2014 (9) TMI 1237 - AT - Income Tax

Lease rental income - treated as business income OR Income from house property - HELD THAT - In the case of Shambhu Investments Ltd. 2003 (1) TMI 99 - SC ORDER what was let out to the tenant is table space and in such circumstance the Hon ble Apex Court has held that it was a case of letting out the property. In the case of Chennai Properties Investments Ltd. 2003 (3) TMI 28 - MADRAS HIGH COURT the assessee was owning two buildings and was receiving rental income from them. As rightly held by the CIT(Appeals), the cases relied on by the Revenue are not applicable to the facts of the present case. In the present case, the assessee is running an industrial park as a business proposition with a lot of functional facilities necessary for the smooth working of the software, who are the tenants. As pointed out by the assessee, the IT parks are recognized for the purpose of deduction under sec.80IA and the statute itself has considered these types of ventures as a business activity . We agree that the Commissioner of Income-tax(Appeals) has arrived at a proper finding on this issue. The appeal filed by the Revenue is liable to be dismissed.

Summary

Issues:
1. Whether lease rental income should be treated as business income.
2. Whether the disallowance of expenditure made by the Assessing Officer is justified.

Analysis:
1. The main issue in this case is whether the lease rental income should be treated as business income. The Revenue contended that the income derived from letting out a building should be assessed under the head "income from house property" and not as business income. The Revenue relied on previous court decisions to support their argument. However, the Tribunal considered the object clause of the assessee company, which indicated that the company's main object was to commercially exploit the property by developing and maintaining a technology park. The Tribunal held that the income from such activities constitutes business income, as recognized under sec.80IA of the Act and the industrial park scheme. Therefore, the Tribunal agreed with the Commissioner of Income-tax(Appeals) that the lease amount collected is in the nature of business income.

2. The second issue pertains to the disallowance of expenditure made by the Assessing Officer. The Commissioner of Income-tax(Appeals) considered various decisions by different Benches of the Tribunal, which consistently held that running an IT park is a business activity, and thus, the lease amount collected is considered as business income. The Commissioner also distinguished the facts of previous court cases cited by the Revenue, emphasizing that the present case involves running an industrial park as a business proposition with functional facilities necessary for the smooth working of the software tenants. The Commissioner concluded that the Revenue's cases were not applicable to the facts of the present case. Therefore, the Commissioner upheld the treatment of lease rental income as business income and deleted the disallowance of expenditure made by the Assessing Officer.

In conclusion, the Tribunal dismissed the appeal filed by the Revenue and the cross objection filed by the assessee, upholding the decision of the Commissioner of Income-tax(Appeals) that the lease rental income is to be treated as business income. The Tribunal found that the activities of the assessee company in running an IT park constituted a business activity, as recognized under the relevant provisions of the Income Tax Act.