2014 (4) TMI 1135 - HC - Income Tax

Income derived from letting out buildings and providing services - whether to be assessed under the head Income from Business? - Held that - The substantial question of law raised in this appeal is fully covered by the judgment reported in COMMISSIONER OF INCOME TAX-III v/s VELANKANI INFORMATION SYSTEMS (P) LTD 2013 (8) TMI 113 - KARNATAKA HIGH COURT In the instant case the assessee-company has engaged in the business of developing, operating and maintaining an industrial park and providing infrastructure facilities to different companies as its business. In view of that, the substantial question of law is held against the Revenue.

Summary

Issues:
1. Classification of rental income as business income or income from house property for assessment.
2. Interpretation of intention behind lease agreements and facilities provided for determining income classification.

Analysis:
1. The High Court of Karnataka heard an Income Tax appeal filed by the Revenue challenging the order of the Income Tax Appellate Tribunal. The Tribunal had confirmed the First Appellate Authority's decision that rental income from letting out a building in a technical park falls under 'business income' and not 'income from house property'. The key issue raised was whether the entire income derived from letting out buildings and providing services should be assessed under the head of Income from Business, even if it was not considered a composite activity. The Court referred to a previous judgment and emphasized that the intention behind the lease and the facilities provided must be considered to determine the income classification.

2. The Court cited a specific paragraph from the previous judgment, highlighting that if the intention is to exploit commercial property by letting out buildings for rental income, it falls under 'income from house property'. However, if the assessee is in the business of developing and letting out commercial buildings with provided facilities, the income falls under profits and gains of business or profession. The Court agreed with the Division Bench's interpretation and noted that in the present case, the assessee company was engaged in developing, operating, and maintaining an industrial park as its business. Therefore, the substantial question of law was held against the Revenue, and the appeal was dismissed.