2015 (5) TMI 1229 - AT - Income Tax

Income from running and managing an IT Park - assessed under the head income from business or income from house property - HELD THAT - Income of the assessee from renting of I.T. Park is to be considered as business income only and the interest expenditure incurred by the assessee for the purpose of business to be allowed u/s.36(1)(iii) - It is seen that the AO treated the income of the assessee under the head income from house property and he has not examined other provisions of Act as applicable while computing the income under the head business . If there is diversion of borrowed funds as alleged by the DR the AO shall point out the same and that portion of the interest to be disallowed as it is not incurred for the purpose of business. We deem it fit to remit the issue back to the file of the Assessing Officer to decide the same afresh. Accordingly we remit this issue back to the file of the Assessing Officer to reframe the assessment after considering the relevant provisions of the Act as applicable while computing the income under head business . The grievance of the assessee is with regard to confirming the assessment of income earned from operations of running the IT Park and providing IT infrastructure under the head income from house property instead of under the head income from business or profession . We have already held for the assessment years 2007-08 and 2008-09 that the income of the assessee from renting of I.T. Park is to be considered as business income only and the Assessing Officer is directed to reframe the assessment in accordance with law. Accordingly the cross objection is allowed for statistical purposes. Deemed dividend - Amount available in share premium account cannot be treated as accumulated profits for the purpose of applying the provisions of sec.2(22)(e) - HELD THAT - We find that similar issue was considered by this Tribunal in the case of ACIT v. M/s. RR Industries Ltd. 2018 (7) TMI 1321 - MADRAS HIGH COURT has observed that the balance in the share premium account cannot be considered as accrued for the purpose of application of provisions of sec.2(22)(e) of the Act. In view of the above order of the Tribunal we are inclined to decide the issue in favour of the assessee and this ground of appeal of the Revenue is dismissed.

Summary

Issues:
1. Assessment of income from running and managing an IT Park under "income from business" or "income from house property".
2. Allowability of interest u/s.24(b) and treatment of interest expenditure for borrowed funds.
3. Treatment of income earned from IT Park operations under "income from house property" or "income from business or profession".
4. Treatment of amount in share premium account as accumulated profits for sec.2(22)(e) purposes.

Analysis:
1. The first issue pertains to the assessment of income from running an IT Park under the head of "income from business" or "income from house property." The Tribunal, citing various precedents, held that income from managing and running an IT Park constitutes a business activity, thus classifying it as "business income." The appeals filed by the assessee were allowed in this regard.

2. The second issue involves the allowability of interest u/s.24(b) and the treatment of interest expenditure for borrowed funds. The Tribunal directed the Assessing Officer to reframe the assessment, considering relevant provisions of the Act for computing income under the head of "business." The issue was remitted back to the Assessing Officer for fresh consideration.

3. The third issue concerns the treatment of income earned from IT Park operations under the heads of "income from house property" or "income from business or profession." The Tribunal directed the Assessing Officer to reframe the assessment in accordance with law, considering the income from renting the IT Park as "business income."

4. The final issue revolves around the treatment of the amount in the share premium account as accumulated profits for sec.2(22)(e) purposes. The Tribunal held that the balance in the share premium account cannot be considered as accrued for the purpose of applying provisions of sec.2(22)(e) of the Act, dismissing the Revenue's appeal in this regard.

In conclusion, the Tribunal's judgment addressed various issues related to the classification of income, treatment of interest expenditure, and the interpretation of relevant provisions under the Income Tax Act, ultimately allowing the appeals filed by the assessees and the Revenue for statistical purposes.