2016 (8) TMI 1506 - AT - Income Tax

Deduction under Section 80-IA - Classification of rental income received by the assessee - rental income received by the assessee by letting out the property - income from house property or income from business - HELD THAT - Assessee admittedly developed a technology park by name Olympia Tech Park which is exclusively meant for developing software and I.T. enabled services. The assessee apart from the building has also provided infrastructure facilities such as specialized air-conditioners specialized cabling specialized electrical fittings specialized furniture in the form of business modules etc. Therefore it has to be construed as infrastructure facility with all specifications and requirements. CIT(Appeals) has rightly placed reliance on the judgment of Madras High Court in Elnet Technologies Ltd. 2012 (11) TMI 671 - MADRAS HIGH COURT - As rightly submitted by assessee the judgment of Madras High Court in Chennai Properties Investments Ltd. 2003 (3) TMI 28 - MADRAS HIGH COURT was reversed by the Apex Court 2015 (5) TMI 46 - SUPREME COURT . The Apex Court found that when the assessee let out the property as business the rental income has to be assessed as income from business. Therefore this Tribunal is of the considered opinion that the CIT(Appeals) has rightly allowed the claim of the assessee. Disallowance u/s 14A - Only contention of the assessee that the investment in deep discount bonds does not result in any exempted income and the income from deep discount bonds is taxable - HELD THAT - No details of investments said to be made by the assessee which earned taxable income are available either before the Assessing Officer or before this Tribunal. Moreover the so-called investments in subsidiary companies are also not available on record. In the absence of any such details either before this Tribunal or before the CIT(Appeals) or before the Assessing Officer the claim of the assessee that the investment made in deep discount bonds and subsidiary companies has to be excluded cannot be accepted. When the assessee claims that investment in deep discount bonds resulted in taxable income it is for the assessee to file necessary material to substantiate its case. In the absence of any such material this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

Summary

Issues:
1. Classification of rental income as "income from business" or "income from house property."
2. Eligibility for deduction under Section 80-IA of the Income-tax Act.
3. Disallowance under Section 14A of the Act for exempted income.

Issue 1: Classification of Rental Income:
The primary issue in this case revolved around the classification of rental income received by the assessee. The Departmental Representative argued that the rental income should be considered as "income from house property" as per Section 22 of the Income-tax Act, rather than "income from business." However, the representative for the assessee contended that the property, Olympia Tech Park, was exclusively meant for software companies, providing specialized facilities and infrastructure tailored for such businesses. The Tribunal, after considering the submissions, held that the property's nature and amenities indicated it was an infrastructure facility, supporting the assessee's claim that the rental income should be classified as "income from business." The Tribunal relied on the judgment of the Madras High Court in a similar case, concluding that the CIT(Appeals) rightly allowed the claim of the assessee.

Issue 2: Eligibility for Deduction under Section 80-IA:
Another aspect of the case was the eligibility of the assessee for deduction under Section 80-IA of the Act. The Departmental Representative argued that the rental income from letting out the property could not be considered as "income from business," thus disqualifying the assessee from claiming the deduction. However, the representative for the assessee emphasized the specialized nature of the property and the exclusive services provided to software companies, supporting the claim for the deduction. The Tribunal agreed with the assessee, citing the reversal of a judgment by the Apex Court and affirming that when the property is let out for business purposes, the rental income should be assessed as income from business. Consequently, the Tribunal upheld the CIT(Appeals) decision to allow the deduction under Section 80-IA.

Issue 3: Disallowance under Section 14A for Exempted Income:
In the cross-objection filed by the assessee for assessment year 2010-11, the grievance pertained to the disallowance of a specific amount under Section 14A of the Act. The assessee argued that the investment in Deep Discount Bonds should not be considered as an investment for earning exempted income, as the income from such bonds was taxable. The Departmental Representative, on the other hand, supported the disallowance based on the claimed exempted income. The Tribunal scrutinized the investments and the computation of disallowance under Rule 8D, emphasizing the need for the assessee to provide evidence regarding the investments and their taxable nature. As the necessary details were not furnished, the Tribunal confirmed the disallowance made by the Assessing Officer, dismissing both the appeals of the Revenue and the cross-objection of the assessee.

In conclusion, the judgment by the Appellate Tribunal ITAT Chennai addressed the issues of rental income classification, eligibility for deduction under Section 80-IA, and disallowance under Section 14A comprehensively, providing a detailed analysis of the arguments presented by both parties and applying relevant legal precedents to reach a decision.