2016 (3) TMI 867 - AT - Income Tax

Denial of relief under Section 80IA(4) - AO denied exemption u/s 80IA(4)(iii) on the ground that the building-in-question had been constructed prior to 15-09-1999 and that Assessee had been already deriving rental income from it - Held that - deduction can be allowed only if there is income from the head Business. Sub-Section (4) applies to any enterprise carrying on business of (i) developing or (ii) operating and maintaining (or) (iii) developing, operating and maintaining any infrastructure facility which fulfills the conditions laid down. Since Assessee has not challenged the head of income under which income was directed to be assessed, nature of income has been crystallized as income from house property . The provisions Section 80-IA does not apply to the income from house property. As Assessee has accepted the incomes as income from house property , question of allowing deduction u/s. 80-IA does not arise. In view of this, the above grounds raised have become academic. Moreover, AO did not make any enquiry into the present state of affairs of Assessee establishing a Cyber Centre as Industrial Park and the extent of property leased and the nature of incomes earned which may effect in claim of deduction. In our view further enquiry may be required, if the claims are to be allowed. Since incomes are assessed under the head income from house property, there is no need to set aside the orders of AO and CIT(A) on the issue of claim under Section 80IA and adjudicate the claim. - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Denial of relief under Section 80IA(4)(iii) of the Income Tax Act, 1961.
2. Eligibility of the industrial park for deduction under Section 80IA(4)(iii).
3. Requirement of seeking approval for properties completed before the notification.
4. Relevance of the year of construction for claiming deduction under Section 80IA(4)(iii).
5. Proper construction of the provisions of Section 80IA(4)(iii) and entitlement to exemption.
6. Classification of income from the property as 'Income from House Property' or 'Income from Business'.

Detailed Analysis:

1. Denial of relief under Section 80IA(4)(iii) of the Income Tax Act, 1961:
The Assessee claimed deduction under Section 80IA(4)(iii) for an industrial park developed on a property co-owned with his mother. The Assessing Officer (AO) disallowed the deduction, stating the property was constructed before the notification and had been yielding rental income, thus not qualifying for the deduction.

2. Eligibility of the industrial park for deduction under Section 80IA(4)(iii):
The AO argued that the industrial park was not developed as per the individual capacity stated in the application and the property was co-owned. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this view, emphasizing that the building existed before the application to the Department of Industrial Policy & Promotion (DIPP), and the proposed investment was not made. The Assessee contended that the approval from DIPP and CBDT should suffice for the deduction, but the CIT(A) disagreed, noting the discrepancy between the proposed and actual investments.

3. Requirement of seeking approval for properties completed before the notification:
The Assessee argued that Section 80IA(4)(iii) does not prohibit issuing a notification for an existing property. However, the CIT(A) stated that the approval was for a new industrial park, not for the pre-existing building, and the Assessee did not fulfill the conditions for setting up an industrial park as per the proposal.

4. Relevance of the year of construction for claiming deduction under Section 80IA(4)(iii):
The CIT(A) highlighted that the building was constructed in 1999 and the Assessee did not invest the proposed amount for developing the industrial park. The Assessee's claim that the year of construction is irrelevant was dismissed, as the approval was based on the assumption of new development.

5. Proper construction of the provisions of Section 80IA(4)(iii) and entitlement to exemption:
The CIT(A) concluded that the Assessee did not set up the industrial park as per the approved proposal and hence could not claim the deduction. The Assessee's reliance on legal opinion was also dismissed, as it did not align with the facts and the approval conditions.

6. Classification of income from the property as 'Income from House Property' or 'Income from Business':
The CIT(A) directed the AO to classify the income from letting out the premises as 'Income from House Property' instead of 'Income from Business,' as the Assessee did not engage in any business activity justifying the latter classification. This classification was crucial because Section 80IA(4)(iii) applies only to business income.

Conclusion:
The Tribunal concluded that the AO and CIT(A) could not deny the benefit of Section 80IA(4)(iii) once the CBDT had approved the industrial park. However, since the income was classified as 'Income from House Property,' the deduction under Section 80IA(4)(iii) was not applicable. The appeals were allowed for statistical purposes, and further enquiry was suggested if the claims were to be reconsidered.

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