Ambattur Infra Developers, CHENNAI V. ACIT Non Corporate Circle 7(1), CHENNAI

ITA 689/CHNY/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4990 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 26-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAILENDRA MAMIDIPCIT
• Assessee Lawyers: B JAISHEILA
• Keywords: Business income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NOS.689 & 690/CHNY/2018 / ASSESSMENT YEAR : 2013-14 & 2014-15. AMBATTUR INFRA DEVELOPERS, NO.86, E-2, INDUSTRIAL ESTATE, AMBATTUR, CHENNAI 600 058. [ PAN AANFA 6447L ] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 7(1), CHENNAI. ( () / APPELLANT) ( *+() /RESPONDENT) ASSESSEE BY : MS. B. JAISHEILA, C.A. DEPARTMENT BY : SHRI. SAILENDRA MAMIDI, PCIT /DATE OF HEARING : 26-07-2018 /DATE OF PRONOUNCEMENT. : 01-08-2018 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE APPEALS OF THE ASSESSEE FOR THE IMPUGN ED ASSESSMENT YEARS, ASSAILING THE TREATMENT OF ITS IN COME UNDER THE HEAD INCOME FROM HOUSE PROPERTY INSTEAD OF BU SINESS. 2. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE BUSI NESS OF BUILDING, SELLING AND LEASING OUT INFORMATION TECHNOLOGY PARKS ITA NOS.689 & 690/18 :- 2 -: HAD GIVEN OUT ON RENT AN IT PARK CALLED AMBIT IT PARK TO VARIOUS PARTIES LIKE CSS CORPORATION, AKSHYA FOODS AND SERV ICES PVT. LTD, PRIZM PAYMENT SERVICES PVT. LTD AND LOPEX TECHNOLOG IES. FROM THE AGREEMENTS WITH THESE PARTIES, IT WAS NOTED BY THE LD. ASSESSING OFFICER THAT ASSESSEE HAD RECEIVED RENTAL RECEIPTS AS WELL AS MAINTENANCE CHARGES FROM LESSEES. ASSESSEE HAD S HOWN ITS INCOME UNDER THE HEAD INCOME FROM BUSINESS/PROFES SION. HOWEVER, LD. ASSESSING OFFICER NOTED THAT LESSEES HAD DEDUCTED TAX U/S.194I OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON THE PAYMENTS MADE TO THE ASSESSEE AND HENCE AS PE R THE LD. ASSESSING OFFICER, THE INCOME HAD TO BE CLASSIFIED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ASSESSEE DID SUBMIT BEFORE THE LD. ASSESSING OFFICER THAT THE IT PARK WAS TAKEN ON LE ASE BY THE COMPANIES NOT ONLY FOR THE SPACE BUT ALSO DUE TO T HE HOST OF SUPPORTING FEATURES LIKE UNINTERRUPTED POWER SUPPLY , AIR CONDITIONING, VOICE AND DATA COMMUNICATION NETWORK ETC. HOWEVER LD. ASSESSING OFFICER TOOK A VIEW THAT TH E SERVICES PROVIDED BY THE ASSESSEE TO THE LESSEES, THOUGH IT WAS ON SEPARATE AGREEMENTS, PROVISION FOR SUCH SERVICES W ERE INSEPARABLE FROM THE ACTIVITY OF RENTING OUT THE PROPERTY. AS PER THE LD. ASSESSING OFFICER THESE SERVICES WERE RENDERED FOR GETTING HIGHER RENT FROM THE LESSEES. THUS THE WHOLE OF THE AMOUNT S RECEIVED BY ITA NOS.689 & 690/18 :- 3 -: THE ASSESSEE FROM THE LESSEES, INCLUDING THE MAINT ENANCE CHARGE WERE BROUGHT TO TAX BY THE LD. ASSESSING OFFICER UN DER THE HEAD INCOME FROM HOUSE PROPERTY, FOR ALL THE IMPUGN ED 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 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 AND THAT OF HONBLE APEX COURT IN THE CASE OF RAYALA CORPORATION PVT. LTD VS. ACIT, (2016) 386 ITR 500 . ITA NOS.689 & 690/18 :- 4 -: 4. HOWEVER, LD.CIT(A) WAS NOT APPRECIATIVE OF THE A BOVE CONTENTIONS. ACCORDING TO HIM, BY VIRTUE OF THE JUD GMENT OF HONBLE APEX COURT IN THE CASE OF SULTAN BROTHERS PVT. LTD VS. CIT (1964) 51 ITR 353 , EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LIMITED, (1961) 42 ITR 49, KARNANI PROPERTIES LIMI TED VS. CIT, (1971) 82 ITR 547 AND S.G. MERCANTILE CORPORATION P RIVATE LIMITED VS. CIT, (1972) 83 ITR 700 , EVEN IF THE OBJECT OF AN ASSESSEE WAS TO PROMOTE AND DEVELOP A MARKET ON HIS LANDED PRO PERTY, INCOME THEREFROM WOULD BE ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF SHAMBHU INVESTMENTS P. LTD VS. CIT, (2003) 263 ITR 143 . LD. COMMISSIONER OF INCOME TAX (APPEALS) DISTINGUISHED THE JUDGMENT OF HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF ELNET TECHNOLOGIES LTD.(SUPRA ) AND THAT OF HONBLE APEX COURT IN THE CASE OF RAYALA CORPORA TION PVT. LTD (SUPRA) OBSERVING THAT CIRCUMSTANCE OF EACH CASE HAD TO BE CONSIDERED ON ITS OWN FACTS BEFORE REACHING A CONC LUSION WHETHER INCOME SHOULD BE CONSIDERED UNDER THE HEAD INCOME F ROM HOUSE PROPERTY OR BUSINESS. FURTHER ACCORDING TO HIM, JUD GMENT OF HONBLE APEX COURT IN THE CASE OF SULTAN BROTHERS PVT. LTD (SUPRA) WAS BY A FIVE JUDGE BENCH AND HAD TO BE GIVEN PREFE RENCE OVER THE LATER JUDGMENTS BY TWO JUDGE BENCHES OF THE SAM E COURT. WITH ITA NOS.689 & 690/18 :- 5 -: THIS VIEW, HE UPHELD THE ORDER OF THE LD. ASSESSING OFFICER. LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO RELIED ON A JUDGMENT OF HONBLE APEX COURT IN THE CASE OF RAJ DADARKAR AND ASSOCIATES VS. ACIT (2017) 394 ITR 592. 5. 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 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 THESE 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 ITA NOS.689 & 690/18 :- 6 -: 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 . 6. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT BY VIRTUE OF THE JUDGMENTS OF HONBLE APEX CO URT IN THE CASE OF SULTAN BROTHERS PVT LTD (SUPRA ), EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LIMITED, (SUPRA), KARNANI PROPE RTIES LIMITED (SUPRA), AND S.G. MERCANTILE CORPORATION PRIVATE L IMITED (SUPRA ), EVEN IF MAIN OBJECT OF THE ASSESSEE WAS RUNNING A T ECHNOLOGY PARK OR LEASING OUT A TECHNOLOGY PARK, RENTAL RECEIVED HAD TO BE CONSIDERED ONLY UNDER THE HEAD INCOME FROM HOUSE PR OPERTY. 7. 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 ITA NOS.689 & 690/18 :- 7 -: 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 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 ITA NOS.689 & 690/18 :- 8 -: 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 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. ITA NOS.689 & 690/18 :- 9 -: 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 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), RELYING ON ITS OWN EARLIER JUDGME NT IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD (SUPRA) 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 THE 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 ANY 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 FACTS OF THE CASE INVOLVED IN THE APPEALS. THE BUSINESS OF THE COMPANY IS TO LEASE ITS PROPERTY AND TO EARN RENT AND THEREFORE, THE INCOME SO EARNED SHOULD BE TREATED AS ITS BUSINESS INCOME . ITA NOS.689 & 690/18 :- 10 -: IT IS TO BE NOTED THAT HONBLE APEX COURT IN THE CA SE OF CHENNAI PROPERTIES & INVESTMENTS LTD (SUPRA) HAD CONSIDERE D ALL THE JUDGMENTS RELIED ON BY THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) INCLUDING THAT OF THE FIVE JUDGE BENCH I N THE CASE OF SULTAN BROTHERS PVT. LTD (SUPRA), BEFORE HOLDING IN FAVOUR OF THE ASSESSEE. WE ARE THEREFORE OF THE OPINION THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN TRYING TO DISTING UISH THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF RAYAL A CORPORATION (SUPRA), WHICH HAD PLACED SPECIFIC RELIANCE ON THE JUDGMENT OF CHENNAI PROPERTIES & INVESTMENTS LTD (SUPRA). AS TO THE CASE OF RAJ DADARKAR AND ASSOCIATES (SUPRA), OF HONBLE APEX COURT IN THE SAID CASE, CONCERNED ASSESSEE HAD INCOME APART FROM LEASING OUT OF THE PROPERTY. HERE THERE IS NO CASE FOR THE REV ENUE THAT ASSESSEE HAD ANY DIFFERENT TYPE OF INCOME. IN THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE INCOME OF THE ASSESS EE BOTH FROM LEASING THE SPACE AS WELL AS PROVIDING MAINTENANCE SERVICES HAD TO BE CONSIDERED ONLY UNDER THE HEAD INCOME FROM BUSIN ESS. LD. ASSESSING OFFICER FELL IN ERROR IN TREATING SUCH AM OUNTS UNDER THE HEAD INCOME FROM HOUSE PROPERTY. WE ARE OF THE OPI NION THAT ASSESSEES INCOME HAS TO BE CONSIDERED ONLY UNDER T HE HEAD INCOME FROM BUSINESS. ORDERED ACCORDINGLY, ITA NOS.689 & 690/18 :- 11 -: 8. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALL OWED. ORDER PRONOUNCED ON WEDNESDAY, THE 1 ST DAY OF AUGUST, 2018, AT CHENNAI. SD/- SD/- ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER / CHENNAI ! / DATED: 1 ST AUGUST, 2018. KV !' # $% &% / COPY TO: 1 . '( / APPELLANT 3. ) () / CIT(A) 5. %+, # - / DR 2. #.'( / RESPONDENT 4. ) / CIT 6. ,/ 0 / GF