2023 (4) TMI 573 - AT - Income Tax

Nature of rental income - Income from House Property or Business income - Deemed owner - assessee was entitled to have access to operate, manage and maintain the Licensed Space at the Specified Area during the License Period - Refernce to section 269UA(f)(i) - purchase by central government of immovable properties in certain cases of transfer - assessee filed its reply claiming that it is regular business of the assessee and it is consistently showing these rental receipt as income from business in earlier year also - HELD THAT - As it comes up that primarily the fact of assessee being a licensee of bare shell structure inclusive of columns etc. is not disputed. Assessee has sub-licensed the commercial places to parties showing them as tenants. AO while invoking provisions of Section 269U (f)(i) of the Act read with section 53A of the Transfer of Property Act has concluded that the assessee is deemed owner for the purpose of Section 27(iii)(b) of the Act and therefore Section 22 of the Act making income from house property taxable is applicable. The bench is of considered opinion that Ld. AO has fallen in error in applying the aforesaid provisions of law while not following the previous year assessment. The first and foremost thing that comes up is that Section 53A of the Transfer of Property Act is applicable in regard to transfer of immovable property by way of registered document. The provision is made in regard to those transactions of immovable property where under an agreement to sell or any other contract wherein a part performance of the contract has occurred, though the title deed has not been registered, in that case, the transferor is departed from agitating his title to the property against the purchaser. The essential condition being the transferee should have taken possession of the property and should be ready and willing to perform his part of the contract. In case of transactions of the nature Build Operate Transfer (BOT), as in the case in hand an entity, which is usually government entity, enters into a build-operate-transfer (BOT) contract, by grant of a concession to a private company to finance, build, and operate a project. The concession given by DMRC to the assessee operating in the form of a license only. The company operates the project for a period of time with the goal of recouping its investment, then transfers control of the project back to the public entity. Thus, handing over of infrastructure facility/project by developer to Government/local authority/statutory body takes place after recoupment of developer's costs. Like in case in hand the bare shell structure inclusive of columns etc has been developed to be available to the tenant for commercial use. The building etc involved always belongs to the DMRC. No semblance of any characteristics of transactions for which Section 53A of the Act is applicable and there is no question of assessee being a deemed owner, so as to account for rent as income from property and not business income. The fact that leasing is one of the objects in the memorandum of association being not disputed and that in the A.Y. 2012-13 and 2013-14, AO had accepted the income from the BOT projects as business income only bolsters the findings in favor of the assessee. Thus, the Bench is of considered opinion the Ld. AO has fallen in error in considering the proceeds of license to be rental income. CIT(A) has rightly interfered and there is no error the impugned order. Appeal of Revenue is dismissed.

Issues Involved:
1. Classification of rental income as business income or income from house property.
2. Applicability of Section 269U(f)(i) and Section 27(iiib) of the I.T. Act, 1961.
3. Relevance of CBDT Circular No. 9/2014 to the assessee's operations.
4. Consistency in the assessee's income classification in previous assessment years.

Summary:

1. Classification of Rental Income:
The primary issue was whether the rental income earned by the assessee from leasing commercial spaces should be classified as business income or income from house property. The assessee argued that the rental income should be treated as business income, citing its consistent treatment in previous years and its business model involving significant operational activities.

2. Applicability of Section 269U(f)(i) and Section 27(iiib):
The Assessing Officer (AO) invoked Section 269U(f)(i) of the I.T. Act, 1961, read with Section 53A of the Transfer of Property Act, to deem the assessee as the owner of the property, thereby classifying the rental income as income from house property. The AO argued that since the property was leased for more than 12 years, the assessee should be considered the owner under Section 27(iiib) of the I.T. Act.

3. Relevance of CBDT Circular No. 9/2014:
The assessee contended that its operations fell under the purview of CBDT Circular No. 9/2014, which deals with the treatment of income from infrastructure projects developed on a Build-Operate-Transfer (BOT) basis. The Circular allows for the amortization of expenses incurred on such projects, treating the income as business income. The CIT(A) accepted this argument, noting that the assessee's activities involved significant development and operational efforts, aligning with the principles outlined in the Circular.

4. Consistency in Previous Assessment Years:
The CIT(A) noted that in previous assessment years (2012-13 and 2013-14), the AO had accepted the income from the BOT projects as business income. This consistency supported the assessee's claim that the rental income should continue to be treated as business income.

Tribunal's Decision:
The Tribunal found that the AO erred in applying the provisions of Section 269U(f)(i) and Section 27(iiib) to classify the rental income as income from house property. The Tribunal emphasized that the BOT model involved significant operational activities and that the assessee did not have ownership rights over the property, which remained with DMRC. Therefore, the income should be treated as business income. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Conclusion:
The Tribunal concluded that the rental income earned by the assessee from leasing commercial spaces should be classified as business income, not income from house property, and upheld the CIT(A)'s order in favor of the assessee. The appeal by the Revenue was dismissed.

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