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TMI Blog2016 (9) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/11/2011 for AYs 2007-08 and 2008-09. As common issue is involved in both the appeals, they are clubbed and heard together and, therefore, a common order is passed for the sake of convenience. 2. To dispose of these appeals, we refer to the facts from AY 2007-08 being ITA No. 355/Hyd/12. 3. Briefly the facts of the case are that the assessee company is a special purpose vehicle of L T Infocity ltd. for development of custom built facility centre for HDPI Ltd. It filed return of income for the AY 2007-08 on 30/20/2007 admitting total income of ₹ 3,54,080/-. The return of income was processed u/s 143(1). Subsequently, the assessment was reopened by issue of notice u/s 148. The AO completed the assessment u/s 143(3) r.w.s. 147 by treating the income of the assessee under the head income from house property as against business income as admitted by the assessee. 3.1. The assessee company was getting income by way of lease rentals. Although the articles of association of the company indicated that it was in the business of development and operation of industrial park/software technology parks, however, the Assessing Officer noticed that during the year the company only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power system, building management system, telecommunication services, sewerage and water treatment system etc. Thus the activity of assessee is much beyond mere letting of a building and enjoying rental income as owner of the building. In finding out whether a lease of assets amounts to business, what is relevant is the intention of the assessee. It has to be ascertained whether the assessee intended to use the asset as a business asset or otherwise during the relevant period. The yield of income by a commercial asset is the profit of a business irrespective of the manner in which the asset is exploited by the owner of the business. Further the nature of property as per records of Municipal Corporation is also 'Commercial Property Assessee submitted a plethora of judicial precedents which have held in cases similar to that of assessee company, that where the us of property is as a business asset along with provision of commercial services then the income would be taxable under the head 'Income from business or profession '. Further, in this regard, assessee placed reliance on following the judicial pronouncements: In Commissioner of Income-tax Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestments Pvt. Ltd. reported in (2001) 263 ITR 143. 3.4 AO further observed as below: i. The Government of West Bengal entered into an agreement with the assessee company through the Information Technology Department, Government of West Bengal for the, development of 1,80,000 sq.ft. of building with respect to back office processing / call centre project to be established by HDPI, it is also a fact that the assessee company has experience in developing similar projects. ii. The assessee was given a lease of 99 year over a plot of land measuring 3.542 acres in Salt Lake City for the exclusive purpose of setting out the building, custom built for clients like HDPI. iii. Thereafter, a lease agreement was entered into with the HDPI for a period of 9 years subject to renewal having a minimum locking in period of 6 years. iv. The main objects of its incorporation are to promote, setup, etc. infrastructure projects as the present one. However, it is not the memorandum of association which determines the head of the income earned under the Income Tax Act. Rather, it is the nature and extent of actual activities being carried out which determine whether the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sq. ft. in Kolkota, at the side made available by the GoWB, for a back office processing / call centre project to be established by HDPI. LTIL has agreed for development of the said IT facility, custom built to the requirements of HDPI for their exclusive use. 3.6 AO observed, it is clear that it has never been the intention of the Govt. of West Bengal that the assessee should carryon any business in the building. Read with further clauses of the MOU will make the intent of the entire MOU very clear. 1. LTIL agrees to undertake the construction of GPC at the Site in the time frame and upon and subject to the terms land conditions set out in Part A of the Schedule hereto so as to enable HDPI to establish and operate a GPC at the Site. 2. HDPI agrees to lease the GPC from LTIL upon and subject to the terms and conditions set out in Part B of the Schedule hereto. 3. Each of the parties agrees to maintain the confidentiality of any information and / or the contents of any documents provided or otherwise made available to it by the other in connection with. the Project and shall not, without the prior written consent of the other, disclose the same to any third pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PC at the Site, the terms of which lease are to include the following terms: (a) Term - Minimum term of 9 year, with a lock-in of 6 years, from the date the GPC is ready for occupation. (b) Deposit - Interest free, refundable deposit of 12 months lease rentals, payable by HDPI at the commencement of construction of the GPC (c) Rent - Payable on a lettable area of not more than 1,80,000 square feet gross. - Rent payable to cover and include the use of the 200 surface car-parking spaces and 250 surface motorcycle-parking spaces. - HDPI to pay initial rental of INR 21.75 per square foot per calendar month for the first 3 year of the term of the let (the Initial Term } net of service lox on construction services, if levied by the Government of India. If the service tax is levied, this would increase the month rental by INR 1.80 per square foot. - Following the expiration of the Initial Term, LTIL is entitled to increase the rent payable land the security deposit by 18 % for the next 3 year of the let (a Subsequent Term ) and thereafter shall be entitled to incase the rent payable- security deposit by 18% of the then rental at the end of each such S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee shall be responsible for the cost of 2000KV A transformer for the site and nothing else. It is therefore, clear from above, that the assessee has constructed the building as per certain specifications which include providing a 2000KV A Gen set and has handed over the same to HDPI. It is further noticed that the tenant HDPI has deducted tax at Source u/s 194-I of the I. T. Act and the entire construction has been done with the purpose of letting it out to HDPI. 3.9 In view of the above observations, the AO held that the claim of the assessee for taxing the rental income under the head business income is rejected and the rental income is taxed under the head income from house property. 4. Aggrieved the assessee preferred appeal before the CIT(A) and contended that it was carrying out business and its activities/income could not be classified as income from house property. 5. The CIT(A), following his decision in AY 2008-09, held that the AO has correctly appreciated the fact that it is the actual activities which would determine the nature of income earned rather than whatever is mentioned in the Memorandum of Association. Accordingly, he confirmed the action of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to take up any activity on the land other than setting up the IT facility. Initially, HDPI has agreed to take it on lease for 9 years as per the MOU (Annexure A) with the GoWB, in case HDPI vacating the said premises on completion of the lease period or otherwise, LTIlL shall be free to lease the premises to other IT or ITES companies only, subject, to prior approval from the IT Department, Government of West Bengal. Since HDPI has taken the lead and came forward to set up its business, it was leased out to them only, in future, there can be more than one lessee only from IT or ITES companies. 8.2 The ld. AR submitted that as stipulated in the Memorandum of Association of the company, the main objects for which LTIlL was incorporated were to carry on the business of To promote, set up, construct, develop, build, own, lease, sell, transfer, operate, manage, service, upgrade, and for maintain Information Technology Parks, Telecommunication, Engineering and Consultancy Parks, Cities, Complexes, Infrastructure projects, Software Technology Parks, Electronic and Hardware Technology Parks or any other infrastructure development projects with or without industrial estate, parks, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late some seminal features of the present case. The Memorandum of Association of the appellant-company which is placed on record mentions main objects as well as incidental or ancillary objects in clause III. (A) and (B) respectively. The main object of the appellant company is to acquire and hold the properties known as Chennai House and Firhavin Estate both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other properties or any interest therein. What we emphasise is that holding the aforesaid properties and earning income by letting out those properties is the main objective of the company. It may further be recorded that in the return that was filed, entire income which accrued and was assessed in the said return was from letting out of these properties. It is so recorded and accepted by the assessing officer himself in his order. It transpires that the return of a total income of ₹ 244030 was filed for the assessment year in question that is assessment year 1983-1984 and the entire income was through letting out of the aforesaid two properties namely, Chennai House and Firhavin Estate . Thus, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as income from the house property. It would be thus, clear that in similar circumstances, identical issue arose before the Court. This Court first discussed the scheme of the Income Tax Act and particularly six heads under which income can be categorised / classified. It was pointed out that before income, profits or gains can be brought to computation, they have to be assigned to one or the other head. These heads are in a sense exclusive of one another and income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, the Court pointed out that the deciding factor is not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them. It was highlighted and stressed that the objects of the company must also be kept in view to interpret the activities. In support of the aforesaid proposition, number of judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in England and US Courts were taken note of. The position in law, ultimately, is summed up in the following words: - As has been already pointed out in connection with the other two cases where there is a lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as 'income from the house property'. We, accordingly, allow this appeal and set aside the judgment of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as to costs. 10.2 Even as per the MoU of the assessee company, the main objects for which LTIIL was incorporated were to carry on the business of to promote, set up, construct, develop, build, own, lease, sell, transfer, operate, manage, service, upgrade, and /or maintain Information Technology Parks, Telecommunication, Engineering and Consultancy Parks, Cities, Complexes, Infrastructure projects, Software Technology Parks, Electronic and Hardware Technology Parks or any other infrastructure development projects with or without industrial estate, parks, townships, factories, commercial offices, residential complexes and other allied facilities and amenities such as internal roads, helipad, satellite communication facilities, shops, gardens, swimming pools. in any place whether in India or outside India, and undertaking consultancy and project management for setting up of the above activities. 10.3 Therefore, respectfully following the decision of the Hon ble Supreme Court in t ..... 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