ACIT, Circle-8(1), Hyderabad, Hyderabad V. Avinash Hitech City 2 Society, Hyderabad, Hyderabad

ITA 726/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2198 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 06-12-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 27-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MO HARANA
• Assessee Lawyers: RAMESH BABU KILARU
• Keywords: Business income
• Section: 27

Judgement Text

ITA NO 726 OF 2017 AVINASH HITECH CITY 2 SOCIETY HYDERABAD. PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.726/HYD/2017 (ASSESSMENT YEAR: 2013-14) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 8(1), HYDERABAD VS M/S. AVINASH HITECH CITY-2 SOCIETY, GACHIBOWLI HYDERABAD 500081 PAN: AABAA 1623 E (APPELLANT) (RESPONDENT) FOR REVENUE: SHRI S. MOHARANA, CIT (DR) FOR ASSESSEE: SHRI RAMESH BABU KILARU O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS REVENUES APPEAL FOR THE A.Y 2013-14. IN TH IS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE LEARNED C IT (A)-2, HYDERABAD, DATED 31.01.2017 IN DIRECTING THE AO TO ALLOW THE ASSESSE E THE DEDUCTION U/S 80IAB OF THE ACT. IT IS THE CASE OF THE REVENUE THAT THE ASS ESSEE DOES NOT QUALIFY FOR EXEMPTION U/S 80IAB OF THE ACT, AS ACCORDING TO THE AO, IT IS NOT DOING ANY BUSINESS ACTIVITY, BUT IS SIMPLY LETTING OUT THE PR OPERTY. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SOCIETY REGISTERED UNDER THE A.P. SOCIETIES REGISTRATION ACT OF 2001 U NDER THE REGISTRATION NO.219/07 DATED 12.12.2007. IT FILED ITS RETURN OF INCOME FOR THE RELEVANT A.Y. ON 31.7.2012 DECLARING INCOME OF RS.NIL AFTER CLAIMING DEDUCTION U/S 80IAB OF THE ACT. THE AO OBSERVED THAT THE MAIN OBJECT OF THE AS SESSEE IS TO FORM AN ASSOCIATION OF THE OWNERS OF THE LAND, INTO A SOCIE TY, FOR APPLYING AND OBTAINING DATE OF HEARING: 06.12.2017 DATE OF PRONOUNCEMENT: 29.12.2017 ITA NO 726 OF 2017 AVINASH HITECH CITY 2 SOCIETY HYDERABAD. PAGE 2 OF 11 CO-DEVELOPER STATUS UNDER THE SPECIAL ECONOMIC ZO NES (SEZ) ACT OF 2005 ON BEHALF OF ITS MEMBERS AND TO COMPLY WITH ITS RULE O N BEHALF OF THE MEMBERS AND TO MANAGE, MAINTAIN, OPERATE, LEASE AND RECEIVE REN TALS FOR THE CONSTRUCTED SPACES THAT WOULD BE DELIVERED TO THE MEMBERS OF THE SOCIE TY. THE AO OBSERVED THAT IT IS M/S. L & T PHOENIX INFOPARKS PRIVATE LTD WHICH H AS DEVELOPED THE INFRASTRUCTURE AND THE MINISTRY OF COMMERCE & INDUS TRY HAS GIVEN THE STATUS OF CO-DEVELOPER TO THE ASSESSEE FOR PARTICULAR TERMS AND CONDITIONS OF THE AGREEMENT AND THAT SUCH LEASE AGREEMENT WILL NOT HA VE ANY BEARING ON THE TREATMENT OF THE INCOME BY WAY OF LEASE RENTALS/DOW N, PAYMENT/PREMIUM ETC., FOR THE PURPOSE OF ASSESSMENT UNDER THE PREVALENT I NCOME TAX ACT AND RULES AND THAT THE AO WILL HAVE THE RIGHT TO EXAMINE THE TAXA BILITY OF THESE AMOUNTS UNDER THE INCOME TAX ACT. IT WAS ALSO OBSERVED THAT THE A SSESSEE HAS SIMPLY LET OUT THE PROPERTY FOR MAKING IT SUITABLE FOR LETTING OUT AND THAT THE ENTITIES WHICH HAVE OCCUPIED THE PREMISES HAVE DEDUCTED TDS UNDER SECTI ON 194I OF THE ACT AS APPEARED IN FORM 26AS AND THE SOCIETY HAS BEEN DOIN G NO COMMERCIAL ACTIVITY. THEREFORE, THE AO HELD THAT LEASE INCOME IS INCOME FROM HOUSE PROPERTY. HE ALSO OBSERVED THAT THE ACTIVITY OF THE ASSESSEE IS OPERATION, MAINTENANCE, REPAIRS ETC., AND THAT THE ASSESSEE IS RECORDING LEASE RENT AND FACILITY MANAGEMENT SEPARATELY AS THE ASSESSEE HAS ENTERED INTO TWO DIF FERENT AGREEMENTS. HE OBSERVED THAT AS PER THE MAINTENANCE AGREEMENT, THE ASSESSEE IS PROVIDING CAR PARKING SPACE, HOUSEKEEPING AND GENERAL MAINTENANCE , SECURITY, POWER BACK UP FACILITY FOR LIFT SERVICES, LIGHTING AND AC IN COMM ON AREAS. THEREFORE, HE WAS OF THE OPINION THAT THE ASSESSEE IS NOT DOING ANY BUSI NESS BUT HAS JUST LET OUT THE PROPERTY TO THE TENANTS AND THE SERVICES RENDERED B Y IT ARE THE SERVICES GENERALLY PROVIDED TO ANY LEASED PROPERTY AND THEREFORE, THE NATURE OF THE INCOME EARNED BY THE ASSESSEE IS RENTAL INCOME OR LEASED INCOME. 3. HE ALSO PERUSED THE DEVELOPMENT AGREEMENT-CUM-GP A, DATED 2.1.2006, ACCORDING TO WHICH, THE DEVELOPER IS M/S. L&T PHOENIX INFOPARKS PVT LTD, AND THE MEMBERS OF THE ASSESSEE SOCIETY ARE TH E OWNERS AND SINCE THE OWNER ITA NO 726 OF 2017 AVINASH HITECH CITY 2 SOCIETY HYDERABAD. PAGE 3 OF 11 COULD NOT BECOME THE DEVELOPER, THE COLOURABLE DEVI SE OF FORMING A SOCIETY WAS DEVISED AND SINCE THE ASSESSEE HAS NOT DEVELOPED TH E BASIC INFRASTRUCTURE OF SEZ, THE INCOME OF THE ASSESSEE CANNOT BE TREATED AS BUS INESS INCOME AND DEDUCTION U/S 80IAB IS NOT ALLOWABLE. THEREFORE, HE TREATED T HE ENTIRE INCOME DERIVED FROM LETTING OUT OF THE PROPERTY AS INCOME FROM HOUSE PR OPERTY AND BROUGHT IT TO TAX. 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT (A), WHO ALLOWED THE SAME BY TAKING INTO CONSIDERATION T HE APPROVAL GIVEN BY THE MINISTRY OF COMMERCE, TREATING THE ASSESSEE AS THE CO-DEVELOPER FOR THE PURPOSE OF SECTION 80IAB OF THE ACT. AGAINST THE RE LIEF GIVEN BY THE CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 5. THE LEARNED DR SUBMITTED THAT THE SOCIETY IS FOR MED BY THE OWNERS OF THE LAND ON WHICH THE INFRASTRUCTURE HAS BEEN DE VELOPED BY L&T PHOENIX INFOPARKS PVT LTD. THEREFORE, ACCORDING TO HIM, THE L&T INFOPARKS IS THE DEVELOPER AND THE ASSESSEE SOCIETY IS ONLY THE OWNE R OF THE PROPERTY ON WHICH SUCH INFRASTRUCTURE HAS BEEN BUILT. HE SUBMITTED TH AT THE ASSESSEE HAD MADE ONLY COSMETIC CHANGES TO THE INFRASTRUCTURE BUILT BY THE L&T INFOPARKS AND THE SERVICES WHICH HAVE BEEN RENDERED ARE THE SERVICES WHICH ANY OWNER OF A PROPERTY WOULD RENDER TO A TENANT. HE SUBMITTED THA T THE CERTIFICATE GIVEN BY THE MINISTRY OF COMMERCE IS RELEVANT ONLY FOR GETTING A PPROVAL FOR SEZ PURPOSES BUT UNDER THE I.T. ACT, IT IS ONLY THE AO, WHO CAN VERIFY THE HEAD UNDER WHICH THE INCOME IS ASSESSABLE TO TAX. HE FURTHER REFERRE D TO THE PROVISIONS OF SECTION 80IAB OF THE ACT WHERE THERE IS A REFERENCE TO AN U NDERTAKING OR AN ENTERPRISE. HE SUBMITTED THAT BEING AN ASSOCIATION OF PERSON (A OP), THE ASSESSEE SOCIETY CANNOT BE TREATED AS AN UNDERTAKING OR AN ENTERP RISE AND THEREFORE, IT DOES NOT SATISFY THE BASIC CONDITIONS FOR CLAIMING DEDUC TION U/S 80IAB OF THE ACT. HE THUS SUPPORTED THE ORDERS OF THE AO. ITA NO 726 OF 2017 AVINASH HITECH CITY 2 SOCIETY HYDERABAD. PAGE 4 OF 11 6. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, SUBMITTED THAT THE ASSESSEE IS A SOCIETY FORMED BY THE OWNERS OF THE LAND ON WHICH THE INFRASTRUCTURE HAS BEEN CONSTRUCTED AND THAT THE MA IN AND ONLY OBJECTIVE OF THE ASSESSEE SOCIETY IS TO CREATE INFRASTRUCTURE FOR SE Z PURPOSES AND TO OPERATE AND MAINTAIN SUCH INFRASTRUCTURE. HE SUBMITTED THAT U/S 80IAB, DEDUCTION IS ALLOWABLE NOT ONLY FOR DEVELOPING THE INFRASTRUCTUR E BUT IS ALSO AVAILABLE FOR OPERATION & MAINTENANCE OR ONLY OPERATION OF THE IN FRASTRUCTURE. HE SUBMITTED THAT THE GOVT. OF INDIA, MINISTRY OF COMMERCE, HAS CONSIDERED AND EXAMINED VARIOUS PARAMETERS BEFORE ISSUING THE CERTIFICATE O F CO-DEVELOPER TO THE ASSESSEE. HE ALSO DREW OUR ATTENTION TO THE CBDT CIRCULAR NO. 16/2017, DATED 25 TH APRIL, 2017, WHEREIN THE CBDT HAS CLARIFIED THAT CERTAIN U NDERTAKINGS DEVELOP AND OPERATE OR MAINTAIN AND OPERATE AN INDUSTRIAL PARK/ SEZ NOTIFIED IN ACCORDANCE WITH THE SCHEME FRAMED AND NOTIFIED BY THE GOVT. OF INDIA, AND THE INCOME FROM LETTING OUT OF THE PREMISES/DEVELOPED SPACE ALONG W ITH OTHER FACILITIES IN AN INDUSTRIAL PARK/SEZ, IS TO BE CHARGED TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. IT WAS FURTHER PROVIDED THAT THE DEPARTM ENT MAY NOT FILE ANY APPEAL AFTER THE ISSUANCE OF THE CIRCULAR AND THOSE ALREAD Y FILED MAY BE WITHDRAWN/NOT PRESSED UPON. THUS, ACCORDING TO HIM, THE REVENUES APPEAL IS NOT MAINTAINABLE/SUSTAINABLE IN VIEW OF THE ABOVE CIRCU LAR AS WELL. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE WAS FORMED IN THE YEAR 20 07 AND THE MAIN OBJECT OF THE ASSESSEE SOCIETY IS TO MANAGE, MAINTAIN, OPERATE, L EASE AND RECEIVE RENTALS FOR THE CONSTRUCTED SPACES THAT WOULD BE DELIVERED TO THE M EMBERS OF THE SOCIETY IN H- 1B BUILDING OF THE HITECH CITY-2 BY THE L&T PHOENIX INFO PARKS (P) LTD. IN THE MEMORANDUM OF SOCIETY , IT IS ALSO MENTIONED TH AT THE SOCIETY IS FORMED WITH THE MAIN OBJECT OF APPLYING AND OBTAINING THE CO-DE VELOPER STATUS UNDER THE SPECIAL ECONOMIC ZONES ACT, 2005 ON BEHALF OF THE M EMBERS AND THEIR REPRESENTATIVE TO COMPLY WITH ITS RULES ON BEHALF O F THE MEMBERS AND FOR THE PURPOSE OF TAKING CARE OF COMMON MAINTENANCE AND UP KEEP OF THE CONSTRUCTED ITA NO 726 OF 2017 AVINASH HITECH CITY 2 SOCIETY HYDERABAD. PAGE 5 OF 11 SPACES, ESTABLISH AND PROVIDE FOR THE COMMON FACILI TIES, EQUIPMENT AND AMENITIES AND TO PROVIDE ALL OTHER INCIDENTAL AND NECESSARY C OMMON SERVICES TO ITS MEMBERS, AND TO PERFORM SUCH OTHER DUTIES AND TO CO MPLY WITH ALL OTHER STATUTORY REGULATIONS ON BEHALF OF ITS MEMBERS. 8. WE HAVE GONE THROUGH THE LETTER OF THE GOVT. OF INDIA, MINISTRY OF COMMERCE & INDUSTRY, DATED 31.12.2008 CONFERRING TH E CO-DEVELOPER STATUS TO THE ASSESSEE IN THE IT/ITES SEZ AT PAPER BOOK (PAGE NOS.7 & 8) FILED BY THE ASSESSEE. WE FIND THAT THE STATUS IS GIVEN TO THE A SSESSEE FOR DEVELOPING INFRASTRUCTURE FACILITIES IN THE SEZ AT GACCHHIBOWL I, RANGA REDDY DISTRICT AND THAT THE ASSESSEE SHALL OBTAIN REQUIRED APPROVAL FR OM VARIOUS STATUTORY AUTHORITIES UNDER THE RELEVANT STATUTES AND REGULATIONS OF THE GOVT. OF INDIA AND THE STATE GOVT. AND LOCAL BODIES AND THAT THE CO-DEVELOPER SH ALL CONFORM TO THE ENVIRONMENTAL REQUIREMENTS, LOCAL LAWS, RULES & REG ULATIONS OR BYE-LAWS IN REGARD TO AREA PLANNING, SEWERAGE DISPOSAL, POLLUTI ON CONTROL, LABOUR LAWS AND THAT IT SHALL RAISE REQUIRED FUND FOR THE FACILITIE S BEING CREATED AND ALSO THAT THE APPROVAL IS VALID FOR A PERIOD OF THREE YEARS WITHI N WHICH TIME, THE CO-DEVELOPER SHALL CREATE THE APPROVED FACILITIES AND THE PROGRE SS OF IMPLEMENTATION WILL BE SUBMITTED TO THE GOVT. OF INDIA EVERY SIX MONTHS. I T IS ALSO MANDATED THAT THE OPERATION, MAINTENANCE OF THE FACILITY WILL BE MADE AS PER THE STANDARDS SPECIFIED IN THE PROPOSAL AND TO THE SATISFACTION OF THE USER S AND THAT IT SHALL MAINTAIN ADEQUATE MANPOWER TO PROVIDE THE FACILITIES. IT IS ALSO MANDATED THAT THE CO- DEVELOPER SHALL OBTAIN THE APPROVAL OF BOARD FOR SP ECIFIC ACTIVITIES PROPOSED TO BE UNDERTAKEN FOR DEVELOPMENT, OPERATION AND MAINT ENANCE OF SEZ AND BASED ON THE ACTIVITIES APPROVED BY THE BOARD, THE CO-DEV ELOPER SHALL BE ENTITLED FOR DUTY FREE IMPORT OR DOMESTIC PROCUREMENT AND FOR TH E APPROVED ACTIVITIES AFTER THE SEZ HAS BEEN NOTIFED. IT IS ALSO MADE CLEAR TH AT THE APPROVAL GIVEN BY THE BOARD FOR CO-DEVELOPER FOR PARTICULAR TERMS & CONDI TIONS OF THE AGREEMENT WILL NOT HAVE ANY BEARING ON THE TRREATMENT OF THE INCOM E BY WAY OF LEASE RENTALS/DOWN PAYMENT/PREMIUM ETC., FOR THE PURPOSE OF ASSESSMENT UNDER THE ITA NO 726 OF 2017 AVINASH HITECH CITY 2 SOCIETY HYDERABAD. PAGE 6 OF 11 PREVALENT INCOME TAX ACT AND RULES AND THAT THE AO WILL HAVE THE RIGHT TO EXAMINE THE TAXABILITY OF THESE AMOUNTS UNDER THE I .T. ACT. THUS, IT IS SEEN THAT THE ASSESSEE IS TO ADHERE TO THE VARIOUS TERMS AND CONDITIONS ON BEING CONFERRED WITH THE STATUS OF CO-DEVELOPER, UNDER THE SUPERVIS ION OF THE GOVT. OF INDIA. THE CIT (A) HAS OBSERVED THAT M/S. L&T INFOPARK HAS HAN DED OVER A COLD SHELL TO THE ASSESSEE WHILE THE ASSESSEE HAS CONVERTED IT INTO A WARM SHELL BY PROVIDING THE NECESSARY FACILITIES AND THAT THE ASSESSEE IS OPERA TING AND MAINTAINING ALL THE FACILITIES ON 24/7 BASIS BY EMPLOYING REGULAR/TECHN ICAL AND COMPETENT STAFF. THUS, IT IS CLEAR THAT THE ASSESSEE IS NOT ONLY PRO VIDED PART OF THE INFRASTRUCTURE BUT IS ALSO OPERATING AND MAINTAINING THE INFRASTRU CTURE. THE RELIANCE OF THE LEARNED DR ON THE WORDS UNDERTAKING OR AN ENTERPRI SE USED IN SECTION 80IAB, TO MEAN THAT THE AOP IS NOT AN UNDERTAKING IS ALSO NOT ACCEPTABLE. AN UNDERTAKING OR ENTERPRISE REFERRED TO IN SECTION 80 IAB IS ONLY TO MEAN THAT IT IS NOT AN INDIVIDUAL. THE ASSESSEE IS A REGISTERED SOC IETY. WE FIND THAT SIMILAR ISSUE HAD ARISEN BEFORE THE COORDINATE BENCH OF THE TRIBU NAL AT DELHI IN THE CASE OF DLF INFOCITY DEVELOPERS (CHENNAI) LTD VS. ACIT, REP ORTED IN (2013) 37 TAXMANN.COM 311 WHEREIN THE TRIBUNAL HAS AT PARAS 3 6 TO 41 HELD AS UNDER: 36. THUS, AS DISCUSSED ABOVE, THE ADMITTED AND UND ISPUTED FACT REMAIN THAT THE ASSESSEE HAS BEEN DULY APPROVED BY THE BOA AS A DEVELOPER, THE LAND OWNED BY THE ASSESSEE AT CHENNA I WAS NOTIFIED BY THE GOVT. OF INDIA FOR ESTABLISHMENT OF SEZ, THE AU THORIZED OPERATIONS TO BE UNDER TAKEN IN THE SAID SEZ WERE APPROVED BY BOA, THE CO- DEVELOPER AGREEMENT DATED 20/3/2008 EXECUTED WITH T HE CO- DEVELOPER CONTEMPLATING TRANSFER OF 'BARE SHELLS' TO THE CO-D EVELOPER HAS BEEN DULY APPROVED BY THE BOP; THE DAPL HAS BEEN APPROVE D AS A CO- DEVELOPER, THE TRANSFER OF BARE SHELL TO THE CO-DEV ELOPER HAS BEEN APPROVED AS AN AUTHORIZED OPERATION BY THE BOP AND THE DISCLAIMER CONTAINED IN CLAUSE 3(XVII) OF THE APPROVAL LETTER DATED 1/6/2009 APPLIES ONLY TO THE LEASE OF LAND AS CLARIFIED BY T HE MINISTRY OF COMMERCE IN THE CLARIFICATION DATED 18/1/2011 AND N OT TO THE TRANSFER OF BARE SHELLS. NOTING THESE MATERIAL FACTS WE ARE OF THE VIEW THAT THE LD. CTI(A) HAS RIGHTLY AGREED WITH THE PLEA OF THE ASSESSEE THAT THE TAX DISCLAIMER CONDITION MENTIONED IN THE CO-DEVELOPER APPROVAL IS PRIMARILY TO BE IN BY THE BOA IN THE APPROVALS GRAN TED TO PUT A CURB ON THE WRONG PRACTICE OF LEASING THE LAND FOR LONG PERIODS AND RECEIVING ONE TIME PAYMENT IN THE FORM OF LEASE REN TALS/DOWN ITA NO 726 OF 2017 AVINASH HITECH CITY 2 SOCIETY HYDERABAD. PAGE 7 OF 11 PAYMENTS/PREMIUM ETC WHICH TANTAMOUNT TO SALE OF LA ND IN THE GUISE OF LONG TERM LEASE. THE ASSESSEE HAS OBTAINED REQUISIT E APPROVALS FROM THE BOA IN MOST TRANSPARENT MANNER BY DISCLOSING NO T ONLY DEVELOPMENT CONSIDERATION BUT ALSO THE BASIS FOR DE TERMINING THE SAME. THE ENTIRE CONTROVERSY AS TO WHETHER TRANSFER OF BARE SHELL BUILDINGS TO THE CO-DEVELOPER WAS AN AUTHORIZED OPE RATION HAS BEEN SET AT REST BY FURTHER CLARIFICATIONS DATED 18/1/20 11 AND 20/1/2011 ISSUED BY THE MINISTRY OF COMMERCE. THE BOA, BEING THE STATUTORY AUTHORITY UNDER THE SEZ ACT, HAS GRANTED VARIOUS AP PROVALS BY A STATUTORY PROCESS OF LAW AFTER DULY CONSIDERING AND EXAMINING ALL THE FACTS AND DOCUMENTS ON RECORD IN ACCORDANCE WITH RE LEVANT PROVISIONS OF SEZ ACT AND SEZ RULES. THUS, THE CONSEQUENTIAL B ENEFITS THAT IS AVAILABLE TO A DEVELOPER UNDER THE INCOME TAX ACT C ANNOT BE DENIED. THE AO DOES NOT HAVE ANY JURISDICTION TO QUESTION T HE VALIDITY OR THE LEGALITY OF AUTHORIZED OPERATIONS WHICH HAVE BEEN A PPROVED BY THE BOA/CENTRAL GOVERNMENT. SECTION 27 OF SEZ ACT PROVI DES FOR MODIFICATION OF INCOME TAX ACT TO THE EXTENT OF SEC OND SCHEDULE OF SEZ ACT WHICH READS AS UNDER:- ' 27. THE PROVISIONS OF THE INCOME TAX ACT , 1961, AS IN FORCE FOR THE TIME BEING, SHALL APPLY TO, OR IN RELATION TO, THE DEVELOPER OR ENTREPRENEUR FOR CARRYING ON THE AUTHORIZED OPERATI ONS IN A SPECIAL ECONOMIC ZONE OR UNIT SUBJECT TO THE MODIFICATIONS SPECIFIED IN THE SECOND SCHEDULE .' 37. THE SECOND SCHEDULE OF SEZ ACT CONTENDS BARE TE XT OF CERTAIN PROVISION INCLUDING SECTION 80IAB TO BE INCORPORATED IN THE INCOME TAX ACT PRESENT TO THE SECTION 80IAB (HAVING THE SAME IN AS MENTIONED IN SEZ ACT) HAS BEEN BROADLY INCORPORATED INTO THE INCOME TAX ACT . SECTION 51 OF SEZ ACT HAVING AN OVER RIDING EFFECT OVER ANY OTHER LAW, READS AS UNDER:- '51.( 1) THE PROVISIONS OF THIS ACT SHALL HAVE EFFE CT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OT HER LAW FOR THE TIME BEING IN FORCE OR IN ANY INSTRUMENT HAVING EFF ECT BY VIRTUE OF ANY LAW OTHER THAN THIS ACT.' 38. THUS, IT IS CLEAR FROM THE ABOVE THAT THE PROVI SIONS OF SEZ ACT SHALL HAVE OVER RIDING EFFECT EVEN IF ANYTHING INCO NSISTENT IS CONTAINED IN THE INCOME TAX ACT . THE SEZ ACT HAS BEEN ENACTED CONTAINING THE SPECIFIC LEGISLATION TO BE BROUGHT IN OTHER STATUTE S. WHEN THE TERMS LIKE SEZ, AUTHORIZED OPERATIONS, DEVELOPERS ETC HAVE BEE N SPECIFICALLY DEFINED UNDER THE SEZ ACT, IT IS NOT OPEN TO ANY AU THORITY TO RELOOK AT THE MEANING OF TERMS ALREADY DEFINED UNDER THE SEZ ACT. IN THIS REGARD, WE ALSO FIND SUPPORT FROM THE DECISION OF T HE TRIBUNAL IN THE ITA NO 726 OF 2017 AVINASH HITECH CITY 2 SOCIETY HYDERABAD. PAGE 8 OF 11 CASE OF ASSESSEE GROUP ITSELF FOR THE A.Y 2007-08, THE RELEVANT PARAGRAPHS THEREOF IS BEING REPRODUCED HEREUNDER:- 'PAGE 17 PARA 5.3 THE SEZ ACT 2005, AS WELL AS, INCOME TAX ACT , 1961 HAVE PLACED 'DEVELOPER' AND THE 'CO-DEVELOPER AT THE SAME LEVEL I.E FOR DEVELOPMENT (CREATING INFRASTRUCTURE FACILI TIES), MAINTENANCE AND OPERATIONS. IT WAS IN THIS CONTEXT THAT SEZ BOA , UNDER THE AEGIS OF MINISTRY OF COMMERCE, APPROVED CONVERSION OF 'BA RE SHELL' INTO 'WARM SHELL BY THE CO-DEVELOPER AS 'AUTHORIZED OPER ATIONS' PAGE 21 PARA 5.15 ASSESSEE RECEIVED CLARIFICATION F ROM BOA/GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND I NDUSTRY, DEPTT OF COMMERCE (SEZ SECTION), UDYOG BHAWAN, NEW DELHI DATED 18/1/2011 & 20/1/2011 BOA IN EXERCISE OF ITS STATUT ORY POWERS APPROVED BUSINESS MODEL OF THE ASSESSEE CLARIFIED T HAT UNDER RULE 11(9) 'SALE OF LAND' IS NOT PERMISSIBLE IN A SEZ. H OWEVER CO- DEVELOPER CAN TAKE LAND ON LEASE FROM DEVELOPER FOR DEFINITE PERIOD. FURTHER SEZ BUILDINGS I.E. BARE SHELL/COLD SHELL CA N BE TRANSFERRED AND HANDED OVER TO THE CO-DEVELOPER ON PAYMENT OF CONSI DERATION TO DEVELOPER, THIS TRANSFER IS PERMISSIBLE AND AUTHORI ZED AS PER SEZ ACT AND RULES. THE CORRESPONDENCE WITH THE SEZ AUTHORIT IES ON THIS ISSUE IS PLACED ON THE P.B AT PAGES 122 TO 130 AND ITS CO NTENTS ARE REFERRED TO BY THE LD. COUNSEL. THUS AS PER SPECIFIC CLARIFI CATIONS BY BOA THE TRANSFER OF BARE SHELL BUILDING ON LONG TERM LEASE TO APPROVED CO- DEVELOPER ARE AUTHORIZED ACTIVITIES UNDER SEZ ACT & RULES. THUS THESE CLARIFICATIONS ALSO DISPEL THE FINDINGS OF CIT REVI SING THE ASSE4SSMENT ORDER AND SETTING ASIDE THE SAME. 263 ORDER AND FIN DINGS THEREIN BEING CONTRARY TO LEGAL PROVISIONS IS LIABLE TO BE QUASHE D. THE ASSESSMENT ORDER BEING IS CONFORMITY WITH SEZ ACT, RULES AND P ROVISIONS OF SECTION 80IAB CAN NEITHER BE TERMED AS ERRONEOUS OR PREJUDICIAL T O THE INTEREST OR REVENUE. PAGE 28 PARA 6.9 LD. COUNSEL CONTENDS THAT LD. CITS PROPOSITION TO TAX IT AS CAPITAL GAINS IS AGAINST THE BASIC PRINCI PLE OF TAXATION AS LARGE SCALE REAL ESTATE BUSINESS ACTIVITIES CONTINU OUSLY CARRIED ON BY ASSESSEE AND BARE SHELL BUILDINGS DECLARED AS STOCK -IN-TRADE IN ITS BOOKS OF ACCOUNTS, AS PER ITS OBJECTS CLAUSE IN ITS MEMORANDUM AND ARTICLES OF ASSOCIATION CAN BE TAXED ONLY UNDER THE HEAD BUSINESS INCOME. PAGE 35 PARA 6.16 THE LETTER OF APPROVAL IS ISSUED BY THE BOARD BY A STATUTORY PROCESS OF LAW AND ONCE IT HAS BEEN ISSUE D BY THE EXCLUSIVE SANCTIONING AUTHORITY, THE CONSEQUENTIAL BENEFITS T HAT ARE AVAILABLE TO A DEVELOPER CANNOT BE DENIED. THE ASSESSING OFFICER OR THE COMMISSIONER OF INCOME-TAX EXERCISING THE POWER OF REVISION UNDER THE ACT CANNOT HAVE ANY JURISDICTION TO QUESTION TH E VALIDITY OF THE ITA NO 726 OF 2017 AVINASH HITECH CITY 2 SOCIETY HYDERABAD. PAGE 9 OF 11 LEGALITY OF THE AUTHORIZED OPERATIONS WHICH HAVE BE EN APPROVED BY THE REGULATORY BODY OF THE CENTRAL GOVERNMENT I.E. BOA AND ATTEMPT TO DISPUTE THE SAME IS CONTRARY TO THE STATUTORY PROVI SIONS OF THE SEZ ACT. PARA 6.17 BOA ARE APPOINTED BY THE CENTRAL GOVERNME NT IN VARIOUS FIELDS OF GIVING BENEFITS LIKE SEZ, CUSTOMS AND VAR IOUS OTHER FISCAL LEGISLATION, THE INCOME- TAX AUTHORITIES CANNOT SIT OVER THE JUDGMENT OF THE BOA. BY CATENA OF JUDGMENTS THE COURTS HAVE HEL D THAT THE APPROVAL ACCORDED BY SUCH REGULATORY BOARDS IN DEVE LOPMENT SCHEMES CANNOT BE QUESTIONED BY TAX AUTHORITIES. RELINE IN THIS BEHALF IS PLACED ON: -APOLLOTYRES VS. CIT (2002) 9 SCC 1(SC) -MALAYALA MANORAMA CO. LTD VS. CIT (2008) 12 SCC 61 2 (SC) -CIT VS. HCL COMMET SYSTEM & SERVICE LTD. 305 ITR 4 09 (SC) -MARMO CLASSIC VS. COMMISSIONER OF CUSTOMS [2002 (1 43) ELT 153 (TRIB.- -MUMBAI] AFFIRMED BY HON'BLE SUPREME COURT IN [2003 (152) ELT A85 (SC)]; -LOKASH CHEMICAL WORKS VS. M. S. MEHTA 1981 (8) ELT 235; -TITAL MEDICAL SYSTEM PVT. LTD. VS. COLLECTOR 2003 (151) ELT 254 (SC) -CESTAT JUDGMENT IN HICO ENTERPRISES VS. COMMISSION ER 2005- (189)ELT 135 (TRIB. LB) APPROVED BY HON'BLE SUPREME COURT IN 2008 (228) ELT 161 (SC); -ATUL COMMODITIES PVT. LTD. VS. COMMISSIONER OF CUS TOMS COCHIN 2009 (235) ELT 385 (SC); -M.J. EXPORTS LTD. VS. CEGAT 1992 (60) ELT 161 (SC) ; THE ASSESSEE HAS NOT SOLD ANY LAND BUT ONLY TRANSFE RRED THE BARE SHELL BUILDINGS ON LEASE. THEREFORE, THERE IS NO ERROR AS POINTED OUT BY LD. CIT. PAGE 42 PARA 9 THE CONDITION MENTIONED IN NOTIFICAT ION DATED 27/10/2006 GIVING TO ASSESSING OFFICER THE RIGHT TO EXAMINE THE TAXABILITY OF ISSUE OF 80IAB IN THE SPIRIT OF SEZ P ROVISION STANDS VINDICATED. BESIDES, WE MAY HASTEN TO ADD THAT APPA RENTLY THIS RIDER APPEAR TO BE MADE WHILE APPROVING THE CO- DEVELOPER AGREEMENT. THIS IS POSSIBLE APPLICABLE TO CO-DEVELOPER AND NOT THE ASSESSEE AS THE CONDITION WAS PUT DURING THE COURSE OF APPROVAL OF THE AGREEMENT BETWEEN ASSESSEE AND THE CO-DEVELOPER. PAGE 46 PARA 9.5 APROPOS THE ISSUE OF SALE OF BARE SHELL BUILDINGS BEING AUTHORIZED ACTIVITY, IT IS AMPLY CLEAR THAT T HE SEZ ACT AUTHORIZES ACTIVITIES INCLUDE CONSTRUCTION OF BARE SHELL/COLD SHELL/WARM SHELL ITA NO 726 OF 2017 AVINASH HITECH CITY 2 SOCIETY HYDERABAD. PAGE 10 OF 11 BUILDINGS AND TRANSFER THEREOF, BOA HAS APPROVED IT AND CLARIFIED THE SAME. THERE IS ENOUGH MATERIAL ON THE RECORD TO HOL D THAT THE TRANSFER OF BARE SHELL BUILDINGS TO CO-DEVELOPERS CONSTITUTE AUTHORIZED ACTIVITY. THUS, WE SEE NO ERROR ON ANY COUNT AS HELD BY CIT I N THE ORDER OF ASSESSING OFFICER ALLOWING DEDUCTION U/S 80IAB.' 39. WE THUS FIND THAT ASSESSEE IS A DEVELOPER UNDER THE SEZ ACT AND IS IN THE BUSINESS OF DEVELOPING A SEZ, THE SEZ HAS BE EN NOTIFIED ON THE FIRST DAY OF APRIL 2005 UNDER THE SPECIAL ECONOMIC ZONE ACT 2005 ; AND THE PROFITS HAVE BEEN DERIVED FROM THE BUSINESS OF DEVELOPMENT, OPERATION AND MAINTENANCE OF SEZ. WE THUS FULLY AGR EE WITH THE FINDING OF THE LD. CIT(A) THAT ALL THE CONDITIONS A S REQUIRED TO BE SPECIFIED UNDER THE SEZ ACT/RULES ARE FULFILLED AND THE ASSESSEE IS APPROVED DEVELOPER FOR ALL THE INTENT AND PURPOSES OF SECTION 80 IAB I.T OF THE ACT. CONSEQUENT UPON APPROVAL GRANTED BY THE BOA FOR TRANSFER OF BARE SHELL TO THE CO-DEVELOPER, THE PRO FITS ARISING TO THE ASSESSEE FORMS SUCH AN AUTHORIZED TRANSACTION ARE E LIGIBLE FOR DEDUCTION U/S 80IAB OF THE ACT. FOR A READY REFEREN CE PROVISIONS LAID DOWN U/S 80IAB (1) OF THE ACT ARE BEING REPRODUCED HEREUNDER:- '80IAB( 1)- WHERE THE GROSS TOTAL INCOME OF AN ASSE SSEE, BEING A DEVELOPER, INCLUDES ANY PROFITS AND GAINS DERIVED B Y AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS OF DEVELOPING A SPECIAL ECONOMIC ZONE, NOTIFIED ON OR AFTER THE 1ST DAY OF APRIL, 20 05 UNDER THE SPECIAL ECONOMIC ZONE ACT , 2 THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECT' BE ALLOWED, IN COMPUTI NG THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AMOUNT EQUAL TO ONE HUNDRED PER CENT, OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS.' 40. THUS, WE FIND THAT THE ISSUES DISCUSSED HEREINA BOVE IN THE PRECEDING PARAGRAPHS WILL COVER THE ISSUE RAISED IN ADDITIONAL GROUND OF THE APPEAL PREFERRED BY THE REVENUE AND THE ISSU ES RAISED IN GROUND NOS 6, 7, 8, 9, 10 & 14 OF THE REVENUE'S APP EAL. IN RESULT ALL THESE GROUNDS OF THE APPEAL OF THE REVENUE ARE REJE CTED. 41. CONSEQUENTLY, APPEAL PREFERRED BY THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED. 9. WE FIND THAT THE ORDER OF THE CIT (A) IS IN CONS ONANCE WITH THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBU NAL. HENCE, WE SEE NO ITA NO 726 OF 2017 AVINASH HITECH CITY 2 SOCIETY HYDERABAD. PAGE 11 OF 11 REASON TO INTERFERE WITH THE ORDER OF THE CIT (A) A ND THE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DECEMBER, 2017. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 29 TH DECEMBER, 2017. VINODAN/SPS COPY TO: 1 ACIT, CIRCLE 8(1) 6 TH FLOOR, ROOM NO.605, SIGNATURE TOWERS, KONDAPUR, HYDERABAD 2 M/S. AVINASH HITECH CITY 2 SOCIETY, HIB, HITECH C ITY 2, PHOENIX INFOCITY-SEZ, GACH I BOWLI, HYDERABAD 3 CIT (A)-2 HYDERABAD 4 PR. CIT 2 H YDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER