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TMI Blog2012 (9) TMI 929X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the services provided by the assessee to the tenants in Cyber City were in the nature of extensive and specialize services and, therefore, the premises let out by the assessee could not be regarded as bare tenement but the complex one with infrastructure facilities, the income derived there from which is not separable from letting out of the building." 4. The learned Commissioner of Income-tax. (Appeals) grossly erred in failing to appreciate that the assessee had let out the premises in exercise of the property rights vested in it, i.e., as any ordinary house owner would turn his property to profitable account, and also the assessee had neither occupied not let out the premises for the purpose of any business carried on by it and, in the circumstances, the profits derived from the premises could only be assessed under the head "Income from House Property" within the provision of Sec. 22 of the Income-tax Act, 1961. 5. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the primary object of the assessee was to let out the properties in order to derive income there from and not to exploit them commercially and merely because certain in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect. The Assessing Officer noticed that assessee had shown receipts of Rs. 36,97,05,084/- under the head other income which was in the nature of rental receipts for letting out premises in the Cyber City in the Magarpatta City Project. These receipts were treated by the assessee as business income and depreciation was claimed for the assets of Cyber City amounting to Rs. 24,87,04,429/-. The proportionate expenses which could be apportioned to the activity of letting out of Cyber City was computed in the order at Rs. 6,11,56,123/-. It was observed by Assessing Officer that actually the assessee was incurring losses if the expenses on account of interest are also considered. The Assessing Officer asked the assessee as to why income on account of the receipt from letting out of the premises in Cyber City should not be treated as income from house property. It was explained on behalf of the assessee before the Assessing Officer that the Magarpatta City Project of the assessee consisted of I.T. Park, commercial complexes, schools and residential complexes, etc., and the Memorandum of Articles of the company was to develop and maintain I.T. Parks, which was therefore a systematic busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessable under the head income from property. vii) If income falls under the head income from property, it was to be taxed u/s.22 only, and cannot be taken on section 28 on the ground that the business of the assessee was to exploit property. viii) If the property was given on leave and license basis, it is to be treated as income from house property. This character is not changed even if the hiring is inclusive of certain insignificant and incidental services like heating, cleaning, lighting and sanitation. ix) If the property was let out for a fixed amount for a fixed period, the likelihood of it being income from house property is more. 4. The Assessing Officer then analysed the provisions of lease agreement entered between the assessee and the software companies. The Assessing Officer observed that while lease rent from the premises was charged at Rs. 14.30 per sq.ft., the amount charged towards maintenance was only Rs. 0.50 per sq.ft. Therefore, it was stated that the rent was predominantly for the space and the prime intention was to let out the property on a monthly rent, and there was no complex commercial activity involved in this letting out. He also observed that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,025/- to the total income. 6. Matter was carried before the first appellate authority wherein various contentions were raised on behalf of the assessee and CIT(A) after considering the various contentions on behalf of the assessee, has decided this issue in favour of the assessee by holding that the assessee's income was to be assessed as business income. Same has been opposed before us on behalf of the Revenue. The Ld. Departmental Representative contended that the CIT(A) erred in holding that income derived by the assessee from the letting out of premises of the 'Cyber City' has to be assessed as business income and not as income under the head "House Property" as had been taken in the assessment. The CIT(A) was not justified in holding that the services provided by the assessee to the tenants in Cyber City were in the nature of extensive and specialize services and, therefore, the premises let out by the assessee could not be regarded as bare tenement but the complex one with infrastructure facilities, the income derived there from which is not separable from letting out of the building. The CIT(A) failed to appreciate that the assessee had let out the premises in exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered for computing deduction u/s. 80-IB(10) as per the ratio of the decision of the Hon'ble Apex Court in the case of Sterling Foods Ltd., 237 ITR 579 (S.C) and Pandian Chemicals, 262 ITR 278 (SC). In this background it was submitted that the order of the CIT(A) be vacated and that of the Assessing Officer be restored. 7. On the other hand, the Ld. Authorised Representative submitted that the assessee has not merely given the premises on rent but letting out is coupled with well equipped amenities, facilities and services to I.T. companies. The assessee has claimed depreciation on the cost of the buildings constructed and further claimed proportionate expenditure incurred on maintenance of the premises. Attention was drawn to the Profit and Loss Account in respect of Cyber City Project. The Assessing Officer held that the said rental income in the form of license fees is assessable as income from house property as the main intention of the assessee was to exploit the property by way of letting out on rent. Various reasons given by the Assessing Officer to hold that the rental income is taxable as income from house property are summarised as under: i) The A.O. on page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsistency, the stand of the assessee should be accepted. iii) In para 3.10 of his order, the learned CIT(A) has stated that the observation of the Assessing Officer that rent of Rs. 14.50/- per sq.ft. is not for other amenities is not correct. He has reproduced the relevant clause of the agreement with exl. Service.com (India) pvt. Ltd. and wherein it is clearly mentioned that the said amount of Rs. 14.50/- per sq.ft. is including the charges for providing the additional amenities. The copy of the said rental agreement with exl. Service.com (India) Pvt. Ltd. is given on pages 86 to 117 of the paper book. On page 105, the various amenities provided by the assessee are mentioned which are as under: i. Cab Parking ii. Car parking iii. Club membership iv. Air conditioning v. Power back up vi. Hooked up electricity load vii. Signage viii. Toilet blocks with sensors ix. Fibre and Satellite connectivity x. Radio Microwave xi. Cell Phone Boosters xii. Independent Cafeteria Terrace iv) Accordingly, the CIT(A) appreciated that the rental income of Rs. 14.50/- per sq.ft. received by the assessee is for letting out of the premises as well as for providing various additional ameni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n u/s.80IB(10) in respect of disallowances made u/s.40(a)(ia) or 43B, it was submitted that the assessee has claimed deduction u/s.80IB(10) in respect of the housing projects. There were disallowances on account of section 40(a)(ia), 43B and 35(1)(va). The assessee stated that due to such disallowances, the business income increased and hence, the deduction u/s.80IB(10) should be allowed on the enhanced business income. The Assessing Officer has not allowed the claim of the assessee and held that the deduction u/s.80IB(10) is not available in respect of the amounts which are disallowed u/s. 40(a)(ia) or 43B. The CIT(A) accepted the claim of the assessee by relying on the following decisions: a. CIT vs. Gem Plus Jewellery India Ltd. [330 ITR 175] b. S.B.Builders & Developers vs. ITO [136 TTJ 420 (Bom)] c. ITO vs. ComputerForce [136 TTJ 221]. In this background, Ld. Authorised Representative submitted that order of the CIT(A) on the issue be upheld. 9. After going through the above submissions and material on record, we find that the assessee is engaged in construction business and has developed a township under the name and style of Magarpatta City Project. The assessee has con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airconditioning plants for central airconditioning, special electrification, uninterrupted power supply, etc. Due to the peculiar nature of work and odd hours of work, there were arrangements for restaurants, gymnasium, banking facilities in the premises, security service with dog squad, etc. Attention was drawn to the lease agreement with one of the software company exl. Services.com (India) Ltd., wherein para 15 of the said agreement reads as under: "The Lessor shall also provide to the lessee certain additional amenities in the Demised Premises, as detailed in Schedule-II herein. The cost of providing such additional amenities has already been included in the monthly rent and the lessee shall not be required to pay to the lesser any additional amount(s) towards it." This shows that monthly lease rent/license fee of Rs. 14.30 per sq.ft. included cost of providing such additional services and amenities as has been given in detail in Schedule-II of the license agreement and nothing extra has been charged from the lessee for this. It is evident from Schedule-II of the agreement that the amenities/services provided were also technical one and of a major nature, e.g. provision of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r unfurnished was let out with an intention to have rental income, it would be assessable as income from house property. On the other hand, if the primary object is to exploit the property by way of complex commercial activities, the income from the same was to be considered as business income. The case of Shambhu Investment (supra) does not go against the assessee. One point which was emphasised in said case is that the assessee has recovered the entire cost of the property let out to the occupier by way of interest free advance received from them. Therefore, it was held that in such a case the assessee was not exploiting the property for commercial business activity and the provisioning of some furnishing was merely incidental to the bare letting out of the property. In case before us, the assessee has not recovered major cost of the building and infrastructure and providing a host of services with recurring operating cost as discussed above. 11. The decision of ITAT Pune Bench in the case of Nutan Warehousing Pvt. Ltd. (supra) relied on by the Assessing Officer has been set aside and remanded to the Assessing Officer for reconsideration by the Hon'ble Bombay High Court. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Prestige Estate Projects (P) Ltd. (2010) 129 TTJ 680 (Bangalore), following the decision of Gesco Corporaiton Ltd., and Harvindarpal Mehta (HUF) vs. DCIT (2009) 122 TTJ 163 (Mum), has decided the similar issue in favour of assessee. In the said decision, the premises was related to a business centre with multifarious facilities like central airconditioning services, attendants, sweepers, fax machine, furniture, receptionists, telephone operators, common waiting/guest room with attached toilets, etc. and it was held that the receipts from such activities alongwith these facilities was to be assessed under the head income from business rather than the income from house property or income from other sources, as the object of the assessee was to run the business centre by exploiting the property and not merely letting out the property. The Hon'ble Gujarat High Court in the case of CIT vs. Saptarshi Services 265 ITR 379 (Guj), which also related to the leasing out a business centre with various services, has decided the issue in favour of the assessee and the SLP filed on behalf of the Revenue was dismissed by the Hon'ble Supreme Court as reported in 264 (ST) 36. In this backg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are disallowed u/s. 40(a)(ia) or 43B. 13. In appeal, the learned CIT(A) has accepted the claim of the case. In para 5.3 to 5.5 of his order, the CIT(A) has allowed the claim of the assessee by observing as under: "5.3 I have considered the submissions of the appellant and material available on record. The appellant has cited certain decisions in favour of its claim. It is contended by the appellant that the turnover was from the same source in respect of the claim u/s.80IB(10), and therefore, it was entitled for the deduction after including the statutory disallowances, i.e. on the correspondingly enhanced income. In the judgement of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Gems Jewellery India Ltd., (2010) 233 CTR 248 (Born.) the claim of deduction u/s.10A was made due to enhanced profit after disallowance u/s.43B. The Hon'ble Bombay High Court observed as under: "As a matter of fact the question of law which is formulated by the Revenue proceeds on the basis that the assessed income was enhanced due to the disallowance of the employer's as well as the employees' contribution towards PF/ESIC and the only question which is canvassed on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble. Another decision given by the assessee was that of the Mumbai Bench in the case of S.R.Builders and Developers vs. ITO in ITA.No. 1245/Mum/2009, A.Y. 06-07, order dtd. 14.5.2010. This was a case related to deduction u/s.801B(10) itself, and here the issue was regarding non-allowability of deduction u/s.80IB(10) on the enhanced income due to disallowance u/s.40(a)(ia) amounting to Rs. 4,50,12,485/-. The Tribunal held that as per the section 80IB(1) the assessee was to be allowed deduction in respect of profits and gains derived from any business mentioned in section 80IB(10), i.e., for an undertaking developing and building housing projects. It was held by the Tribunal as under: "The section falls under chapter VIA of the Act, under the sub-head "C-Deductions in respect of certain incomes". There is no indication in the section as to what would be considered as profits and gains "derived" from the eligible business. Section 80AB, introduced by the Finance (No.2) Act, 1980 w.e.f. 1.4.1981 however states that where any deduction is required to be made under any section falling under Chapter VI-A under the head "C-Deductions in respect of certain incomes" in respect of any income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for deduction u/s.80IB(10) pertaining to its Cosmos Project. The Assessing Officer has held in the assessment order that the claim u/s.80IB(10) was allowable to the appellant for its Heliconia project. Thus, if any disallowance u/s.43B, 40(a)(ia) & 35(1)(va) etc. relates to the Heliconia project, that only can be considered for claim u/s.80IB(10) on the correspondingly enhanced income. Subject to this discussion, therefore, this ground of appeal will be treated as partly allowed." 14. After going through the above submissions and material on record, we are not inclined to interfere in the finding of the CIT(A) on the issue. The CIT(A) observed that turnover was from the same source in respect of the claim u/s.80IB(10). Therefore, it was entitled for deduction after including the statutory disallowance i.e., on correspondingly enhanced income. Hon'ble jurisdictional High Court in the case of CIT vs. Gems Jewellery India Ltd., (supra), has allowed the claim of deduction made u/s.10A on enhanced profit. We also find the Mumbai Bench of the Tribunal in the case of S.R.Builders vs. ITO in ITA.No.1245/Mum/2009 for A.Y. 2006-07 dated 14.05.2010 has decided the appeal in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the case of Brahma Associates, the proportionate deduction u/s.80IB(10) could not be allowed in respect of the flats which satisfied the conditions u/s.80IB(10). 3) The learned CIT(A) failed to appreciate that - a. There were in all 25 buildings in the 'Cosmos Project' out of which except 'Prime' building all other buildings satisfied the conditions of built up area limit of 1500 sq.ft. and therefore, the deduction u/s.80IB(10) should have been allowed in respect of the profits from such buildings. b. Without prejudice, the project for the purposes of deduction u/s.80IB(10) had to be considered as consisting of other 24 buildings in the 'Cosmos Project' excluding the 'Prime' building and as these 24 buildings satisfied the various conditions u/s.80IB(10), the deduction u/s.80IB(10) had to be allowed in respect of the profits from these 24 buildings. c. Just because a couple of adjacent flats were combined into one flat by the purchasers later on, the deduction u/s.80IB(10) could not be denied in respect of the project. d. The assessee had already offered the profits in respect of the building 'Prime' ascertained on 'stand-alone basis' to tax. e. The building plan of bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of adjacent flats, it was contended by the assessee that these were sold as independent units through separate agreements, the MSEB meters were separate, there were two separate entrances at the time of handing over possession and the municipal taxes assessment was also separate. It was further contended that only flats No.102 and 103 referred by the registered valuer were actually combined, but those also were not combined at the time of sale, but were sold to two separate individuals and the owners might have combined the same later. Therefore, it was stated that claim u/s.80IB(10) should not be disallowed on this basis. The Assessing Officer has dealt this issue, from page 28 onwards of his order, of deduction u/s.80IB(10) related to the Cosmos Project. This project consisted of 24 buildings A to Z (excluding Q, X & Y) and Prime. All these buildings had been sanctioned by a common sanction order vide commencement certificate dated 4.8.2004 issued by PMC, which were revised on various dates. It was pointed out that the assessee has accepted that all the 45 flats in Prime building under the Cosmos project had built up areas exceeding 1500 sq.ft. The Assessing Officer gave details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the assessee were raised and the CIT(A) having considered the submissions raised on behalf of the assessee, disallowed the claim of assessee on main as well as alternative grounds for proportionate deduction. Same has been opposed before us and various contentions were raised on behalf of assessee in this regard and requested to allow the claim. On other hand, Ld. Departmental Representative supported order of Revenue authorities below. 22. After going through rival submissions and material on record, we find that the assessee had claimed deduction u/s.80IB(10) in respect of the Cosmos Project. The Assessing Officer has denied the deduction on the ground that the built up area of the units in building Prime included in the said project exceeded 1500 sq.ft. Thus, the Assessing Officer has disallowed the claim of the assessee. The Assessing Officer has further stated that the two flats in building 'I' were combined and after combining, the built up area of the combined units exceeded 1500 sq.ft. On these two grounds, the learned Assessing Officer has disallowed the claim of the assessee. In this regard Ld. Authorised Representative submitted that the assessee itself has exclud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E' is concerned only planned when the status of 'the surplus land was converted as "within ceiling limit" and the assessee could get additional FSI for launching Wing 'E', wing 'E' was planned and construction was commenced after 1st October 1998 and building/wing 'E' was an independent housing project as contemplated u/s.80IB(10). The Tribunal held that the concept of housing project does not mean that should be the group of buildings and only then same is called a "housing project". It was further held that building/wing 'E' cannot be passed with earlier buildings, i.e., A, B, C & D which work was commenced in the year 1993 whereas plan for wing 'E' was approved for only once in the year 2002. It was held further that the conclusion drawn by the authorities below that the commencement of wing 'E' is a continuation of the existing project is erroneous." 22.2. We also find that the Pune Bench in the case of Rahul Construction Co. Vs. ITO [ITA.No.1250/PN/09 & 707/PN/2010] has observed as under: "10. In view of above discussion, we come to the conclusion that for verification of eligibility of benefit claimed u/s. 80 IB (10) of the Act by the assessee on buildings A1 to A5 in "Atul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o commercial area therein. Under the above circumstances, we are of the view that the assessee is very much entitled to the claimed deduction u/s. 80 IB (10) of the Act on the buildings A1 to A5 in "Atul Nagar" and buildings B1 to B6 in "Rahul Nisarg Cooperative Housing Society Ltd." The issue is therefore decided in favour of the assessee. We thus while setting aside the orders of the authorities below on the issue, direct the A.O to allow the claimed deduction u/s. 80 IB(10) in question. The related grounds are accordingly allowed. 11. In result, appeal is allowed." 22.3. We find that ITAT Mumbai Bench in the case of Mudhit Madanlal Gupta vs. ACIT [51 DTR 271(Mum)(Trib)] has observed as under: "Deduction under s.80-IB - Income from developing and building housing project - Conditions precedent - Assessee engaged in construction business entered into a joint development agreement for construction of residential flats - Total plot measured approximately 7633.82sq.mtrs. - Deduction was denied by AO on the grounds that (i) assessee had completed only A, B and C wings upto 31st March, 2008 and D wing was not completed (ii) total project area was 1.88 acres and since assessee's shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y - CIT(A) allowed relief under s.80-IB(10) treating the said two units as independent units - Justified - Material on record showed that the various local authorities duly inspected the plot and sanctioned plan for each of the blocks separately - Group housing approval was approval of a master plan as a concept - Further, the use of the words "residential unit" in cl.(c) of s.80- IB(10) means that deduction should be computed unit-wise - Therefore, if a particular unit satisfies the condition of s.80-IB, the assessee is entitled for deduction and it should be denied in respect of those units only which do not satisfy the conditions - Again, the accounting principles would also mandate recognition of profits from each unit separately." 23. As regards the two flats combined in Building I, it is submitted that the flats are combined by the customers. The assessee has received completion certificate independently for the two units and therefore, the Assessing Officer is not justified in calculating the built up area by combining the two units. The assessee submits that if units are combined by the customers, the built up area should be computed independently and the assessee cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue's case that each of flat on standalone basis was not a residential unit. Even if flats were constructed or planned in such a way that two flats could indeed be merged into one larger unit, as long each flat was an independent residential unit, deduction u/s.80IB(10) could not be declined It is important to bear in mind the fact that what section 80IB(10) refers to is 'residential unit' and, in the absence of anything to the contrary in the Income tax Act, the expression 'residential units' must have the same connotations as assigned to it by local authorities granting approval to the project. The local authority has approved the building plan with residential units of less than 1,000 sq.ft, and granted completion certificate as such. That leaves no ambiguity about the factual position. We have further noted that the prohibition against sale of more than one flat in ,a housing project to members of a family has been inserted specifically with effect from 1st April 2010, and, in our humble understanding, this amendment in law can only be treated as prospective in effect. What is, therefore, clear is that so far as pre-amendment position is concerned, as l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment will take effect from the 1st April 2010 and shall accordingly apply in relation to assessment year 2010- 2011 and subsequent years." 8. It is thus clear that the aforesaid amendment has been brought with prospective effect i.e. from 1st day of April 2010, and there is no indication whatsoever to suggest that these restrictions need to be applied with retrospective effect. The amendment seeks to plug a loophole but restricts the remedy with effect from 1st day of April 2010, i.e. AY 2010-2011. The law is very clear that unless provided in the Statute, the law is always presumed to be prospective in nature. It will therefore, be contrary to the scheme of law to proceed on the basis that wherever adjacent residential units are sold to family members, all these residential units are to be considered as one unit. If law permitted so, there was no need of the insertion of clause (f) to section u/s 80IB(10). It will be unreasonable to proceed on the basis that legislative amendment was infructuous or uncalled for -particularly as the amendment is not even stated to be 'for removal of doubts'. On the contrary, this amendment shows that no such eligibility conditions coul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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