2013 (6) TMI 456 - AT - Income Tax

Deduction under section 80IA - AO rejected the assessee s claim of deduction by holding that the receipts in question had risen from various rent/lease agreements, they would give rise to income under the head house property instead of business income - Held that - The assessee has developed a software park by the name of Tidel Information Technology Park ; wherein, it has leased out its modules and other facilities to various clients in lieu of lease/rent in question. Its total rental income is Rs 54,19,88,282/-. The receipts from letting out the modules are Rs 51,98,81,901/. The balance amount of Rs 1,91,60,582/- has arisen from car parking charges, communication, electrical charges etc. It is also evident from the case file and paper book on record that in 1999, the assessee had applied to Government of India,(department of industries), for setting up an industrial park u/s 80IA. On 24.04.2009, it stood approved subject to various terms and conditions enumerated under rule 18(3) sub rule (2) of Income Tax Rules. Thereafter, the Central Board of Direct Taxes, vide its notification dated 26.12.1999, has also notified the industrial park under section 80IA(4)(iii). It is to be seen from both the above documents that the deduction under section 80IA has not been granted in perpetuity, but it is liable to be withdrawn if the assessee violates the conditions specified therein. However, till date no such withdrawal has come. So, the assessee enjoys the status of an eligible undertaking under section 80IA (4) (iii). Thus uphold the CIT(A) s order that the assessee is eligible for claiming deduction u/s 80IA (4)(iii) qua the lease income in question. Depreciation for electrical items - CIT(A) directed the AO to grant claim - Held that - On perusal of the CIT(A) order, it is found that qua this issue, he has relied upon his predecessor s order dated 16.01.2007 as well as tribunal s order dated 08.08.2008 for assessment year 2003-2004 directing the AO that substance should prevail over the nomenclature and decide it afresh. As no material has been placed on record as how the issue has been decided by the AO CIT(A) has righty remitted the issue back to the file of the AO and find no reason to interfere. Car parking charges, communication electrical charges, electrical room rent, other rental income, rental two wheeler parking, rent for usage area, telecom room rent and usage of cable duct(trench) - treated as business income OR other sources - Held that - As decided in South India Shipping Corporation Ltd Vs. CIT 1998 (2) TMI 43 - MADRAS High Court interest received by a company which carried on business, from bank deposits and loans could only be taxable as in come from other sources and not as business income. On the anvil of this, the exclusion of interest from deposits for the purpose of computation of deduction u/s 80IA is liable to be confirmed. The miscellaneous income represents various miscellaneous items like water charges, insurance claims, STD booth and PCO, sale of tender documents etc., The rental income represents income from parking space, mobile phone network towers and other facilities etc. Lower authorities have held that this cannot be stated to be derived form the business of developing, operating and maintaining the infrastructure of the STP under consideration. See CIT Vs. Sterling Foods 1999 (4) TMI 1 - SUPREME Court & CIT Vs. Raja Bahadur Kamakhaya Narayan Singh & Others 1948 (7) TMI 1 - Privy Council . Thus the other receipts of operation and maintenance etc are held as income from other sources.

Summary

Issues Involved:

1. Classification of income as 'house property' vs. 'business' income.
2. Eligibility for deduction under section 80IA of the Income Tax Act.
3. Depreciation on electrical items.
4. Classification of various receipts as 'business' income vs. 'other sources'.

Detailed Analysis:

1. Classification of Income as 'House Property' vs. 'Business' Income:

The primary issue was whether the assessee's income from leasing out modules and other facilities in an IT park should be classified as 'house property' income or 'business' income. The Assessing Officer (AO) classified the income as 'house property' income, denying the deduction under section 80IA. The CIT(A) partially accepted the assessee's claim, treating the receipts from leasing modules as 'business' income but not other receipts. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's activities were integral to the operation of the IT park, thus qualifying as 'business' income.

2. Eligibility for Deduction under Section 80IA:

The assessee claimed a deduction under section 80IA, asserting that it was engaged in developing infrastructure. The AO rejected this, but the CIT(A) and subsequently the Tribunal found that the assessee's IT park was duly approved as an industrial park under section 80IA(4)(iii) and had not violated any conditions for deduction. The Tribunal referenced previous years' decisions where the assessee was granted the deduction, affirming the CIT(A)'s order that the assessee was entitled to the deduction for its lease income.

3. Depreciation on Electrical Items:

The Revenue contested the CIT(A)'s direction to grant depreciation on electrical items at 15%. The CIT(A) had relied on previous orders, directing the AO to consider the substance over nomenclature. The Tribunal found no new material evidence from the Revenue to overturn this decision and upheld the CIT(A)'s order, remitting the issue back to the AO for a fresh decision.

4. Classification of Various Receipts as 'Business' Income vs. 'Other Sources':

The assessee argued that receipts from car parking charges, communication and electrical charges, and other similar incomes should be treated as 'business' income. The CIT(A) had classified these as 'other sources'. The Tribunal examined previous decisions, including a Tribunal order from 2008, which had excluded similar incomes from the definition of 'business' income under section 80IA. The Tribunal upheld the CIT(A)'s classification of these receipts as 'other sources', noting that the assessee's arguments did not change the nature of these incomes.

Conclusion:

The Tribunal dismissed both the assessee's and the Revenue's appeals, upholding the CIT(A)'s order in treating the lease income as 'business' income eligible for deduction under section 80IA, allowing depreciation on electrical items, and classifying other receipts as 'income from other sources'. The assessee's cross objections were deemed infructuous due to the dismissal of the Revenue's appeal.