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2022 (5) TMI 676 - AT - Income TaxDeduction u/s 80IAB - I ncome has been derived from any activities in the SEZ duly approved by the Board of Approval under the SEZ Act - whether the assessment of lease income from commercial space in SEZ, should be taxed under the head Income from house property or as business income ? - HELD THAT - It is an undisputed fact that assessee is a co-developer of commercial properties under the SEZ and has been approved as a co-developer and the name of the developer has already been mentioned above and each developer has got the separate approval from the Board of Approval, Ministry of Commerce for setting up of Information Technology and IT Enabled Services SEZ on the land parcel owned by the Developer. The assessee had approached the Government of India to seek approval of being a co-developer in respect of the above mentioned SEZs which was granted by the Department of Commerce (EPZ Section), Ministry of Commerce Industry and the details of approval has already been noted above. The assessee was required to provide infrastructure facilities and to undertake, operation and maintenance in relation to the aforesaid projects and the activities have already been mentioned above. The assessee had converted the bare shell buildings into warm shell and providing other facilities and has let out the units purely for rental income. Income earned from lease rentals for renting out a property per se, ostensibly falls under the head income from house property , unless it is shown that there was some systematic activity falling into the nature of business. Whence, the lease rental income of the assessee has been accepted to be assessed under the head income from house property in AY 2012-13 and again in AYs 2017-18 2018-19, then we do not find any reason as to why the income from the same activity is not to be classified under the head income from house property in these years. Hon ble Supreme Court in the case of CIT-I vs. Reliance Energy Ltd. 2021 (4) TMI 1237 - SUPREME COURT in the context of section 80IA, held that the scope of section 80IA (5) is limited to determine the quantum of deduction under sub-section (1) of section 80IA by treating eligible business for only source of income and same cannot be pressed into service for reading a limitation of deduction under subsection (1) only to business income - while computing the deduction, what is required to be seen is that the only source of income derived from eligible business, is eligible for deduction and same cannot be limited to only business income. Here in this case also, there is no dispute that the income which has been derived by the assessee is derived from approved activity under SEZ which is the only source of income for which the deduction u/s 80IA(b) is to be allowed. It is immaterial that whether the income derived has been shown from house property or business income or any other head. Thus, we hold that income derived from approved activity from the SEZ is liable to be allowed as deduction u/s 80IA. No reason to deviate from this finding and moreover the lease rental incomes received by the assessee are otherwise liable to be taxed under the head income from house property . The statute or the provisions contained u/s 80IAB does not make any distinction that if the income has been derived from approved activities in SEZ, the same has to be classified under a particular head and then only deduction would be allowed, albeit it only says that where the gross total income of the assessee, being a developer, includes any profits and gains derived by an undertaking from any business of developing a SEZ, therefore, income has been derived from any activities in the SEZ duly approved by the Board of Approval under the SEZ Act is allowable for deduction u/s 80IAB. Accordingly, the order of the ld. CIT (A) is confirmed and the Revenue s appeal for AY 2013-14 is dismissed.
Issues Involved:
1. Eligibility for deduction under Section 80IAB of the Income Tax Act, 1961. 2. Classification of income from leasing commercial properties in SEZ: "Income from House Property" vs. "Profits and Gains from Business or Profession". Issue-Wise Detailed Analysis: 1. Eligibility for Deduction under Section 80IAB: The assessee, a private limited company, engaged in the business of leasing commercial properties under Special Economic Zone (SEZ), claimed a deduction under Section 80IAB amounting to Rs. 341,06,90,452 for AY 2013-14. This deduction was with respect to income derived from the operation and maintenance of SEZs at four different locations. The deduction was claimed based on the assessee being an approved co-developer of SEZ projects, with approvals from the Ministry of Commerce. The Assessing Officer (AO) initially restricted the deduction to NIL, arguing that the income from house property does not qualify for deduction under Section 80IAB, based on the interpretation of the section and the SEZ Act, 2005. However, the AO later accepted that the assessee's income is liable for 100% deduction under Section 80IAB but reclassified the income from "Income from House Property" to "Profits and Gains from Business or Profession". The CIT (A) upheld the assessee's claim for deduction under Section 80IAB, following the decision of the Tribunal for AY 2012-13, which allowed the deduction. The Tribunal reaffirmed this position, stating that the deduction under Section 80IAB is applicable as the income was derived from approved activities under the SEZ Act, and the head of income (whether house property or business income) is immaterial for the purpose of the deduction. 2. Classification of Income from Leasing Commercial Properties in SEZ: The primary dispute was whether the lease income from commercial space in SEZ should be taxed under the head "Income from House Property" or as "Profits and Gains from Business or Profession". The AO argued that the lease income should be considered under the head "Profits and Gains from Business or Profession" and not as "Income from House Property". The Tribunal noted that in AY 2012-13, the lease income was accepted under the head "Income from House Property", and the same classification was followed in AYs 2017-18 and 2018-19. The Tribunal emphasized that the lease rental income from SEZ properties should be classified as "Income from House Property" unless there was a systematic business activity involved. The Tribunal referred to several Supreme Court judgments, such as Raj Dadarkar & Associates v. ACIT, Shambhu Investment (P.) Ltd. v. CIT, and East India Housing and Land Development Trust Ltd. v. CIT, which supported the classification of rental income as "Income from House Property". The Tribunal also cited the decision of the Chennai Bench of ITAT in ACIT vs. Lulu Tech Park P. Ltd., which held that the lease rental income from SEZ properties qualifies for deduction under Section 80-IAB, regardless of the head of income. Ultimately, the Tribunal concluded that the lease rental income received by the assessee from SEZ properties should be classified under the head "Income from House Property" and is eligible for deduction under Section 80IAB. The Tribunal dismissed the Revenue's appeals for AYs 2013-14, 2014-15, and 2015-16, upholding the order of the CIT (A). Conclusion: The Tribunal confirmed that the assessee is eligible for deduction under Section 80IAB for income derived from SEZ activities, and such income should be classified under the head "Income from House Property". The appeals filed by the Revenue for AYs 2013-14, 2014-15, and 2015-16 were dismissed.
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