVICES PROVIDED BY THE ASSESSEE TO THE LESSEES, THOUGH IT WAS ON SEPARATE AGREEMENTS, PROVISION F OR SUCH SERVICES WERE INSEPARABLE FROM THE ACTIVITY OF RENT ING OUT THE PROPERTY. AS PER THE LD. ASSESSING OFFICER THESE S ERVICES WERE RENDERED FOR GETTING HIGHER RENT FROM THE LESSEES. THUS THE WHOLE OF THE AMOUNTS RECEIVED BY THE ASSESSEE FROM THE LESSEES, INCLUDING THE MAINTENANCE CHARGE WERE BROUGHT TO TA X BY THE LD. ASSESSING OFFICER UNDER THE HEAD INCOME FROM HOU SE PROPERTY, FOR ALL THE IMPUGNED ASSESSMENT YEARS. 3. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT THOUGH THERE WERE TWO SEPARATE AG REEMENTS, ONE FOR RENTING OUT THE PREMISES AND ONE FOR PROVID ING SERVICES OBJECT OF THE ASSESSEE WAS RENTING OUT THE IT PA RK ALONGWITH VARIOUS SERVICES. AS PER THE ASSESSEE, AMBIT IT PARK WAS APPROVED BY THE MINISTRY OF COMMUNICATIONS AND INFO RMATION ITA NOS.195,196, 376 & 377/16 :- 4 -: TECHNOLOGY THROUGH ITS ORDER DATED 30.06.2009. CONT ENTION OF THE ASSESSEE WAS THAT IT WAS ENGAGED IN THE DEVELOPMENT OF IT PARK AND PROVIDING SERVICES ALONGSIDE LEASING OUT THE INFRASTRUCTURAL FACILITY SO AS TO EXPLOIT THE PROPERTY COMMERCIALL Y. THUS, AS PER THE ASSESSEE ITS INCOME HAD TO BE CONSIDERED UNDER THE HEAD BUSINESS/PROFESSION. ASSESSEE ALSO PLACED RELIANCE ON A JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ELNET TECHNOLOGIES LTD, (2013) 89 DTR 442 . 4. HOWEVER, LD.CIT(A) WAS NOT FULLY APPRECIATIVE OF THE ABOVE CONTENTIONS. ACCORDING TO HIM, BY VIRTUE OF T HE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LIMITED, (1961) 42 ITR 49, KARNA NI PROPERTIES LIMITED VS. CIT, (1971) 82 ITR 547 AND S.G. MERCANT ILE CORPORATION PRIVATE LIMITED VS. CIT, (1972) 83 ITR 700 , EVEN IF THE OBJECT OF AN ASSESSEE WAS TO PROMOTE AND DEVELOP A MARKET ON HIS LANDED PROPERTY, INCOME THEREFROM WOULD BE ASS ESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. RELIANCE W AS ALSO PLACED ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE O F SHAMBHU INVESTMENTS P. LTD VS. CIT, (2003) 263 ITR 143 . LD. COMMISSIONER OF INCOME TAX (APPEALS) DISTINGUISHED THE ITA NOS.195,196, 376 & 377/16 :- 5 -: JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF ELNET TECHNOLOGIES LTD.(SUPRA ) OBSERVING THAT CIRCUMSTANCE OF EACH CASE HAD TO BE CONSIDERED BEFORE REACHING A CONCL USION WHETHER INCOME SHOULD BE CONSIDERED UNDER THE HEAD INCOME F ROM HOUSE PROPERTY OR BUSINESS. NEVERTHELESS, HE HELD THAT INCOME RECEIVED FOR MAINTENANCE CHARGES FROM THE LESSEES HAD TO BE CONSIDERED UNDER THE HEAD INCOME FROM BUSINESS. THUS HE GAVE PARTIAL RELIEF TO THE ASSESSEE. HE UPHELD THE ORDER OF THE LD. ASSESSING OFFICER IN SO FAR AS IT RELATED TO LEASE RENTAL BUT ALLOWED THE APPEAL OF THE ASSESSEE IN SO FAR AS IT RELATED TO MAINTENA NCE AND SERVICE CHARGES RECEIVED FROM THE LESSEES. 5. NOW BEFORE US, REVENUE IS AGGRIEVED ON THE DIRECTIO N OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) TO TRE AT THE MAINTENANCE AND SERVICE CHARGES RECEIVED FROM THE L ESSEES UNDER THE HEAD BUSINESS, WHEREAS ASSESSEE IS AGGRIEVED TH AT LD. COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE ORD ER OF THE LD. ASSESSING OFFICER IN TREATING THE RENTAL INCOME UND ER THE HEAD INCOME FROM HOUSE PROPERTY. 6. LD. COUNSEL FOR THE ASSESSEE, STRONGLY ASSAILING TH E ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) SUBMITT ED THAT THE PARTNERSHIP DEED OF THE ASSESSEE FIRM GAVE ITS OBJ ECT AS ITA NOS.195,196, 376 & 377/16 :- 6 -: PURCHASING, SELLING, CONSOLIDATING ANY LAND AND PLO TS, CONSTRUCTING, PROMOTING, DEVELOPING, INDUSTRIAL PARKS, INFORMATIO N TECHNOLOGY BUILDINGS, COMMERCIAL BUILDINGS FOR SALE, RENT, LEA SE OR BOTH. AS PER THE LD. AUTHORISED REPRESENTATIVE, THOUGH THERE WERE TWO AGREEMENTS WITH THE CLIENTS, ONE FOR LEASING OUT I T PARK AND THE OTHER FOR MAINTAINING AND PROVIDING SERVICES RELATI NG TO THE INFRASTRUCTURE FACILITY BOTH THERE WERE CONTEMPORA NEOUSLY ENTERED INTO. ACCORDING TO THE LD. AUTHORISED REPRE SENTATIVE THESE AGREEMENTS HAD TO BE CONSTRUED TOGETHER. RELYING O N A JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. VELANKANI INFORMATION SYSTEMS (P) LTD, (2014) 265 CTR 25 0, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT IN A SIMILAR SITUATIO N WHERE AN INFORMATION TECHNOLOGY PARK HAD RENT OUT ITS PREMIS ES THROUGH TWO SEPARATE AGREEMENTS, THEIR LORDSHIPS HELD INCOME TO BE ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. RELIANCE WAS ALSO PLACED ON THE JUDGMENTS OF HONBLE APEX COURT IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD VS. CIT, (2015) 373 IT R 673 AND RAYALA CORPORATION PVT. LTD VS. ACIT, (2016) 386 I TR 500 . 7. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT BY VIRTUE OF THE JUDGMENTS OF HONBLE APEX CO URT IN THE CASE OF EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LIMITE D, (SUPRA), ITA NOS.195,196, 376 & 377/16 :- 7 -: KARNANI PROPERTIES LIMITED (SUPRA), AND S.G. MERC ANTILE CORPORATION PRIVATE LIMITED (SUPRA ), EVEN IF MAIN OBJECT OF THE ASSESSEE WAS RUNNING A TECHNOLOGY PARK OR LEASING O UT A TECHNOLOGY PARK, RENTAL RECEIVED HAD TO BE CONSIDE RED ONLY UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISP UTED THAT ASSESSEE WAS A RECOGNIZED IT PARK AND HAD RENTED IT OUT TO V ARIOUS SOFTWARE COMPANIES. IT IS ALSO NOT DISPUTED THAT ASSESSEE HAD ENTERED INTO TWO AGREEMENTS WITH ITS LESSEES, ONE FOR RENTING OU T THE SPACE AND OTHER FOR PROVIDING SERVICES AND MAINTENANCE. THE QUESTION BEFORE US IS WHETHER THE PAYMENTS RECEIVED BY THE ASSESSEE THROUGH THESE TWO AGREEMENTS ARE TO BE CONSIDERED U NDER THE HEAD INCOME FROM HOUSE PROPERTY OR INCOME FROM OTH ER SOURCES OR INCOME FROM BUSINESS. LD. ASSESSING OFFICER HI MSELF HAD OBSERVED THAT ASSESSEE HAD LEASED OUT THE SPACE AL ONGWITH A HOST OF SUPPORTING FEATURES WHICH HELPED ITS BUSINE SS. ASSESSEE HAD OBTAINED APPROVAL FROM DEPARTMENT OF INFORMATI ON TECHNOLOGY, MINISTRY OF COMMUNICATIONS AND INFORMAT ION TECHNOLOGY, GOVERNMENT OF INDIA THROUGH A LETTER D ATED ITA NOS.195,196, 376 & 377/16 :- 8 -: 30.06.2009 WHICH HAS BEEN PLACED AT PAPER BOOK PAGE 16 & 17. WHAT WAS MENTIONED IN THE ABOVE LETTER IS REPRODUCE D HEREUNDER:- YOUR APPLICATION WAS CONSIDERED BY THE INTER-MINI STERIAL STANDING COMMITTEE (IMSC) FOR SOFTWARE TECHNOLOGY PARK (STP ) AND ELECTRONICS HARDWARE TECHNOLOGY PAR K (EHTP) SCHEME IN ITS MEETING HELD ON 27.08.2007 AND I AM DIRECTED TO CONVEY THE APPROVAL OF THE GOVERNMEN T FOR SETTING UP OF INFRASTRUCTURE FACILITY FOR STP UNITS UNDER THE STP SCHEME NAMELY AMBIT LOCATED AT PLOT NO.32A & 32B, INDUSTRIAL ESTATE, AMBATTUR, CHENNAI 600 058. HONBLE KARNATAKA HIGH COURT IN THE CASE OF VELANKANI INFORMATION SYSTEMS (P) LTD (SUPRA) WHERE ALSO SPACE WAS LET OUT BY A SOFTWARE TECHNOLOGY PARK, THROUGH DIFFERENT AGREEME NTS, ONE FOR RENTING OUT THE SPACE AND OTHER FOR PROVIDING SPA CES, HAD HELD AS UNDER:- 25. WE HAVE TO FIND OUT IN THAT CONTEXT WHAT WAS THE INTENTION OF THE PARTIES IN ENTERING INTO THE L EASE TRANSACTION. IT IS NOT THE NUMBER OF AGREEMENTS, WHICH ARE ENTERED INTO BETWEEN THE PARTIES WHICH IS DECISIVE IN DETERMINING THE NATURE OF TRANSACTION. WHAT IS THE OBJECT OF ENTERING INTO MORE THAN ONE SAID TRANSACTIONS IS TO BE LOOKED INTO. HOWEVER, IF FOR ENJOYMENT OF LEASE, THE SUBJECT MATTER OF ALL THE AGREEMENTS IS NECESSARY, THEN NOTWITHSTANDING THE FACT THAT THERE ARE MORE THAN ONE AGREEMENT OR ONE LEASE DEED, THE TRANSACTION IS ONE. AS ALL THE AGREEMENTS ARE ENTERED INTO CONTEMPORANEOUSLY AND THE OBJECT IS TO ENJOY THE ENTIRE PROPERTY VIZ: BUILDING, FURNITURE AND THE ACCESSORIES AS A WHOLE WHICH IS NECESSARY FOR CARRYING ON THE BUSINESS, TH EN THE INCOME DERIVED THERE FROM CANNOT BE SEPARATED BASED ON THE SEPARATE AGREEMENT ENTERED INTO ITA NOS.195,196, 376 & 377/16 :- 9 -: BETWEEN THE PARTIES. WHAT HAS TO BE SEEN IS, WHAT WAS THE PRIMARY OBJECT OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY. IF IT IS FOUND APPLYING SU CH PRINCIPLE THAT THE INTENTION IS FOR LETTING OUT THE PROPERTY OR ANY PORTION THEREOF, THE SAME MAY BE CONSIDERED AS RENTAL INCOME OR INCOME FROM PROPERTIES. IN CASE, IF IT IS FOUND THAT THE MAIN INTENTION IS TO EXPLOIT IMMOVABLE PROPERTY BY WAY O F COMPLEX COMMERCIAL ACTIVITIES, IN THAT EVENT IT MUS T BE HELD AS BUSINESS INCOME. THUS, WHAT IS TO BE LOOKED INTO IS INTENTION OF TH E PARTIES WHILE ENTERING INTO THE LEASE. ADMITTEDLY, THE AGREEMEN TS ENTERED BY THE ASSESSEE WITH THE LESSEES WERE CONTEMPORANEOUS . OBJECTS OF THE LEASE WAS TO ALLOW ENJOYMENT OF THE ENTIRE P ROPERTY WITH ALL SERVICES RELATED TO ITS USE AS TECHNOLOGY CENTERS. MAIN OBJECT OF THE ASSESSEE FIRM AS IT APPEARS IN ITS PARTNERSHIP DEED IS REPRODUCED HEREUNDER:- THE BUSINESS OF THE FIRM SHALL BE TO PURCHASE, SE LL, SUB- DIVIDE, CONSOLIDATE ANY LAND AND PLOTS, CONSTRUCT, PROMOTE, DEVELOP, INDUSTRIAL PARKS, INFORMATION TECHNOLOGY BUILDINGS, COMMERCIAL BUILDINGS FOR SALE , RENT, LEASE OR BOTH ON INSTALLMENT OR OTHERWISE. CONTEMPORANEOUS NATURE OF THE AGREEMENTS ENTERED BY THE ASSESSEE WITH ITS LESSEES, NATURE OF THE PREMISES RENTED OUT AND OBJECT OF THE ASSESSEE FIRM ALL, IN OUR OPINION, DE MONSTRATE ITS ITA NOS.195,196, 376 & 377/16 :- 10 -: INTENTION TO PROVIDE THE SPACE ON LEASE, AS A PART AND PARCEL OF ITS BUSINESS. HONBLE APEX COURT IN THE CASE OF RAYALA CORPORATION PVT. LTD (SUPRA) HAD AFTER CONSIDERING THE EARLIER RULINGS RELATING TO THE ISSUE WITH REGARD TO TREATMENT OF RENTAL RE CEIVED BY A COMPANY, WHOSE MAIN AND ONLY BUSINESS WAS TO LEASE OUT ITS PROPERTY FOR EARNING RENT, HELD AS UNDER AT PARA 10 & 11 OF THE JUDGMENT. 10. SUBMISSIONS MADE BY THE LEARNED COUNSEL APPEARING FOR THE REVENUE IS TO THE EFFECT THAT THE RENT SHOULD BE THE MAIN SOURCE OF INCOME OR THE PURPOSE FOR WHICH THE COMPANY IS INCORPORATED SHOULD BE TO EARN INCOME FROM RENT, SO AS TO MAKE THE RENTAL INCOME TO BE THE INCOME TAXABLE UNDER TH E HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. IT IS AN ADMITTED FACT IN THE INSTANT CASE THAT THE ASSESSEE COMPANY HAS ONLY ONE BUSINESS AND THAT IS OF LEASING ITS PROPERTY AND EARNING RENT THEREFROM. THUS, EVEN ON THE FACTUAL ASPECT, WE DO NOT FIND AN Y SUBSTANCE IN WHAT HAS BEEN SUBMITTED BY THE LEARNED COUNSEL APPEARING FOR THE REVENUE. 11. THE JUDGMENT RELIED UPON BY THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE SQUARELY COVERS THE FACT S OF THE CASE INVOLVED IN THE APPEALS. THE BUSINESS O F THE COMPANY IS TO LEASE ITS PROPERTY AND TO EARN RE NT AND THEREFORE, THE INCOME SO EARNED SHOULD BE TREATED AS ITS BUSINESS INCOME . IN THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT TH E INCOME OF THE ASSESSEE BOTH FROM LEASING THE SPACE AS WELL AS PRO VIDING MAINTENANCE SERVICES HAD TO BE CONSIDERED ONLY UNDE R THE HEAD ITA NOS.195,196, 376 & 377/16 :- 11 -: INCOME FROM BUSINESS. LD. ASSESSING OFFICER FELL I N ERROR IN TREATING SUCH AMOUNTS UNDER THE HEAD INCOME FROM HOUSE PROPE RTY. LD. COMMISSIONER OF INCOME TAX (APPEALS) FELL IN ERROR IN TREATING PART OF SUCH INCOME AS INCOME FROM HOUSE PROPERTY. WE A RE OF THE OPINION THAT ASSESSEES INCOME HAS TO BE CONSIDERED ONLY UNDER THE HEAD INCOME FROM BUSINESS. ORDERED ACCORD INGLY, 9. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALL OWED WHEREAS THOSE OF THE DEPARTMENT ARE DISMISSED. ORDER PRONOUNCED ON MONDAY, THE 23RD DAY OF JULY , 2018, AT CHENNAI. SD/- SD/- ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER / CHENNAI ! / DATED:23RD JULY, 2018 KV !' # $% &% / COPY TO: 1 . '( / APPELLANT 3. ) () / CIT(A) 5. %+, # - / DR 2. #.'( / RESPONDENT 4. ) / CIT 6. ,/ 0 / GF