Tribunal Upholds Deduction Eligibility for SEZ Income

The Tribunal confirmed the assessee's eligibility for deduction under Section 80IAB for income from SEZ activities, classifying it as "Income from House Property." The Revenue's appeals for AYs 2013-14, 2014-15, and 2015-16 were dismissed, upholding the CIT (A)'s order.

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Issues Involved:
1. Eligibility for deduction under Section 80IAB of the Income Tax Act, 1961.
2. Classification of income from leasing commercial properties in SEZ: "Income from House Property" vs. "Profits and Gains from Business or Profession".

Issue-Wise Detailed Analysis:

1. Eligibility for Deduction under Section 80IAB:
The assessee, a private limited company, engaged in the business of leasing commercial properties under Special Economic Zone (SEZ), claimed a deduction under Section 80IAB amounting to Rs. 341,06,90,452 for AY 2013-14. This deduction was with respect to income derived from the operation and maintenance of SEZs at four different locations. The deduction was claimed based on the assessee being an approved co-developer of SEZ projects, with approvals from the Ministry of Commerce.

The Assessing Officer (AO) initially restricted the deduction to NIL, arguing that the income from house property does not qualify for deduction under Section 80IAB, based on the interpretation of the section and the SEZ Act, 2005. However, the AO later accepted that the assessee's income is liable for 100% deduction under Section 80IAB but reclassified the income from "Income from House Property" to "Profits and Gains from Business or Profession".

The CIT (A) upheld the assessee's claim for deduction under Section 80IAB, following the decision of the Tribunal for AY 2012-13, which allowed the deduction. The Tribunal reaffirmed this position, stating that the deduction under Section 80IAB is applicable as the income was derived from approved activities under the SEZ Act, and the head of income (whether house property or business income) is immaterial for the purpose of the deduction.

2. Classification of Income from Leasing Commercial Properties in SEZ:
The primary dispute was whether the lease income from commercial space in SEZ should be taxed under the head "Income from House Property" or as "Profits and Gains from Business or Profession". The AO argued that the lease income should be considered under the head "Profits and Gains from Business or Profession" and not as "Income from House Property".

The Tribunal noted that in AY 2012-13, the lease income was accepted under the head "Income from House Property", and the same classification was followed in AYs 2017-18 and 2018-19. The Tribunal emphasized that the lease rental income from SEZ properties should be classified as "Income from House Property" unless there was a systematic business activity involved.

The Tribunal referred to several Supreme Court judgments, such as Raj Dadarkar & Associates v. ACIT, Shambhu Investment (P.) Ltd. v. CIT, and East India Housing and Land Development Trust Ltd. v. CIT, which supported the classification of rental income as "Income from House Property".

The Tribunal also cited the decision of the Chennai Bench of ITAT in ACIT vs. Lulu Tech Park P. Ltd., which held that the lease rental income from SEZ properties qualifies for deduction under Section 80-IAB, regardless of the head of income.

Ultimately, the Tribunal concluded that the lease rental income received by the assessee from SEZ properties should be classified under the head "Income from House Property" and is eligible for deduction under Section 80IAB. The Tribunal dismissed the Revenue's appeals for AYs 2013-14, 2014-15, and 2015-16, upholding the order of the CIT (A).

Conclusion:
The Tribunal confirmed that the assessee is eligible for deduction under Section 80IAB for income derived from SEZ activities, and such income should be classified under the head "Income from House Property". The appeals filed by the Revenue for AYs 2013-14, 2014-15, and 2015-16 were dismissed.

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