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TMI Blog2013 (7) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... stry of Commerce & Industry, New Delhi cannot confer the benefit when the 2002 scheme was not in operation and not applicable. The benefit u/s. 80IA(4)(iii) could be availed by the assessee only after the approval by the DIPP under the scheme. Accordingly, the assessee cannot claim deduction u/s. 80IA(4). Against assessee. Disallowance towards interest expenditure u/s 14A - Held that:- There is no necessity for using the borrowed funds for investment in sister concerns. However, there is no finding that any investments in sister concerns have been made in this assessment year out of borrowed funds on which interest is payable by the assessee. Unless there is a finding that interest is directly related to the diverted funds to the sister concerns, we are not in a position to hold that interest incurred by the assessee is for non-business purposes. Thus it cannot be held that interest incurred by the assessee is for nonbusiness purposes. Therefore, the provisions contained in Rule 8D(2)(ii) cannot be made applicable. If the assessee diverted any interest bearing funds to the sister concern then it is business taken by the assessee to make such an investment and even if it is resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany is carrying in the business of property development. During the year, it had claimed deduction of Rs. 9,90,34,561 u/s. 80IA of the Act. Substantiating the said claim, the representative of the assessee, vide his letter dated 8.11.2010, submitted before the Assessing Officer as under: " The assessee company has developed ALPHA CITY Industrial IT Park for IT and ITES service providers at survey No. 65/ IA2, 65/2A2B, 65/2C1B2, 65/1B, 65/2A3, 65/2B3, 65/2C1CPt, Navalur Village, Old Mahabalipuram Road, Kancheepuram, Chennai, Tamil Nadu. The said premises is also registered with Software Technology Park of India vide their letter dtd. 22nd December, 2006. The assessee has also made an application under nonautomatic route to the Department of Industrial Policy Promotion (DIPP), Ministry of Commerce Industry on 8th January, 2007 for approval of Industrial Park under the Industrial Park Policy, 2002, as required under section 80IA of the Income-tax Act, 1961". 4. The assessee had claimed deduction u/s. 80IA of the Act at Rs. 9,90,32,551. According to the assessee company, the assessee has developed Alpha City Industrial IT Park for IT and ITES service provider at Sy. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the application. 5. On a consideration of the assessee's submissions, the Assessing Officer noted that as per the provisions of sec. 80 IA(4)(iii) of IT Act, 1961, r.w. rule 18C of the IT Rules, 1962, any assessee claiming deduction u/s. 80IA inter alia requires the approval from the Central Board of Direct Taxes. He noted that the assessee had made its application for such approval on 8.1.2007, i.e. during the period in which the scheme of granting of Industrial Parks by the CBDT was not in existence. Admittedly, the assessee's application had been returned stating that the same could be applied afresh under the new scheme, which came into existence w.e.f. 1.4.2006. It had also been accepted that finally the assessee had submitted its application for approval of the IT Park to the CBDT only on 5.3.2009. The Assessing Officer, therefore, concluded that mere submission of application could not entitle the assessee for deduction u/s. 80IA. Accordingly, the entire claim of deduction of Rs. 9,90,32,561 was disallowed. During the course of appellate proceedings, the representative of the assessee reiterated the contentions raised before the Assessing Officer. The assessee contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a plea before us that since the Ministry of Commerce received the application of the assessee on 10.1.2007, the period of 12 weeks expired on 10.4.2007 and there was no communication until 15th January, 2009 and only on 15th January, 2009 it was informed to the assessee that the application of the assessee could not be considered under Industrial Policy Scheme 2002 and it was advised to apply to the CBDT under the Industrial Policy Scheme 2008. According to the assessee on 10.1.2007 when the application was made for approval, there was no such scheme and only scheme under which the assessee has to be considered is Industrial Policy 2002. The Ministry of Commerce having acted upon the application it should be granted with the approval under Industrial Policy, 2002. 8. He also brought to our notice that the Ministry of Commerce Industries has granted approval under the IP Scheme, 1999 and 2002 to one assessee M/s. Haryana State Industrial and Infrastructure Development Corporation Ltd., Panchkula, Park at HSIIDC Ltd., Growth Centre, Bawal, NH-8, Dist. Rewari, Haryana vide their application No. 85/ SIA/IP/2008 dated 10.7.2008 approved on 17.3.2009. As such the assessee 's case has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal is with regard to disallowance of Rs. 22,65,906 towards interest expenditure incurred by the assessee company by invoking the provisions of section 14A of the Act. The assessee company made following investments in the subsidiary companies as noticed by the Assessing Officer: <!--[if gte mso 9]> <![endif]--> <!--[if gte mso 9]> Normal 0 false false false EN-US X-NONE <![endif]--><!--[if gte mso 9]> <![endif]--&g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us. 11. We have heard both the parties and perused the material on record. The Revenue authorities disallowed the notional interest on the amounts advanced to sister concerns on the reason that interest bearing borrowed funds were used by the assessee for non-business purposes. However, the assessee made a plea before us that the it is having enough own funds in the form of share capital and reserves and funds were diverted to the sister concerns for the purpose of business expediency and the assessee enjoying controlling interest over the sister concerns. Being so, it cannot be considered that the assessee used the funds for non-business purposes. Further it is also brought to our notice that out of the above investments, investment in Andhra Bank shares was not in the assessment year under consideration. It was made long back in the earlier assessment years. 12. Against this argument of the assessee s counsel the learned DR submitted that the assessee instead of making investment in sister concerns, it could have very well cleared the existing loans and could have saved the interest amount. The AR also relied on the judgement of Supreme Court in the case of Munjal Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs (288 ITR 1) (SC) supports the assessee s claim and similar view was taken by us in the case of M/s. Sri Krishna Drugs Ltd. in ITA No. 174/Hyd/2006 and 45/Hyd/2007, 487/Hyd/2007 and 537/Hyd/ 2007 vide order dated 30th September, 2010 which was relied on by the assessee. In view of this, we are inclined to allow the ground taken by the assessee. 13. The next ground is with regard to treating the income from relinquishment of right in the property amounting to Rs. 17,46,79,200 as business income of the assessee ignoring the fact that it was assessee s intention to hold the property as capital asset and not as a business asset and the resultant gain should have been taxed as long term capital gain as the asset was held by the assessee for more than 36 months. 14. Brief facts of the issue are that the assessee entered into a MOU on 12th December, 2003 with M/s. Balaji Fabricators Pvt. Ltd., for purchase of land admeasuring 2.5 acres and paid Rs. 1.13 crores as advance for purchase of the property. The vendor executed registered GPA in favour of the company to apply for necessary permission and licences. Later the assessee company have entered into an agreement of sale on 24th Apr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gains. 18. The AR further submitted that the above referred land has been purchased with an intention to build an IT Park thereon. It contended that the intention was to retain the said IT Park for the company itself and lease it to IT companies on long term basis, as the assessee was of the intention that a permanent rental income will help the company to meet recurring expenses. Besides, the asset would also be available for being given as a collateral security for further loans for other projects. The assessee submitted that for the said purpose, it had engaged the services of a real estate agency to assess the demand for IT space, as also the services of a Chartered Accountant firm to approach banks and secure loans. It was stated that the assessee could get a sanction from Andhra Bank, Somajiguda Branch, Hyderabad. However, it could not draw the loan as the terms thereof were not acceptable to the assessee. In the meanwhile, there was litigation amongst the sellers, which delayed the project. Having paid more than 50% of the land value as per the agreement, the assessee decided to sell its rights on the land. Copies of the IT Demand survey report, project report and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The AR referred to the decision of the Hon'ble Supreme Court in the case of Suraj Lamp and Inds. Pvt. Ltd. vs. State of Haryana Anr. (340 ITR 1) holding that "immovable property" can be legally and lawfully transferred or conveyed only by a registered deed of conveyance. It was argued that the assessee also had not become the owner of the land. It had agreed to purchase and only on completion of the conveyance deed and upon its registration, the assessee could have become the owner, so as to show the same in its records as fixed assets or stock in trade, according to its intention of dealing with it for its benefit. He submitted that in the instant case such an event did not take place and the assessee had only a right acquired by way of sale agreement, which he could enforce by asking for registering the sale deed. Before the registration of sale deed, however, such rights were relinquished to a third party, resulting in capital gain. 22. The AR reiterated that the assessee had expressed its interest of constructing a software park and earn rental income and the primary head under which the income falls pertained to capital gains. He averred that just because of higher tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g it as an 'investment' or 'capital asset', but to use the same for the commercial purposes of the development. 25. The DR submitted that the Bangalore Bench of the Tribunal in its decision in the case of ITO vs. RMB Aradhya (49 ITD 14) had referred to the principle formulated in IRC V. Livingston (1926) 11 TC 538 at 542, Lord President Clyde as under: "I think the test, which must be used to determine whether a venture such as we are now considering is, or is not, 'in the nature of trade', is whether the operations involved in it are of the same kind, and carried on in the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made. If they are, I do not see why the venture should not be regarded as 'in the nature of trade', merely because it was a single venture which took only three months to complete". 26. The DR submitted that in the above referred decision, the Tribunal had also referred to the decision of the Hon'ble Supreme Court in the case of CIT vs. Bahadur Jayram Valji (35 ITR 148), holding that the payment in settlement of right under the contract was an adjustment made by the parties in the ordinary co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t related to a 'business asset'. Therefore, the compensation received or surrender of the right relating to such business asset was indeed to be charged to tax as 'business income' only in the hands of the assessee. 30. The DR further he relied on the judgement of CIT v. Thiruvengadam Investments Pvt Ltd. (320 ITR 345) (Mad) wherein the High Court held that provisions of section 50C cannot be invoked on the income earned on sale of assets for which the payment made was shown as loans and advances in the balance sheet and not as a fixed asset. Further, he relied on the judgement of CIT vs. Tata Services Ltd. (122 ITR 594) (Bom). 31. We have heard both the parties and perused the material on record. In the present case the main issue is with regard to relinquishing of right over the property by the assessee to M/s. Rattha Citadine OMR Apart Hotel Pvt. Ltd. The assessee is having a right over this property vide MOU entered with M/s. Balaji Fabricators Pvt. Ltd., on 12th December, 2003. This was relinquished by the assessee vide sale agreement dated 28th January, 2004 to M/s. Rattha Citadine OMR Apart Hotel Pvt. Ltd. According to the Department, this relinquishment of right is busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e asset held by the assessee as an investment or as a trading asset. Realisation of capital asset is always income from capital gain. 33. The transfer of right or relinquishment part and parcel of business undertaking of the assessee is nothing but transfer of capital asset within the meaning of section 2(14) of the IT Act. Any profit arising from the transfer of capital asset must be chargeable under the head "capital gain". The word "transfer" has been defined in section 2(47) of the Act which lays down as under: "(47) transfer, in relation to a capital asset includes (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or (v) any transaction involving the the allowing of the possession of any immovable property to be taken or retained in part of performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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