THE COMMISSIONER OF INCOME TAX V. M/S GLOBAL TECH PARK PVT LTD

ITA/1038/2008

AI Insights

The case revolves around the classification of rental income by M/s. Global Tech Park Pvt. Ltd., which was contested by the Income Tax Department. The core issue was whether the rental income should be taxed under 'Income from Business' or 'Income from House Property'. The ITAT Bangalore had previously ruled in favor of the assessee, classifying the income as business income. The High Court's decision affirmed this classification, referencing a similar case (COMMISSIONER OF INCOME TAX-III vs. VELANKANI INFORMATION SYSTEMS (P.) LTD) to support the interpretation that the nature of the transaction and the intention behind it are crucial in determining the tax classification of rental income.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 728967 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 09-09-2014
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX-III vs. VELANKANI INFORMATION SYSTEMS (P.) LTD
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: A SHANKAR; M LAVA
• Assessee Lawyers: K V ANAND
• Keywords: Assessment Year 2003-2004; Income from Business; Income from house property; Rental income
• Section: 56(2); 56(1); 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 9TH DAY OF SEPTEMBER 2014 PRESENT THE HON’BLE MR.JUSTICE N.KUMAR AND THE HON’BLE MRS.JUSTICE RATHNAKALA I.T.A.No.1038/2008 BETWEEN: 1. The Commissioner of Income Tax, 55/1, Shilpashree, Vidyaranya Complex, Vishveshwaranagar, Mysore. 2. The Asst. Commissioner of Income-Tax, Circle-1(2), 55/1, Shilpashree, Vidyaranya Complex, Vishveshwaranagar, Mysore. …APPELLANTS (By Sri.K.V.Anand, Adv.) AND: M/s.Global Tech Park Pvt. Ltd., No.42/2, Chethana, Ashrama Road, Jayalakshmipuram, Mysore. …RESPONDENT 2 (By Sri.A.Shankar & M.Lava, Advs.,) ****** This appeal is filed under Section 260-A of I.T.Act, 1961 arising out of order dated 30.6.2008 passed in ITA No.1021/BNG/2007, for the Assessment year 2003-2004, praying that this Court may be pleased to formulate the substantial questions of law stated therein and allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.1021/BNG/2004 dated 30.6.2008 confirm the orders of the Assistant Commissioner of Income Tax, Circle 1(2) Mysore, in the interest of justice and equity. This appeal coming on for Hearing this day, N.KUMAR. J., delivered the following: J U D G M E N T The revenue has preferred this appeal against the order passed by the Tribunal which has held that the rental income earned by the assessee should be brought under the head of “Income from Business” and not under the head “Income from House Property”. 3 2. This appeal was admitted to consider the following substantial question of law: Whether the Appellate Authorities were correct in holding that the rental income earned by the assessee company from letting out building should be brought to tax under the head “Income from Business” and not under the head “Income from House Property” as held by the Assessing Officer? 3. This Court had an occasion to consider the said question of law in the case of COMMISSIONER OF INCOME TAX-III vs. VELANKANI INFORMATION SYSTEMS (P.) LTD, wherein it has been held as under: “25. We have to find out in that context what was the intention of the parties in entering into the lease 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 4 said transactions is to be looked into. However, if for enjoyment of lease, the subject matter of all the 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, then the income derived therefrom 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 such 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 of complex commercial activities, in that event it must be held as business income. 5 26. Sub-section (1) of Section 56 makes it clear that income of every kind which is not be excluded from the total income under this Act shall be chargeable to income tax under the head \"Income from other sources\", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. Sub-section (2) of Section 56 specifically states that the incomes shall be chargeable to income-tax under the head “Income from other sources”. Clause (ii) of Section 56(2) provides that income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head ‘profits and gains of business or profession’. Clause (iii) also provides that where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head `profits and gains of business or profession'. Therefore the 6 intention of the legislature is explicit. The provision is clear, i.e., if the letting of building, plant, machinery and furniture is inseparable, the income from such letting should ordinarily fall within the head `profits and gains of business or profession'. But for any reason, if it does not fall under that head, it shall fall under the head “income from other sources\", but certainly not under the heading income from House property. If the intention is to exploit commercial property by putting up construction and letting it out for the purpose of getting rental income, then notwithstanding the fact that the furniture and fittings are provided to the lessee, the income from the building fall under the head “income from house property”. But if the assessee is in the business of taking land, putting up commercial buildings thereon and letting out such buildings with all furniture as his profession or business, then notwithstanding the fact that he has constructed a building and he has also provided other facilities and even if there are two separate rental deeds, it does not fall 7 within the heading of income from house property. Therefore, firstly what is the intention behind the lease and secondly what are the facilities given along with the buildings and documents executed in respect of each of them is to be seen. Thirdly it is to be found out whether it is inseparable or not. If they are inseparable and the intention is to carry on the business of letting out the commercial property and carrying at complex commercial activity and getting rental income therefrom, then such a rental income falls under the heading of profits and gains of business or profession. In fact, any other interpretation would defeat the very object of introduction of Section 80-IA as well as the scheme which is framed by the Government for development of industrial parks in the country. In that view of the matter, the finding recorded by the Appellate Authority as well as the Tribunal is in accordance with law and does not suffer from any legal infirmity which calls for interference. Accordingly, the substantial 8 questions 1 and 2 are answered in favour of the assessee and against the revenue. 4. In view of the aforesaid legal position, the substantial question of law is answered in favour of the assessee and against the revenue. Therefore, we do not see any merit in this appeal. Accordingly, the appeal is dismissed. Sd/- JUDGE Sd/- JUDGE Bss "