TaxTMI 
TaxTMI 
2015 (6) TMI 252
X X X X Extracts X X X X
X X X X Extracts X X X X
....e as follows. The appellant is a company incorporated under the provisions of the Companies Act, 1956, with the object of carrying on activity of builders, developers, contractors and acquired land, etc. for the same. In pursuance of its objects, it setup an infrastructure2 facility service under the Software Technology Park Scheme in Pune known as "CYBERNEX". The infrastructure facility setup by the assessee for the Software Technology Park (STP) Units was duly approved by the Ministry of Communication and Information Technology, Government of India under the Electronics Hardware Technology Park scheme in 2006. As per the approval, assessee was allowed to setup infrastructure for STP units called "CYBERNEX" at Pune. The 'CYBERNEX' building comprised of 55000 sq.ft. area and the space has been leased out to various lessees who are engaged in IT/IT Enabled Services. The units located in the CYBERNEX I-T Park were duly registered with Directorate of Industries, Government of Maharashtra. The lease charges earned by the assessee were disclosed as business income in the return of income filed. For the assessment year under consideration, assessee filed a return of income on 23.09.2008 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... agreement clearly pointed out that assessee was not renting out the space simplicitor but it was providing various other services to the lessees and therefore the lease income was to be assessed as 'business income'. The claim of the assessee was that it has been in the business of leasing out space to the STP units and that such leasing is in the nature of exploiting asset for commercial considerations thus the same was to be assessed as 'business income'. In support, assessee furnished copy of its Memorandum of Association & Articles of Association highlighting that its objects were "to improve, hold, lease, let or give or license or otherwise to dispose it off". Thus, as per the assessee, renting or leasing was not an incidental object but, was the main object of the assessee company. 5. It was further contended that4 the assessee was approved as an Infrastructure Service Provider by the STP (Software Technology Park of India) and, moreover, the Directorate of Industries, Maharashtra, has registered the unit at "CYBERNEX" as an Information Technology (IT) Park. It was explained that CYBERNEX was Pune's only IT Park that delivered 90% floor efficiency, which enabled clients to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to assessee's claim that the income derived by it from leasing of CYBERNEX has been rightly assessed as business income, the same was not accepted by the Commissioner. However, in conclusion, the Commissioner has not given a positive finding that the income was assessable as income from house property but has remitted the matter back to the file of the Assessing Officer for deciding the same afresh after taking into consideration the relevant facts and evidence. The concluding part of order of the Commissioner in this regard is contained in para 6.3.6 of his order, which reads as under :- "6.3.6 In view of the foregoing discussion, the various contentions raised by the assessee in support of its claim that the rent received by it during the relevant previous year from the leasing out of floors in the 'Cybernex' is assessable as business income are not found to be acceptable. Nevertheless, I would refrain from deciding on the issue raised in the notice u/s 263 conclusively at this end and, instead, would be inclined to remit the matter to the file of the Assessing Officer for deciding on the same afresh after taking into consideration all the relevant facts and evidences. This cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng Officer as well as replies furnished by the assessee, demonstrate due application of mind by the Assessing Officer. In support, reliance has been placed on the following decisions of the Hon'ble High Courts :- (i) CIT vs. Leisure Ware Exp7o rts Ltd., 46 DTR 97 (Delhi); (ii) CIT vs. Design Automation Engg., 323 ITR 632 (Bom); (iii) CIT vs. Vikas Polymas, 194 taxmann.com 57 (Delhi); (iv) CIT vs. Ashish Rajpal, 320 ITR 674 (Delhi); (v) CIT vs. Development Credit Bank Ltd., 323 ITR 206 (Bom); and, (vi) CIT vs. Anil Kumar Sharma, 335 ITR 83 (Delhi). 12. Further, it is pointed out that the assessment made by the Assessing Officer by accepting the assessment of rental incomes as business income is possible view and for that matter referred to a recent decision of the Pune Bench of Tribunal in the case of DCIT vs. Magarpatta Township Development & Construction Co. vide ITA No.822/PN/2011 dated 18.09.2012 whereby income derived by way of rentals from letting out of premises in an IT Park has been held to be assessable as business income. It was therefore contended that the Assessing Officer has taken a possible view and therefore the Commissioner was not justified in invoking sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of two conditions, namely, that (i) the order of the Assessing Officer sought to be revised is erroneous; and, (ii) such order is prejudicial to the interests of the Revenue. It is quite a well-settled proposition that an incorrect assumption of facts or an incorrect application of law or an assessment order made without application of mind by the Assessing Officer are liable to be construed as erroneous within the meaning of section 263 of the Act. In this context, a gainful reference can be made to the judgement of the Hon'ble Supreme Court in the case9 of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC). 16. In the present case, as our discussion in the earlier paras show, the primary charge made out by the Commissioner is that the assessment order dated 11.10.2010 (supra) has been passed by the Assessing Officer without application of mind inasmuch as the Assessing Officer failed to raise a specific query as to the correct head of income under which the lease charges (rentals) earned by the assessee were liable to be assessed. Before dwelling further on this, it would be appropriate to note that whether or not an assessment order is passed without application of mind is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essing Officer. Therefore, in order to determine whether or not the Assessing Officer has applied his mind on an issue, a mere perusal of assessment order would not suffice, rather the entire record is liable to be examined before arriving at a conclusion as to whether or not the Assessing Officer has applied his mind. 18. In this background, we may examine the efficacy of the charge made by the Commissioner that the Assessing Officer failed to apply his mind while completing the assessment because of his failure to raise a query as regards the head of income under which the lease charges (rentals) earned by the assessee should be assessed. The stand of the assessee is that the manner of earning of lease charges has been enquired into by the Assessing Officer. It has been submitted that assessee was called upon to furnish a note on the nature of business activities carried on alongwith the details of business receipts. It has also been pointed out that the lease agreements entered with the various lessee - STP units in CYBERNEX, were called for by the Assessing Officer. In this regard, in th1e1 course of hearing, the learned counsel furnished a copy of notice dated 15.06.2010 issu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led proposition that where the intention is to exploit the immovable property by way of complex commercial activities, in that event the rental income must be held as a business income. The aforesaid proposition has been approved by the Hon'ble Supreme Court in the case of Shambhu Investments (P) Ltd. vs. CIT, 263 ITR 143 (SC) wherein the judgement of the Hon'ble Calcutta High Court in the same case reported in 249 ITR 47 has been approved. The material on record before the Assessing Officer, namely, lease arrangements with the lessees, the nature of activities undertaken by the assessee and the details of business receipts form the basis to examine whether or not the impugned intention of the assessee was to exploit the immovable property by way of complex commercial activities. All such material was before the Assessing Officer as he had duly called for such material. However, the difficulty is that there is no specific finding by the Assessing Officer in this context and therefore as per the Revenue, such an assessment order is liable to be treated as erroneous within the meaning of section 263 of the Act. In our considered opinion, having regard to the facts of the present case....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... one breath, as per discussion contained in para 6.3 of his order, the Commissioner finds that the rent received by the assessee being assessed as business income is "not found to be acceptable" and at the same time he goes on to say that he "would refrain from deciding the issue raised". In turn, he remitted the matter back t1o4 the file of the Assessing Officer with directions to re-appraise the material and evidence and thereafter deicide the issue afresh. In our considered opinion, under the circumstances, the Commissioner ought to have made a clear cut finding as to how the order was unsustainable in the eyes of law so as to be prejudicial to the interests of the Revenue. The aforesaid was even more necessary when assessee succeeded in demonstrating that the Assessing Officer had complete details of the mode and manner in which the impugned income was earned. Considering the aforesaid discussion, in our view, the conditions precedent for invoking jurisdiction u/s 263 of the Act did not exist in the present case and therefore the Commissioner eared in setting-aside the assessment order dated 11.10.2010 (supra) 22. Before parting, we may also refer to another argument set-up by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....menities has already been included in the monthly rent and the lessee shall not be required to pay to the lesser any additional amount(s) towards it." This shows that monthly lease rent/license fee of Rs. 14.30 per sq.ft. included cost of providing such additional services and amenities as has been given in detail in Schedule-II of the license agreement and nothing extra has been charged from the lessee for this. It is evident from Schedule-II of the agreement that the amenities/services provided were also technical one and of a major nature, e.g. provision of independent AC Plant with multiple compressors, chilled water system and double skin AHU's (to take care of noise), airconditioning chiller configuration with adequate AHU's, which included adequate provision for getting fresh air into the premises via Mechanical system, and two chiller units; a 100% power back up with auto switchers for the entire power given on lease on a 24 hours basis, inclusive of generators etc.; independent transformers of 600 KW per floor to the lessee for sole use of its requirement in the tower, 24 hours manned CCTV in common areas and basement area, fibre and satellite connectivity and a radio mic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the property for commercial business activity and the provisioning of some furnishing was merely incidental to the bare letting out of the property. In case before us, the assessee has not recovered major cost of the building and infrastructure and providing a host of services with recurring operating cost as discussed above. 11. The decision of ITAT Pune Bench in the case of Nutan Warehousing Pvt. Ltd. (supra) relied on by the Assessing Officer has been set aside and remanded to the Assessing Officer for reconsideration by the Hon'ble Bombay High Court. The Hon'ble Bombay High Court has set aside the matter to examine the prime object of the assessee whether it was to simply let out the property or to exploit a commercial asset by carrying on a commercial activity of warehousing. The Hon'ble Allahabad High Court in the case of CIT vs. Goel Builders (2010) 235 CTR 472 (All.) wherein the assessee was operating the commercial complex named Goel Complex and it was held that from the very beginning the construction of the building itself was for commercial purposes and therefore, the rental income was held to be assessable as business income. The Hon'ble Bombay High....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come from business rather than the income from house property or income from other sources, as the object of the assessee was to run the business centre by exploiting the property and not merely letting out the property. The Hon'ble Gujarat High Court in the case of CIT vs. Saptarshi Services 265 ITR 379 (Guj), which also related to the leasing out a business centre with various services, has decided the issue in favour of the assessee and the SLP filed on behalf of the Revenue was dismissed by the Hon'ble Supreme Court as reported in 264 (ST) 36. In this background, it is clear that assessee has provided various complex integrated services as mentioned in Schedule-II to the lease agreement with the I.T. Company. The services are vast and the amenities provided were in the nature of plant and machinery as contended by the assessee and it has been established by the clauses of the agreements that the cost of providing these services was also included in the lease rent of Rs. 14.30 per sq.ft. The assessee also clarified that cost involved in the services provided to the particular company i.e., exl Services.com was Rs. 2.83 crores which was almost 40% of the land and building....