2021 (10) TMI 284 - HC - Income Tax

Court rules in favor of assessee in income tax appeal on income classification in industrial park

M/s RAO COMPUTER CONSULTANTS PVT. LTD. Versus THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12 (4), BANGALORE

The court ruled in favor of the assessee in an income tax appeal regarding the classification of income from letting out a building in an industrial park. ... Correct head of Income - Income from house property or business income - income earned from complex commercial activity of letting out of the building along with other amenities in the industrial park - HELD THAT:- Substantial questions of law Nos.1 and 2 raised herein, are squarely covered by the decision of the coordinate Bench of this Court in the case of M/s. RAO COMPUTERS CONSULTANTS PRIVATE LTD. [2021 (6) TMI 152 - KARNATAKA HIGH COURT] wherein the coordinate Bench placing reliance on the Judgment of this Court in the case of CIT vs.VELANKANI INFORMATION SYSTEMS PVT LTD [2013 (8) TMI 113 - KARNATAKA HIGH COURT] has answered the substantial questions of law framed in the appeal in favour of the assessee. Allowable business expenditure - Disallowing the expenditure towards insurance, brokerage and depreciation incurred wholly and exclusively for the purposes of the business of complex commercial letting out services - HELD THAT:- As no finding by the assessing authority inasmuch as disallowing the expenditure referred to therein. In view of the finding given by this Court relating to the substantial question of law Nos. 1 and 2 as aforesaid, the assessing authority is directed to re-examine the issue inasmuch as expenditure/deductions towards insurance, brokerage and depreciation incurred for the purposes of the business of complex commercial letting out services, in an expedite manner. Issues:1. Classification of income from letting out a building in an industrial park.2. Treatment of business income derived from commercial activities as income from house property.3. Disallowance of expenditure towards insurance, brokerage, and depreciation for complex commercial letting out services.Analysis:1. The appeal under Section 260-A of the Income Tax Act challenged the order passed by the Income Tax Appellate Tribunal regarding the classification of income earned from letting out a building in an industrial park as 'income from house property.' The court considered whether the Tribunal's findings were perverse and illegal. The counsel referred to a previous decision by the court in the case of M/s. RAO COMPUTERS CONSULTANTS PRIVATE LTD., where similar issues were addressed, and the substantial questions of law were answered in favor of the assessee. The court ruled in favor of the assessee based on the precedent, quashing the Tribunal's order and allowing the appeal.2. The second issue involved the treatment of business income derived from complex commercial activities as income from house property, contrary to the law laid down by the court in a previous case and a circular issued by the Department. The court found that this issue was also covered by the decision in the case of M/s. RAO COMPUTERS CONSULTANTS PRIVATE LTD. The court answered the substantial questions of law against the revenue and in favor of the assessee, following the precedent set in the previous case.3. The third issue concerned the disallowance of expenditure towards insurance, brokerage, and depreciation for complex commercial letting out services. The court noted that there was no specific finding by the assessing authority regarding the disallowance of this expenditure. Given the rulings on the first two substantial questions of law, the court directed the assessing authority to re-examine the issue of expenditure deductions for complex commercial letting out services promptly. The appeal was partly allowed based on the court's findings on the issues raised.