2019 (1) TMI 148 - AT - Income Tax

Deduction under section 80IAB - development income earned as accrued on account of agreement entered into between assessee company and its co-developer, M/s. DLF Assets Private Limited (DAPL) - claim of the assessee is based upon the approval granted to the assessee by the Board of Approvals of Special Economic Zone (SEZ) to the co-developer agreement with the aforesaid DAPL - as per AO assessee not admissible qua the profit derived from SEZ project at Gurgaon as the assessee had merely sold the bare shell building to the co-developer, M/s. DAPL, which is not an authorized operation under the Special Economic Zone Act, 2005 and the Special Economic Zone Rules, 2006 - Held that - Following the decision rendered by the coordinate Bench of the Tribunal in assessee s own case for AY 2008-09 and in view of the fact that the year under assessment is third year of claiming deduction, it is proved on file that assessee company is a developer under the SEZ Act and the SEZ is duly notified and all the profits derived by the assessee company from the business of development operation and maintenance of SEZ. Consequently, on the basis of approval given by the Board of Approvals for the transfer of bare shell to the co-developer as per agreement, the profit arising to the assessee from the aforesaid authorized transactions is eligible for deduction u/s 80IAB of the Act. So, we find no illegality or perversity in the findings returned by ld. CIT (A) - decided against the Revenue. Treatment to signage income received by the assessee company from tenants - income from other sources or income from house property - disallowance of deduction u/s 24(a) - Held that - Tribunal in case of Manpreet Singh vs. ITO (2015 (2) TMI 159 - ITAT DELHI) wherein it was held that, the income earned by the assessee for renting of terrace for installation of mobile antenna was taxable as income from house property and as such deduction u/s 24(a) @ 30% of the annual value was allowable. When it is not in dispute that the assessee company has derived the signage income from the tenants from the space owned by the assessee company 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. So, finding no illegality or perversity in the findings returned by ld. CIT (A) on this issue, this ground is determined against the Revenue.

2023 (12) TMI 637 - AT

Issues Involved:
1. Legality of CIT(A)'s reliance on clarifications by the Ministry of Commerce.
2. Validity of Ministry of Commerce's clarifications.
3. Verification of clarifications by the Ministry of Commerce.
4. Authorized operation status of transfer of bare shells.
5. Conditions imposed by BoA on transfer of bare shells.
6. Clarification on transfer of bare shells and SEZ Act benefits.
7. Eligibility for deduction under section 80IAB.
8. Classification of construction and transfer activities.
9. Impact of transfer on developer's deduction eligibility.
10. AO's jurisdiction to challenge Ministry of Commerce's approval.
11. Acceptance of development consideration as market value.
12. Reasonableness of capitalization rate.
13. Classification of bare shell buildings as stock in trade.
14. Treatment of development consideration as rent.
15. Classification of signage income.

Detailed Analysis:

1. Legality of CIT(A)'s reliance on clarifications by the Ministry of Commerce:
The Tribunal noted that the AO declined the deduction under section 80IAB by following previous assessment years 2008-09 and 2009-10. It was established that the assessee's claim was based on an agreement approved by the Board of Approvals (BoA) for SEZ. The Tribunal referenced a previous decision in the assessee's favor for AY 2008-09, confirming that the SEZ Act's provisions have an overriding effect and that the Ministry of Commerce's clarifications were valid.

2. Validity of Ministry of Commerce's clarifications:
The Tribunal reiterated that the SEZ Act's definitions and approvals by BoA are binding. It cited the coordinate Bench's decision, which held that the SEZ Act and approvals by BoA are authoritative and cannot be reinterpreted by tax authorities. The Ministry of Commerce's clarifications were deemed consistent with the SEZ Act and thus valid.

3. Verification of clarifications by the Ministry of Commerce:
The Tribunal emphasized that the clarifications issued by the Ministry of Commerce, even if not directly by BoA, were in line with the SEZ Act and approved operations. The Tribunal found no requirement for further verification by tax authorities, as the clarifications were consistent with the SEZ Act.

4. Authorized operation status of transfer of bare shells:
The Tribunal confirmed that the transfer of bare shell buildings to the co-developer was an authorized operation under the SEZ Act. This conclusion was based on previous Tribunal decisions and clarifications from BoA, which explicitly allowed such transfers as authorized activities.

5. Conditions imposed by BoA on transfer of bare shells:
The Tribunal noted that the BoA had approved the transfer of bare shells with the condition that taxability would be examined by IT authorities. However, the Tribunal found that this condition applied to the co-developer and not the assessee, affirming the authorized status of the transfer.

6. Clarification on transfer of bare shells and SEZ Act benefits:
The Tribunal held that the clarifications issued by the Ministry of Commerce confirmed that the transfer of bare shells was permissible and authorized under the SEZ Act. Consequently, the profits from such transfers were eligible for benefits under section 80IAB.

7. Eligibility for deduction under section 80IAB:
The Tribunal affirmed that the assessee was eligible for deduction under section 80IAB, as the profits were derived from authorized operations within the SEZ. This was consistent with previous Tribunal decisions and the SEZ Act's provisions.

8. Classification of construction and transfer activities:
The Tribunal upheld that the construction and transfer of bare shell buildings were part of the business of developing, operating, and maintaining the SEZ. These activities were deemed authorized and eligible for deductions under section 80IAB.

9. Impact of transfer on developer's deduction eligibility:
The Tribunal clarified that the transfer of operations and maintenance to the co-developer did not affect the developer's eligibility for deductions under section 80IAB. The developer retained the right to claim benefits for the specified period.

10. AO's jurisdiction to challenge Ministry of Commerce's approval:
The Tribunal ruled that the AO had no jurisdiction to challenge the validity of approvals granted by the Ministry of Commerce or BoA. Such approvals were binding and could not be questioned by tax authorities.

11. Acceptance of development consideration as market value:
The Tribunal found no error in CIT(A)'s acceptance of the development consideration received by the assessee as being at market value. The method used for determining the consideration was deemed appropriate.

12. Reasonableness of capitalization rate:
The Tribunal upheld CIT(A)'s decision to accept a capitalization rate of 9% as reasonable, noting that it was consistent with the prevailing rates for similar properties in the area.

13. Classification of bare shell buildings as stock in trade:
The Tribunal agreed with CIT(A) that the bare shell buildings transferred to the co-developer were stock in trade and not capital assets. This classification was consistent with the assessee's business activities and accounting practices.

14. Treatment of development consideration as rent:
The Tribunal rejected the AO's alternate observation that the development consideration should be treated as rent for a period of 49 years. It affirmed that the entire consideration was eligible for deduction under section 80IAB.

15. Classification of signage income:
The Tribunal concluded that the signage income received from tenants was income from house property, not from other sources. Consequently, the signage income was eligible for a standard deduction under section 24(a) of the IT Act.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding CIT(A)'s order and affirming the assessee's eligibility for deductions and classifications as claimed. The Tribunal's decision was based on consistent application of the SEZ Act, previous Tribunal rulings, and the validity of clarifications issued by the Ministry of Commerce.

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