MAHARSHTRA AIRPORT DEVELOPMENT CO. LTD, MUMBAI V. DCIT CIR 3(2), MUMBAI

ITA 5735/MUM/2014

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5445 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 12-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Keywords: Business income; Rule of consistency; Wholly owned subsidiary; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI BEFORE SHRI MAHAVIR SINGH , JM & SHRI M.BALAGANESH, AM ITA NO. 5735/ MUM/201 4 ( ASSESSMENT YEAR : 2010 - 11 ) MAHARASHTRA AIRPORT DEVELOPMENT COMPANY LTD., 08 TH FLOOR, WORLD TRADE CENTRE, TOWER NO. 1 CUFFE PARADE, MUMBAI 400 005 VS. DCIT CIRCLE 3(2)(1) ROOM NO.608, 6 TH FLOOR AAYAKAR BHAVAN M.K.ROAD, MUMBAI 400 020 PAN/GIR NO. AADCM9623M (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI SUMIT LALCHANDANI REVENUE BY MS. N. HEMALATHA DATE OF H EARING 21 / 08 /2019 DATE OF PRONOUNCEMENT 23 / 08 /2019 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN ITA NO. 5735/MUM/2014 FOR A.Y. 2010 - 11 ARISES OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 4, MUMBAI IN AP PEAL DATED 1 5/07 /2014 (LD. CIT(A) IN SHORT) IN THE MATTER OF IMPOSITION OF PENALTY U/S.271(1)(C) R.W.S. 274 OF THE INCOME TAX ACT, 1961. 2. THE ONLY ISSUE TO BE ADJUDICATED IN THIS APPEAL IS WITH REGARD TO CHALLENGING THE ACTION OF THE LD. CIT(A) IN CONFI RMING THE LEVY OF PENALTY U/S.271(1)(C) OF THE ACT IN RESPECT OF ADDITION MADE IN THE SUM OF ITA NO. 5735/MUM/2014 MAHARASHTRA AIRPORT DEVELOPMENT COMPANY LTD., 2 RS. 1,00,00,000/ - RECEIVED AS REPAIRS AND MAINTENANCE GRANT FROM THE GOVERNMENT OF MAHARASHTRA AND ADDITION MADE IN THE SUM OF RS.1.05 LAKHS RECEI VED AS RENTAL INCOME BY THE ASSESSEE. WE FIND THAT THE CO - ORDINATE BENCH DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN THE QUANTUM PROCEEDINGS IN ITA NO.3072/MUM/2014 FOR A.Y.2010 - 11 DATED 19/06/2019 HAD DELETED THE AFORESAID TWO ADDITIONS. THE RELE VANT OPERATIVE PORTION IS REPRODUCED HEREUNDER: - 18. ISSUE NOS. 5 & 6 ARE INTER CONNECTED, THEREFORE, ARE BEING TAKEN UP TOGETHER FOR ADJUDICATION. HOWEVER, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN WHICH THE CIT(A) HAS TREATED THE GRANT OF R S 1 CRORES OF GOVERNMENT OF MAHARASHTRA AND RENTAL INCOME OF RS.1,05,000/ - AS INCOME FROM BUSINESS OF ASSESSEE. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE CIT(A) WAS NOT AUTHORIZED TO DECIDE THE ISSUE WHICH WAS NOT BEFORE HIM AND TO RAISE THE ADDITION IN QUESTION. ON APPRAISAL OF THE ORDER PASSED BY THE CIT(A), WE NOTICED THAT THE CIT(A) HAS TREATED THE GRANT OF RS.1 CRORES OF GOVERNMENT OF MAHARASHTRA ON ACCOUNT OF REPAIRS AND MAINTENANCE OF AIRPORTS AS INCOME OF THE ASSESSEE AND ALSO TREATED THE RENT AL INCOME IN SUM OF RS.1,05,000/ - AS INCOME FROM BUSINESS. IT IS TO BE SEEN WHETHER THE GRANT IN SUM OF RS.1 CRORES RELEASED BY GOVERNMENT OF MAHARASHTRA TO THE ASSESSEE ON ACCOUNT OF REPAIRS AND MAINTENANCE OF AIRPORTS IS LIABLE TO BE TREATED AS INCOME O F THE ASSESSEE OR NOT. SO FAR AS THE GRANT OF RS.1 CRORES RELEASED BY GOVERNMENT OF MAHARASHTRA ON ACCOUNT OF REPAIRS AND MAINTENANCE OF AIRPORTS IS CONCERNED, THE CIT(A) HAS TREATED AS INCOME OF THE ASSESSEE. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARG UED THAT THE GOVERNMENT HAS GIVEN THE GRANT TO ITS 100% UNDERTAKING OF GOVERNMENT OF MAHARASHTRA, THEREFORE, THE SAID GRANT IS NOT LIABLE TO BE TREATED AS INCOME OF THE ASSESSEE IN VIEW OF THE DECISION IN THE CASE OF CITY AND INDUSTRIAL DEVELOPMENT CORPORA TION OF MAHARASHTRA LTD. VS. ACIT (2012) 138 ITD 381 (MUMBAI) AND IN THE CASE OF CIT VS. KARNATAKA URBAN INFRASTRUCTURE DEVELOPMENT & FINANCE CORPN. (2006) 155 TAXMAN 228 (KAR.). HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE DEPARTMENT HAS REFU TED THE SAID CONTENTION. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS 100% SUBSIDIARY OF THE GOVERNMENT OF MAHARASHTRA WHO RECEIVED THE GRANT IN SUM OF RS.1 CRORES ON ACCOUNT OF REPAIRS AND MAINTENANCE OF AIRPORTS. THE ASSESSEE HAS RELIED UPON THE DECISION HO NBLE ITAT IN THE CASE TITLED AS CITY AND INDUSTRIAL DEVELOPMENT CORPORATION OF MAHARASHTRA LTD. VS. ACIT (2012) 138 ITD 381 (MUMBAI). THE RELEVANT FINDING IS HEREBY REPRODUCED AS UNDER.: - ITA NO. 5735/MUM/2014 MAHARASHTRA AIRPORT DEVELOPMENT COMPANY LTD., 3 '37. WE HAVE HEARD THE ARGUMENTS ADVANCED FROM EITHER SIDE AT LEN GTH AND HAVE ALSO PERUSED THE MATERIAL BROUGHT AND PLACED BEFORE US FOR CONSIDERATION. 38. COMING TO THE ARGUMENTS OF THE SENIOR COUNSEL THAT THE ASSESSEE MUST BE TREATED AS GOVERNMENT OR SURROGATE OR AN AGENT, HAS TO BE CONSIDERED AND ADJUDICATED AT FIRS T. TO CONSIDER THE TAXATION POINT OF VIEW, WE HAVE TO REFER TO ARTICLE 289 OF THE CONSTITUTION, WHEREIN ARTICLE 289(1) SAYS, 'THE PROPERTY AND INCOME OF A STATE SHALL BE EXEMPT FROM UNION TAXATION'. ARTICLE 289(2) READS, 'NOTHING IN CLAUSE (1) SHALL PREVENT THE UNION FROM IMPOSING OR AUTHORIZING THE IMPOSITION OF, ANY TAX TO SUCH EXTENT, IF ANY, AS PA RLIAMENT BY LAW PROVIDE IN RESPECT OF A TRADE OR BUSINESS OF ANY KIND CARRIED ON BY, OR ON BEHALF OF THE GOVERNMENT OR STATE, OR ANY OPERATION CONNECTED THEREWITH, OR ANY PROPERTY USED OR OCCUPIED FOR THE PURPOSE OF SUCH TRADE OR BUSINESS, OR ANY INCOME AC CRUING OR ARISING IN CONNECTION THEREWITH' AND ARTICLE 289(3) READS, 'NOTHING IN CLAUSE (2) SHALL APPLY TO ANY TRADE OR BUSINESS, OR TO ANY CLASS OF TRADE OR BUSINESS, WHICH PARLIAMENT MAY BY LAW DECLARE TO BE INCIDENTAL THE ORDINARY FUNCTIONS OF GOVERNMENT'. 39. TO OUR MIND, THE ENTIRE CASE OF THE ASSESSEE IN THE INSTANT CASE, HINGES ON CLAUSE (2) OR CLAUSE (3) OF ARTICLE 289 OF THE CONSTITUTION OF IN DIA. THE BASIC PURPORT OF ARTICLE 289(2) IS TO NEUTRALIZE CLAUSE (1), BUT WITH A RIDER THAT, IF THERE IS ANY 'TRADE OR BUSINESS' , DONE ON BEHALF OF THE GOVERNMENT OR ANY OPERATIONS CONNECTED THEREWITH O R ANY PROPERTY ISSUED OR OCCUPIED FOR THE PURPOSES OF SUCH TRADE OR BUSINESS, OR ANY INCOME ACCRUING OR ARISING IN CONNECTION THEREWITH. TO MAKE THIS CLAUSE EFFECTIVE, EVEN FOR GOVERNMENT / STATE, CONDUCT OF 'TRADE OR BUSINESS' IS NECESSARY, WHICH SIMPLY M EANS INVOLVEMENT OF COMMERCIAL AND PROFIT MOTIVE FOR THE VENDOR. THIS IS IN LINE WITH THE DECISION OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF APSRTC (SUPRA), RELIED UPON BY THE DR, WHEREIN THE HON BLE SUPREME COURT HAD OBSERVED, 'THE FACTS THAT THE T RADING ACTIVITY CARRIED ON BY THE APPELLANT MAY BE COVERED BY ARTICLE 289(2) OF THE CONSTITUTION DOES NOT REALLY ASSIST THE APPELLANT'S CASE. EVEN IF A TRADING ACTIVITY FALLS UNDER CLAUSE (2) OF ARTICLE 289 OF THE CONSTITUTION, IT CAN SUSTAIN A CLAIM FOR EXEMPTION FROM UNION TAXATION ONLY IF IT IS SHOWN THAT THE INCOME DERIVED FROM THE SAID TRADING ACTIVITY IS THE INCOME OF THE STATE'. THEREFORE, WHENEVE R, THERE IS AN ACTIVITY IN THE NATURE OF TRADE OR BUSINESS, CLAUSE (2) SHALL COME TO LIFE, WHICH ACCORDING TO CLAUSE, SHALL BE APPLICABLE TOWARDS THE STATE I.E. IF AN ACTIVITY WHICH IS IN THE NATURE OF TRADE OR BUSINESS, CONDUCTED BY THE STATE ITSELF, THE LIABILITY FOR TAX SHALL EMERGE, A TYPICAL EXAMPLE IS THAT OF SERVICE TAX COLLECTED ITA NO. 5735/MUM/2014 MAHARASHTRA AIRPORT DEVELOPMENT COMPANY LTD., 4 BY THE STATE ON EVENTS BEING CONDUCTED BY THE VENDORS, HAVE TO BE DEPOSITED BY THE STATE, IN THE GOVERNMENT EXCHEQUER, MAKING THE STATE AN ASSESSEE UNDER SERVICE TAX AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF RASHTRIYA ISPAT NIGAM LTD. VS DEWAN CHAND RAM SARAN (CA NO . 3905 OF 2012). THIS IS ONLY POSSIBLE WHERE THERE IS AN ACTIVITY OF 'TRADE OR BUSINESS', BUT, IF, CONFINED TOWARDS DEVELOPMENT, EITHER OF A NEW TOWNSHIP OR BETTERMENT OF THE FUNCTIONS OF THE LOCAL AUTHORITY, 289(2) SHALL REMAIN IN THE OBLIVION AND SHALL NOT COME INTO PLAY. IN THIS CONTEXT WHEN IN THE CASE OF APRTC, REPORTED IN 52 ITR 524 (SC), THE ADV OCATE GENERAL SOUGHT TO INCLUDE ACTIVITIES IN CLAUSE (2) IN CLAUSE (1), THE HONBLE APEX COURT NEGATED THE SAME BY SAYING 'NO EXCEPTION CAN BE TAKEN'. THEREFORE, THE FUNCTIONS AND / OR ACTIVITY HAS TO BE SEEN PRIMARILY. THE HONBLE SUPREME COURT, THUS OBSE RVES, 'READING THE THREE CLAUSES TOGETHER, ONE CONSIDERATION EMERGES BEYOND ALL DOUBT AND THAT IS THAT THE PROPERTY AS WELL AS THE INCOME IN RESPECT OF WHICH EXEMPTION IS CLAIMED UNDER CLAUSE (1) MUST BE THE PROPERTY AND INCOME OF THE STATE, AND SO, THE SA ME QUESTION FACES US AGAIN : IS THE INCOME DERIVED BY THE APPELLANT FROM ITS TRANSPORT ACTIVITIES THE INCOME OF THE STATE ? IF A TRADE OR BUSINESS IS CARRIED ON BY THE STATE DEPARTMENTALLY AND INCOME IS DERIVED FROM IT, THERE WOULD BE NO DIFFICULTY IN HOLD ING THAT THE SAID INCOME IS THE INCOME OF THE STATE. IT MAY BE THAT THE STATUTE UNDER WHICH A NOTIFICATION HAS BEEN ISSUED CONSTITUTING THE APPELLANT CORPORATION MAY PROVIDE EXPRESSLY OR BY NECESSARY IMPLICATION THAT THE INCOME DERIVED BY THE CORPORATION F ROM ITS TRADING ACTIVITY WOULD BE THE INCOME OF THE STATE'. THIS OBSERVATION READ TOGETHER WITH SECTION 113(3A) OF MR& TP ACT , 1966, SHALL EMERGE THAT THE ACTIVITY SO PERFORMED BY THE ASSESSEE IS NOTHING BUT AN ACT OF STATE WITHOUT ANY PROFIT OR COMMERCIAL MOTIVE ATTACHED WITH IT. THE ONLY CLAUSE LEFT FOR OUR CONSIDERATION THEN WOULD BE CLAUSE (3), WHICH SHALL COME INTO PLAY ONCE CLAUSE (2) IS DISBANDED AND AS SOON AS IT BECOME DISBANDED, CLAUSE (3) COME TO LIFE, WHICH OPERATES ONLY IF, 'PARLIAMENT MAY BY LAW DECLARE TO BE INCIDENTAL TO THE ORDINARY FUNCTIONS OF GOVERNMENT'. HERE, IN THE INSTANT CASE, WE HAVE TO READ 'PARLIAMENT' AS 'STATE GOVERNMENT' BECAUSE IN THE INSTANT CASE, IT IS THE STATE GOVERNMENT WHICH HAS AUTHORIZED THE ASSESSEE TO PERFORM THE DEVELOPMENT PROJECTS AT NAVI MUMBAI, VASAIVIRAR, WALUJ AND SUCH OTHER PLACES. 40. WE CANNOT AGREE WITH THE ARGUMENT OF THE DR THAT THERE IS NO DOCUMENT WHICH HAS DRAWN OUT THE AGENT - PRINCIPAL RELATIONSHIP, BECAUSE THE VERY FIRST RESOLUTION DATED 18TH MARCH, 1970 MENTION IN PARA NO. 2 THAT '............... WHICH WOULD ACT AS AN 'AGENT' OF GOVERNMENT FOR THE DEVELOPMENT OF THE AREAS WITH A VIEW TO SECURE THE ABOVE OBJECTIVE', AND IN PARA NO. 3 OF THIS RESOLUT ION CLEARLY ITA NO. 5735/MUM/2014 MAHARASHTRA AIRPORT DEVELOPMENT COMPANY LTD., 5 SAY, 'THE SUBSIDIARY COMPANY WILL WORK UNDER THE CONTROL AND SUPERVISION OF THE STATE GOVERNMENT IN THE GENERAL ADMINISTRATIVE DEPARTMENT'. IN OUR OPINION, THE FIRST RESOLUTION ITSELF MAKES IT CLEAR THAT THE ASSESSEE IS TO BE AN AGENT, BUT FUNC TIONS AS AN ARM OF THE STATE GOVERNMENT, BECAUSE, IF THE ASSESSEE CAN ONLY WORK UNDER THE CONTROL AND SUPERVISION OF THE STATE GOVERNMENT, MEANING THEREBY THAT THE ASSESSEE CANNOT MAKE / TAKE ANY DECISIONS SUO MOTO, THEN, IN SUCH A CASE AUTHORITY FOR PERFO RMANCE OF ALL ACTIVITIES LIE SOMEWHERE ELSE. IN ANY CASE, AS PER THIS RESOLUTION, IT CLEARLY MAKES THE ASSESSEE AN 'AGENT' OF THE STATE. 41. WHEN WE LOOK INTO THE FINANCIAL FUNCTIONS OF THE ASSESSEE, WE FIND THAT ALL DEALINGS HAVE TO BE ROUTED THROUGH AUT HORIZATIONS BY THE GOVERNMENT AND ALL FUNDS RECEIVABLE SHALL BE IN COMPLIANCE AND WITH INTIMATIONS TO : TO THE MANAGING DIRECTOR, STATE INDUSTRIAL AND INVESTMENT CORPORATION OF MAHARASHTRA LTD. BOMBAY. THE INDUSTRIES COMMISSIONER, BOMBAY THE ACCOUNTANT GE NERAL, MAHARASHTRA, BOMBAY THE PAY & ACCOUNTS OFFICER, BOMBAY THE RESIDENT AUDIT OFFICER, PAY AND ACCOUNTS OFFICER, BOMBAY THE SENIOR DEPUTY ACCOUNTANT GENERAL, NAGPUR ALL DEPARTMENTS OF SECRETARIAT THE DIVISIONAL COMMISSIONER, BOMBAY DIVISION, BOMBAY THE BUDGET BRANCH, INDUSTRIES & LABOUR DEPARTMENT, BOMBAY THE DIRECTOR OF PUBLICITY, BOMBAY. 42. WE FIND THAT ACCORDING TO MR& TP ACT , 1966, THE MACHINERY SECTIONS, I.E. SECTIONS 113 & 113A TALK OF APPOINTMENT OF DEVELOPMENT AUTHORITY AND LOCAL AUTHORITY AND ACCORDINGLY, THROUGH VARIOUS RESOLUTIONS, IN COMPLIANCE OF THESE SECTIONS, MR& TP ACT HAS APPOINTED THE ASSESSEE AS THE DEVELOPMENT AUTHORITY FOR DEVELOPMENT TO NEW TOWNSHIPS AND LOCAL AUTHORITIES FOR STREAMLINING THE FUNCTIONS OF ALREADY EXISTING TOWNS LIKE AURANGABAD, NASHIK, NAGPUR ETC. THIS, ITSEL F SHOWS THAT THE ASSESSEE IS ACTING TOTALLY ON BEHALF OF THE GOVERNMENT. ANOTHER DISTINGUISHING FEATURE THAT CAN BE SEEN IN THAT AS SOON AS THE 'PROJECT' IS COMPLETE, THE PROJECT GETS HANDED BACK TO THE STATE, I.E. WHEN THERE IS A DEVELOPMENT PROJECT, AS P ER PHASES, AND IN THE CASE OF LOCAL AUTHORITY, AS AND WHEN THE AUTHORIZING COMMITTEE IS SATISFIED, THE REINS ARE TRANSFERRED TO THE MUNICIPAL BOARDS, FROM WHOM, THE PROJECT WAS TAKEN OVER, AS WE HAVE SEEN FROM RESOLUTION NO. 10375 DATED 06/08/2010. 43. IN TUNE WITH THESE OBSERVATIONS, READ WITH SECTIONS 113 & 113A OF MR& TP ACT ALONG WITH ARTICLES 289(1) & 289(3) AND HOLDING THAT THE ASSESSEE CORPORATION IS NOT DOING ANY TRADE ACTIVITY ON ITS ITA NO. 5735/MUM/2014 MAHARASHTRA AIRPORT DEVELOPMENT COMPANY LTD., 6 OWN ACCORD, WE HOLD, RELYING ON THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE ASSESSEES OWN CASE, IN THE WRIT PETITION, FOLLOWING THE DECISION PERCIVAL CASE (SUPRA), WHEREIN IT HAS BEEN HELD, THAT CIDCO, THE ASSESSEE HEREIN, IS AN AGENT OF THE STATE GOVERNMENT OF MAHARASHTRA. WE, THEREFORE, RESPECTFULLY FOLLOW THE HON BLE JURISDICTIONAL HIGH COURT OF BOMBAY, AS HELD IN THE CASE OF PERCIVAL (SUPRA), AND HOLD, THE ASSESSEE TO BE THE 'AGENT' OF THE STATE GOVERNMENT OF MAHARASHTRA, READ WITH THE ENTIRE OVERWHELMING DOCUMENTS, SUGGESTING THAT THERE IS NO INCOME TO THE ASSESSEE AS SUCH, AND WHATEVER IS, GENERATED, IT GETS DEPOSITED IN THE CONSOLIDATED FUND OF THE STATE. WE ALSO CANNOT IGNORE THE FACT THAT THE DEPARTMENT HAS BEEN ASSESSING THE ASSESSEE AS A STATE GOVER NMENT UNDERTAKING FOR THE LAST THREE YEARS, THEREFORE, EVEN THIS CANNOT BE CALLED AS AN AFTERTHOUGHT AND APPLYING THE RULE OF CONSISTENCY, WE HOLD THAT THE DEPARTMENT CANNOT BE ALLOWED TO TAKE A DISTINCTIVE APPROACH IN THE CURRENT YEAR.' 19. ON APPRAISAL OF THE FACTS AND CIRCUMSTANCES, WE FIND THAT THE ASSESSEE HAS BEEN TREATED AS AGENT OF GOVERNMENT AND THE INCOME OF THE ASSESSEE IF ANY WAS TREATED AS INCOME OF THE GOVERNMENT WHICH STAND DEPOSITED IN THE CONSOLIDATED FUND OF THE STATE. THE ASSESSEE PLACE D RELIANCE UPON THE DECISION OF KOLKATA HIGH COURT IN CASE OF PRL. CIT VS. THE STATE FISHERIES DEVELOPMENT CORPORATION ITA NO. 19 OF 2017 WITH GA 413 OF 2017 IN WHICH THE GRANT HAS BEEN TREATED HAS CAPITAL RECEIPT. THE SIMILAR VIEW HAS BEEN TAKEN BY THE DE LHI HIGH COURT IN CASE TITLED AS CIT VS. HANDICRAFTS AND HANDLOOMS EXPORTS CORPORATION OF INDIA LIMITED CITED AS (2014)360 ITR 130 (DELHI). THE INSTANT CASE ALSO MAHARASHTRA GOVERNMENT RELEASE THE GRANT IN FAVOUR OF ASSESSEE FOR THE REPAIRS AND MAINTENANCE OF AIRPORTS . IT IS IF ANY CAPITAL IN NATURE AND IS NOT LIABLE TO BE CONSIDERED AS REVENUE IN NATURE. TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES AND BY RELYING UPON THE ABOVE MENTIONED LAW, WE ARE OF THE VIEW THAT THE GRANT IN SUM OF RS.1 CRORES RELEASED BY GOVERNMENT OF MAHARASHTRA ON ACCOUNT OF REPAIRS AND MAINTENANCE OF AIRPORTS IS NOT LIABLE TO BE TREATED AS INCOME OF THE ASSESSEE BEING IN THE NATURE OF CAPITAL RECEIPT. COMING TO THE TREATMENT OF RENTAL INCOME IN SUM OF RS.1,05,000/ - AS BUSINE SS INCOME. WE NOTICED THAT THE MAIN OBJECT OF THE ASSESSEE IS SALE AND LEASING OF LAND. THIS ISSUE HAS BEEN DECIDED BY CIT(A) IN FAVOUR OF THE ASSESSEE FOR THE A.Y.2011 - 12 & 2012 - 13. THE CIT(A) HAS GIVEN THE FINDING WHICH IS REPRODUCED AS UNDER: - '5.5 TH IS GROUND RELATES TO CONSIDERING THE INCOME FROM LEASE RENTAL OF APPELLANT AS 'INCOME FROM OTHER SOURCES' AND DENYING DEDUCTION U/S 80 - IAS. THE ASSESSING OFFICER HAS DISCUSSED THIS AT PARA 5.7 OF HIS ORDER. HE HAS HELD THAT INCOME FROM RENT OF BUILDING AN D LEASE PREMIUM OF LAND LOCATED IN SEZ HAS NO NEXUS WITH THE ALE2ANTS BUSINESS AND HENCE TREATED IT AS 'INCOME FROM OTHER SOURCES'. ITA NO. 5735/MUM/2014 MAHARASHTRA AIRPORT DEVELOPMENT COMPANY LTD., 7 5.5.2 IT IS NOT IN DISPUTE THAT THE APPELLANT IS A GOVERNMENT COMPANY. MADC HAS BEEN FORMED TO PLAY A LEAD ROLE IN THE PLAN NING AND IMPLEMENTATION OF THE MULTI - MODAL NATIONAL HUB AIRPORT AT NAGPUR (MIHAN) PROJECT. THE MAIN OBJECTS OF THE APPELLANT COMPANY AS PER CLAUSE ILL (A) OF THE MEMORANDUM OF ASSOCIATION IS TO DESIGN, PLAN, CONSTRUCT, ERECT, BUILD, REMODEL, REPAIR, EXECUT E, DEVELOP, OPERATE, SALE, LEASE, RENT, IMPROVE, ADMINISTER, MANAGE CONTROL, MAINTAIN AND DEMOLISH AIRPORT, AIR - TRAFFIC EQUIPMENT, TRAFFIC TERMINALS, ROADS, RAILWAYS, HIGHWAYS, EXPRESSWAYS, BRIDGES, TUNNELS, RAILROADS, URBAN TRANSPORT SYSTEMS, ALLEYS, TOWN SHIP SCHEMES, INDUSTRIAL, DOCKS, SHIPYARDS, CANAL, WELLS, PORTS, RESERVOIRS, EMBANKMENTS, DAMS, R - CATION WORKS, RECLAMATIONS, IMPROVEMENTS, SANITARY SYSTEMS, WATER WORKS, WATER GAS OR ANY OTHER STRUCTURAL OR ARCHITECTURAL WORK AND SPECIAL ECONOMIC ZONES. I T IS THE MOST ESSENTIAL BUSINESS ACTIVITY OF THE APPELLANT TO OPERATE THE SEZ AND INCOME FROM LEASING OUT PARTS OF IT TO ELIGIBLE PERSONS FOR ELIGIBLE ACTIVITIES, WITH IT APPROVAL OF GOVT. OF INDIA AND INCONFORMITY WITH SEZ POLICY. 5.5.3 THE ASSESSING OFFI CER HAS FAILED TO EXPLAIN WHY THIS ESSENTIAL COMPONENT OF APPELLANT'S BUSINESS DOES NOT HAVE NEXUS WITH ITS STATED BUSINESS ACTIVITY AS APPROVED BY GOVT. OF INDIA. A CONSIDERABLE AMOUNT OF PUBLIC MONEY IN FORM OF GOVERNMENT GRANT HAS BEEN INVESTED IN THE C OMPANY TO GENERATE INFRASTRUCTURE TO PROMOTE ELIGIBLE INDUSTRIES. IF INCOME FROM THIS ACTIVITY IS NOT CONSIDERED AS BUSINESS INCOME THEN IT IS BEYOND COMPREHENSION WHAT OTHER PART WOULD CONSTITUTE ITS BUSINESS THEREFORE, THIS GROUND OF APPEAL IS ALLOWED. T HE ASSESSING OFFICER IS DIRECTED TO TREAT LEASE/RENT OF RS.2,04,90,596/ - AS BUSINESS INCOME AND ELIGIBLE FOR PURPOSE OF DEDUCTION U/S 80 - IAB.' 20. ON THE BASIS OF THE ABOVE MENTIONED FINDING, THE CIT(A) HAS ALSO DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. AT THE TIME OF ARGUMENTS THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ALSO PLACED RELIANCE OF THE CASE TITLED AS SHREEJI EXHIBITORS VS. ACIT (2015) 42 ITR (T) 596 AND CHENNAI PROPERTIES & INVESTMENT VS. CIT (2015) 373 ITR 673. IN THE SAID CASES IT IS SPECIFICAL LY HELD THAT THE MAIN BUSINESS OF ASSESSEE IS COMMERCIAL EXPLOITATION OF THE PROPERTIES THEN THE RENTAL INCOME OF THE ASSESSEE IS NOT LIABLE TO BE TREATED AS INCOME FROM HOUSE PROPERTY. TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIE W THAT THE RENTAL INCOME TO THE TUNE OF RS.1,05,000/ - IS LIABLE TO BE TREATED AS INCOME BUSINESS. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ITA NO. 5735/MUM/2014 MAHARASHTRA AIRPORT DEVELOPMENT COMPANY LTD., 8 2.1. WE HOLD THAT ONCE THE QUANTUM IS DELETED, THE PENALTY WILL HAVE NO LEGS TO STAND. ACCORDINGLY, WE DIRECT THE LD. AO TO DELETE THE PENALTY LEVIED IN THE CASE OF THE ASSESSEE IN RESPECT OF THESE TWO ADDITIONS. 3. THE GROUND NO.5 RAISED BY THE ASSESSEE IS ONLY ON AN ALTERNATIVE PLEA AND HAD BECOME ACADEMIC IN NATURE IN VIEW OF OUR AFORESAID OBSERVATIONS. 4. THE GROUND NOS.6 TO 12 RAISED BY THE ASSESSEE ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 / 08 /201 9 SD/ - ( MAHAVIR SINGH ) SD/ - (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 23 / 08 / 2019 KARUNA , SR.PS ITA NO. 5735/MUM/2014 MAHARASHTRA AIRPORT DEVELOPMENT COMPANY LTD., 9 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//