2013 (8) TMI 113 - HC - Income Tax

Contemporaneous composite agreements treated as business income under s.80IA; short-term capital gains valid on sister concern sale

HC held that contemporaneous agreements creating a single composite transaction to enjoy the entire property for carrying on complex commercial activity ... Deduction u/s 80IA - Industrial park - Nature of Income from renting - Business income or income from house property or income from other sources - various agreements - Held that:- 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 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 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 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. 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. - Decided in favor of assessee. Short term Capital Gain - sale to sister concern at the rate of less than market value - Held that:- the sale of land to the sister concern is not in dispute. The legality of the said transaction is not questioned. The consideration received under the said agreement is also admitted. Further, admittedly, the said consideration is more than guidance value prescribed by the Government for sale of such property. As it is clear from the material on record that the assesse has borrowed money from financial institution, it has crossed its limit, it needed further funds. The land which is sold to the sister concern was lying idle. It is in those circumstances, the said sale transaction came into effect. The earlier sale made in favour of the sister concern is not vitiated in any manner whatsoever. Therefore, the Assessing Authority was not justified in taking the market value. The property sold to a third party cannot be the basis for determining the capital gain tax in respect of a sale in favour of the sister concern. - Decided against Revenue. Issues Involved:1. Classification of rental income: 'Income from Business' vs. 'Income from House Property'.2. Applicability of precedent cases: Bhopalam Commercial Complex and Industrial Ltd. and Poddar Cement.3. Valuation of land sold to a sister concern for computing short-term capital gains.4. Re-computation of short-term capital gains based on market value.Detailed Analysis:1. Classification of Rental Income:The primary issue was whether the rental income earned by the assessee from letting out buildings should be taxed under 'Income from Business' or 'Income from House Property'. The assessee, M/s. Golf Link Software Park Pvt. Ltd., provided comprehensive facilities to the IT industry, including specially furnished buildings and various amenities. The Assessing Authority classified the income under 'Income from House Property' and 'Income from Other Sources', arguing that the primary activity was renting out property. However, the Appellate Authority and the Tribunal found that the assessee's activities were complex commercial operations involving the development and letting out of a Software Technology Park. They concluded that the rental income should be assessed as 'business income', citing the organized and risk-laden nature of the activities. The High Court upheld this view, emphasizing the intention behind the lease and the inseparability of the facilities provided, aligning with the doctrine of inseparability and the provisions of Section 80-IA of the Act.2. Applicability of Precedent Cases:The Revenue argued that the decisions in Bhopalam Commercial Complex and Industrial Ltd. and Poddar Cement should apply, which were in favor of the revenue. However, the High Court distinguished these cases, noting that they did not directly apply to the unique facts and circumstances of the present case. The court emphasized the need to consider the specific context and nature of the assessee's business activities, which involved complex commercial operations rather than mere property rental.3. Valuation of Land Sold to a Sister Concern:The Assessing Authority had revalued the land sold to the sister concern, M/s. MD Properties Pvt. Ltd., based on a higher price obtained in a separate transaction with M/s. Mac Charles Pvt. Ltd. The assessee contended that the sale to the sister concern was a distress sale at a price above the guideline value, and there was no evidence of undervaluation. The Appellate Authority and the Tribunal accepted this explanation, noting the absence of any credible evidence suggesting suppression of sale consideration. The High Court upheld this view, stating that the transaction was at arm's length and within legal parameters, and the Assessing Authority was not justified in substituting the sale value.4. Re-computation of Short-term Capital Gains:The Revenue's re-computation of short-term capital gains based on the higher sale price to M/s. Mac Charles Pvt. Ltd. was challenged. The High Court referred to the provisions of Section 50C, which mandates the adoption of the value assessed by the State Government for stamp duty purposes if it exceeds the actual consideration received. The court found that the sale to the sister concern was above the guideline value and there was no evidence of undervaluation. Therefore, the re-computation by the Assessing Authority was unjustified, and the Appellate Authority's decision to delete the re-computation was upheld.Conclusion:The High Court dismissed the appeals filed by the Revenue, affirming the decisions of the Appellate Authority and the Tribunal. The court held that the rental income should be classified under 'Income from Business', the precedent cases cited by the Revenue were not applicable, the land sale to the sister concern was at arm's length and above guideline value, and the re-computation of short-term capital gains by the Assessing Authority was unjustified. The substantial questions of law were answered in favor of the assessee and against the Revenue.