2017 (12) TMI 1762 - AT - Income Tax

Deduction u/s 80IAB - case of the Revenue that the assessee does not qualify for exemption u/s 80IAB as it is not doing any business activity, but is simply letting out the property - provisions of SEZ Act over riding effect over Income Tax Act - HELD THAT - Assessee is a developer under the SEZ Act and is in the business of developing a SEZ, the SEZ has been notified on the first day of April 2005 under the Special Economic Zone Act 2005 ; and the profits have been derived from the business of development, operation and maintenance of SEZ. We thus fully agree with the finding of the Ld. CIT(A) that all the conditions as required to be specified under the SEZ Act/Rules are fulfilled and the assessee is approved developer for all the intent and purposes of Section 80 IAB I.T of the Act. Consequent upon approval granted by the BOA for transfer of bare shell to the co-developer, the profits arising to the assessee forms such an authorized transaction are eligible for deduction u/s 80IAB - Decided against revenue.

Summary

Issues Involved:
1. Qualification for deduction under section 80IAB of the Income Tax Act.
2. Classification of income as "income from house property" versus "business income."
3. Validity of the status of "Co-developer" under the Special Economic Zones (SEZ) Act.

Issue-wise Detailed Analysis:

1. Qualification for Deduction under Section 80IAB of the Income Tax Act:
The primary issue is whether the assessee qualifies for the deduction under section 80IAB of the Income Tax Act. The Revenue argued that the assessee does not qualify for this exemption because it is not engaged in any business activity but is merely letting out property. The Assessing Officer (AO) observed that the assessee is a society formed to manage, maintain, operate, lease, and receive rentals for constructed spaces delivered to its members. The AO concluded that the income from letting out the property should be classified as "income from house property" rather than business income, thereby disqualifying the assessee from claiming the deduction under section 80IAB.

2. Classification of Income as "Income from House Property" versus "Business Income":
The AO classified the income from letting out the property as "income from house property," arguing that the assessee's activities did not constitute a business. The AO noted that the services provided by the assessee, such as car parking, housekeeping, general maintenance, security, power backup, lighting, and AC in common areas, were typical of any leased property and did not amount to business activities. Consequently, the AO treated the income as rental income, which is taxable under the head "income from house property."

3. Validity of the Status of "Co-developer" under the Special Economic Zones (SEZ) Act:
The CIT (A) allowed the assessee's appeal, considering the approval given by the Ministry of Commerce, which conferred the status of "Co-developer" on the assessee. The CIT (A) noted that the assessee had converted a cold shell into a warm shell by providing necessary facilities and was operating and maintaining these facilities on a 24/7 basis. The CIT (A) concluded that the assessee's activities qualified as business activities, making the income eligible for deduction under section 80IAB.

The Tribunal upheld the CIT (A)'s decision, referencing a similar case (DLF Infocity Developers (Chennai) Ltd vs. ACIT) where it was held that the AO does not have the jurisdiction to question the validity of authorized operations approved by the Board of Approval (BOA) under the SEZ Act. The Tribunal emphasized that the SEZ Act has an overriding effect over other laws, including the Income Tax Act, and that the approval granted by the BOA for co-developer activities should be respected. The Tribunal concluded that the assessee's income from the SEZ activities should be classified as "business income," making it eligible for the deduction under section 80IAB.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT (A)'s decision that the assessee qualifies for the deduction under section 80IAB of the Income Tax Act. The Tribunal found that the assessee's activities constituted business activities and that the income should be classified as "business income" rather than "income from house property." The Tribunal also upheld the validity of the assessee's status as a "Co-developer" under the SEZ Act, emphasizing that the AO does not have the authority to question the BOA's approval. The Revenue's appeal was dismissed, and the assessee's eligibility for the deduction under section 80IAB was confirmed.