2022 (12) TMI 291 - AT - Income Tax

Appeal allowed: Rental income linked to cargo business qualifies for deduction under Section 80IA

The Tribunal allowed the appeal by the assessee, holding that the rental income derived from various sources was directly connected to the cargo business ... Deduction u/s. 80IA - eligibility of rental income - concept of “income derived from” in contrast to other related concept like “income attributable to” - whether the rental income earned by the assessee is derived from the cargo business and thereby eligible for deduction u/s.80IA? - HELD THAT:- Providing cargo service as agreed between the assessee and BIAL includes cargo handling services, mailing services, post office mail services etc. We notice from the perusal of records that the assessee has entered into License Agreement for using of the space in the Cargo Terminal operated by the assessee with Cargo Handling Agents, Airlines, Banks, Post Office etc. The list of licensee from whom the assessee has received the rental income is given page 120 to 123 of paper book. In our view therefore the service commitment by the assessee to BIAL is directly related to the services provided by the licensees who have taken the space in the cargo terminal. We also see merit in the argument that in order to meet the requirement of cargo services 365* 7*24, it is essential for the licensees’ to operate within the cargo terminal so that the assessee can provide uninterrupted cargo service as committed to BIAL. From the perusal of the various terms of the sample agreements entered by the assessee with the licensees it is noticed that the licensees’ cannot use the facility for any purpose other than for supporting the cargo services. Renting of the space is an integral part of the cargo business of the assessee since the licensees are using the space to render services which are committed by the assessee to BIAL as part of Cargo services. Rental income is inseparably connected with the business carried on by the assessee and emanate directly from the business of the undertaking. Accordingly we hold that the rental income derived by the assessee from Cargo Agents, Airlines, Banks etc., is derived from the cargo business and eligible for deduction u/s. 80IA. The addition is deleted. Appeal by the assessee is allowed. Issues Involved:1. Confirmation of disallowance under Section 80IA of the Income Tax Act.2. Classification of rental income as 'Business Income' or 'Income from Other Sources'.3. Examination of the direct nexus between rental income and the eligible business for deduction under Section 80IA.4. Consistency in the treatment of rental income in previous assessment years.5. Allowance of corresponding expenses if rental income is treated as 'Income from Other Sources'.Detailed Analysis:1. Confirmation of Disallowance under Section 80IA:The primary issue revolves around the disallowance of Rs. 3,13,43,633 claimed as a deduction under Section 80IA by the Assessing Officer (AO). The CIT(A) confirmed this disallowance, which was contested by the assessee. The Tribunal examined whether the rental income earned by the assessee is derived from the cargo business and thus eligible for deduction under Section 80IA.2. Classification of Rental Income:The AO classified the rental income of Rs. 3,13,43,633 as 'Income from Other Sources' rather than 'Business Income.' The CIT(A) upheld this classification. However, the Tribunal noted that the rental income is part of the business income of the assessee and considered whether it is derived from the cargo business.3. Direct Nexus Between Rental Income and Eligible Business:The Tribunal scrutinized the direct nexus between the rental income and the cargo business. Citing various Supreme Court rulings, the Tribunal highlighted the importance of a direct and proximate connection between the business and the income earned. The Tribunal concluded that the rental income is inseparably connected with the business carried on by the assessee and emanates directly from the cargo business. Therefore, it is eligible for deduction under Section 80IA.4. Consistency in Treatment of Rental Income:The assessee argued that in the previous years, the revenue had accepted the rental income as part of the business income and allowed deductions under Section 80IA. The Tribunal acknowledged this consistency and noted that there was no change in the facts for the year under consideration. The Tribunal referenced the Karnataka High Court's decision in CIT v. Telco Construction Equipment Co. Ltd. to support the principle of consistency.5. Allowance of Corresponding Expenses:The assessee made an alternate plea that if the rental income is treated as 'Income from Other Sources,' the corresponding expenses related to renting the property should be allowed as a deduction. The Tribunal did not need to address this plea as it concluded that the rental income is derived from the cargo business and eligible for deduction under Section 80IA.Conclusion:The Tribunal held that the rental income derived by the assessee from Cargo Agents, Airlines, Banks, etc., is directly connected to the cargo business and eligible for deduction under Section 80IA. The appeal by the assessee was allowed, and the addition made by the AO was deleted. The judgment emphasized the direct and proximate connection between the business and the income earned, aligning with the principles laid down by the Supreme Court in various cases.