2023 (12) TMI 637 - AT - Income Tax

Deduction u/s 80IA(4)(iii) - Correct head of income - lease rental earned from the leasing of units in industrial park qualifying for deduction u/s 80IA(4)(iii) - AO classified the rental income and treated the rental income from notified buildings under the head Profits or gains from business and profession as against income from house property thereby resulting in adjustment of claim of deduction u/s 80IA - AR submitted that the ld AO had accepted the taxation of lease income earned from non- SEZ buildings under the head income from house property and dispute is only with reference to lease income from SEZ buildings as notified u/s 80IA - HELD THAT - As the rental income from the very same buildings having been assessed and accepted under the head Income from House Property in the past the mere fact that in the year under consideration the assessee has claimed deduction u/s 80IA in respect of notified buildings there is absolutely no justification or basis for changing the head of income and same is self-contradictory and inconsistent. It is worthwhile to clarify that the observation of the ld. AO that the usage of terms profits and gains derived from such business in section 80IA(1) means that eligible income must be assessable under the Profits or gains of Business and Profession is irrational and misconceived as deduction is in respect of income from notified project and not head specific. It may be appreciated that that the benefit of deduction u/s 80IA of the Act is available in respect of income derived from industrial park which may be assessable under any head of income and as such the interpretation of the ld. AO is highly restrictive and contrary to the purpose and spirit of incentive provision. In fact the bare language of the section 80IA of the Act does not even talk about any specific head of income and the entire emphasis is that the income must be derived from development operation or maintenance of industrial park. In any case we find that the very same issue of claiming deduction u/s 80IA of the Act for the lease rental income assessable under the head income from house property came up for adjudication before the coordinate bench of this Tribunal in the group concern of the assessee in ACIT vs DLF Assets Ltd 2022 (5) TMI 676 - ITAT DELHI . It is not in dispute that the assessee had furnished the Chartered Accountant Certificates in Form 10CCB for claiming deduction u/s 80IA of the Act and that these certificates are enclosed together with detailed workings. Similarly the claim of the assessee for AYs 2018-19 and 2020-21 were accepted by the ld AO in the scrutiny proceedings u/s 143(3) of the Act. For AY 2019-20 the case of the assessee was not selected for scrutiny. Hence respectfully following the aforesaid decision of this tribunal and also the subsequent stand of the ld AO in the case of the assessee and also the decision of the ld AO in the immediately preceding year i.e. 2010-11 the ground No. 2 raised by the assessee is hereby allowed. Excluding signage income from the eligible income qualifying for deduction u/s 80IA - assessee has derived income from the tenants occupying the notified industrial park and the same duly forms part of the income taxable under the head Income from House property - AO sought to treat the said signage income to be in the nature of income from other sources and as such not eligible for claim of deduction u/s 80IA of the Act which action was upheld by the ld CIT(A) - HELD THAT - The signage income is derived from tenants occupying the notified industrial park and thereby partake the same character of the lease rental income so as to make it taxable under the head Income from house property . We find that this issue is squarely covered by the decision of this tribunal in assessee s own case for AY 2010-11 - It is not in dispute that the signage income is derived from the tenants occupying the building forming part of the notified industrial park. Hence the same becomes inextricable connected with building connected with the notified industrial park and partakes the same character of lease rental income derived from the tenants thereon. In view of the aforesaid observations and respectfully following the judicial precedent relied upon herein above the ground no. 3 raised by the assessee is hereby allowed. Deduction u/s 80IA in respect of amount forfeited on properties promotion income Miscellaneous-sale of scrap by treating the aforesaid income as Income from other sources as against the assessee s claim being eligible income eligible for deduction u/s 80IA of the Act under the head facilities management services - HELD THAT - The aforesaid incomes have direct nexus with leasing and maintenance of the industrial park and must be construed as income derived from business and developing operating or maintaining the industrial park which is notified by the Central Govt. We find that the lower authorities had sought to exclude the same on technical ground that such income are taxable under the head Income from other sources and as such not eligible for deduction u/s 80IA of the Act. This aspect has already been addressed above wherein it has been held that for the purpose of claim of deduction u/s 80IA of the Act the income must be derived from such notified industrial park irrespective of head of income under which it had been taxed. Accordingly we have no hesitation in directing the ld AO to grant deduction u/s 80IA of the Act in respect of the aforesaid three items totaling to Rs. 2, 08, 66, 023/-. Accordingly ground raised by the assessee is allowed. Denying deduction u/s 24(a) - Assessee company has derived the signage income from the tenants from the space owned by the assessee and not from the outsiders as it allowed tenants to use the space at the atrium/ different floors for putting signage the signage income has to be treated as income from house property and as such is eligible for deduction u/s 24(a) of the Act @ 30% of such income. Allocation of expenses to eligible and non-eligible income without any cogent reason while computing the income eligible for deduction u/s 80IA - It is not in dispute that the assessee has placed on record the audit certificate in Form 10CCB for supporting the claim of deduction u/s 80IA of the Act together with the detailed workings thereon. The direct expenses incurred have been allocated between the eligible and non eligible units on actual basis and indirect expenses have been apportioned between these units in the ratio of turnover. The ld AO in his order had not given any rational basis for re-allocating the expenses and simply proceeded to reduce the claim of deduction u/s 80IA of the Act thereon. This action of the ld AO was also upheld by the ld CIT(A) without any basis and by ignoring the fact that the audit certificate containing the detailed workings of claim of deduction u/s 80IA have already been filed by the assessee before the ld AO. In any case we find that the issue would be consequential in nature pursuant to the decision given by us in the aforesaid grounds. Accordingly we direct the ld AO to accept the basis of allocation and apportionment of expenses as given by the assessee. Accordingly ground raised by the assessee is allowed. TDS u/s 195 - Disallowance u/s 40(a)(i) - payments were made towards sponsorship renewal fee to Coronet Global Inc (USA Based company) and that the said party does not have Permanent Establishment in India - HELD THAT - The lower authorities without considering this submission and without countering this fact stated by the assessee had summarily rejected the plea and proceeded to make disallowance u/s 40(a)(i) of the Act. We find that the assessee had duly placed on record the audit certificate in Form 15CB together with the invoices raised by the payee from where it has been categorically stated by the auditor that the payments made by the assessee constitutes business profits in terms of Article 7 of the Indo-US DTAA and in view of the fact that the payee does not have a PE in India the assessee is not bound to deduct tax at source while making the said payment. Further we find that the sponsorship fee paid by the assessee is related to the events carried out outside India. The payment of membership fee to overseas organization and the sponsorship fee cannot be said to accrue or earned in India in the absence of business connection with PE in India. This fact has not been controverted by the revenue before us with cogent evidences. Accordingly we hold that the payments made by the assessee are not liable for deduction of tax at source and consequentially the disallowance made u/s 40(a)(i) of the Act is hereby directed to be deleted. Workings of budgeted cost of construction on estimation basis for the construction project under Percentage Of Completion Method (POCM) - assessee contended before the ld CIT(A) that computation of percentage of completion and revenue recognition done by the ld AO is based on incorrect figures taken in the assessment order - HELD THAT - CIT(A) concluded that the estimated budgeted cost of construction arrived by the ld AO is incorrect. The ld CIT(A) also observed that the assessee further revised budgeted cost of construction including project management consultancy and interest as on 31.03.2013 of Rs. 780.41 crores and as on 31.03.2014 to Rs. 784.64 crores which had been duly accepted by the ld AO and no disallowance on account of revised budgeted cost of construction has been made in those years. With these observations CIT(A) deleted the addition made by the ld AO for the year under consideration. The factual findings given by the ld CIT(A) as stated herein above were not controverted by the revenue before us. Hence we do not find any infirmity in the order of the ld CIT(A) granting relief to the assessee. Accordingly the ground raised by the revenue is dismissed. AO denied relief u/s 80IA in the income in the form of costing recovery - We have already held that the income in the form of facility management service would be liable for deduction u/s 80IA of the Act irrespective of head of income in which it is offered to tax by the assessee. In simple terms the income in the nature of costing recovery is nothing but recovery of charges towards maintenance and allied services which could be ascertained only at the end of the year and hence they form intrinsic part of the facility management services . Disallowance of interest expenses pertaining to non SEZ unit amalgamated with the assessee - HELD THAT - It is not in dispute that borrowings reflected in the erstwhile balance-sheet of non SEZ unit of M/s. Caraf Builders and Construction Pvt. Ltd were utilized for the purpose of investment in property which had yielded rental income to the assessee. The nexus of borrowed funds and the investment in property are established beyond doubt and not disputed by the revenue before us hence the interest expenditure paid on lease borrowings would become squarely allowable as deduction in full while computing the Income from house property as the assessee had duly offered rental income from the said property under the head income from house property and taxed as such by the ld AO. Merely because the assessee itself had bifurcated the net interest component of Rs. 66.11 crores partly under house property and partly under the head income from business the legal position for allowability of interest cannot be compromised. Since the borrowings have been utilized for investment in property; that the said property had yielded rental income to the assessee which had been offered to tax as income from house property and assessed as such by the ld AO the interest paid on the aforesaid borrowings becomes fully allowable under the head income from house property itself. Hence we direct the ld AO to allow the entire interest expenditure under the head income from house property and recompute the income accordingly. Hence ground raised by the assessee is allowed.

Summary

Issues Involved:

1. Classification of income under the head "Income from House Property" vs. "Profits and Gains of Business."
2. Eligibility of various incomes for deduction under Section 80IA of the Income Tax Act.
3. Allocation of expenses to eligible and non-eligible income.
4. Disallowance of interest expenses.
5. Incorrect figures for estimating the budgeted cost of construction under the Percentage Of Completion Method (POCM).

Summary:

1. Classification of Income:
The primary issue was whether the lease rental income from units in an industrial park should be classified under "Income from House Property" or "Profits and Gains of Business." The Tribunal held that the lease rental income should be classified under "Income from House Property," following the principle of consistency as the same classification was accepted in previous years. The Tribunal emphasized that the nature and character of the lease agreements had not changed, and the income should be consistently classified.

2. Eligibility for Deduction under Section 80IA:
The Tribunal addressed the eligibility of various incomes, including signage income, promotional income, and income from the sale of scrap, for deduction under Section 80IA. It was held that these incomes are derived from the industrial park and should be eligible for deduction under Section 80IA, irrespective of the head under which they are taxed. The Tribunal relied on previous decisions and the principle that the deduction should be available for income derived from the business of developing, operating, or maintaining an industrial park.

3. Allocation of Expenses:
The Tribunal found that the allocation of expenses between eligible and non-eligible income by the Assessing Officer (AO) lacked a rational basis. The Tribunal directed the AO to accept the allocation and apportionment of expenses as provided by the assessee, which were supported by an audit certificate in Form 10CCB.

4. Disallowance of Interest Expenses:
The Tribunal addressed the disallowance of interest expenses related to the non-SEZ unit of Caraf Builders and Construction Pvt. Ltd., which was amalgamated with the assessee. It was held that the interest expenses should be fully allowable under the head "Income from House Property" as the borrowings were utilized for investment in property that yielded rental income.

5. Incorrect Figures for Budgeted Cost of Construction:
For the assessment year 2012-13, the Tribunal addressed the issue of incorrect figures used by the AO for estimating the budgeted cost of construction under the Percentage Of Completion Method (POCM). The Tribunal upheld the findings of the CIT(A) that the figures used by the AO were incorrect and that the revised budgeted cost provided by the assessee should be accepted.

Conclusion:
The appeals of the assessee were partly allowed, and the appeal of the revenue for AY 2012-13 was dismissed. The Tribunal's decisions were based on the principles of consistency, judicial precedents, and the proper interpretation of the Income Tax Act.