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2011 (5) TMI 975 - AT - Income TaxIncome from lease rentals under the head 'business' - The income shown by the assessee as 'income from business' was, treated by the AOs as 'income from house property' and 'Other Sources' - HELD THAT - It was a fact that the assessee had not merely let-out its buildings for rent, but also carried on a complex commercial activity of setting up a software technology park in which various amenities and fit-outs have been provided. Following the ruling of highest judiciary in the case of CIT, COMMISSIONER OF INCOME-TAX, BOMBAY CITY I VERSUS NATIONAL STORAGE PRIVATE LIMITED 1967 (4) TMI 16 - SUPREME COURT , where it was held that In our view, the High Court was right in holding that the assessee was carrying on an adventure or concern in the nature of trade. The assessee not only constructed vaults of special design and special doors and electric fittings, but it also rendered other services to the vault-holders. Further, an identical issue to that of the present one had cropped up before the earlier Hon'ble Bangalore Bench in the case of GLOBAL TECH PARK (P) LIMITED. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX. 2008 (6) TMI 313 - ITAT BANGALORE-A , where it was held that the activity was done by the assessee as a business venture and was in accordance with the main object of the company. He assessee is providing ward and watch, maintenance of common area,maintenance of drainage etc., This clearly establishes that the entire activity is in organized manner to earn profit out of investment made by the assessee as a commercial venture. Therefore arrived at a conclusion that the rental receipts of the assessee is to be assessed as 'business income' In conformity with the finding of the earlier Bench as well as ruling of the Hon'ble Apex Court, we are of the considered view that the Ld. CIT (A) was justified in arriving at such a conclusion. It is ordered accordingly. STCG on Sale of Land to Sister Concern - CIT (A) deleted the addition made on account of STCG on sale of the land to the assessee's sister concern - HELD THAT - It is an undisputed fact that the assessee had parted with a piece of land to its sister concern for a sale consideration which, according to the assessee, was more than the guideline rate prescribed by the State Government. Revenue had not brought any credible documentary evidence to even remotely suggest that the assessee had, in fact, attempted to suppress the sale consideration on this transactions. In view of the above facts, there was no justification on the part of the AO to bring to tax STCG without any adequacy of documentary evidence on this score. It is ordered accordingly.
Issues Involved:
1. Classification of income from lease rentals. 2. Addition of Short-Term Capital Gains (STCG) on sale of land. 3. Disallowance of interest expenses. Issue-wise Detailed Analysis: 1. Classification of Income from Lease Rentals: The primary issue was whether the income from lease rentals should be classified under the head 'business income' or 'income from house property.' The assessee, engaged in real estate development, developed a technology park and provided various amenities such as fit-outs, central air conditioning, generator backups, street lighting, food courts, roads, drainage, gardens, security, water facilities, sewerage, and water treatment plants. The Assessing Officer (AO) treated the income as 'income from house property' and 'other sources,' while the assessee contended it should be classified as 'business income.' The CIT(A) sided with the assessee, noting that the activity involved was a complex commercial operation, not merely letting out buildings. The CIT(A) relied on the case law of National Storage Pvt. Ltd. (66 ITR 596 SC) and Global Tech Park Pvt. Ltd. (119 TTJ Bang 421), which supported treating such income as 'business income' due to the provision of extensive amenities and facilities. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee's operations were a commercial venture involving significant amenities and facilities, distinguishing it from mere rental income. The Tribunal also noted that the case law cited by the Revenue, such as Bhoopalam Commercial Complex and Industries Pvt. Ltd. (262 ITR 517 Kar), was not applicable as it did not involve similar amenities. 2. Addition of Short-Term Capital Gains (STCG) on Sale of Land: The second issue was the addition of STCG on the sale of land to the assessee's sister concern. The AO adopted a higher market value of Rs. 1193/sft instead of the sale price of Rs. 389.52/sft, suspecting suppression of sale consideration. The assessee argued that the sale was a distress sale to raise funds, and the sale price was higher than the guideline value prescribed by the State Government. The CIT(A) deleted the addition, noting that the sale price was at arm's length and higher than the guideline value, and there was no evidence of suppression of sale consideration. The Tribunal agreed with the CIT(A), emphasizing that the Revenue did not provide credible evidence to suggest suppression of sale consideration and that the transactions were conducted fairly. 3. Disallowance of Interest Expenses: The third issue involved the disallowance of interest expenses of Rs. 35.96 lakhs and Rs. 53.57 lakhs for the respective assessment years. The AO disallowed the interest, noting that the assessee had advanced substantial amounts to its sister concern without corroborative evidence of business purpose. The CIT(A) upheld the disallowance, stating that the assessee failed to provide details of the land owned by the sister concern for which the advance was given. During the Tribunal hearing, the assessee conceded that since it had declared losses for the relevant years and availed benefits under section 80IA in subsequent years, the disallowance would not impact its tax liability. Consequently, the Tribunal treated the issue as redundant and dismissed the assessee's appeals. Conclusion: 1. The Revenue's appeals for the AYs 2005-06 and 2006-07 were dismissed. 2. The assessee's appeals for the AYs 2005-06 and 2006-07 were dismissed. 3. The assessee's Cross Objections for the AYs 2005-06 and 2006-07 were dismissed as superfluous. The order was pronounced on May 31, 2011, at Bangalore.
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