ACIT 3(1)(2), MUMBAI V. FAERY ESTATES P.LTD, MUMBAI

ITA 4261/MUM/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1790 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 21-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DECIDED
• Keywords: Business income; Set aside
• Section: 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 4261/MUM/16 2012-13 ACIT-3(1)(2), MUMBAI M/S. FAERY ESTATES PVT. LTD., 70, NAGINDAS MASTER ROAD, FORT, MUMBAI [PAN: AAACF5718K] 4262/MUM/16 2011-12 APPELLANT B Y : SHRI N.S. JANGPANGI , CIT - D R , RESPONDENT B Y : SHRI CHETAN KA R IA , AR DATE OF HEARING : 25 - 06 - 201 9 DATE OF PRONOUNCEMENT : 19 - 0 8 - 201 9 O R D E R PER RAJESH KUMAR, A.M: THESE TWO APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDER(S) OF THE COMMISSIONER OF INCOME TAX(APPEALS)-8, MUMBAI, DATED 21-03-2016, FOR THE A YS.2011- 12 & 2012-13. SINCE COMMON ISSUES ARE INVOLVED IN B OTH THESE APPEALS, EXCEPT THE AMOUNTS MENTIONED THEREIN , THESE APPEALS ARE HEARD TOGETHER AND DECIDED BY THIS COMM ON ORDER. FOR THE SAKE OF CONVENIENCE, ITA NO.4261/MUM/2016 (AY.2012-13) IS TAKEN UP FIRST. 2. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING GROUNDS: ITA NOS. 4261 & 4262/MUM/2016 : 2 : WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN TREATING THE INCOME OF THE ASSE SSEE FROM OPERATION AND MAINTENANCE OF INFORMATION TECHNOLOGY PARK AMOU NTING TO RS.25,72,92,631/- AS INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' WITHOUT APPRECIATING THE FA CT THAT THE ASSESSEE HAD FULFILLED ALL THE CONDITIONS PRESCRIBE D IN SECTION 22 AND LEASING OUT OF PREMISES OR RENTING OUT OF PROPERTY IS NOT THE OBJECT CLAUSE OF THE MOD OF THE ASSESSEE COMPANY AND HENCE , THE INCOME ARISEN FROM THE PROPERTY SHOULD BE BROUGHT TO TAX U NDER THE HEAD 'INCOME FROM HOUSE PROPERTY. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN LAW, THE CIT(A) ERRED IN ALLOWING OPERATING EXPENSES OF RS.4 ,00,96,685/-, ADMINISTRATIVE EXPENSES OF RS.2,65,79,716/- AND DEP RECIATION OF RS.33,27,33,080/- AS DEDUCTION U/S.37 OF THE I.T.AC T WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE'S INCOME HA S BEEN TREATED AS 'INCOME FROM HOUSE PROPERTY'. 'THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) ON T HE ABOVE GROUND BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED .' 3. THE ISSUE RAISED IN GROUND NO.1 BY THE REVENUE I N THIS APPEAL IS AGAINST THE ORDER OF CIT(A) DIRECTING THE AO TO TREAT THE INCOME OF ASSESSEE FROM OPERATION AND MAINTENAN CE OF INFORMATION TECHNOLOGY PARK AMOUNTING TO RS.25,72,9 2,631/- AS INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSI NESS OR PROFESSION BY REVERSING THE ORDER OF AO WHEREIN IT HAS BEEN HELD THAT ASSESSEE HAS FULFILLED THE CONDITIONS PR ESCRIBED U/S.22 OF THE INCOME TAX ACT (ACT) AND ALSO THAT LE ASING OUT OF PROPERTY IS NOT IN THE OBJECT CLAUSE OF THE MEMORAN DUM AND ARTICLES OF ASSOCIATION OF THE ASSESSEE-COMPANY. 3.1. THE FACT IN BRIEF ARE THAT ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF PROPERTIES. DURING THE YEAR IT FILED ITS RETURN OF INCOME ON 28-09-2012 DECLARING LOSS AT RS.62,30,66,774/-. THE CASE OF THE ASSESSEE WAS SE LECTED FOR SCRUTINY AND NOTICES WERE DULY ISSUED AND SERVED ON THE ITA NOS. 4261 & 4262/MUM/2016 : 3 : ASSESSEE. UPON PERUSAL OF THE P&L A/C, AO OBSERVED THAT ASSESSEE HAS INCOME BY WAY OF LEASE AND MAINTENANCE CHARGES AGGREGATING TO RS.25,72,92,631/-, WHICH WAS TREATED AS BUSINESS INCOME BY THE ASSESSEE. THE AO OBSERVED THAT THE LETTING OUT IS NOT OF BUSINESS OF THE ASSESSEE-COMP ANY AND ASSESSEE-COMPANY IS FOLLOWING PROJECT COMPLETION ME THOD AND AS A RESULT, THE ASSESSEE CAPITALIZED ALL THE EXPEN SES INCURRED IN CONNECTION WITH DEVELOPMENTAL ACTIVITIES AND THU S, CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE LEAS E RENTALS AND MAINTENANCE CHARGES SHOULD NOT BE BROUGHT TO TA X UNDER THE HEAD HOUSE PROPERTY, WHICH WAS REPLIED BY ASS ESSEE VIDE LETTER DT.02-02-2015. THE AO ALSO OBSERVED THAT TH E LEASING OUT OF PROPERTY OR LETTING OUT IS NOT APPEARING IN THE MAIN OBJECT IN THE MEMORANDUM OF ASSOCIATION OF THE ASS ESSEE- COMPANY AND ULTIMATELY REJECTED THE CONTENTIONS OF ASSESSEE, AND ASSESSED THE SAME AS INCOME FROM HOUSE PROPERT Y BY ALLOWING DEDUCTION @30% U/S.24(A) OF THE ACT. 3.2. IN THE APPELLATE PROCEEDINGS, LD. CIT(A) ALLOW ED THE APPEAL OF ASSESSEE, BY OBSERVING AND HOLDING AS UND ER: 5.2. EVEN A CURSORY GLANCE TO THE SECTION 22 MAKES IT ABUNDANTLY CLEAR THAT AS SOON AS THE PARAMETERS PRESCRIBED IN SECTION 22 OF THE I.T.ACT ARE SATISFIED OR COMPLIED, THE INCOME REQUI RES TO BROUGHT TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. NOW L ET US SEE WHAT THE CRITERIAS ARE PRESCRIBED BY THE SECTION 22 FOR THIS PURPOSE IN NUTSHELL. FOLLOWING ARE THE CRITERIA PRESCRIBED BY SECTION 22 I. THERE SHOULD BE HOUSE, II. IT SHOULD BE OWNED BY THE ASSESSEE AND III. SUCH HOUSE SHOULD NOT BE USED BY THE ASSESSEE FOR H IS OWN BUSINESS PURPOSE. 3.3. LD. DR VEHEMENTLY ARGUED THAT THE INCOME RECEI VED BY ASSESSEE IN THE NATURE OF PROPERTY INCOME AS IT FA LLS WITHIN ITA NOS. 4261 & 4262/MUM/2016 : 4 : THE FOUR CORNERS OF THE PROVISIONS OF SECTION 22 OF THE ACT. THE AO HAS COMPREHENSIVELY DISCUSSED THE ISSUE AND CAME TO THE REASONABLE AND CORRECT VIEW THAT INCOME IS TO BE AS SESSED U/S.23 OF THE ACT. LD.DR, RELIED HEAVILY ON THE ORD ER OF AO AND IN THE CASE OF CIT VS. SHAMBHU INVESTMENT PVT. LTD. , [249 ITR 7], EAST INDIA HOUSING & DEVELOPMENT TRUST LTD., VS . CIT [42 ITR 49] (SC) AND CIT VS. ANSAL HOUSING FINANCE & LE ASING CO. LTD., [29 TAXMANN.COM 303] (DEL) AND THUS PRAYED FOR THE BENCH THAT THE ORDER OF CIT(A) MAY KINDLY BE REVERS ED THAT OF AO MAY BE RESTORED. 3.4. LD.AR, ON THE OTHER HAND, SUBMITTED THAT ASSES SEE HAS DEVELOPED AN INFORMATION TECHNOLOGY PARK IN CHENNAI . LD.AR ALSO REFERRED TO THE MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION OF THE ASSESSEE AND POINTED OUT THAT UNDER THE OBJECT CLAUSE, IT HAS BEEN MENTIONED THAT IT IS THE BUSINESS OF ASSESSEE TO BUY, SELL, LEASE, LET-OUT OR SUB-LET OR ACQUIRE TENANCY AND/OR DEVELOPMENT RIGHTS IN RELATION TO AN Y CONSTRUCTION OR DEVELOPMENT OF BUILDINGS, OTHER PRO PERTIES, ESTATES OR OTHER MOVEABLE OR IMMOVEABLE PROPERTIES AND IN ANY RIGHT TITLE OR INTEREST THEREIN. LD.AR SUBMITTED TH AT LD.AO WHILE DECIDING THE ISSUE, HAS REPRODUCED ONLY ONE P ART OF THE MAIN OBJECT, LEAVING THE SECOND PART AND THEREFORE THE ORDER PASSED BY THE LD.AO IS WITHOUT APPLICATION OF MIND. LD.AR ALSO REFERRED TO THE LEASE DEED ENTERED INTO WITH M /S. AMAZON DEVELOPMENT CENTRE INDIA PRIVATE LIMITED, AND POINT ED OUT THAT IT HAS BEEN STATED THAT THE LESSOR IS THE OW NER, DEVELOPER AND PROMOTER OF BUILDING NAMELY S.P.INFOC ITY SITUATED AT MGR, KANDNCHAVADI, PERUNGUDI, CHENNAI A ND LESSEE IS IN THE DEVELOPMENT OF INFORMATION TECHNOL OGY PARK IN ITA NOS. 4261 & 4262/MUM/2016 : 5 : CHENNAI. LD.AR TOOK THE BENCH TO VARIOUS TERMS AND CONDITIONS AS CONTAINED IN THE LEASE DEED. SIMILA RLY, LD. AR TOOK US TO THE COPY OF THE BALANCE SHEET, SHOWING T HE EXPENDITURE INCURRED ON THE SAID TECHNOLOGY PARK AN D ALSO CAPITALIZATION DONE DURING THE YEAR. SIMILARLY, LD .AR REFERRED TO THE COPIES OF MAINTENANCE AGREEMENTS FILED IN TH E PAPER BOOK. LD.AR SUBMITTED THAT THE ENTIRE ASSET IS FOR BUSINESS PURPOSE OF THE ASSESSEE AND NOT IN THE NATURE PROP ERTY AS ENVISAGED U/S.22 OF THE ACT. LD.AR RELIED HEAVILY ON THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. VELANKANI INFORMATION SYSTEMS (P.) LTD., [2 65 CTR 0250 / 218 TAXMAN 0088 / 94 DTR 0357] (KARNATAKA), WHEREIN THE HON'BLE COURT HAS HELD THAT RENTAL INCO ME RECEIVED BY THE ASSESSEE FALLS UNDER THE HEAD ON PR OFITS AND GAINS OF BUSINESS AND PROFESSION AND ANY OTHER INTE RPRETATION WILL DEFEAT THE VERY OBJECT OF INTRODUCTION OF SECT ION 80-IA AS WELL AS THE SCHEME, WHICH IS FRAMED BY THE GOVERNME NT IN DEVELOPING THE INDUSTRIAL PARK IN THE COUNTRY. IN THIS CASE ALSO ASSESSEE WAS ENGAGED IN THE BUSINESS OF DEVELO PING, OPERATING AND MAINTAINING AN INDUSTRIAL PARK AND PR OVIDING INFRASTRUCTURE FACILITIES TO DIFFERENT COMPANIES AS ITS BUSINESS, THE LEASE RENT RECEIVED BY THE ASSESSEE FROM LETTIN G OUT BUILDING ALONG WITH OTHER AMENITIES TO IT INDUSTRIE S. SIMILARLY, THE AGREEMENTS WERE ENTERED INTO WITH IN RESPECT OF SERVICE AMENITIES PROVIDED IN THAT DEDUCTION, THE H ON'BLE COURT HAS HELD AS TO STATE HEREIN ABOVE. LD.AR ALS O REFERRED TO CIRCULAR NO.16/2017 ISSUED BY THE GOVT. OF INDIA , MINISTRY OF FINANCE, DEPARTMENT OF CBDT DT.25-04-2015 IN WHI CH IT HAS BEEN CLARIFIED ABOUT LEASE RENT FROM LETTING OU T OF ITA NOS. 4261 & 4262/MUM/2016 : 6 : BUILDING/SPACE DEVELOPED ALONG WITH AMENITIES IN T HE INDUSTRIAL PARK/SEZ ARE TO BE TREATED AS BUSINESS INCOME. THEREFORE, LD.AR PRAYED THAT THE LD.CIT(A) HAS PASS ED THE ORDER BY FOLLOWING THE EARLIER YEARS ORDER, IN WHI CH ALL THESE ASPECTS WERE TAKEN CARE OF AND PASSED A VERY REASON ED AND SPEAKING ORDER, WHICH MAY KINDLY BE UPHELD. 3.5. AFTER HEARING BOTH THE PARTIES AND PERUSING TH E MATERIAL ON RECORD, WE OBSERVE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPING PROPERTIES AND SPECIALLY DEV ELOPED INFORMATION TECHNOLOGY PARK IN CHENNAI. THE ASSESSE E HAS LEASED OUT THE BUILDING TO M/S. AMAZON DEVELOPMENT CENTRE INDIA PRIVATE LIMITED AND OTHERS BY WAY OF LEASE A GREEMENTS AND ALSO ENTERED INTO A SPECIAL AGREEMENT FOR PROVI DING FOR AMENITIES AND FACILITIES, WHICH HAVE BEEN TREATED A S BUSINESS INCOME. WE FURTHER OBSERVE FROM THE PERUSAL OF OB JECT CLAUSE IN THE MEMORANDUM OF ASSOCIATION AND ARTICLES OF AS SOCIATION THAT IT HAS BEEN CLEARLY STATED THAT IT IS THE BUSI NESS OF ASSESSEE TO BUY, SELL, CONSTRUCT AND LEASE-OUT THE PROPERTIES. LD.CIT(A) HAS PASSED A VERY REASONED ORDER AFTER FO LLOWING THE ORDERS OF COORDINATE BENCHES. WE THEREFORE DO NOT F IND ANY INFIRMITY IN THE ORDER OF CIT(A) AND THE SAME IS AF FIRMED BY DISMISSING THE GROUND OF REVENUE. THIS GROUND OF A PPEAL RAISED BY REVENUE IS DISMISSED. 4. GROUND NO.2 RAISED BY REVENUE IS AGAINST THE ORD ER OF CIT(A) IN ALLOWING THE OPERATING EXPENSES OF RS.4,0 0,96,685/-, ADMINISTRATIVE EXPENSES OF RS.2,65,79,716/- AND DEP RECIATION OF RS.33,27,33,080/- U/S.37 OF THE ACT, WITHOUT APP RECIATING ITA NOS. 4261 & 4262/MUM/2016 : 7 : THE FACT THAT AO HAS TREATED THE INCOME AS INCOME FROM HOUSE PROPERTY. 4.1. SINCE WE ALREADY UPHOLD THE ORDER OF CIT(A) BY DISMISSING THE GROUND RAISED BY REVENUE, WHEREIN TH E REVENUE HAS CHALLENGED THE FINDINGS OF LD. CIT(A) I N TREATING THE INCOME OF ASSESSEE FROM OPERATION AND MAINTENAN CE OF TECHNOLOGY PARK OF RS.25,72,92,631/- AS INCOME UNDE R THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. HENCE, THE GROUND RAISED IN GROUND NO.2 IS INFRUCTUOUS AND NOT TO BE ADJUDICATED. IN OTHER WORDS, THE ORDER OF CIT(A) I S UPHELD. 5. IN THE RESULT, THIS APPEAL OF REVENUE IS DISMISS ED. 6. AS FAR AS THE ITA NO.4262/MUM/2016 FOR THE AY.20 11- 12, FILED BY REVENUE IS CONCERNED, THE FACTS AND I SSUES ARE COMMON IN THIS APPEAL AS DECIDED BY US IN ITA NO. 4261/MUM/2016, ACCORDINGLY FOLLOWING OUR DECISION I N ITA NO. 4261/MUM/2016, THE GROUNDS RAISED IN THIS APPEA L OF REVENUE ARE ALSO DISMISSED. HENCE, THIS APPEAL OF REVENUE IS ALSO DISMISSED. 7. TO SUM-UP BOTH THE APPEALS OF REVENUE ARE DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.08.2019 SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI; /DATED : 19.08.2019 TNMM ITA NOS. 4261 & 4262/MUM/2016 : 8 : / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A), MUMBAI 4. / CIT, MUMBAI 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, //TRUE COPY// / (DY./ASST. REGISTRAR) , / ITAT, MUMBAI