2008 (6) TMI 313 - AT - Income Tax

Deduction u/s 80IA - Industrial park - Nature of Income from renting - Business income or income from house property or income from other sources - CIT(A) held that the income in the nature of lease rentals from lease of the information technology park as considered by the AO should be charged to tax under the head 'Income from house property' - HELD THAT - We are of the considered view that the assessee was incorporated with the sole intention of developing technology park for which it obtained leasehold land from the Karnataka Industrial Development Corporation and also obtained loan from Union Bank of India for constructing superstructure thereon which could not be considered as investment in a property for earning rental income only. The lease of the property was shown as part of the business activity, the income received therefrom cannot be said as income received as a land owner but as a trader. The conversion from leasehold to ownership led to a pure commercial proposition resulting in a business venture carried out by the assessee company. We find force in the submission of learned counsel that the term 'business', as defined in the provision of infrastructure facility as provided in sub-cl. (iv) of s. 80-IA clearly explains the development and operation of the technology park has not been controverted by the authorities below. The main intention was to exploit the immovable property by way of commercial application which applies to the assessee's case and would leave no room for doubting that the intention of the assessee was in providing software development facility in the electronic city in the industrial area within the limits of Bangalore South District, Bangalore. Any activity undertaken with a profit motive would amount to business and not mere a return on investment when it is exploited. The Tribunal decision was relied upon by the apex Court decision rendered by a Bench consisting of four Judges whereas the decision of the same Court in East India Housing Land Development Trust Ltd. vs. CIT 1960 (11) TMI 7 - SUPREME COURT was rendered by a Bench of three Judges, will have a binding force who further held that the facts in the similar to that of decision in the case of Sri Balaji Enterprises 1997 (2) TMI 91 - KARNATAKA HIGH COURT in which decision the Karnataka High Court held it as business income. We are therefore inclined to consider the learned counsel contention that the facts of the assessee's case are similar to those of Sri Balaji Enterprises 1997 (2) TMI 91 - KARNATAKA HIGH COURT and also S.G. Mercantile Corporation (P) Ltd. 1972 (1) TMI 2 - SUPREME COURT . In view thereof, we direct the AO to assess the rental income as from business by setting aside the order of the learned CIT(A) on this issue. This being the sole ground agitated before us is held in assessee's favour. In the result, the appeal is allowed.

Summary

Issues:
1. Classification of income from lease rentals under the head 'Income from house property' or 'Business income'.

Analysis:
The primary issue in this case revolved around determining the classification of income derived from lease rentals of an information technology park. The appellant contended that the income should be treated as business income rather than income from house property. The appellant, being the owner of the land and having developed the property with various amenities and services, argued that the activity of leasing out the property was part of its business venture. The appellant emphasized that the intention was to earn a profit through commercial exploitation of the property, as evidenced by the organized provision of facilities and services to lessees.

The Assessing Officer (AO) initially categorized the income as rental income from house property based on lease agreements. However, the appellant cited various legal precedents and decisions to support the argument that the nature of the activity, the intention behind the property development, and the provision of infrastructure facilities indicated a business motive rather than a mere rental arrangement. The appellant highlighted that the entire cost of construction was financed through loans, emphasizing the commercial risk and adventure involved in the business activity.

Upon careful consideration of the facts and legal arguments presented, the Appellate Tribunal concluded that the appellant's activities in developing and leasing the information technology park constituted a business venture aligned with its main objectives as a company. The Tribunal found merit in the appellant's contentions that the income derived from the lease rentals should be treated as business income, given the commercial nature of the operations, provision of services, and profit motive underlying the venture. The Tribunal distinguished previous decisions cited by the AO and upheld the appellant's position that the income was generated through a business activity rather than a passive rental arrangement.

Consequently, the Tribunal directed the Assessing Officer to assess the rental income from the information technology park as business income, overturning the decision of the Commissioner of Income Tax (Appeals) who had treated it as income from house property. The Tribunal's decision favored the appellant, emphasizing the commercial intent, organized operations, and profit-oriented approach in the development and leasing of the property.

In conclusion, the judgment clarified the classification of income from lease rentals based on the nature of the activity, the intention behind the property development, and the commercial aspects of the venture, ultimately determining the income as business income rather than income from house property.