2016 (5) TMI 1158 - AT - Income Tax

Lease receipts received - assessed under the head business or house property - Held that - The Government of Andhra Pradesh has allotted 150 acres of the appellant for development of Biotechnology Park, the appellant developed the Park, constructed the premises, provided required facilities and is exploiting the entire premises as a commercial venture. Therefore, the income is to be assessed under the head business income . We arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee. The assessee therefore, rightly disclosed the income under the Head Income from Business. It cannot be treated as income from the house property . - Decided in favour of assessee

Summary

Issues Involved:
1. Classification of lease receipts as 'business income' or 'house property income.'
2. Classification of maintenance income as 'business income' or 'income from other sources.'

Detailed Analysis:

Issue 1: Classification of Lease Receipts

The primary issue is whether the lease receipts should be assessed under the head 'business income' or 'house property income.' The Assessing Officer (AO) treated the rental income from the premises as 'income from house property' and the income from maintenance as 'income from other sources.' The AO's reasoning included:
- The facilities provided by the assessee, such as filtered water, waste management, and sewerage maintenance, are common to multi-storied buildings and do not justify classification as 'business income.'
- The pipelines for lab space, compressed air, and nitrogen gas are fixed to the structure, and the gases are provided by third parties, not the assessee.
- The premises were leased to non-biotechnology companies, indicating that the primary activity is leasing property, not providing specialized services.

The Ld. Commissioner of Income Tax (Appeals) [CIT(A)] disagreed with the AO, stating that the assessee's activities constitute a business. The CIT(A) noted:
- The assessee developed and leased lab spaces with specialized equipment and facilities unique to biotech labs.
- The entire complex was developed as an industrial park approved by the Government of Andhra Pradesh.
- The intention behind the lease and the inseparable nature of the facilities provided indicate a business activity.

The CIT(A) relied on judicial precedents, including the Hon'ble ITAT Hyderabad's decisions in Janapriya Engineers Syndicate vs. DCIT and Annapurna Builders vs. ACIT, which held that income from leasing units in an industrial park should be assessed as business income. The CIT(A) also cited the Hon'ble Karnataka High Court's decision in CIT vs. Venlankani Information Systems Private Limited, which stated that if the primary intention is to exploit property through complex commercial activities, the income should be considered business income.

The Revenue appealed, arguing that the CIT(A) ignored the Karnataka High Court's decision in Venlankani Information Systems Pvt. Ltd., which held that rental income should be considered 'income from house property' if the primary intention is to earn rental income. The Revenue also pointed out that the assessee deducted tax under Section 194-I, indicating a lessor-lessee relationship.

The Tribunal examined the facts and rival contentions, noting that the AO had accepted that the assessee's income was not solely from exploiting property, as evidenced by the segregation of receipts under different heads. The Tribunal referred to the Hon'ble Supreme Court's decision in M/s. Chennai Properties & Investments Ltd., which emphasized that the nature of the activity and the objects of the company must be considered. The Tribunal concluded that the assessee's activities were commercial in nature, confirming the CIT(A)'s order and rejecting the Revenue's grounds.

Issue 2: Classification of Maintenance Income

The AO assessed the maintenance income as 'income from other sources,' arguing that the facilities provided were common to multi-storied buildings and did not constitute a business activity. The CIT(A) disagreed, stating that the maintenance services, including specialized lab equipment and facilities, were integral to the lease agreements and constituted a business activity.

The Tribunal upheld the CIT(A)'s decision, noting that the maintenance services were inseparable from the lease and were part of the assessee's commercial activities. The Tribunal emphasized that the overall facts and circumstances, including the development of the Biotechnology Park and the specialized services provided, indicated a business activity.

Conclusion:

The Tribunal confirmed the CIT(A)'s order, holding that the lease receipts and maintenance income should be assessed as 'business income.' The appeal of the Revenue was dismissed.