2012 (11) TMI 671 - HC - Income Tax

Rental income Income from Business / Property - (1) Whether Tribunal was correct in law in holding that the rental receipts derived from letting out of properties should be assessed under the head Business ? - (2) Whether Tribunal was correct in law in holding that the expenses incurred for the purpose of letting out of the properties should be allowed as business expenditure ? held that - Company had taken lands on 90 years lease with the objects of constructing I.T. Company with all its infrastructural facilities, the same was for the purpose of establishing and providing the amenities required to run, maintain, manage or administer computer centres for manufacturing or processing software packages and /or hardware materials and components required for computer industry, to exploit it as a business proposition - order of the Tribunal is confirmed, thereby, holding that the lease rentals are assessable as business income only - Decided in favor of assessee.

Issues Involved:
1. Whether income derived from letting out property for running a software technology park is 'income from business' or 'income from house property'.
2. Whether income from letting out a building with uplinking facility is assessable under Section 28 as business income.

Detailed Analysis:

Issue 1: Income from Letting Out Property for Software Technology Park
The Revenue challenged the Tribunal's decision that income from letting out property for a software technology park should be treated as 'income from business'. The assessee company was granted a 90-year lease by the Government of Tamil Nadu to construct a Software Technology Park. The company's main object, as stated in its Memorandum of Association, was to establish and provide facilities for running computer centers and related services. The assessee provided high-tech infrastructure and licensed modules to IT companies, claiming the income as business income.

The Assessing Officer rejected this claim, treating the income as 'income from property'. The Commissioner of Income Tax (Appeals) ruled it as 'income from other sources', reasoning that the income was from investment in modules, not from business activities. The Tribunal, however, held that the income was from business, as the primary purpose was to provide infrastructure for IT companies, not merely letting out property.

The High Court upheld the Tribunal's decision, emphasizing the company's objective to provide facilities for running IT companies. The court referenced the Supreme Court's decision in *Sultan Brothers Pvt. Ltd. v. CIT*, which stated that whether letting is business depends on the circumstances and the businessman's perspective. The court concluded that the income from leasing out property with facilities was indeed business income.

Issue 2: Income from Letting Out Building with Uplinking Facility
For the assessment years 1995-96 and 1996-97, the Tribunal followed its earlier decision for 1996-97, treating the income from letting out buildings with uplinking facilities as business income under Section 28. The Revenue argued that the income should be assessed as 'income from house property', citing decisions like *CIT v. Chennai Properties & Investments Ltd.* and *Sultan Brothers Pvt. Ltd. v. CIT*. The Revenue contended that the long-term lease and the provision of infrastructure did not change the nature of the income from rent to business income.

The High Court disagreed, noting the company's specific purpose of establishing and providing facilities for IT companies. The court highlighted the distinction in the company's Memorandum of Association between establishing facilities for running computer centers and merely letting out property. The court concluded that the leasing of modules with facilities was an integral part of the company's business activities, thus the income should be treated as business income.

Conclusion:
The High Court confirmed the Tribunal's decision that the income from leasing out property with facilities for running a software technology park is assessable as business income, not as income from house property or other sources. The court emphasized the company's primary objective of providing infrastructure for IT companies, aligning with the Supreme Court's guidance on assessing the nature of income based on the business context and objectives. The appeals by the Revenue were rejected, and the Tribunal's order was upheld.

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