ACIT, CHENNAI V. Lulu Tech Park Ltd., Kochi

ITA 593/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4679 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 01-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 14-03-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH JT
• Assessee Lawyers: K SRIRAM
• Keywords: Business income
• Section: 143(3); 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C, CHENNAI , . ! , ' !# BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ITA NO.593/MDS/2016 ' $ %$ / ASSESSMENT YEAR : 2008-09 ASST. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-4(1), CHENNAI. VS. LULU TECH PARK PVT. LTD., GROUND FLOOR, LULU CYBER TOWER, INFOPARK SPECIAL ECONOMIC ZONE, INFOPARK P.O., KAKKANAD, KOCHI 682 042. [PAN: AABCL 1472B] ( /APPELLANT ) ( / RESPONDENT ) &' ) * / APPELLANT BY : SHRI A.V.SREEKANTH, JT. CIT +,&' ) * / RESPONDENT BY : SHRI K.SRIRAM, CA ) - / DATE OF HEARING : 01.02.2017 .% ) - / DATE OF PRONOUNCEMENT : 01.05.2017 / O R D E R PER SANJAY ARORA, AM : THIS IS AN APPEAL BY THE REVENUE AGITATING THE ORD ER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-8, CHENNAI (CIT(A) FOR SH ORT) DATED 31.12.2015, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING IT S ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) DA TED 31.12.2010 FOR THE ASSESSMENT YEAR (AY) 2008-09. 2 ITA NO.593 /MDS/2016 (AY 2008-09) ASST. CIT V. LULU TECH PARK LTD. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS AN APPROVED CO- DEVELOPER OF AN INFO PARK, A SPECIAL ECONOMIC ZONE (SEZ), HOLDING LETTER OF APPROVAL (NO.2/34/2005-EPZ DATED 27.06.2006) ISSUED BY THE BOARD OF APPROVAL, MINISTRY OF COMMERCE, GOVERNMENT OF INDIA . VIDE AGREEMENT DATED 01.07.2004, IT HAS TAKEN ON LEASE 7.44 ACRES OF LAN D AT VILLAGE KAKKANAD, ERNAKULAM, KERALA, FROM INFO PARKS, KERALA (IPK), A GOVERNMENT OF KERALA UNDERTAKING, FOR A PERIOD OF 90 YEARS . IT HAS CONSTRUCTED A BUILDING KNOWN AS TEJOMAYA ON THE SAID LAND FOR INFORMATION TECHNOL OGY RELATED BUSINESSES, PROVIDING OTHER RELATED SUPPORT SERVICES AND AMENIT IES, VIZ., WATER FACILITY, GENERATOR BACK-UP, CENTRALIZED AIR CONDITIONING, SE CURITY, GARDEN, ETC. FOR THE YEAR UNDER REFERENCE, WHICH IS THE FIRST YEAR OF IT S OPERATIONS, IT EARNED . 137.74 LACS BY WAY OF LEASE RENT ON 1,63,153 SQ. FT . OF BUILT-UP AREA, BEING, IN THE MAIN, AT .30 PER SQ.FT. PER MONTH. BESIDES, IT COLLECTS ANOT HER .5 (PER SQ.FT. PER MONTH) FOR OPERATING AND MAINTENANCE OF THE COMMON AREA UTILITIES, AIR CONDITIONING, ETC., AND ALSO PROVIDES CAR PARKING S PACE (BOTH OPEN AND COVERED) FOR A MONTHLY CHARGE. IT CLAIMED DEDUCTION U/S. 80- IAB OF THE ACT ON THE ENTIRE INCOME FROM THE TEJOMAYA BUILDING LEASED TO THREE E NTITIES DURING THE RELEVANT YEAR. THE SAME WAS HOWEVER DENIED IN RESPECT OF THE LEASE INCOME, ASSESSING THE SAME AT .31,20,761/- UNDER THE HEAD INCOME FROM HOUSE PROP ERTY. THE ASSESSEES INCOME WAS, ACCORDINGLY, ASSESSED AT . 32,08,558/-, THE BALANCE .87,797/- BEING INCOME FROM OTHER SOURCES AND CA PITAL GAINS. IN APPEAL, THE LD. CIT(A), FOLLOWING THE DECISION IN COIMBATORE HITECH INFRASTRUCTURE PVT. LTD . 53 SOT 9 (CHENNAI) AND BY THE HON'BLE KARNATAKA HIG H COURT IN GLOBAL TECH PARK PVT. LTD . (IN ITA NO.1038/2008 DATED 09.09.2014), REPRODUCI NG THERE-FROM, HELD THE LEASE RENTAL INCOME TO BE ASSESSABLE U/S. 28, I.E., UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AND, SECONDLY, ALLOWED DEDUCTION U/S. 80- IAB THEREON. AGGRIEVED, THE REVENUE IS IN APPEAL, R ELYING ON THE DECISIONS IN THE CASE OF SHAMBHU INVESTMENTS (P) LTD. V. CIT [2003] 263 ITR 143 (SC) AND 3 ITA NO.593 /MDS/2016 (AY 2008-09) ASST. CIT V. LULU TECH PARK LTD. KEYARAM HOTELS PVT. LTD. V. DY. CIT [2015] 63 TAXMANN.COM 301 (SC), WHERE IT HAS BEEN CLARIFIED THAT WHERE THE ASSESSEE IS NOT E NGAGED IN A BUSINESS ACTIVITY, RENTAL INCOME EARNED FROM LETTING OUT A COMMERCIAL COMPLEX WOULD BE ASSESSABLE AS INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS INCOME. THE ASSESSEE, ON THE OTHER HAND, PLACES RELIANCE ON ITS MAIN OBJECT, WHICH READS AS UNDER, SO THAT THE ASSESSEE-COMPANY IS FORMED ONLY FOR DEVELOPMENT AND OPERATING PROPERTIES: III. THE OBJECTS FOR WHICH THE COMPANY IS ESTABLIS HED ARE: A. THE MAIN OBJECTS TO BE PURSUED BY T'RE COMPANY O N ITS INCORPORATION ARE: 1. TO PURCHASE, TAKE ON LEASE OR IN EXCHANGE OR OTHERWISE ACQUIRE ANY LAND OR BUILDING AND ANY ESTATE TO PROMOTE, SET UP, CONS TRUCT, DEVELOP, BUILD, OWN, LEASE, SELL, TRANSFER, OPERATE, MANAGE, SERVIC E, UPGRADE, AND/OR MAINTAIN INFORMATION TECHNOLOGY PARKS, TELECOMMUNIC ATION, ENGINEERING AND CONSULTANCY PARKS, COMPLEXES, SOFTW ARE TECHNOLOGY PARKS, ELECTRONIC AND HARDWARE TECHNOLOGY PARKS OR ANY OTHER INFRASTRUCTURE DEVELOPMENT PROJECTS WITH OR WITHOUT INDUSTRIAL ESTATES, PARKS, TOWNSHIPS, FACTORIES, COMMERCIAL OFFICES, RE SIDENTIAL COMPLEXES AND OTHER ALLIED FACILITIES AND AMENITIES IN ANY PL ACE WHETHER IN INDIA OR OUTSIDE INDIA . FURTHER, THE SERVICE AND THE LEASE AGREEMENTS ARE TO BE READ TOGETHER, FORMING PART OF ONE ARRANGEMENT, CONSTITUTING A COM PLEX ACTIVITY WHICH CANNOT BE TREATED AT PAR WITH A SIMPLE LETTING. THE LD. AU THORIZED REPRESENTATIVE (AR), SHRI K.SRIRAM, WAS AT THIS STAGE ASKED BY THE BENCH TO SPECIFY WHICH ASSETS, I.E., APART FROM BUILDING AND LAND APPURTENANT THERETO, A RE LEASED ALONG WITH, AND QUA WHICH HE FURNISHED THE FOLLOWING DETAIL: LIST OF ASSETS AVAILABLE FOR COMMON USE BY THE OCCU PANTS SI NO DESCRIPTION OF ASSETS QUANTITY IN NOS. 01 AIR COOLED CHILLERS YORK - 250TR 4 02 AIR HANDLING UNITS 40 03 CHILLED WATER PUMPS 9 04 CHILLED WATER PIPELINES 1 SET 05 VERTICAL AHUS 9 4 ITA NO.593 /MDS/2016 (AY 2008-09) ASST. CIT V. LULU TECH PARK LTD. 06 FRESH-AIR HANDLING UNIT 1 07 HEAT RECOVERY WHEEL 4 08 TRANSFORMERS - 2000K V A 2 09 DG SET -1500 KVA 2 10 ELECTRICAL DISTRIBUTION SYSTEM 1 11 FIRE FIGHTING SYSTEM - SPRINKLERS ALL FLOORS 12 FIRE HIDRANTS 1 SET 13 PORTABLE FIRE EXTINGUISHERS 300 14 STAIRCASE PRESSURISATION UNIT 4 15 SEWAGE TREATMENT PLANT 1 16 LIFTS - MITSUBISHI 8 17 BUILDING MANAGEMENT SYSTEM 1 18 BUILDING SURVEILLANCE SYSTEM 1 19 A V SYSTEM - AUDITORIUM 1 20 INTERCOM FACILITIES 1 SET WITHOUT PREJUDICE, IT WAS SUBMITTED BY HIM THA T EVEN IF REGARDED AS LETTING OF HOUSE PROPERTY, SO THAT THE INCOME IS ASSESSABLE U/ S. 22, THE SAME WOULD YET QUALIFY FOR DEDUCTION U/S. 80-IAB IN-AS-MUCH AS THE SAME IS ONLY INCOME DERIVED FROM DEVELOPING A SEZ. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 ANY INCOME ARISING OR ACCRUING OR RECEIVED BY T HE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR, OR DEEMED TO BE SO UNDER TH E ACT, I.E., FROM ANY SOURCE, IS TO BE CLASSIFIED UNDER ANY OF THE FIVE SPECIFIED HEADS OF INCOME ON THE BASIS OF ITS SOURCE. THE SAID HEADS, AS EXPLAINED PER ITS C ONSTITUTIONAL BENCH DECISION BY THE APEX COURT IN SULTAN BROTHERS (P.) LTD. V. CIT [1964] 51 ITR 353 (SC), ARE MUTUALLY EXCLUSIVE, SO THAT IT CANNOT BE SAID THAT ONE IS MORE SPECIFIC THAN THE OTHER, AND ONCE AN INCOME IS ASSIGNABLE TO ONE, IT CANNOT BE TAXED UNDER ANOTHER; THE RELEVANT PART OF THE JUDGMENT READING AS UNDER: 5 ITA NO.593 /MDS/2016 (AY 2008-09) ASST. CIT V. LULU TECH PARK LTD. THE SEVERAL HEADS OF INCOME MENTIONED IN SECTION 6 OF THE INCOME TAX ACT, 1922, AND DEALT WITH SEPARATELY IN SECTIONS 7 TO 12 ARE MUTUALLY EXCLUSIVE, EACH HEAD BEING SPECIFIC TO COVER THE INCOME ARISIN G FROM A PARTICULAR SOURCE , AND IT CANNOT BE SAID THAT ANY ONE OF THESE SECTI ONS IS MORE SPECIFIC THAN ANOTHER. THEREFORE, A PARTICULAR VARIETY OF IN COME MUST BE ASSIGNABLE TO ONE OR THE OTHER OF THESE SECTIONS. IF THE INCOM E UNDER CONSIDERATION IS TAXABLE UNDER SECTION 9 OR SECTION 10, THEN IT CANN OT BE TAXED UNDER SECTION 12. [EMPHASIS, OURS] OWNERSHIP OF HOUSE PROPERTY, HOWSOEVER PROFITABLE, IT WAS CLARIFIED IN CIT VS. NATIONAL STORAGE PVT. LTD. [1963] 48 ITR 577 (594) (BOM), CANNOT BE A BUSINESS OR TRADE UNDER THE ACT. FURTHER, WHERE INCOME FALLS UNDER ANY OF THE SPECIF IC HEADS, IT HAS GOT TO BE COMPUTED UNDER THAT HEAD ONLY AND IN THE MANNER SPECIFIED UNDER THE ACT. SECTION 22 IS THE CHARGING SECTION IN RESPECT OF I NCOME FROM HOUSE PROPERTY (CHAPTER-IV-C OF THE ACT) AND READS AS UNDER: CHAPTER-IV COMPUTATION OF TOTAL INCOME FROM HOUSE PROPERTY INCOME FROM HOUSE PROPERTY. 22. THE ANNUAL VALUE OF PROPERTY CONSISTING OF ANY BUI LDINGS OR LANDS APPURTENANT THERETO OF WHICH THE ASSESSEE IS THE OW NER, OTHER THAN SUCH PORTIONS OF SUCH PROPERTY AS HE MAY OCCUPY FOR THE PURPOSES OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM THE PROFITS OF WHIC H ARE CHARGEABLE TO INCOMETAX, SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. SECTION 23 DEFINES THE ANNUAL VALUE OF THE PROPERT Y, WHICH IS THE SUBJECT MATTER OF CHARGE U/S. 22, AS WELL AS PROVIDES THE M ANNER OF ITS DETERMINATION. INCOMES NOT FALLING UNDER ANY OF THE SPECIFIED SOUR CES WOULD FALL UNDER THE RESIDUARY HEAD, I.E., INCOME FROM OTHER SOURCES ( CHAPTER IV-F), WHICH SPECIFIES CERTAIN CATEGORIES OF INCOMES AS WELL, VI Z., DIVIDEND INCOME; INCOME FROM LETTING OF HOUSE PROPERTY BY A PERSON WHO IS N OT THE OWNER THEREOF; WHERE THE SAME IS LET ALONG WITH OTHER ASSETS, I.E., FURN ITURE, PLANT OR MACHINERY, UNDER THE CONDITION OF THE TWO LETTINGS BEING INSEPERABLE , ETC. IN THIS CONTEXT, IT MAY BE CLARIFIED THAT, FOR THE PURPOSE OF S. 22, THE OWNER IS THE PERSON WHO CAN EXERCISE THE RIGHTS OF THE OWNER, I.E., NOT ON BEHALF OF ANO THER, BUT IN HIS OWN RIGHT. IN OTHER WORDS, IS A PERSON WHO IS ENTITLED TO RECEIVE INCOME FROM HOUSE PROPERTY 6 ITA NO.593 /MDS/2016 (AY 2008-09) ASST. CIT V. LULU TECH PARK LTD. IN HIS OWN RIGHT ( R.B. JODHAMAL KUTHIALA V . CIT [1971] 82 ITR 570, 575, 578-9 (SC); CIT V. PODAR CEMENT PVT. LTD. [1997] 226 ITR 625, 647, 653 (SC)). AGAIN, IT IS THE OWNER OF THE STRUCTURE AND NOT OF THE LAND WHO IS ELIGIBLE TO TAX ( CIT V. MADRAS CRICKET CLUB [1934] 2 ITR 209 (MAD); TINSUKIA DEVELOPMENT CORPORATION LTD. V. CIT [1979] 120 ITR 476 (CAL)). IN THE PRESENT CASE, TH E ASSESSEE IS THE OWNER OF THE HOUSE PROPERTY BY VIRT UE OF S. 27(IIIB) R/W. S. 269 UA(F). THE ASSESSEE HAS LEASED A PART OF THE TEJOMA YA BUILDING TO EACH OF THE THREE CONCERNS, CHARGING LEASE RENT AT DEFINED RATE S. ANNUAL VALUE (AV) OF A HOUSE PROPERTY U/S. 23(1)(A) IS A SUM AT WHICH THE PROPERTY MAY REASONABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR. THIS IS OF CO URSE SUBJECT TO THE ACTUAL RENT, WHERE LET, BEING NOT IN EXCESS, SO THAT THE HIGHER SUM, WHERE SO, SHALL BE ADOPTED AS THE AV. THAT THE SAID BUILDING IS CALLED A INFO- TECH PARK, OR IS NOTIFIED AS SUCH, OR IS LET TO CONCERNS ENGAGED IN PROVIDING IT OR IT ENABLED SERVICES EVEN AS ONE OF THE LESSEES, STATE BANK OF INDIA (SBI), I S A PUBLIC SECTOR BANK, IS BESIDES THE POINT, I.E., AN IRRELEVANT CONSIDERATIO N IN-AS-MUCH AS THE SOURCE OF THE INCOME IS A HOUSE PROPERTY, REALIZED BY LETTING IT. ONCE AN INCOME IS DERIVED FROM HOUSE PROPERTY, HOW WOULD, ONE MAY ASK, IT MAT TER WHETHER THE LETTING IS UNDERTAKEN AS A BUSINESS OR OTHERWISE. WHY, INCOME FROM HOUSE PROPERTY WOULD STAND TO BE ASSESSED EVEN IF PROPERTY UNDER REFEREN CE IS NOT ACTUALLY LET, I.E., ON THE BASIS OF THE REASONABLE RENT THAT IT IS EXPECTE D TO FETCH ON A REGULAR BASIS. THAT IS, SEEKS TO BRING TO TAX THE INCOME POTENTIAL OF A PROPERTY IRRESPECTIVE OF WHETHER IT IS REALIZED OR NOT. IT IS FOR THIS REASO N THAT THE HON'BLE COURTS HAVE REGARDED THE OWNERSHIP (OF HOUSE PROPERTY) PER SE AS THE BASIS FOR CHARGE OF RENTAL INCOME TO TAX UNDER THE ACT. THE CONCLUSIONS DRAWN IN THE MATTER IN NATIONAL STORAGE PVT. LTD. (SUPRA) (AFFIRMED IN [1967] 66 ITR 596 (SC), A LARGER BENCH DECISION) AFTER AN EXHAUSTIVE REVIEW OF THE AUTHORITIES ON THE SUBJECT , ARE AS UNDER: 1. INCOME-TAX IS A SINGLE TAX LEVIED ON THE TOTAL INC OME CLASSIFIED AND CHARGEABLE UNDER THE VARIOUS HEADS AND NOT AN AGGREGATE OF THE DISTINCT TAXES LEVIED SEPARATELY ON EACH HEAD OF INCOME. 7 ITA NO.593 /MDS/2016 (AY 2008-09) ASST. CIT V. LULU TECH PARK LTD. 2. THAT THE HEADS OF INCOME IN SECTION 6 OF THE ACT A RE SPECIFIC HEADS, WHICH ARE EXCLUSIVE AND EXHAUSTIVE. 3. THE INCOME WHICH FALLS UNDER ANY OF THESE SPECIFIC HEADS HAS GOT TO BE COMPUTED UNDER THAT HEAD ONLY IN THE MANNER SPECIFIED IN THE FOLLOWING SECTIONS 7 TO 12 . 4. IF THE INCOME FALLS UNDER THE HEAD 'INCOME FROM PR OPERTY' WHICH IS CHARGEABLE UNDER SECTION 9, IT HAS TO BE TAXED UNDER SECTION 9 ONLY AND CANNOT BE TAKEN TO SEC- TION 10 ON THE GROUND THAT THE BUSINESS OF THE ASSE SSEE WAS TO EXPLOIT PROPERTY AND EARN INCOME OR BECAUSE THE INCOME WAS OBTAINED BY A TRADING CONCERN IN THE COURSE OF ITS BUSINESS. 5. HOUSE-OWNING, HOWEVER PROFITABLE, CANNOT BE A BUSI NESS OR TRADE UNDER THE INCOME-TAX ACT. WHERE INCOME IS DERIVED FROM HOUSE PROPERTY BY THE EXERCISE OF PROPERTY RIGHTS PROPERLY SO CALLED, THE INCOME FALL S UNDER THE HEAD 'INCOME FROM PROPERTY' CHARGEABLE UNDER SECTION 9. IT IS THE NAT URE OF THE OPERATIONS AND NOT THE CAPACITY OF THE OWNER THAT MUST DETERMINE WHETHER T HE INCOME IS FROM PROPERTY OR FROM TRADE. WHERE THE OPERATIONS INVOLVED IN THE AC TIVITY OF EARNING INCOME FROM HOUSE PROPERTY ARE NOT DIFFERENT FROM THOSE OF AN O RDINARY HOUSE-OWNER TURNING TO PROFITABLE ACCOUNT THE PROPERTY OF WHICH HE IS THE OWNER, THE INCOME DERIVED IS INCOME FROM PROPERTY CHARGEABLE UNDER SECTION 9 IRR ESPECTIVE OF WHETHER THE OPER- ATIONS ARE CARRIED ON BY A COMPANY ONE OF WHOSE OBJ ECTS OR EVEN THE SOLE OBJECT IS TO INDULGE IN THE ACTIVITY OF EARNING INCOME FROM HOUS E PROPERTY. THUS, WHERE HOUSE PROPERTY IS GIVEN ON LEASE OR LICENCE BASIS FOR EAR NING INCOME THEREFROM, THE TRUE CHARACTER OF THE INCOME DERIVED IS INCOME FROM PROP ERTY FALLING UNDER SECTION 9. THE SAID CHARACTER IS NOT CHANGED AND THE INCOME DOES N OT BECOME INCOME FROM TRADE OR BUSINESS IF THE HIRING IS INCLUSIVE OF CERTAIN ADDI TIONAL SERVICES SUCH AS HEATING, CLEAN- ING, LIGHTING OR SANITATION, WHICH ARE RELATIVELY I NSIGNIFICANT AND ONLY INCIDENTAL TO THE USE OF OCCUPATION OF THE TENEMENTS. 6. IN CASES WHERE THE INCOME RECEIVED IS NOT FROM THE BARE LETTING OF THE TENEMENT OR FROM THE LETTING ACCOMPANIED BY INCIDENTAL SERVI CES OR FACILITIES, BUT THE SUBJECT HIRED OUT IS A COMPLEX ONE AND THE INCOME OBTAINED IS NOT SO MUCH BECAUSE OF THE BARE LETTING OF THE TENEMENT BUT BECAUSE OF THE FACILITIES AND S ERVICES RENDERED, THE OPERATIONS INVOLVED IN SUCH LETTING OF THE PROPERTY MAY BE OF THE NATURE OF BUSINESS OR TRADING OPERATIONS AND THE INCOME DERIVED MAY BE INCOME NOT FROM EXERCISE OF PROPERTY RIGHTS PROPERLY SO CALLED SO AS TO FALL UN DER SECTION 9 BUT INCOME FROM OPER- ATIONS OF A TRADING NATURE FALLING UNDER SECTION 10 OF THE ACT; AND 7. IN CASES WHERE THE LETTING IS ONLY INCIDENTAL AND SUBSERVIENT TO THE MAIN BUSINESS OF THE ASSESSEE, THE INCOME DERIVED FROM THE LETTIN G WILL NOT BE THE INCOME FROM PROP- ERTY FALLING UNDER SECTION 9 AND THE EXCEPTION TO S ECTION 9 MAY ALSO COME INTO OPER- ATION IN SUCH CASES. THE WORD 'BUSINESS' IS DEFINED IN SECTION 2(13) TO INCLUDE 'ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE N ATURE OF TRADE, COMMERCE OR MANUFACTURE'. IT, THEREFORE, FOLLOWS THAT IF THE AS SESSEE OWNER IS OCCUPYING THE PROP- ERTY FOR CARRYING ON ANY ADVENTURE OR CONCERN IN TH E NATURE OF TRADE THE PROFITS 8 ITA NO.593 /MDS/2016 (AY 2008-09) ASST. CIT V. LULU TECH PARK LTD. WHEREOF ARE CHARGEABLE TO INCOME-TAX, SECTION 22 SP ECIFICALLY EXCLUDES SUCH PROPERTY FROM THE SCOPE AND OPERATION OF SECTIONS 22 TO 27. A MARKET CONSISTING OF SHOPS, BUILDINGS, GODOWNS A ND OPEN SPACES, COMES WITHIN THE PURVIEW OF PROPERTY CONSISTING OF ANY B UILDINGS OR LAND APPURTENANT THERETO. IF THE CONSTITUENT BUILDINGS, AS EXPLAINE D IN P.V.G. RAJU V. CIT [1967] 66 ITR 122 (AP), ARE NOT OCCUPIED BY THE OWNER FOR THE PURPOSE OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM, THE PROFITS OF WHI CH ARE CHARGEABLE TO INCOME TAX, THE INCOME DERIVED BY THE OWNER FROM LETTING O UT THE SHOPS, GODOWNS, ETC. IS ASSESSABLE AS INCOME FROM HOUSE PROPERTY. FURT HER, THIS IS SO EVEN IF THE OWNER IS A COMPANY ESTABLISHED WITH THE OBJECT OF D EVELOPING AND SETTING UP OF MARKETS. THE APEX COURT HAD EARLIER, PER ITS LARGER BENCH DECISION IN EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. [1961] 42 ITR 49 (SC), CLARIFIED THAT THE CHARACTER OF INCOME IS NOT ALTERED BECAUSE IT W AS RECEIVED BY A COMPANY FORMED WITH THE OBJECT OF DEVELOPING LANDED PROPERT IES AND SETTING UP OF MARKETS. THIS ASPECT, I.E., THE COMPANY BEING REGIS TERED WITH THE SOLE OBJECT TO ACQUIRE LAND, BUILD HOUSES AND LET PREMISES TO TENA NTS, WAS AGAIN FOUND OF NO MOMENT, AS THE INCOME CONTINUED TO BE FROM PROPERTY , AND THE MERE FACT THAT THE OWNER IS A COMPANY WOULD NOT BE RELEVANT ( COMMERCIAL PROPERTIES LTD ., IN RE, AIR [1928] CAL 456 (ALSO, INDIAN CITY PROPERTIES LTD. V. CIT [1965] 55 ITR 262 (CAL)). WE CANNOT HELP BUT REFER AGAIN TO THE DECISION IN SULTAN BROTHERS (P.) LTD. (SUPRA), WHEREIN, AMONG OTHERS, THE CONCEPT OF COMP LEX LETTING, I.E., THE INSEPARABLE LETTING OF A HOUSE PROPERTY BELONGING T O THE ASSESSEE, ALONG WITH FURNITURE, PLANT OR MACHINERY, IS EXPLAINED, AND IN WHICH CASE THE INCOME WOULD BE ASSESSABLE AS EITHER INCOME FROM OTHER SOURCES ( U/S. 56(2)(III)) OR AS BUSINESS INCOME U/S. 28. THIS IS AS, AS EXPLAINED, THIS BECO MES A NEW SOURCE OF INCOME. THE APEX COURT DEVISED TESTS FOR DETERMINING THE IN SEPARABILITY OF THE TWO LETTINGS, FOLLOWED IN SHAMBHU INVESTMENTS (P.) LTD. (SUPRA). THAT IS, THE ENTIRE (RENT) INCOME WOULD, IN CASE OF SUCH INSEPARABILITY , STAND TO BE ASSESSED UNDER 9 ITA NO.593 /MDS/2016 (AY 2008-09) ASST. CIT V. LULU TECH PARK LTD. EITHER HEAD, DEPENDING ON WHETHER IT CONSTITUTES OR FORMS A PART OF THE ASSESSEES BUSINESS OR NOT. THE HONBLE COURT ALSO DISCOUNTENA NCED THE PLEA WITH REGARD TO THE COMMERCIAL EXPLOITATION OF A HOUSE PROPERTY BY ITS OWNER. A THING IS NOT, IT HELD, BY ITS NATURE A COMMERCIAL ASSET, AND WHICH IS ONLY AN ASSET USED IN A BUSINESS AND NOTHING ELSE, AND THAT BUSINESS MAY BE CARRIED ON BY PRACTICALLY ALL THINGS, SO THAT NOTHING TURNS ON THE FACT THAT THE LETTING IS OF A COMMERCIAL ASSET OR TOWARD COMMERCIAL EXPLOITATION OF A HOUSE PROPER TY. 3.2 COMING TO THE FACTS OF THE CASE, THE ASSET LIST PROVIDED BY THE ASSESSEE, EVEN AS IT CAN NOT BE TAKEN AT FACE VALUE IN-AS-MUC H AS THE SAME DOES NOT FORM PART OF THE RECORD, SO THAT IT WOULD REQUIRE BEING VERIFIED BEFORE BEING ADMITTED AS SUCH, SHOWS ASSETS WHICH EITHER FORM PART OF THE BUILDING, I.E., ARE EMBEDDED IN OR ATTACH THERETO, OR OTHERWISE FACILITATING THE ENJOYMENT OF THE BUILDING ITSELF. LIFTS, FOR EXAMPLE, MENTIONED IN THE SERVICE AGREEM ENT, SERVE THE FUNCTION OF A STAIR CASE, ENABLING - IN A MECHANIZED MANNER, ACCE SS TO PARTS THEREOF (VIZ. FLOORS OF THE BUILDING ABOVE THE GROUND LEVEL). WHY, SO AR E THE ELECTRICAL FITTINGS AND FIXTURES VIZ., LIGHTS, FANS, ELECTRICAL PANEL, FITT INGS, SWITCHES ETC. THE SAME THEREFORE DO NOT CONSTITUTE A CASE OF COMPLEX LETTI NG, MUCH LESS INSEPARABLE, BEING RATHER A SINGLE LETTING OF A BUILDING, OF WHI CH THE ASSETS REFERRED TO ARE A CONSTITUENT. WE MAY NEXT EXAMINE THE SERVICES BEING PROVIDED BY THE ASSESSEE, ON THE BASIS OF WHICH THE ASSESSEE CLAIMS TO BE USING THE HOUSE PROPERTY TEJOMAYA FOR ITS OWN BUSINESS, EXCLUDING S. 22. TOWARD THIS , THE SERVICE AGREEMENT WITH TATA CONSULTANCY SERVICES (TCS), COPY OF WHICH IS O N RECORD AS A SPECIMEN COPY, HAS BEEN CAREFULLY PERUSED. THE MAINTENANCE O F WATER FACILITY, ELECTRICITY BACKUP, GARDEN, SECURITY, FIRE EXTINGUISHERS, ETC., ARE AGAIN ONLY SUBSERVIENT TO THE PREDOMINANT OBJECT OF ENABLING A HASSLE-FREE, P ROPER USER OF THE BUILDING FOR THE INTENDED OBJECT, I.E., THE PURPOSE FOR WHICH TH E BUILDING HAS BEEN TAKEN ON RENT BY THE LESSEES, I.E., TO USE IT FOR THEIR BUSI NESS (OF IT/IT ENABLED SERVICES). 10 ITA NO.593 /MDS/2016 (AY 2008-09) ASST. CIT V. LULU TECH PARK LTD. CASES FALLING UNDER SUCH CATEGORY WOULD BE AS IN TH E CASE OF A HOTEL, LODGE ETC., WHERE THE BUILDING IS USED AS AN INSTRUMENT OF THE COMMERCIAL ACTIVITY, SO THAT IT WAS THUS A DIFFERENT, NEW SOURCE FROM WHICH THE INC OME IS DERIVED. SURELY, THE INCOME FROM SUCH ACTIVITY WOULD FORM A SEPARATE SOU RCE IN ITSELF. 3.3 WE, ACCORDINGLY, FIND LITTLE MERIT IN THE ASSES SEES CASE, EVEN AS THAT OF THE REVENUE IS, IN THIS REGARD, SUPPORTED BY WELL-SETTL ED LAW ON THE SUBJECT AND TOWARD WHICH WE HAVE CITED A NUMBER OF DECISIONS, I NCLUDING BY THE LARGER BENCHES OF THE APEX COURT, WHICH CONTINUE TO HOLD T HE FIELD, BEING JUDICIALLY BINDING, WITH THAT IN THE CASE OF KEYARAM HOTELS PVT. LTD. (SUPRA) BEING THE LATEST; THE APEX COURT DISMISSING THE SLP AGAINST T HE DECISION BY THE HONBLE JURISDICTIONAL HIGH COURT (REPORTED AT [2015] 373 I TR 494 (MAD)) (REFERENCE HERE MAY ALSO BE MADE TO KEYARAM HOTELS PVT. LTD. V. ASST. CIT [2008] 300 ITR 118 (MAD). 3.4 WE MAY NEXT CONSIDER THE ASSESSEES ALTERNATE C LAIM (REFER PARA 2), AND FOR WHICH, THE ASSESSEE BEING NOT IN APPEAL, REFERENCE IS MADE TO THE DECISIONS IN HUKUMCHAND MILLS LTD V. CIT [1967] 63 ITR 232 (SC); CIT V. ASSAM TRAVELS SHIPPING SERVICE [1993] 199 ITR 1 (SC); CIT V. C.C.C. HOLDINGS [2003] 260 ITR 433 (MAD); CIT VS. RAMNATH GOENKA (DECD.) & OTHRS .[2001] 252 ITR 653, 654 (MAD); THANTHI TRUST V. ASST. CIT [1999] 238 ITR 117 (MAD); CIT VS. RAYALA CORPORATION (P.) LTD . [1995] 215 ITR 883 (MAD); CIT V. INDIAN EXPRESS (MADURAI) PVT. LTD. [1983] 140 ITR 705 (MAD); AHMEDABAD ELECTRICITY CO. LTD. V. CIT [1993] 199 ITR 351 (BOM-FB); CONTROLLER OF ESTATE DUTY V. R.BRAHADEESWARAN [1987] 163 ITR 680 (MAD); CIT V. CELLULOSE PRODUCTS OF INDIA LTD . [1985] 151 ITR 499 (GUJ-FB), CONSIDERING THE ISSU E IN ITS DIFFERENT ASPECTS. THAT RULES 11 & 27 OF THE INCOME TAX (APPE LLATE TRIBUNAL) RULES, 1963 ARE NOT EXHAUSTIVE OF THE POWERS OF THE TRIBUNAL ST ANDS CLARIFIED AS FAR BACK AS IN HUKUMCHAND MILLS LTD (SUPRA). 11 ITA NO.593 /MDS/2016 (AY 2008-09) ASST. CIT V. LULU TECH PARK LTD. THE ASSESSEE CLAIMS THAT IRRESPECTIVE OF THE HEAD OF INCOME, THE (HOUSE PROPERTY) LEASE RENTAL INCOME SHALL CONTINUE TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IAB. THE SAID SECTION, IN ITS RELEVANT P ART, READS AS UNDER: DEDUCTIONS IN RESPECT OF PROFITS AND GAINS BY AN U NDERTAKING OR ENTERPRISE ENGAGED IN DEVELOPMENT OF SPECIAL ECONOMIC ZONE. 80-IAB. ( 1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE, BEI NG A DEVELOPER, INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERT AKING OR AN ENTERPRISE FROM ANY BUSINESS OF DEVELOPING A SPECIAL ECONOMIC ZONE, NOTIFIED ON OR AFTER THE 1ST DAY OF APRIL, 2005 UNDER THE SPECIAL ECONOMIC Z ONES ACT, 2005, THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVIS IONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSES SEE, A DEDUCTION OF AN AMOUNT EQUAL TO ONE HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS. THE ASSESSEE IS WITHOUT DOUBT A DEVELOPER OF A SEZ, HAVING BEEN IN FACT ALLOWED DEDUCTION U/S.80-IAB ON ITS OTHER INCOME/S , AS FROM SERVICE AGREEMENTS, CHARGEABLE U/S.28. THAT THE SAID INCOME IS ASSESSABLE AS BUSINESS INCOME, AND ONLY RIGHTLY SO, INASMUCH AS THE SOURCE THEREOF IS THE COMMERCIAL ACTIVITY OF PROVIDING A RANGE OF SERVICES, IS BESID ES THE POINT. WE HAVE IN FACT FOUND THE SAID SERVICES AS ONLY ENABLING SERVICES, I.E., ENABLING THE ENJOYMENT AND THE USER OF THE HOUSE PROPERTY, DEVELOPED BY TH E ASSESSEE AS A DEVELOPER THEREOF A TERM DEFINED UNDER SEZ ACT, 2005. BY LE TTING THE BUILT-UP SPACE, THE ASSESSEE IS ONLY TURNING INTO ACCOUNT ITS INVESTME NT IN THE HOUSE PROPERTY, BEING A BUILDING AND LAND APPURTENANT THERETO. IT IS, IN FACT, THIS - THE CONSTRUCTION OF A BUILDING SUITABLE FOR THE FIRMS OPERATING IN THE IT SECTOR, THAT QUALIFIES IT AS A DEVELOPER OF AN INFO-PARK, APPROVED AS A SEZ. THAT THE SAID ACTIVITY, I.E., DEVELOPING REAL ESTATE AND LEASING IT, WHICH IS, BR OADLY SPEAKING, AND IN COMMON PARLANCE, ONLY A BUSINESS, IS NOT REGARDED AS SO FO R THE PURPOSE OF ASSESSMENT OF INCOME THERE-FROM, BEING DERIVED FROM A HOUSE PROPE RTY, A DEFINED SOURCE OF INCOME FOR WHICH A SPECIFIC HEAD OF INCOME IS PROVI DED UNDER THE ACT, IS ANOTHER MATTER. THIS IS SO EVEN WHERE IT IS CARRIE D IN AN ORGANIZED MANNER, I.E., AS A BUSINESS, AS IN THE PRESENT CASE. IT SHALL, HO WEVER, NOT CEASE, FOR THAT REASON, TO BE PROFITS AND GAINS DERIVED FROM THE ACTIVITY O F DEVELOPING A SEZ. THE WORD 12 ITA NO.593 /MDS/2016 (AY 2008-09) ASST. CIT V. LULU TECH PARK LTD. BUSINESS - EVEN OTHERWISE A WORD OF WIDE AND INDE FINITE IMPORT, AS OCCURRING IN SECTION 80-IAB(1), IS TO BE, ACCORDINGLY, CONSTR UED IN A BROAD RATHER THAN A STRICT SENSE, AS CONVEYING THE GAMUT OF ACTIVITIES, INCLUDING ACTIVITIES SUBSERVIENT AND INCIDENTAL TO DEVELOPING A SEZ AND TURNING IT I NTO ACCOUNT. NOW, SURELY, LEASING OF HOUSE PROPERTY, INASMUCH AS THE LESSEES (WHO ARE TO BE, OR PRESUMABLY SO, IN INFO-TECH BUSINESS) WOULD BE ABLE TO UNDERTAKE THEIR BUSINESSES ONLY ON THE DEVELOPED PROPERTY BEING MAD E AVAILABLE TO THEM, COULD NOT THEREFORE BUT BE REGARDED AS THE PRINCIPAL ACTI VITY YIELDING INCOME FROM THE DEVELOPMENT OF A SEZ. IN FACT, EVEN THE INCOME (TO THE ASSESSEE) FROM PROVIDING ANCILLARY AND MAINTENANCE SERVICES TO THESE BUSINES SES ARISES OR STANDS TO ARISE ONLY ON ACCOUNT OF, OR BY VIRTUE OF, THEIR BEING LE SSEES. THE LEASE RENTAL INCOME, ON THE LEASE OF THE HOUSE PROPERTY THERETO, WOULD T HUS, IN OUR VIEW, NOTWITHSTANDING THE USE OF THE WORDS PROFITS AND G AINS AND BUSINESS IN SECTION 80-IAB(1), QUALIFY TO BE ELIGIBLE FOR DEDUC TION THERE-UNDER. THAT IS, THE LEASE RENTAL IS WITHIN THE CONTEMPLATION OF THE PRO FITS DERIVED BY A DEVELOPER OF A SEZ FROM THE BUSINESS OF DEVELOPING IT, ELIGIBLE FOR DEDUCTION U/S. 80-IAB. IT IS IN FACT THIS THAT FORMS THE BASIS OF THE DECISIO NS IN COIMBATORE HITECH INFRASTRUCTURE (P.) LTD . (SUPRA) AND GLOBAL TECH PARK PVT. LTD . (SUPRA). THE HEAD OF INCOME UNDER WHICH THE SAID INCOME IS ASSES SABLE, WHICH IS ON THE BASIS OF THE SOURCE FROM AMONGST THE SPECIFIED SOURCES UNDER THE ACT, MOST APPROPRIATE FOR THE SAID INCOME, SO THAT IT IS NOT ASSESSABLE AS BUSINESS INCOME BUT AS INCOME FROM HOUSE PROPERTY, WOULD NOT BE A L IMITING OR DEBILITATING FACTOR. WE DECIDE ACCORDINGLY, AND THE ASSESSEE SUC CEEDS QUA ITS ALTERNATE GROUND, I.E., IN PRINCIPLE. 3.5 FINALLY, WE MAY CONSIDER THE ASSESSEES ELIGIBI LITY FOR DEDUCTION U/S. 80 IAB, TO WHICH THE HOUSE PROPERTY INCOME OF A DEVELO PER OF A SEZ HAS BEEN OPINED BY US AS EXIGIBLE. IN THIS REGARD, WE OBSERV E NO FINDING BY THE ASSESSING AUTHORITY ON THE ASSESSEE SATISFYING THE CONDITION/ S OF S. 80-IAB. TRUE, IT HAS 13 ITA NO.593 /MDS/2016 (AY 2008-09) ASST. CIT V. LULU TECH PARK LTD. BEEN ALLOWED DEDUCTION IN ASSESSMENT IN RESPECT OF THE INCOME ASSESSABLE AS BUSINESS INCOME, SO THAT THE SAID CONDITIONS ARE IM PLIEDLY MET. WE YET CONSIDER IT NECESSARY THAT A DEFINITE FINDING IN THE MATTER SHOULD PRECEDE THE ALLOWANCE OF THE SAID DEDUCTION/S. THE REASON IS THAT, FIRSTLY, THE UNITS IN THE INFO TECH PARK SHOULD PRESUMABLY BE SET UP BY FIRMS ENGAGED IN IT/ IT ENABLED SERVICES, WHILE ONE OF THEM, AS AFORE NOTED, IS A BANK (SBI). TWO, THE LEASE PERIOD AS PER THE SEZ RULES, 2006 (R. 11(5)), AS MENTIONED IN COIMBATORE HITECH INFRASTRUCTURE PVT. LTD. (SUPRA), TO WHICH REFERENCE WAS MADE BY THE ASSESS EE, IS TO BE FOR A PERIOD OF FIVE YEARS (REFER PARA 4.1, PG.13 OF THE IMPUGNED ORDER), WHILE THE LEASE AGREEMENT WITH TCS LTD. IS FOR THREE YEARS. T HIS GIVES RISE TO A DOUBT IF THE ASSESSEE QUALIFIES FOR DEDUCTION U/S. 80IAB ON ITS LEASE RENTAL INCOME AND, FURTHER, IN ITS ENTIRETY, I.E., INCLUDING THE UNITS FOR WHICH THE LEASE PERIOD MAY BE FIVE YEARS OR MORE. WE HAVE ALREADY EXPRESSED A VIE W OF ELIGIBILITY OF THE HOUSE PROPERTY INCOME TO DEDUCTION U/S. 80IAB. SUBJECT TO THEREFORE A POSITIVE FINDING, WHICH THE AO SHALL CAUSE UPON BEEN SATISFI ED, PER A SPEAKING ORDER, AND AFTER ALLOWING THE ASSESSEE A REASONABLE OPPORTUNIT Y TO PRESENT ITS CASE, RECORDING HIS REASONS EITHER WAY, WE ALLOW THE ASSE SSEES CLAIM FOR DEDUCTION U/S. 80IAB. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE REVENUES APPEAL IS DISPOSED ON THE AFORESAID TERMS. ORDER PRONOUNCED ON MAY 01, 2017 AT CHENNAI . SD/- SD/- ( . ! ) (G. PAVAN KUMAR) ' /JUDICIAL MEMBER ( ) (SANJAY ARORA) /ACCOUNTANT MEMBER /CHENNAI, / /DATED, MAY 01, 2017. EDN 14 ITA NO.593 /MDS/2016 (AY 2008-09) ASST. CIT V. LULU TECH PARK LTD. 0 ) +'-12 32%- /COPY TO: 1. &' /APPELLANT 2. +,&' /RESPONDENT 3. 4- ( )/CIT(A) 4. 4- /CIT 5. 256 +'-' /DR 6. 67$ 8 /GF