2016 (12) TMI 1397 - AT - Income Tax

Tribunal classifies property income as business income, impacting tax deductions

M/s. Mack Soft Tech Private Limited Versus Dy. Commissioner of Income Tax, Circle 16 (2) Hyderabad

The Tribunal allowed the assessee's appeal, directing the AO to treat the income from letting out and operation of the property as 'income from business' ... Nature of Rental income - Assessment of income derived from the business of operation and maintenance of information Technology Park as 'Income from house property'- Held that:- The main business of the assessee is to create the infrastructure and let out the same to earn income therefrom. Therefore, the decisions in the cases of CIT vs. Chennai Properties & Investments Ltd [2015 (5) TMI 46 - SUPREME COURT ] and Rayala Corporation (P) Ltd [2016 (8) TMI 522 - SUPREME COURT ] are clearly applicable. Respectfully following the same, we allow assessee’s appeal and direct the AO to treat the income from letting out and operation of the property as “income from business” and allow the expenditure and other claims in accordance with the law. - Decided in favour of assessee. Issues:1. Assessment of income derived from the business of operation and maintenance of Information Technology Park as 'Income from house property' instead of 'Income from business.'2. Eligibility for deduction under section 80IA for the income derived from the facility.3. Disallowance of depreciation, expenses, and business loss carried forward from the earlier year.Analysis:Issue 1:The appeal was against the order confirming the assessment of income derived from the IT Park as 'Income from house property.' The assessee argued that the income should be treated as business income due to the specific purpose of the land allotted by APIIC and the integrated business facility developed. The AO relied on the judgment of the Madras High Court, but the assessee cited Supreme Court judgments to support treating such income as business income. Eventually, the Tribunal found in favor of the assessee, following the Supreme Court's interpretation that income from letting out properties acquired for such purpose should be considered as 'income from business.'Issue 2:The assessee contended that the facility was entitled to deduction under section 80IA, as it had applied for recognition as an Industrial Park. The Tribunal did not delve into this issue specifically in the judgment, as the primary focus was on determining the nature of income derived from the facility. However, the Tribunal's decision to treat the income as 'income from business' indirectly supports the eligibility for deduction under section 80IA, as business income would qualify for such deductions.Issue 3:Regarding the disallowance of depreciation, expenses, and business loss carried forward, the AO had rejected the assessee's contentions and disallowed these claims. However, the Tribunal's decision to treat the income as 'income from business' implies that the expenses and losses related to the business operations should be allowed as per the law. Therefore, the Tribunal's ruling in favor of the assessee indirectly addresses this issue by allowing the expenditure and other claims in accordance with the law.In conclusion, the Tribunal allowed the assessee's appeal, directing the AO to treat the income from letting out and operation of the property as 'income from business' based on the Supreme Court judgments cited by the assessee. The decision indirectly addressed the issues of eligibility for deduction under section 80IA and the disallowance of expenses and losses, as the income being treated as business income implies the allowance of related deductions and claims.