Characterisation of rental income from leased IT park space as business income where services and amenities rendered, reversing revenue's claim.

Characterisation of income focuses on whether receipts from leased space constitute business income or income from house property. Where the assessees object includes development and operation of IT/SEZ parks and the taxpayer provides essential amenities, services and organized facilities that make premises operational, such receipts are treated as income from business or profession; the provision cites consistency of earlier assessments treating similar receipts as business income, reinforcing that treatment. Reliance on precedents comparing nature of activity over ownership supports reclassification of rental receipts away from house property.

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Issues: (i) Whether the receipts of the assessee (lease rent, hire charges and maintenance charges) are to be treated as income from business or profession or as income from house property/income from other sources for the assessment years 2016-17 to 2018-19.

Analysis: The issue is examined by reference to the assessee's memorandum of association, the nature and arrangement of lease, hire and maintenance agreements, the scale and recurrence of services provided (including engagement of regular and contractual staff and provision of comprehensive amenities), relevant judicial precedents distinguishing letting as business when activities are systematic and organized, and the scope and intent of CBDT Circular No.16/2017. The assessee's objects specifically include developing, operating and maintaining IT/Software Parks and providing infrastructure and services to occupants; contemporaneous agreements and factual matrix show provision of extensive operational, maintenance and support services (furniture, utilities, power backup, HVAC, security, common facilities and a dedicated workforce). Judicial authorities cited establish that where letting out is part of a systematic, recurrent and organized commercial activity and the objects and operations demonstrate that letting is the business, the receipts are business income; CBDT Circular No.16/2017 confirms that notified industrial/IT parks' lease receipts are business income but does not exclude non-notified projects from being taxed as business income where facts demonstrate business character. Consistency of treatment in earlier assessments also supports classification as business receipts.

Conclusion: The receipts comprising lease rent, hire charges and maintenance charges are to be treated as income from business or profession; the appeals filed by Revenue are dismissed and the CIT(A)'s orders confirming business character of income are upheld in favour of the assessee.

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