2013 (2) TMI 557 - AT - Income Tax

Head of Income - Whether subleasing of land is business activity of the assessee company - held that - as the assessee company was not having any land of its own, therefore it could only sublease the land which has been made available to the assessee-company by MIDC on lease basis. - any income derived from such sublease of land can only be taxed under the head profit and gains of business or profession. Decision of of the Hon ble High Court of Andhra Pradesh in the case of Sponge Iron India Ltd. (1992 (10) TMI 67 - ANDHRA PRADESH HIGH COURT) distinguished. It has been accepted by the Revenue that business was set up during financial year 2004-05 relevant to A.Y. 2005-06 in the assessment made u/s. 143(3) of the Act by the JCIT who allowed the benefit of carry forward of business loss and depreciation allowance to the next assessment year i.e. year under consideration. Therefore, on these facts, it can be safely concluded that the business of the assessee has been started in F.Y. 2004-05 relevant to A.Y. 2005-06. - Taxable as business income - Decided in favor of assessee.

Summary

Issues:
1. Classification of income from sub-leasing of land as business income.
2. Treatment of expenses related to sub-leasing of land.
3. Allowance of set-off of brought forward business loss.
4. Applicability of Section 32(2) for depreciation.

Issue 1: Classification of income from sub-leasing of land as business income:
The appellant argued that the income from sub-leasing of land should not be considered as business income as the main business activity is the development of a Biotech Park. However, the Assessing Officer (AO) disagreed, stating that sub-leasing is not the main objective of the company. The AO allocated expenses and disallowed certain deductions related to sub-leasing income. The appellant contended before the Ld. CIT(A) that sub-leasing was essential for the main business objective of developing the land. The Ld. CIT(A) agreed with the appellant, emphasizing that the sub-lease income was part of the business activity as per the joint venture agreement and lease deed with MIDC. The Tribunal concurred with the Ld. CIT(A) that the income from sub-leasing should be treated as business income.

Issue 2: Treatment of expenses related to sub-leasing of land:
The AO allocated specific expenses towards sub-leasing income, leading to disallowances. The Ld. CIT(A) considered the nature of expenses and the business objectives of the company, ultimately allowing the sub-leasing income as business income. The Tribunal upheld this decision, stating that the expenses related to sub-leasing were justified and should be considered in the context of the business activity.

Issue 3: Allowance of set-off of brought forward business loss:
The Ld. CIT(A) allowed the set-off of brought forward business losses, considering the commencement of business activities in the previous financial year. The Tribunal supported this decision, noting that since the income from sub-leasing was treated as business income, the appellant was eligible for the set-off of business losses.

Issue 4: Applicability of Section 32(2) for depreciation:
The Tribunal addressed the applicability of Section 32(2) for depreciation in connection with the classification of income as business income. As the income from sub-leasing was considered business income, the Tribunal upheld the allowance of depreciation and set-off of unabsorbed depreciation. Therefore, the Tribunal dismissed the appeal filed by the Revenue, affirming the decisions of the lower authorities.

This comprehensive analysis of the legal judgment highlights the key issues, arguments presented, decisions made by the authorities, and the final ruling by the Tribunal.