TaxTMI 
TaxTMI 
2016 (9) TMI 386
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..... 3,54,080/-. The return of income was processed u/s 143(1). Subsequently, the assessment was reopened by issue of notice u/s 148. The AO completed the assessment u/s 143(3) r.w.s. 147 by treating the income of the assessee under the head 'income from house property' as against business income as admitted by the assessee. 3.1. The assessee company was getting income by way of lease rentals. Although the articles of association of the company indicated that it was in the business of development and operation of industrial park/software technology parks, however, the Assessing Officer noticed that during the year the company only received lease rent from M/s HDPI Limited to whom it had given its building on lease for 9 years. The background is that a land of 3.542 acres was allotted to the assessee by West Bengal Electronic Industry Development Corporation for a period of 99 fears. The Corporation asked the assessee to develop a building and its related infrastructure to 1,80,000 sq.ft. with specific parameters for an IT complex. The assessee developed the same and gave it on lease to M/s HDPI Limited. The Assessing Officer held that in providing the complex on lease, the appellan....
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....nner in which the asset is exploited by the owner of the business. Further the nature of property as per records of Municipal Corporation is also 'Commercial Property' Assessee submitted a plethora of judicial precedents which have held in cases similar to that of assessee company, that where the us of property is as a business asset along with provision of commercial services then the income would be taxable under the head 'Income from business or profession '. Further, in this regard, assessee placed reliance on following the judicial pronouncements: * In Commissioner of Income-tax Vs. National Storage Pvt. Ltd. [1967J 66 ITR 596 (SC). CIT Vs AP Small Scale Industrial Development Corporation [1989J 175 ITR 352 (AP) Elnet Technologies Limited v. DCIT 1606 (Mds)/1999 (Assessment Year 1996-1997). PFH Malland Retail Management Ltd. Vs. ITO [2008J 110 ITO 337 (Kol) * In Commissioner of Income-tax Vs. Halai Memon Association [2000J 243 ITR 439 (Mad) Balaji Enterprises Vs. Commissioner of Income-tax [1997] 225 ITR 471 (Kar.) 3.3 The AO gave the following reasons for treating the rental income shown by the assessee as 'the income from house property....
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....etting out the building, custom built for clients like HDPI. iii. Thereafter, a lease agreement was entered into with the HDPI for a period of 9 years subject to renewal having a minimum locking in period of 6 years. iv. The main objects of its incorporation are to promote, setup, etc. infrastructure projects as the present one. However, it is not the memorandum of association which determines the head of the income earned under the Income Tax Act. Rather, it is the nature and extent of actual activities being carried out which determine whether the assessee had conducted any business during the financial year or not. v. The building it has made is for a specific I.T. industry and cannot be used for any other purpose. As per agreement it cannot use the building for residential or other commercial purpose. The specifications of the building or a caveat imposed on its use which determines whether the income earned from building is business income or not. Rather it is the nature and extent of activities carried out by the assessee which are the determining factors. vi. The assessee has stated that it has provided 200 surface car parking spaces and 250 motor cycle parking s....
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....ions set out in Part A of the Schedule hereto so as to enable HDPI to establish and operate a GPC at the Site. 2. HDPI agrees to lease the GPC from LTIL upon and subject to the terms and conditions set out in Part B of the Schedule hereto. 3. Each of the parties agrees to maintain the confidentiality of any information and / or the contents of any documents provided or otherwise made available to it by the other in connection with. the Project and shall not, without the prior written consent of the other, disclose the same to any third party. 4. This MOU, other than clauses 3,5 and 6, does not constitute a contract or an agreement to enter into a contract and does not create an obligation at law and is not and will not become legally binding on the parties. Instead this MOU is intended to provide a means for the parties to set out and understand their respective intentions and expectations with regards to the Project. Accordingly neither party shall be under any obligation to the other to reach any formal, binding agreement or to enter into any contract or commitment in connection with the Project. 5. Each part will bear its own costs incurred prior to the earlier of (i....
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....he "Initial Term"} net of service lox on construction services, if levied by the Government of India. If the service tax is levied, this would increase the month rental by INR 1.80 per square foot. - Following the expiration of the Initial Term, LTIL is entitled to increase the rent payable land the security deposit by 18 % for the next 3 year of the let (a "Subsequent Term") and thereafter shall be entitled to incase the rent payable- security deposit by 18% of the then rental at the end of each such Subsequent Term. - First rental payment to be made from the beginning of the 12th month from the start of construction (the "Rent Commencement Date"), in respect of the first calendar month or part thereof, provided always that (aa) structural work being undertaken by LTIL is completed within eight and a half months from the start of construction for the "handover" of the internal space to HDPI; and (bb) the glazing work being undertaken by LTIL on the GPC is completed within period of 15 days. In the event that either of the aforementioned 'completion' dates aren't adhered to othenvise than by reason of a 'force majeure' event, including but not limited t....
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....ggrieved the assessee preferred appeal before the CIT(A) and contended that it was carrying out business and its activities/income could not be classified as income from house property. 5. The CIT(A), following his decision in AY 2008-09, held that the AO has correctly appreciated the fact that it is the actual activities which would determine the nature of income earned rather than whatever is mentioned in the Memorandum of Association. Accordingly, he confirmed the action of the AO. 6. Aggrieved, the assessee is in appeal before us. 7. Assessee has raised five grounds of appeal, out of which assessee has pressed only ground Nos. 1 & 2, which are as follows: 1) For that on the facts and in the circumstances of the case, the CIT (A) erred in law and on facts in upholding the order passed by the Assessing Officer assessing the income derived by the appellant from leasing of an 1. T. Park under the head 'income from house property' as opposed to profits & gains of business as returned by the appellant. 2) For that on the facts and in the circumstances of the case, the authorities below were unjustified in law & on facts in assessing income from exploitation of ....
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....which LTIlL was incorporated were to carry on the business of "To promote, set up, construct, develop, build, own, lease, sell, transfer, operate, manage, service, upgrade, and for maintain Information Technology Parks, Telecommunication, Engineering and Consultancy Parks, Cities, Complexes, Infrastructure projects, Software Technology Parks, Electronic and Hardware Technology Parks or any other infrastructure development projects with or without industrial estate, parks, townships, factories, commercial offices, residential complexes and other allied facilities and amenities such as internal roads, helipad, satellite communication facilities, shops, gardens, swimming pools. in any place whether in India or outside India, and undertaking consultancy and project management for setting up of the above activities." 8.3 Ld. AR submitted that developing, operating and maintaining an IT facility has been clearly regarded as business activity under many of the sections of Income tax Act like 80IA, 80IAB etc and the deductions are allowed from the business income. Hence the buildings of LTIlL are purely commercial assets meant to augment the purposes of commerce and industry and not ....
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.... filed, entire income which accrued and was assessed in the said return was from letting out of these properties. It is so recorded and accepted by the assessing officer himself in his order. It transpires that the return of a total income of Rs. 244030 was filed for the assessment year in question that is assessment year 1983-1984 and the entire income was through letting out of the aforesaid two properties namely, "Chennai House" and "Firhavin Estate". Thus, there is no other income of the assessee except the income from letting out of these two properties. We have to decide the issue keeping in mind the aforesaid aspects. With this background, we first refer to the judgment of this Court in East India Housing and Land Development Trust Ltd.'s case which has been relied upon by the High Court. That was a case where the company was incorporated with the object of buying and developing landed properties and promoting and developing markets. Thus, the main objective of the company was to develop the landed properties into markets. It so happened that some shops and stalls, which were developed by it, had been rented out and income was derived from the renting of the said shops a....
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....erations in relation to them. It was highlighted and stressed that the objects of the company must also be kept in view to interpret the activities. In support of the aforesaid proposition, number of judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in England and US Courts were taken note of. The position in law, ultimately, is summed up in the following words: - "As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The diving line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned." After applying the aforesaid principle to the facts, which were there before the Court, it came to the conclusion that income had to be treated as income from business and not as income from house property. We are of the opinion that the aforesaid judgment in Karanpura D....