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2012 (9) TMI 929 - AT - Income TaxIncome derived from the letting out of premises of the Cyber City - whether to be assessed as business income or House Property - Held 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 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 2.83 crores which was almost 40% of the land and building cost of that tower. By no stretch of imagination such extensive and specialized services which could only be utilised by the IT/Software/BPOs businesses to be located in the I.T. Park could be treated as forming part of income from house property. It is certainly a constitution of organised structure for carrying out business activities. Section 22 provides only for rental income out of building or land appurtenant thereto whereas in the case before us complex and varied services provided and the huge investment therein were in the nature of plant and machinery which could be included within the expression building or land appurtenant thereto. Thus the assessee has conducted systematic activity to earn profit and accordingly income was to be assessed as income from business. In view of the submissions made on behalf of the assessee and analysis of various clauses and Schedule-II of the agreement entered with the I.T. company CIT(A) was justified in holding that in assessee s case the said income was to be assessed as business income. This reasoned factual finding need no interference from our side. - Decided against revenue. Claim of deduction u/s.80IB(10) in respect of disallowance made u/s. 40(a)(ia)/43B - CIT(A) allowed claim - Held that - We are not inclined to interfere in the finding of the CIT(A) on the issue. The CIT(A) observed that turnover was from the same source in respect of the claim u/s.80IB(10). Therefore it was entitled for deduction after including the statutory disallowance i.e. on correspondingly enhanced income. Assessee was held entitled for deduction u/s.80IB(10) in case there was enhanced income on account of statutory disallowance u/s.43B 40(a)(ia) and 36(1)(va) etc. In the instant case nature of receipts on credit side of Profit and Loss Account for eligible housing projects u/s.80IB(10) was the same and disallowance of expenditure on the debit side would only result into enhancement of net profit. Accordingly the assessee s claim was liable to be allowed in view of the ratio of the decisions cited (supra). As stated above assessee is not eligible for deduction u/s.80IB(10) pertaining to its Cosmos project. The Assessing Officer has held in assessment order that sum of claim u/s. 80IB(10) was allowable to assessee for its Heliconia project. Thus if any disallowance u/s.43B 40(a)(ia) or 36(10(va) etc. relate to Heliconia project that only can be considered for claim u/s.80IB(10) and corresponding enhanced income. This reasoned finding of the CIT(A) on the issue needs no interference from our side. - Decided against revenue. Deduction u/s.80IB(10) in respect of the Cosmos Project - AO denied the deduction on the ground that the built up area of the units in building Prime included in the said project exceeded 1500 sq.ft. - Held that - CIT(A) was not justified in holding that flats in building Prime had built up area exceeding 1500 sq.ft. the entire Cosmos Project did not qualify for deduction u/s.80IB(10) in respect of its profits. There is nothing on record to suggest that assessee has claimed deduction in respect of building Prime wherein built up area of its units is exceeding 1500 sq.ft. In fact there were 25 buildings in Cosmos Project out of which except building Prime all other buildings satisfy the conditions of built up area limit of 1500 sq.ft. Therefore deduction u/s.80IB(10) should be allowed in respect of profit from such buildings. This view is fortified by the decisions in Vandana Properties (supra) and Aditya Developers (supra) discussed above. As regards two flats combined together the allegation is that some units were combined into one so deduction u/s.80IB(10) should not be allowed. In this regard assessee s stand has been that assessee conceived the flats as independent units and these were constructed as independent units. There is nothing on record to suggest that assessee himself has joined the adjacent flats. In this situation assessee should not suffer for its no fault if purchaser join the adjoining flats. Thus we hold that assessee is entitled for deduction u/s.80IB(10) in respect of entire profits computed after making additions/disallowances in respect of Cosmos Project consisting of 24 buildings excluding Prime building. See Haware Constructions Pvt. Ltd. (2011 (8) TMI 1080 - ITAT MUMBAI) Emgeen Holdings P. Ltd. (2011 (7) TMI 199 - ITAT MUMBAI) and Arcade Bhoomi Enterprises 2013 (7) TMI 210 - ITAT MUMBAI . Decided in favour of assessee.
Issues Involved:
1. Treatment of rental receipts from letting out premises in Cyber City. 2. Disallowance of depreciation claimed on Cyber City building, furniture, and plant and machinery. 3. Apportionment of common expenses to the letting out activity. 4. Claim of deduction under Section 80-IB(10) for the Heliconia project. 5. Disallowance of deduction under Section 80-IB(10) for the Cosmos project. 6. Combination of adjacent flats and its impact on Section 80-IB(10) deduction. Detailed Analysis: 1. Treatment of Rental Receipts from Letting Out Premises in Cyber City: The primary issue was whether the rental income from the Cyber City premises should be treated as "Business Income" or "Income from House Property." The Assessing Officer (AO) treated the rental receipts as income from house property, citing that the primary intention was to let out the property and not to engage in complex commercial activities. The AO relied on Section 22 of the Income-tax Act and various judgments, concluding that rental income from a building, whether commercial or residential, should be assessed under the head "Income from House Property." In contrast, the CIT(A) held that the income should be assessed as business income, considering the extensive and specialized services provided by the assessee, which made it a complex commercial activity rather than mere letting out of property. 2. Disallowance of Depreciation Claimed on Cyber City Building, Furniture, and Plant and Machinery: The AO disallowed the depreciation claimed on the Cyber City building, furniture, and plant and machinery amounting to Rs. 24,87,04,429/-, arguing that since the rental income was treated as income from house property, depreciation could not be claimed. The CIT(A) reversed this, allowing the depreciation claim as the income was held to be business income. 3. Apportionment of Common Expenses to the Letting Out Activity: The AO apportioned common administrative expenses to the letting out activity in the ratio of license fee to total receipts, which amounted to Rs. 6,11,56,123/-. This was added back to the business income, reducing the net business income shown by the assessee. The CIT(A) disagreed with this apportionment, considering the expenses as part of the business activity related to the IT Park. 4. Claim of Deduction under Section 80-IB(10) for the Heliconia Project: The AO did not allow the claim of deduction under Section 80-IB(10) for the Heliconia project on the enhanced income due to disallowances under Sections 40(a)(ia), 43B, and 35(1)(va). The CIT(A) allowed the deduction, relying on various judicial precedents, including the decision of the Hon'ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd., which held that enhanced income due to statutory disallowances should be eligible for deduction. 5. Disallowance of Deduction under Section 80-IB(10) for the Cosmos Project: The AO disallowed the deduction under Section 80-IB(10) for the Cosmos project, citing that the built-up area of units in the Prime building exceeded 1500 sq.ft., violating the conditions of Section 80-IB(10). The CIT(A) upheld this disallowance. However, the Tribunal held that the deduction should be allowed for the buildings within the Cosmos project that met the conditions, excluding the Prime building. 6. Combination of Adjacent Flats and Its Impact on Section 80-IB(10) Deduction: The AO disallowed the deduction for certain buildings where adjacent flats were combined, resulting in a built-up area exceeding 1500 sq.ft. The Tribunal held that the combination of flats by purchasers should not impact the deduction eligibility if the flats were sold as independent units. This view was supported by various judicial precedents, including the decisions of ITAT Mumbai in the cases of Haware Constructions Pvt. Ltd. and Emgeen Holdings P. Ltd. Conclusion: The Tribunal upheld the CIT(A)'s decision to treat the rental income from Cyber City as business income and allowed the depreciation claim. The Tribunal also allowed the deduction under Section 80-IB(10) for the Heliconia project on the enhanced income due to statutory disallowances. For the Cosmos project, the Tribunal directed that the deduction under Section 80-IB(10) should be allowed for the buildings meeting the conditions, excluding the Prime building. The Tribunal also held that the combination of adjacent flats by purchasers should not affect the deduction eligibility under Section 80-IB(10). The appeal of the Revenue was dismissed, and the cross-objections of the assessee were allowed.
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