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TMI Blog2013 (8) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... ial requirements of the I.T. industry. 3. The assessee Company filed its return of income for assessment year 2005-06 on 31.10.2005 declaring a total income of Rs. NIL and paid taxes under Section 115JB of the Income-Tax Act, 1961 (for short, hereinafter referred to as 'the Act'). The same was processed under Section 143(1) of the Act on 28.08.2006. The case was selected for scrutiny by issue of notice under Section 143(2) dated 25.07.2006, which was duly served on the assessee Company. The assessee in response to the notice issued appeared on 13.12.2007 and 14.12.2007 and filed written submissions. The assessee claimed that they are in the business of providing comprehensive facilities to IT Industry. Such facilities include provision for specially furnished buildings, special electrical connections, and special arrangement for antennae and dish, good net connectivity for transmission of data and special furniture. All these facilities include letting out specialized buildings and office premises that are built to cater to the special requirements of the I.T. Industry. 4. The submissions of the assessee were not accepted by the Assessing Authority. According to the assessing aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shall not constitute 'income from business'. In the case of rental income from the building clearly falling under the head 'income from House Property', the building shall not be entitled for depreciation. In the light of the aforesaid particulars, the Assessing Authority held that the assessee has let out the buildings and also provides several amenities. The provision of amenities is governed by a separate agreement or separate rates in a common agreement at which such services are charged. Accordingly, the consideration in respect of these two transactions are distinct and need to be considered as such. Apparently, the letting out of space is independent of the other. The lessee may or may not opt for these benefits. Therefore, the income arising from the letting out of buildings or lands appurtenant thereto clearly constitutes 'income from House Property'. The income for providing services will constitute 'income from other sources'. Therefore, the Assessing Authority proceeded to assess the income from the buildings under the head of 'income from house property' and the income from furniture, fittings and other accessories and services rendered, under the heading 'income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plug and use inside the STP on a monthly basis. Relying on the judgment of the Tribunal in case of Global Tech Park (P.) Ltd. v. ACIT reported in [2008] 119 TTJ (Bang.) 421 he held that the income be assessed under the head 'Business'. The entire investment was fraught with a risk as adventure in the nature of trade and the entire activity of developing the premises as a STP is an organized activity to earn profit out of investment made by the assessee as a commercial venture and therefore, the income received has to be treated as receipt of a trader and not as a house property owner. Therefore, the Appellate Authority directed the Assessing Authority to treat the income under the head 'Business' and allow the claim of expenditures made thereon by the assessee. Insofar as the Capital gains on the sale of land to one of its sister concerns namely M/s. MD Properties Pvt. Ltd., is concerned, relying on Section 50C of the Act providing for adoption of the guideline value as the consideration for transfer of a capital asset, Section 80IA(8) requiring adoption of market value of goods in place of the actual sale price in the cases of certain specified sales, and the transfer pricing rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om House Property' as held by the Assessing Officer? 2. Whether the Appellate Authorities were correct in holding that the decision of this Hon'ble Court in the case of Bhopalam Commercial Complex and Industrial Ltd., reported in 262 ITR 517 and Decision of Apex Court in the case of Poddar Cement, 226 ITR 625 are not applicable to the facts and circumstances of the present case, when the decisions were directly on the issue in favour of the revenue and consequently recorded a perverse finding? 3. Whether the Appellate Authorities were correct in holding that the value of land sold for Rs.389.52 per sq. ft. in favour of the sister concern cannot be treated as inadequate, when the land in the same premises was sold by the assessee in favour of the third party at Rs.1,193/- per sq. ft. for the purpose of computing short term gains and recorded a perverse finding? 4. Whether the Appellate Authorities were correct in deleting the re-computation of short term capital gains made by the Assessing Officer by adopting the value of land sold by the assessee to its sister concern at Rs. 1,193/- per sq. ft. (the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: Profits and gains of business or profession. 28. The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",- (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; 12. Section 56 of the Act deals with Income from other sources which reads as under: Income from other sources. 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :- (i) ................ (ii) ............... (iii) where an assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een years", the words "twenty years" had been substituted.] [(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), the deduction in computing the total income of an undertaking providing telecommunication services, specified in clause (ii) of sub-section (4), shall be hundred per cent of the profits and gains of the eligible business for the first five assessment years commencing at any time during the periods as specified in sub-section (2) and, thereafter, thirty per cent of such profits and gains for further five assessment years.] (3) This section applies to [an [undertaking] referred to in [clause (ii) or] clause (iv) of sub-section (4)] which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an [undertaking] which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such [undertaking] as is referred to in section 33B in the circumstances and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an authority or a board or a corporation or any other body established or constituted under any Central or State Act:] (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (a) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;] (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereinafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Act, 1961, the Central Board of Direct Taxes amended the Income-tax (First Amendment) Rules, 2008 substituting eligibility of Industrial Parks for benefits under section 80-IA(4)(iii). 17. The Apex Court had an occasion to consider the question whether rental income from shops and stalls to constitute income from house property or business income under the old Act. In the case of East India Housing & Land Development Trust Ltd. v. Commissioner of Income Tax reported in [1961] 42 ITR 49 (SC), at para 2, it has been held as under: "2. The appellant contends that because it is a company formed with the object of promoting and developing markets, its income derived from the shops and stalls is liable to be taxed under s. 10 of the IT Act as "profits or gains of business" and that the income is not liable to be taxed as "income from property" under s. 9 of the Act. The appellant is undoubtedly, under the provisions of the Calcutta Municipal Act, 1951 required to obtain a licence from the Corporation of Calcutta and to maintain sanitary and other services in conformity with the provisions of that Act and for that Act and for that purpose has to maintain a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting or sub-letting is part of a trading operation. The dividing line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned. Ownership of property and leasing it out may be done as a part of business, or it may be done as land owner. Whether it is the one or the other must necessarily depend upon the object with which the act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another on rent. Where this happens, the appropriate head to apply is "income from property'' (section 9), even though the company may be doing extensive business otherwise. But a company formed with the specific object of acquiring properties not with the view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of its business, cannot be said to treat them as landowner but as trader. The cases which have been cited in this case both for and against the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the object with which the act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another on rent. Where this happens, the appropriate head to apply is "income from property" (section 9), even though the company may be doing extensive business otherwise. But a company formed with the specific object of acquiring properties not with the view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of its business, cannot be said to treat them as landowner but as trader. The cases which have been cited in this case both for and against the assessee company must be applied with this distinction properly borne in mind. In deciding whether a company dealt with its properties as owner, one must see not to the form which it gave to the transaction but to the substance of the matter". This view as again reiterated in the case of S G Mercantile Corporation (P.) Ltd. v. CIT [1972] 83 ITR 700 (SC). In that case, earlier decision of the Supreme Court in the case of East India Housing & Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 was referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r manufacture? If it is carrying on any adventure or concern in the nature of trade, then section 9 specifically excludes the income derived from property from computation under section 9, if the property is occupied for the purpose of adventure or concern." The High Court had held that the income had to be computed under section 10 of the Act. The Supreme Court observed: "The assessee not only constructed vaults of special design and special doors and electric fittings, but it also rendered other services to the vault-holders.... These vaults could only be used for the specific purpose of storing of films and other activities connected with the examination, repairs, cleaning, waxing and rewinding of the films." It was argued before the Supreme Court that section 10 could not be applied as the assessee could not be said to be in occupation of the premises for the purposes of any concern of its own, but it was observed: "The assessee was thus in occupation of all the premises for the purpose of its own concern, the concern being the hiring out of specially built vaults and providing special services to the licensees. As o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been deducted." 21. Subsequently under the new Act Section 56(2) and (3) is inserted. In addition to that, Section 80- IA and in particular sub-sections (1) to (4) and clause (iii) are inserted. In addition to that, we have to keep in mind the Industrial Policy and the object behind giving incentives and the objects sought to be achieved by extending such benefits have to be kept in mind. Here we may also take note of the judgment of the Apex Court in the case of Commissioner of Income Tax v. National Storage (P.) Ltd. reported in [1967] 66 ITR 596 (SC), the facts of the said case are as under: "The assessee was promoted because the Government of India promulgated the Cinematograph Film Rules, 1948 hereinafter referred to as Rules, according to which the distributors were required to store films only in godowns constructed strictly in conformity with the specification laid down in the Film Rules and in a place to be approved by the Chief Inspector of Explosives, Government of India. A place at Mahim was approved and the assessee, after purchasing a plot of land, there constructed 13 units therein, 12 units meant for the members of the Indian Motion Pictu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... censees were in possession of the vaults as lessees and not merely as licensees. But, in our opinion, the agreements are licences and not leases. The assessee kept the key of the entrance which permitted access to the vaults in its own exclusive possession. The assessee was thus in occupation of all the premises for the purpose of its own concern, the concern being the hiring out of specially built vaults and providing special services to the licensees. As observed by Viscount Finlay in Coman's case (supra), "the subject which is hired out is a complex one" and the return received by the assessee is not the income derived from the exercise of property rights only but is derived from carrying on an adventure or concern in the nature of trade." 22. Sub-section (4) of Section 12 of the IT Act reads as under: "[(4) Where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, he shall be entitled to allowances in accordance with the provisions of clause (iv), [(v), (vi) and (vii)] of sub-section (2) of section 10 in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax under the head 'Income from other sources'. Clause (ii) of Section 56(2) provides that income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head 'profits and gains of business or profession'. Clause (iii) also provides that where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head 'profits and gains of business or profession'. Therefore the intention of the legislature is explicit. The provision is clear, i.e., if the letting of building, plant, machinery and furniture is inseparable, the income from such letting should ordinarily fall within the head 'profits and gains of business or profession'. But for any reason, if it does not fall under that head, it shall fall under the head income from " other sources ", but certainly not under the heading income from House property. If the intention is to exploit commercial property by putting up construction and letti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the market value of the asset transferred but the expression only means the full value of the thing received by the transferor in exchange for the capital asset transferred by him. The consideration for the transfer is the thing received by the transferor in exchange for the asset transferred and it is not right to say that the asset transferred and parted with is itself the consideration for the transfer. The main part of section 12B(2) provides that the amount of a capital gain shall be computed after making certain deductions from the full value of the consideration for which the sale, exchange or transfer of the capital asset is made. In case of a sale, the full value of the consideration is the full sale price actually paid. The legislature had to use the words full value of the consideration because it was dealing not merely with sale but with other types of transfer, such as exchange, where the consideration would be other than money. If it is therefore held in the present case that the actual price received by the respondent was at the rate ofRs.136 per share the full value of the consideration must be taken at the rate of Rs. 136 per share. The view that we have express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... questioned. The consideration received under the said agreement is also admitted. Further, admittedly, the said consideration is more than guidance value prescribed by the Government for sale of such property. As it is clear from the material on record that the assesse has borrowed money from financial institution, it has crossed its limit, it needed further funds. The land which is sold to the sister concern was lying idle. It is in those circumstances, the said sale transaction came into effect. The earlier sale made in favour of the sister concern is not vitiated in any manner whatsoever. Therefore, the Assessing Authority was not justified in taking the market value. The property sold to a third party cannot be the basis for determining the capital gain tax in respect of a sale in favour of the sister concern. Both the lower Appellate Authority and the Tribunal were justified in setting aside the order. Accordingly, the substantial question of law is answered in favour of the assessee and against the revenue.
In the light of the above discussion, we do not see any merit in any of the appeals filed by the revenue. Accordingly, the appeals are dismissed. No cost. X X X X Extracts X X X X X X X X Extracts X X X X
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