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TMI Blog2020 (4) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit of deduction notwithstanding wrong classification of income under the head income from house property . The AO was under duty to examine the true nature and character of income while framing assessment regardless of error committed by the assessee in this regard. The claim of assessee u/s 80IAB thus deserves to be allowed on first principles. Wrong classification of income under the head income from house property , has resulted in wrong claim of deduction under S. 23/24 while computing income under the head house property and requires correction. Similarly, the normal business expenses incurred were also not claimed from lease rentals in view of restrictions placed under the head income from house property . The correct computation of business income on realignment of head of income would thus be required to correctly determine the quantum of income eligible for deduction under S. 80IAB - restore the issue back to the file of Assessing Officer for re-determination of taxable income in accordance with law, having regard to the true nature of income derived by the assessee. The AO shall grant deduction u/s. 80IAB. Allowability of interest expenditure u/s. 36(1)(ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings u/s. 154 of the Act whereby deduction allowed u/s. 80IAB against the lease income declared under the head income from house property was sought to be withdrawn on the ground that deduction u/s. 80IAB is admissible only in respect of profits gains from SEZ business of developing a Special Economic Zone and not from income taxable under the head income from house property . The deduction claimed u/s. 80IAB amounting to ₹ 114,54,343 was accordingly disallowed by a rectification order passed by the AO u/s. 154 of the Act dated 27.10.2016. 2.2 The assessee challenged the authority of the AO to pass rectification order denying the deduction u/s. 80IAB before the CIT(Appeals). The CIT(A), however, confirmed the action of the AO essentially on the ground that lease rent has been reported under the head income from house property and in the absence of any business income from SEZ, the assessee is not entitled to deduction u/s. 80IAB of the Act. The CIT(A) aaccordingly found that the AO had committed apparent error in allowing deduction while framing assessment u/s. 143(3) of the Act which was rightly withdrawn by passing a rectification order u/s. 154 of the Act. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction u/s. 80IAB cannot be denied without indulging in long drawn debate. 3.2 In the circumstances, it was contended that the rectification action of the AO is beyond the scope of section 154 of the Act. The ld. AR further referred to several decisions of the Tribunal to submit that lease rentals received from SEZ are in the nature of profits gains derived from business. 3.3 It was thus contended that rectification carried out by the AO u/s. 154 is without authority of law and requires to be quashed. It was further contended that the CIT(Appeals) has overlooked the express CBDT Circular and has misdirected himself in law in affirming the action of the AO without examining the true and essential nature of income derived by the assessee. 4. The ld. DR, on the other hand, relied on the order of AO and CIT(Appeals). It was submitted in furtherance that where the assessee himself has not declared any income under the head profits gains of business, the revenue authorities were ostensibly justified in denying deduction u/s. 80IAB of the Act, where the deriving income from business is a sin qua non for its claim. 5. We have considered the rival submissions. The sco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Chugandas Co. (supra) for the proposition that nature of income has to be decided on commercial principles and a wrong classification would not alter the true character of income. The taxability of an income under the appropriate head has also been answered by the Hon ble Gujarat High Court in the case of CIT vs. Pranjay Mercantile Ltd. (2014) 43 Taxmann.com 193 (Guj.) wherein it was observed that the income of the assessee is to be assessee under different heads enumerated in section as per true nature and character of income and not merely on the basis of classification given by the assessee. 7. Having regard to the Circular and judicial precedents referred to and relied upon, it is manifest that the eligibility of deduction u/s. 80IAB is governed by the true character of lease rental income derived. The CBDT circular albeit in the context of S. 80IA(4-(iii) has expressed its concern on litigation towards taxability of lease income under the appropriate head and granted relief to the taxpayer for eligibility of deduction. The issue thus cannot be said to be totally free of any debate. On the contrary, the debate, if any, leans in favour of the assessee. Thus, the rectifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature and character of income while framing assessment regardless of error committed by the assessee in this regard. The claim of assessee under S. 80IAB thus deserves to be allowed on first principles. 11. However, as simultaneously pointed out on behalf of the assessee, the wrong classification of income under the head income from house property , has resulted in wrong claim of deduction under S. 23/24 while computing income under the head house property and requires correction. Similarly, the normal business expenses incurred were also not claimed from lease rentals in view of restrictions placed under the head income from house property . The correct computation of business income on realignment of head of income would thus be required to correctly determine the quantum of income eligible for deduction under S. 80IAB of the Act. We, thus, consider it just and appropriate to restore the issue back to the file of Assessing Officer for re-determination of taxable income in accordance with law, having regard to the true nature of income derived by the assessee. The AO shall grant deduction u/s. 80IAB of the Act to the assessee in accordance with law in the light of Circula ..... X X X X Extracts X X X X X X X X Extracts X X X X
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