TaxTMI 
TaxTMI 
2026 (1) TMI 1373
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....see are tabulated as under: Sr. Nos. Appeals/C.Os Asstt. Year CIT(A)'s Order dated Assessment Order dated Assessment Order under section 1 ITA No.5332/Del/2025 2016-17 13.06.2025 26.12.2018 143(3) of the IT Act 2. C.O.No.221/Del/2025 -do- -do- -do- -do- 3. ITA No.5333/Del/2025 2017-18 13.06.2025 27.12.2019 143(3) 4. C.O. No.222/Del/2025 -do- -do- -do- -do- 3. ITA No.5334/Del/2025 2018-19 13.06.2025 29.03.2021 143(3A) and 143(3B) 4. C.O. No.223/Del/2025 -do- -do- -do- - do - 3. At the beginning of the proceedings, Ld. AR for the assessee submits that C.Os. are taken in support of the order of Ld. CIT(A), thus are not pressed. Accordingly, C.Os. filed by the assessee are hereby dismissed as not pressed. 4. Before us, both the parties have stated that the facts involved in all these appeals are common, therefore, they are taken together and decided by a common order. 5. First we take up the appeal filed by Revenue for Assessment Year 2016-17 in ITA No.5332/Del/2025. 6. Brief facts of the case that assessee is a company incorporated with the object, ....
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.... narrated in MOA while coming to the conclusion that such narration of object clauses leads to the conclusion of systematic and organized activity of services provided by the assessee ignoring the fact that Hon'ble Supreme Court in the case of Sultan Brothers has clearly held that a mere entry in the object clause showing a particular object would not be the determinative factor to arrive at a conclusion whether the income is to be treated as income from business. 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in misinterpreting the CBDT Circular No. 16/2017, which applies only to notified SEZ/IT Parks/Industrial Parks, whereas the assessee's project was never notified under any such government scheme, and thus, the benefit under the Circular could not have been extended to the assessee. 5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that the assessee has failed to furnish any notification/approval from the competent authority recognizing the project as SEZ/Industrial Park, and therefore reliance on CBDT Circular No. 16/2017 was factually and legally unt....
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....he Revenue, Ld. CIT-DR vehemently supported the orders of AO and submits that the Assessing Officer in the assessment order at page-1 has observed that the assessee derived income from the Lease Rent of 36.44 Crs. and Maintenance Charges of Rs. 11.58 Crs. and the dominant income is from lease rental derived from the spaces constructed by it given on lease which is in the nature of rental income. The Ld. CIT-DR submits that hire charges were taken on the amenities provided such as furniture and fixtures and other installations and maintenance charges were received on the services provided like operation and maintenance of common areas such as elevators, DG sets, AC Plants, Firefighting equipment, O&M of car parking Space, O&M of open spaces etc. and therefore, the same are rightly treated as the income from other source by the AO. Ld. CIT DR submits that main source of income of the assessee is rental income received from constructed portion of the property given out on rent therefore it is the Income from house property and the AO has rightly treated the same so. The Ld. CIT DR submits that CBDT issued circular No.16/2017 wherein it is provided that if the company is engaged in the....
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....6/2017 for treating the business income as income from house property and income from other sources. Ld. AR submits that aforesaid judgment of Hon'ble Supreme Court has been discussed and distinguished by the apex court in the case of Chennai Properties & Investments Ltd. vs. CIT, Central-III, Tamil Nadu [2015] 56 taxmann.com 456 (SC) wherein the Hon'ble Supreme Court concluded that the question of identifying the income as income from 'business or profession', depend on situation of each case whether particular business is letting out or not. Ld. AR submits that Ld. CIT(A) has considered all the facts and thereafter held the income of the assessee as Income from business or profession which order deserves to be confirmed. Ld. AR also filed a written submission which is placed on record. 11. Heard both the parties and perused the materials available on record. The assessee was incorporated under The Companies Act, 1956 in terms of the certificate to incorporation issued on 25.11.2004. The main objects of the company are as under: "1. To carry on the business of import, export, purchase, assemble, stockists, distributors, agents, dealers, traders, designers, jobbers, in ....
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.... Enabled Services). To develop the corresponding software that will help in providing guidance and assistance to external customers In some or all of these area. To maintain database and provide consultancy to the customer's business needs by using any conceivable electronic medium which may include the internet, phone cable, TV and tax. 6. To build, set up, develop, maintain and/ or operate Software Technology Park, IT Park, Industrial Parks, special Economic Zone (SEZ) and to rent out space and provide Infrastructure and other facilities to the occupants of the Software Technology Park, IT Park, Industrial Park, Special Economic Zone (SEZ) Including 100% power back-up, Air conditioning, furnishing, data communication, and any other services required by the occupants." 12. It is further observed that gross receipts of the assessee as appearing in the Profit & Loss account includes the following: (i) Maintenance income - Rs.11,58,21,206/- (ii) Lease Rent - Rs.36,94,05,619/- (iii) Profit of sale of Units - Rs. 1,34,50,192/- (iv) POS Sale - Rs. 7,76,586/- (v) POS Service - Rs. 14,19,248/- Gross T....
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....ther sources". The AO further noted that CBDT Circular No. 16 of 2017 dated 25.04.2017 on the subject of "lease rent from buildings in an Industrial Park/SEZ" clearly outlines that income from letting out of premises along with other facilities in an Industrial Park/SEZ is to be charged under the head "Profits & Gains of Business". The AO held that only those assessees who are located in an Industrial Park/SEZ are covered under the above Circular. Accordingly, Toner the AO directed the assessee to justify whether the appellant is recognized as an Industrial Park/SEZ. The AO from the reply of the assessee filed during the course of assessment proceedings held that the assessee is neither an Industrial Park nor SEZ and hence, is not covered under Circular No. 16 of 2017 issued by CBDT. The AO accordingly held that as the assessee does not fall under the category of recognized Industrial Park/SEZ, the lease rental income would be assessed as Income from House Property. Similarly, the maintenance income was treated as income from other sources. The appellant during the appellate proceedings reiterated the contentions as filed before the AO. The contentions of the appellant are....
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....t further stated that the assessee has to employ a large number of people for rendering services to its customers. As per appellant, the assessee had more than 150 full time employees to manage the affairs of the IT Park apart from hundreds of contractual manpower. g. The appellant further stated that the assessee is maintaining an IT Park and the observations of the AO that the assessee has not set-up an IT Park are incorrect. Moreover, as per AR, the AO is not correct in holding that the assessee is not registered under the Industrial Park Scheme, 2008. As per appellant, the assessee has applied for the said scheme but the above criteria cannot be the sole deciding factor in changing the head of income of the assessee. As per appellant, the notification under Industrial Park Scheme, 2008 can have consequences with respect to tax benefits u/s 801A and not on the issues which have been adjudicated by the AO. h. Further, as per appellant, the tenants are involved in activities related to software or information technology. Moreover, as per appellant, the 10% space used for providing various facilities is as per the norms of the NOIDA as the balance 90% space has be....
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....efit to entities operating in an IT Park/SEZ but it nowhere denies the said benefit to entities not operating in a notified IT Park. Further, as per appellant, the activities of all the clients are IT Oriented and the observations of the AO are incorrect viz a viz the nature of the activities being carried out on the premises of the assessee. It needs to be highlighted that the assessee has built an institutional premises as per the norms of the NOIDA. As per the policy document for institutional premises, 90% of the space is to be used for core activities and 10% can be used for providing various services like food courts, ATM etc. to the clients occupying the core 90% of the space. The observations of the AO viz a viz the outlets of Dominos and MacDonalds, that the said entities are not into IT related services, are incorrect to the extent that said entities fell into the category of facility providers occupying 10% of the space as ordained by the policy document of the NOIDA. On the issue of other entities occupying the premises of the assessee including KPMG, BHEL, Samsung etc.; the appellant has provided an exhaustive list of activities which shall fall in the categor....
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....petrol and diesel for common facilities, cost of administrative and maintenance staff, cost of consumables and annual fee to various authorities. It needs to be emphasized here that the assessee in its Memorandum of Association has clearly stated in the main objective at No. 6 as under: "To build, set up, develop, maintain and/or operate Software Technology Park, IT Park, Industrial Parks, Special Economic Zone (SEZ) and to rent out space and provide infrastructure and other facilities to the occupants of the Software Technology Park, IT Park, Industrial Park, Special Economic Zone (SEZ) including 100% power back-up, Air conditioning, furnishing, data communication and any other services required by the occupants" From the reading of the above clause of MOA it is clear that the assessee has specifically mentioned that renting out of space and providing various services to the occupants is one of the main objectives of the assessee company. The above issue has been further clarified by the Hon'ble Supreme Court in the case of Raj Dadarkar & Associates reported at [2017] 81 taxmann.com 193 (SC) wherein it has been held that apart from the mentioning in the Memor....
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....le of the building. The above submissions of the appellant reveal that apart from the object clause in the Memorandum of Association, the assessee is also doing a systematic and organized activity to provide various services to the occupants of the premises. The above has also been confirmed by the AO in assessment order. The assessee is involved in a systematic and recurring activity in providing various services and as per the additional evidences submitted during the course of appellate proceedings, 150 regular employees and hundreds of contractual employees were engaged to provide various services at the premises. In above circumstances, it is obvious that apart from the object clause in the MOA mentioning about the activities of the e assessee, the actual activities carried out by the assessee point towards a very systematic, recurrent and organized support system being provided to the occupants of the premises leading to a fair conclusion that the nature of income of the assessee is business income rather than rental income. On the above issue, the Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd. vs. Commissioner of Income-tax, ....
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....e treated as 'business income', and not as 'income from house property" Further, the Hon'ble High Court of Madras in the case of Commissioner of Income-tax vs. G.V. Foundations (P.) Ltd. reported at [2022] 138 taxmann.com 168 (Madras) has held as under: "Where assessee-company had let-out its business premises along with other amenities and received certain rental income, since only commercial space was given by assessee on a license basis, rental income received thereon was to be assessed under head business income and not income from house property" Further, the Hon'ble High Court of Kerala in the case of Commissioner of Income-tax, Thiruvananthapuram vs. Oberon Edifices & Estates (P.) Ltd. reported at [2019] 103 taxmann.com 413 (Kerala) has held as under: "Where primary intention of assessee by letting out shops in mall was commercial exploitation of property, income so derived from same would be assessed as income from business and not as income from house property" Further, the Hon'ble High Court of Karnataka in the case of Commissioner of Income-tax -III vs. Velankani Information Systems (P.) Ltd. reported a....
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....nized activity of a composite nature and, thus, income from renting of properties was to be treated as business income and not as income under head 'income from house property" Further, the Ld. Tribunal Bench of Delhi in the case of Active Securities Ltd. vs. Income-tax Officer reported at [2024] 163 taxmann.com 714 (Delhi - Trib.) has held as under: "Where assessee-company, engaged in business of construction of commercial complex had earned rental income for letting out same along with all facilities and amenities to occupants, same was taxable as business income and not rental income" CIRCULAR No. 16/2017 The AO has relied upon above circular while making addition in case of assessee. It shall be important to understand the intent of circular no 16/2017. Perusal of para of Circular No. 16/2017 dated 25.04.2017 reads as under: 3. In view of the above, it is now a settled position that in the case of an undertaking which develops, develops and operates or maintains and operates an industrial park/SEZ notified in accordance with the scheme framed and notified by the Government the income from letting out of premises/developed space a....
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.... from House Property". Therefore, in this way every case of "letting out buildings alongwith other amenities" would automatically fall in the income from business and it will not be merely restricted to Software Technology Park only as has been wrongly understood by Id. PCIT. It is important to mention here that the AO after detailed enquiries and verification on completed the assessment u/s 143(3) dated 15-02-2021 at the return income of Rs. 6,68,250/-. However, the assessment order was revised by the id. PCIT by placing restrictive interpretation to CBDT Circular No. 16/17 dated 25-04-2017 by holding that the said circular is only applicable in the case of Software Technology Park. We also noticed that during the course of proceedings u/s 263 of the Act before Id of the PCIT, the decision of Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd. (supra) was brought to the notice of the ld. PCIT wherein the Hon'ble Supreme Court in this case has held that where object as per object clause of the company was to do business of letting out, the same has to be taxed under the head income from business and profession. It was further held. "Il was highlighted and....
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....me from other systematic and organized activity provided to the tenants by the assessee. As observed above in this case, the main object of the assessee is to build, set up, develop, maintain and/ or operate Software Technology Park, IT Park, Industrial Parks, special Economic Zone (SEZ). The Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd. vs. CIT (supra) has followed the judgement of the Apex court in the case of Karanpura Development Co. Ltd Vs. CIT reported in (1962) 44 ITR 362(SC) wherein the hon'ble court has held that "......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 stressed upon by the Hon'ble Court that the object of the company also kept in view in judge the nature of activities. The Hon'ble Supreme Court after considering the judgment of Sultan Brothers (P.) Ltd. (supra) relied upon by the revenue in the present case held the rental income as income from Business or profession by making following observations: "4. We have heard the learned counsel for the parties on the aforesaid issue. Before we narrate the lega....
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....he main objective of the company and took note of the fact that letting out of the property was not the object of the company at all. The court was therefore, of the opinion that the character of that income which was from the house property had not altered because it was received by the company formed with the object of developing and setting up properties. 8. Before we refer to the Constitution Bench judgment in the case of Sultan Brothers (P.) Ltd. (supra), we would be well advised to discuss the law laid down authoritatively and succinctly by this Court in 'Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC). That was also a case where the company, which was the assessee, was formed with the object, inter alia, of acquiring and disposing of the underground coal mining rights in certain coal fields and it had restricted its activities to acquiring coal mining leases over large areas, developing them as coal fields and then sub-leasing them to collieries and other companies. Thus, in the said case, the leasing out of the coal fields to the collieries and other companies was the business of the assessee. The income which was received from letting out of those....
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....income is to be treated as income from business and such a question would depend upon the circumstances of each case, viz., whether a particular business is letting or not. This is so stated in the following words:- "We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature bbe a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. We find nothing in the cases referred, to support the proposition that certain assets are commercial assets in their very nature." 11. We are conscious of the aforesaid dicta laid down in the Constitution Bench judgment. It is for this reason, we have, at the beginning of this judgment, stated the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of....