TaxTMI 
TaxTMI 
2025 (8) TMI 1033
X X X X Extracts X X X X
X X X X Extracts X X X X
....39;) and the Honourable Dispute Resolution Panel ("Hon'ble DRP') grossly erred in determining an adjustment of INR 15,28,39,699 with respect to the international transactions rendered by the taxpayer under section 92CA of the Income-tax Act, 1961 ("Act"). 2. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting the Transfer Pricing ("TP") documentation maintained by the Appellant by invoking provisions of sub-section (3) of 92C of the Act. 3. The learned AO/ learned TPO/ Hon'ble DRP erred in disregarding the independent benchmarking analysis undertaken by the Appellant identifying the comparable transactions involving Fully & Compulsory Convertible Debentures ("FCCD") to demonstrate the arm's length nature of interest payment on FCCD. 4. The learned AO/Learned TPO/ Hon'ble DRP erred in considering the FCCDs issued by the Assessee to its Associated Enterprises in Indian Rupee as a foreign currency transaction. 5. The learned AO/ learned TPO/ Hon'ble DRP erred in considering the London Inter-bank Offered Rate ("LIBOR") + 200 basis points as the arm's length interest rate for the INR denominated FCCDs. 6. The L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 80-IAB of the Act. III. Other miscellaneous grounds 12. Without prejudice to the above, the Learned AO has erred in law and on facts by raising a demand of INR 4,68,46,950/- without considering an adjustment of tax refund of INR 1,10,17,650/- for AY 2018-19. 13. The Learned AO has erred in law and on facts in levying interest under Section 234B of the Act amounting to INR 1,66,23.111/- The appellant craves leave to add. alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided. 3. The brief facts of the case are that, the assessee is a company, filed its Return of Income ("ROI") for A.Y. 2015-16 declaring total loss of Rs. 2,56,00,872/- on 30.11.2015. In view of the international transactions involved during the year under consideration, for determination of Arm's Length Price ("ALP"), the case was referred to Learned Transfer Pricing Officer ("TPO"). The Ld. TPO vide his order dated 30.10.2018 proposed upward a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st LIBOR. Accordingly, we answer the question referred to for the Special Bench as under : Whether as regards TP adjustment made in respect of interest paid / payable on FCCDs / NCDs / other debentures, which are denominated in Indian currency the benchmarking is to be made by applying PLR as against LIBOR?" (i) Yes, in favour of the assessees. (ii) Interest paid / payable on FCCDs / NCDs / other debentures, which are denominated in Indian currency to be bench marked by applying PLR rates." 6.1 On perusal of above, we found that, the Special Bench of this Tribunal (supra) has decided the issue in favour of the assessee by holding that the interest on FCCDs is to be benchmarked by applying PLR rates. Therefore, respectfully following the decision of Special Bench of this Tribunal (supra), we hold that, the bench marking of the payment of interest on FCCDs by the assessee to its AEs on the basis of PLR rates is justified. We, therefore, direct the Ld. AO/TPO to recompute the ALP on account of payment of interest on FCCDs by applying the PLR rates. 6.2 In the result, the ground nos.1 to 6 of the assessee are allowed. 7. Ground nos.7 to 10 of the assessee are related to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll under the head of 'income from profits and gains of business or profession'. 7.2 Per contra, the Learned Department Representative ("Ld. DR") supported the order of revenue authorities and submitted that the assessee merely took the property on lease and sublet to the tenants. Hence the activity of assessee does not constitute business. Accordingly, she submitted that there is no infirmity in the order passed by the Ld. AO by treating the income of the assessee under the head 'income from house property.' 7.3 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the object of the company as per its memorandum of association, which is not disputed by the revenue, are to the following effect : "To invest, upgrade, develop, maintain internal and external infrastructure including but not limited to infrastructure like power generators, fit outs, common area maintenance, water treatment plant, water supply lines, sewage lines, storm water drains and water channels of appropriate capacity and to undertake operation, maintenance and management of Special Economic Zones and IT Parks ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... features of the present case. 5. The Memorandum of Association of the appellant-company which is placed on record mentions main objects as well as incidental or ancillary objects in clause III. (A) and (B) respectively. The main object of the appellant company is to acquire and hold the properties known as "Chennai House" and "Firhavin Estate" both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other properties or any interest therein. What we emphasise is that holding the aforesaid properties and earning income by letting out those properties is the main objective of the company. It may further be recorded that in the return that was 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. 6. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncome from the house property. It would be thus, clear that in similar circumstances, identical issue arose before the Court. This Court first discussed the scheme of the Income Tax Act and particularly six heads under which income can be categorised / classified. It was pointed out that before income, profits or gains can be brought to computation, they have to be assigned to one or the other head. These heads are in a sense exclusive of one another and income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, the Court pointed out that the deciding factor is not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under the Head Income from Business. It cannot be treated as 'income from the house property'. We, accordingly, allow this appeal and set aside the judgment of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as to costs." 7.5 On perusal of above, we found that, the Hon'ble Supreme Court in that case has held that, where the main object of the company is letting out, then the income earned on such letting out activity shall be assessed as business income. In the present case, the facts of the assessee are similar to the ratio laid down by the Hon'ble Supreme Court in the said decision. Accordingly, we hold that the rental income and the allied income earned by the assessee from provision of various services are taxable under the head 'profits and gains of business or profession'. Accordingly, the Ld. AO is directed to recompute the income accordingly. 7.6 In the result, the ground nos.7 to 10 of the assessee are allowed. 8. Ground no.11 of the assessee relates to the denial of deduction u/s. 80IAB of the Act by Ld. AO. 8.1 In this regard, the Ld. AR invited our attention to the certificates granted by Department of Commerce (S....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... apply only to section 80IA of the Act and cannot be extended to section 80IAB of the Act, which had a distinct and narrower scope. The Ld. DR further submitted that, to be considered as a developer, only having certificate of developer is not enough. There must be performance of some activity which is in the nature of development. Without performance of any activity in the nature of development, the assessee cannot be treated as a developer. The Ld. DR invited our attention to the certificate granted to the assessee placed at page no.210 of the paper book, wherein at para no.1(b), it has been clearly stated that the details of facilities proposed to be provided by the assessee was "for development and investment in the required interior, infrastructure along with the operation and maintenance of Towers of H01A & H08 forming part of the SEZ". Therefore, it is clear that the assessee was given the certificate for development of interiors / infrastructure facilities along with the operation and maintenance. The Ld. DR further invited our attention to para no.3(iii) of the certificate and submitted that, for development of interior / infrastructure facilities, the assessee had to obta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the tenant (page nos.1262 to 1273 of the paper book). On perusal of agreement of subletting, we found that the assessee has obtained leasehold property on lease from Phoenix and sublet the same to its tenants. On perusal of service agreement we found that, the assessee has extended certain services to its tenants mentioned at page no.1272 of the paper book which is to the following effect : "ANNEXURE (SERVICES) 1. Maintenance of Mechanical & Electrical Services for the building and common areas only. 2. Maintenance of lifts. 3. Security for the building and property for common area only. 4. Sanitary in common areas only. 5. Plumbing in common areas. 6. Façade cleaning. 7. House keeping for common area. 8. Electricity and lighting for common areas. 9. Landscape maintenance, as applicable. 10. Pest Control in common areas only. 11. Toilet upkeep - common area toilets only. 12. Parking (Four/Two wheeler) Management." 8.4 On perusal of both the agreements entered into by the assessee with its tenants, we found that the income of the assessee is in two folds i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at in a case where an undertaking, being a Developer who develops a Special Economic Zone on or after the 1st day of April, 2005 and transfers the operation and maintenance of such Special Economic Zone to another Developer (hereafter in this section referred to as the transferee Developer), the deduction under sub-section (1) shall be allowed to such transferee Developer for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee Developer. (3) The provisions of sub-section (5) and sub-sections (7) to (12) of section 80-IA shall apply to the Special Economic Zones for the purpose of allowing deductions under sub-section (1). Explanation.-For the purposes of this section, "Developer" and "Special Economic Zone" shall have the same meanings respectively as assigned to them in clauses (g) and (za) of section 2 of the Special Economic Zones Act, 2005." 8.5 On perusal of provision of section 80IAB of the Act, it is abundantly clear that, if the assessee is a developer, then he is eligible for deduction u/s. 80IAB of the Act. In the present case, we found that no development activity ....