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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
Before: SHRI AMIT SHUKLA & DR. B.R.R. KUMAR
PER AMIT SHUKLA, JM :
The aforesaid appeals have been filed by the Revenue against separate impugned orders dated 18.01.2017 for AYs 2013-14 & 2014- 15; and order dated 25.01.2018 for AY 2015-16 passed by the ld. CIT (APPEALS)-3, New Delhi for the quantum of assessment passed u/s 143(3) of the Income-tax Act, 1961 (for short ‘the Act’) for the assessment years 2013-14, 2014-15 & 2015-16.
2 ITA Nos.8524 to 8526/Del./2019 2. In all the three assessment years, one common issue is involved arising out of identical set of facts and similar findings of AO/CIT(A), therefore, the same were heard together and are being disposed off by way of this consolidated order.
For the sake of ready reference, we are adjudicating upon the appeal for AY 2013-14, and the finding given therein will apply mutatis mutandis in the appeals of other two assessment years.
The ground of appeal raised by the Revenue reads as under :-
“On the facts and in circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition made by the AO wherein AO had restricted deduction u/s 80IAB at Rs.NIL as against claimed at Rs.341,06,90,452/- by the appellant.”
The facts in brief are that the assessee company was engaged in the business of leasing of commercial properties under Special Economic Zone (SEZ), operation & maintenance of SEZ and was having ownership rights over commercial space developed in SEZ project and the same was reflected as fixed assets in the balance sheet. The said commercial space was rented out to various entities in their absolute right and the lease rental was declared as income under the head “income from house property”. The leased out commercial space was regularly in use by tenants for their own commercial activities. It is also matter of record and undisputed fact that the activity of the appellant has been approved by the Board of Approval of Ministry of Commerce in respect of SEZ project which fact has also been acknowledged by the AO and discussed in the assessment order from pages 1 to 4. For the sake of ready reference, relevant facts as discussed in the assessment order and the submissions made by the assessee are reproduced as under :-
3 ITA Nos.8524 to 8526/Del./2019 “The Facts in brief are: 1.1 That the assessee is a private limited company incorporated on 10 March 2006 and is engaged in the business of real estate and operating and maintaining real estate Special Economic Zone ('SET) projects and other allied activities. 1.2 That during the year under assessment the assessee has Claimed deduction u/s 80IAB at Rs.341,06,90,452, with respect to income derived from activity of operating and maintenance of Special Economic Zones (SEZs) at four different locations. This is the Second year of claim of deduction. The assessee company in terms of Sub- Section (7) of 80 IAB of the Act, had obtained a report in Form 10CCB from Chartered Accountants with respect to all the four SEZ's Project before filing of Income. Tax Return and copies of the report have been placed on record. 1.3 That the assessee, during the year under consideration, has been engaged in developing, leasing as well as maintenance and operations of commercial properties under SEZ. The assessee company is an approved Co-developer of the following notified SEZ Projects: S.No. Name of the Developer Project 1 DLF Info City Developers Manapakkam and (Chennai) Ltd. Muglivakkam villages, Kancheepuram, Tamil Nadu 2 DLF Cyber City Developers DLF Cyber City Ltd District, Gurgaon 3 DLF Limited Silokhera, Gurgaon 4 DLF Commercial Developers Ranga Reddy District, Ltd Andhra Pradesh 1.4 The assessee as per the provisions of Section 80IAB of the Income Tax Act, 1961, is eligible to claim deduction for 10 consecutive assessment years at the option of the assessee out of 15 years from the year in which the Special Economic Zone has been notified by the Central Govt. In the case of the assessee, the SEZ Zones have been notified as under:-
4 ITA Nos.8524 to 8526/Del./2019 (a) Chennai - A Y 2007-08 - Developer - DLF Infocity Developers Chennai) Ltd. (b) Hyderabad - A Y 2008-09 - Developer - DLF Commercial Developers Ltd. (c) DLF Cyber City, Gurgaon - AY 2008-09 - DLF Cyber City Developers Ltd. (d) Silokhera, Gurgaon - A Y 2008-09 - DU Limited. Therefore, the assessee company with respect to Chennai project is eligible to claim deduction for 10 consecutive years (out of the 15 Years), beginning Assessment Year 2007-08 upto 2021-22; with respect to other projects, beginning Assessment Year 2008-09 upto Assessment Year 2022-23. The assessee since have opted to claim deduction for the first time in the Assessment Year 2012-13, shall be eligible to claim deduction with respect to Chennai Project for ten consecutive Assessment Years and the last year of deduction in this case will be Assessment Year 2021-22. In the case of the other three projects, though the block of 15 years will expire in Assessment Year 2022-23 but on facts, the deduction will 'be available upto Assessment Year 2021-22. 1.5 That each Developer has got the approval from the Board of Approval ("BoA"). Ministry of Commerce for setting up Information Technology & ITES SEZ (IT & ITES SEZ). on land parcel owned by the Developer. All the 4 IT & ITES SEZs are notified SEZs. 1.6 That the assessee company approached the Government of India to seek approval of being a 'Co-Developer' in respect of the above mentioned SEZs, which was granted by the Department of Commerce (EPZ Section), Ministry of Commerce & Industry, Government of India. The details of the said approvals are as follows:
S.No. Name of the SEZ Approval to Co- Developers 1 Manapakkam and F.2/124/2005-EPZ, Muglivakkam villages, 14.02.2007
5 ITA Nos.8524 to 8526/Del./2019 Kancheepuram, Tamil Nadu 2 DLF Cyber City District, F.2/126/200S-EPZ, Gurgaon 01.0S.2007 3 Silokhera, Gurgaon F.2/137/200S-EPZ, 07.05.2007 4 Ranga Reddy District, F.2/136/200S-EPZ, Andhra Pradesh 01.0S.2007
Copies of the approval letters issued by the Ministry of Commerce & Industry, SEZ Section, Govt. of India, Udyog Bhawan, New Delhi along with Co-developer agreements in all these have been placed on record in the earlier years assessment proceedings. 1.7 That the authorized operations in respect of the above, are that the assessee shall provide infrastructure facilities and shall undertake, operation and maintenance in relation to the aforesaid projects, including but not limited to further development of bare shell buildings and conversion thereof into warm shell buildings by developing, constructing, installation of various equipment for electrification, air conditioning and interior fit-outs for plug and play facility and leasing out the space in buildings to approved units who conduct their business operations therein. All the said operations are authorized operations approved under the SEZ Act by the Ministry of Commerce and Industry, Department of Commerce. The services annexed to the approval letter are mentioned hereunder: 1. Office Space (Warmshell) 2. Power generation and Power backup facilities through DG. Set 3. Air conditioning and Chiller 4. Shopping arcade and/ or retail space 5. Business and/ or convention Centres 6. Food services including cafeteria, foods court(s), Restaurants, coffee shops, canteens and catering facilities 7. Clinic and medical centres
6 ITA Nos.8524 to 8526/Del./2019 8. Wi Fi and/ or Wi Max Services 1.8 That post obtaining approval from the Board of Approval ('BoA') and notification from the Ministry of Commerce, the Developer entities have entered into Memorandum of Understanding ('MOU') and Co-developer Agreement with the assessee to implement the projects, as a Co-developer for all the four SEZs, through carrying out various activities forming part of the authorized operations. These authorized operations include developing, operating and maintaining the SEZ as a Co-Developer. 1.9 That the assessee has, subsequently, after conversion of bare shell buildings into warm shell and providing other facilities as stated above at Para 1.6, entered into lease agreements for letting out the units in the said SEZs to earn rental income on letting out property and service income for providing maintenance services. The tax holiday under section 80-IAB of the Act is available to an assessee engaged in the development of a notified SEZ and such benefit can be availed by the assessee for ten consecutive years out of the first fifteen years. The rental income is required to be disclosed in the return of income under the head 'income from house property' and service income is required to be disclosed under the head 'profits and gains from business or profession I as per the provisions of the Act.”
Assessee has also given very detailed submissions to justify the claim which has been reproduced in the assessment order in toto. However, ld. AO held as under :-
“3.5 The reply of the assessee has been considered but however, since the order of the CIT(A) for the AY 2012-13, has not been accepted by the Department, and challenged before ITAT, New Delhi, Bench, which on the date of passing of this order for the AY 2013-14 is pending for adjudication. Accordingly, it is held that Income from House Property does not qualify for deduction u/s 80IAB based on the interpretation of section 80lAB read with the SEZ Act, 2005 and the observations on this issue of my predecessor in her order u/s 143(3) for the AY 2012-13.
7 ITA Nos.8524 to 8526/Del./2019 3.6 The assessee during the course of assessment proceedings vide its submission dated 16.12.2016 offered that. income from house property be reclassified as profits & gains of business or profession and has provided a revised computation whereby rental income from SEZ Buildings has been reclassified by the assessee under the head "Profits and gains of business or profession. The assessee has now claimed depreciation and other expenses resulting in business loss, and there by being no eligible profits and gains of business available for deduction u/s 80IAB. In view of the above, the total income of the assessee is computed as under.- Total Income under normal provision of Income Tax Act
Income under the head profits & gains of business & profession (as disclosed in ITR) 32,23,74,257 Add : Income from 550,52,65,238 house property Less : Property 25,43,443 Tax Less : Interest 73,13,20,464 Less : 623,17,72,906 Depreciation Less : Other Business Expenditure - Marketing 9,26,78,290 Service Charges - Land Lease 7,36,63,588 713,19,78,691 Rent
Income from business -130,43,39,196
Gross total income After set-off with business loss NIL Less : Deduction u/s 341,06,90,452 80IAB as claimed in
8 ITA Nos.8524 to 8526/Del./2019 ITR restricted to NIL as business income is NIL NIL negative B. Income under section 115JB of the IT Act Adjusted book profit as declared in the return of income Rs.257,66,45,801/-
Total income u/s 115 JB of IT Act Rs.257,66,45,801/-
Since, the tax liability of the assessee under normal provisions of the income tax is less than that of under section 115JB of IT Act, 1961, hence the total income of the assessee is accordingly assessed under section 115JB at Rs.257,66,45,801.”
Ergo, AO has accepted that assessee’s income is liable for 100% deduction u/s 80IAB and has computed the income at ‘nil’. However, he has held that instead of income shown by the assessee under the head “income from house property”, the same is assessable under the head “profits & gains of business & profession”. There is no dispute with respect to the allowability of claim u/s 80IAB and that assessee’s activities are not approved under the SEZ Act.
Ld. CIT (A) held that similar issue was involved in AY 2012-13 in the case of assessee and ld. CIT (A) allowed the issue in favour of the assessee in detailed order, therefore, there is no reason to differ from ld. Predecessor.
Before us, at the outset, ld. counsel for the assessee submitted that this issue is squarely covered by the decision of Tribunal in assessee’s own case for AY 2012-13 in ITA No.4965/Del/2016 order dated 25.01.2021 where the Tribunal, after relying upon various coordinate Benches decisions, has accepted that not only the
9 ITA Nos.8524 to 8526/Del./2019 assessee is eligible for deduction u/s 80IAB but income has to be assessed under the head “Income from house property”.
However, ld. CIT DR for the Revenue in a letter has stated as under :-
“That the matter needs to be examined with reference to case records and paperbook from field formation which have been requested for submitting before Hon'ble ITAT and are awaited for effective representation on varied GOA raised by Revenue in light of decision of Delhi High Court in 92 taxmann.com 10 in the case of CIT vs DLF Commercial Developers dated 22.02.2018 (ITA 507/2014,563/2015,610/2017) wherein it is stated that " ... 10. This Court is of the opinion that the ITAT's decision merely reproduced the CIT(A)'s judgment and has not analysed independently, in either of the AYs, the applicability of Section 80IAB towards the deductions claimed in the light of the transactions reported and the documents disclosed. Furthermore, those facts have also to be analysed in the light of the provisions of SEZ Act, 2005, which the ITAT has not independently done. For these reasons, the impugned orders of the ITAT are set-aside and are remitted for fresh consideration by the ITAT in accordance with law. All rights and contentions of the parties are reserved ... " The orders relied upon by the assessee and the CIT(A) merely capture the legal matrix; the factual aspects of the matter needs to be examined from the case records alongwith various regulatory compliances/information submitted under SEZ rules 2006 (pertaining to SEZ Act 2005) for satisfaction of "derived" income aspect etc to submit before the Hon'ble ITA T to support the stand of the Revenue more so as assessee has reclassified and revised income from house property as income from profit and gain business (para 3.6 of assessment order for A.Y. 2013-14; para 3.5 of assessment order for A.Y. 2014-15; para 3.5 of assessment order for A.Y. 2015-16) It is hence requested that the matter may very kindly be adjourned to any other regular date & oblige ... The petitioner shall ever be grateful for this act of kindness.”
10 ITA Nos.8524 to 8526/Del./2019
We have heard the rival contentions, gone through the impugned orders and the material available on record. We find that only dispute in appeal is, whether the assessment of lease income from commercial space in SEZ, should be taxed under the head “Income from house property” or as “business income”. In so far as the same is liable for deduction u/s 80IAB is not a dispute as admittedly it is an approved activity under SEZ Act and also approved SEZ project. The only dispute which has been raised by the AO is that the lease income should be considered under the head “profits & gains from business & profession” and not as “Income from House Property”. It is also not in dispute that this is the second year and in first year, this issue had come up for consideration in AY 2012-13 (supra) where the Tribunal has accepted the claim of the assessee. Not only that, even the Department in AYs 2017-18 & 2018-19 vide assessment order passed u/s 143(3) of the Act dated 12.05.2021 & 02.11.2021 has accepted the claim of the assessee. In the light of these background and facts, we are unable to appreciate the request of the ld. CIT DR. When the matter had come up for hearing on 09.03.2022, we have specifically asked the ld. CIT DR to go through the order whether there is any material change and the facts or law than the earlier years or there is any different in the present assessment order. However, even on the next date of hearing, no material fact or changes have been brought to our notice instead of stating as above. We do not find that there is any requirement for case record to see what were the documents submitted under SEZ Rules and SEZ Act, because it is neither the case of AO nor the case of ld. CIT (A) that assessee is not eligible or its activities are not falling under the SEZ Act. In fact, the
11 ITA Nos.8524 to 8526/Del./2019 AO has accepted this fact that activity of the assessee squarely falls within the activities approved by the competent authority and Board of Approval under the SEZ Act which has overriding effect in any other Act or even in Income-tax Act. Therefore, in the open court itself, we had rejected the contentions of the ld. CIT DR and we have decided to proceed the issue on merits, as we find, there is no material change at all from the earlier which is discernible from the assessment order or ld. CIT (A) order because AO has held repeatedly had mentioned the same reasoning given in the assessment order for AY 2012-13 and ld. CIT (A) has followed the order of his predecessor for AY 2012-13 which has now been followed and upheld by the Tribunal which we are bound by.
Now let us examine the issue as raised in grounds of appeal. First of all, the provisions of u/s 80IA (b) reads as under :-
“80-IAB. (1) Where the gross total income of an assessee, being a Developer, includes any profits and gains derived by an undertaking or an enterprise from any business of developing a Special Economic Zone, notified on or after the 1st day of April, 2005 under the Special Economic Zones Act, 2005, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for ten consecutive assessment years:
Thus, the said provision provides deduction in respect of profits & gains derived from an undertaking from any business of SEZ. Here, phrase “includes where the gross total income of assessee being a developer includes any profits & gains derived by any undertaking or an enterprise from any business of developing a Special Economic Zone.....”, has to be seen in the context, whether the income which has
12 ITA Nos.8524 to 8526/Del./2019 been derived is from the approved activities under the SEZ Act. The term “business of development economic zone” has to be understood in the context of authorized operation as approved by Board of Approval under the SEZ Act keeping in mind the overriding effect of SEZ Act on Income Tax Act as per section 51 of that Act. In such a situation, what is relevant is the claim of deduction and not the head of income, because the only requirement is that income must be derived from business of developing of SEZ which may fall under any head of income.
Here, in this case, it is an undisputed fact that assessee is a co- developer of commercial properties under the SEZ and has been approved as a co-developer and the name of the developer has already been mentioned above and each developer has got the separate approval from the Board of Approval, Ministry of Commerce for setting up of Information Technology and IT Enabled Services SEZ on the land parcel owned by the Developer. The assessee had approached the Government of India to seek approval of being a ‘co-developer’ in respect of the above mentioned SEZs which was granted by the Department of Commerce (EPZ Section), Ministry of Commerce & Industry and the details of approval has already been noted above. The assessee was required to provide infrastructure facilities and to undertake, operation and maintenance in relation to the aforesaid projects and the activities have already been mentioned above. The assessee had converted the bare shell buildings into warm shell and providing other facilities and has let out the units purely for rental income.
In this regard, we have to see earning of lease rental s from such activities otherwise fall under the head “Income from House Property”
13 ITA Nos.8524 to 8526/Del./2019 For that, we will refer to certain legal principles as laid down by Hon’ble Supreme Court { as taken from head notes} as under :- a. Raj Dadarkar & Associates v. ACIT [2017] 394 ITR 592 (SC) Section 22, read with sections 27 and 28(i) of the Income-tax Act, 1961 - Income from house property - Chargeable as (Letting of shops) - Assessee acquired leasehold rights in a property from MCGB - It constructed various shops and stalls on said property and gave same to various persons on sub-licensing basis - Income generated from sub-licensing was claimed as business income - Assessing Officer took a view that since assessee had acquired leasehold right in land for more than 12 years, it was to be regarded as 'deemed owner' of premises by virtue of section 27(iiib) - Accordingly, income earned from letting out shops and stalls was taxed under head 'income from house property'- Tribunal as well as High Court upheld order of Assessing Officer - Whether since assessee had not established that it was engaged in any systematic or organized activity of providing service to occupiers of shops/s ails, ere act a object clause of partnership deed mentioned that business of assessee was to take premises on rent and to sub-let same, was not sufficient to conclude that income in question was taxable as business income - Held, yes - Whether, therefore, impugned order passed by authorities below was to be confirmed - Held, yes. b. Shambhu Investment (P.) ltd. v . CIT [2003] 263 ITR 143 (SC) Section 22, read with section 263, of the Income-tax Act, 1961 - Income from house property - Chargeable as - Assessment
14 ITA Nos.8524 to 8526/Del./2019 treating income derived by assessee-company from letting out office premises along with certain facilities and services to various persons as business income, was held by Commissioner under section 263 as erroneous and prejudicial to interests of revenue and was set aside with direction to Assessing Officer to assess said income as property income - Prime object of assessee under said agreement was to let out portion of said property to various occupants by giving them additional right of using furniture and fixtures and other common facilities for which rent was being paid month by month in addition to security free advance covering entire cost of said immovable property - Whether it would be wrong to say that assessee was exploiting property for its commercial business activities and such business activities were primary motto and letting out property was secondary one - Held, yes - Whether from agreement between two parties, it was clear that primary object was to let out portion of said property with additional right of using furniture and fixtures and other common facilities for which rent was being charged from month to month and, therefore, income derived from said property was income from property which should be assessed as such - Held, yes
c. East India Housing and Land Development Trust ltd. v. CIT [1961] 42 ITR 49 (SC)
Section 22 of the Income-tax Act, 1961 [corresponding to section 9 of the Indian Income-tax Act, 1922] - Income from house property :- Chargeable as - Assessment year 1953-54 - Whether income derived by assessee company from tenants of shops and stalls was income received from property falling under section 9
15 ITA Nos.8524 to 8526/Del./2019 of 1922 Act and character of that income could not be altered merely because assessee company had been formed with object of setting up and developing landed properties and markets - Held, yes.
Thus, income earned from lease rentals for renting out a property per se, ostensibly falls under the head ‘income from house property’, unless it is shown that there was some systematic activity falling into the nature of business. Whence, the lease rental income of the assessee has been accepted to be assessed under the head ‘income from house property’ in AY 2012-13 and again in AYs 2017-18 & 2018-19, then we do not find any reason as to why the income from the same activity is not to be classified under the head ‘income from house property’ in these years.
Hon’ble Supreme Court in the case of CIT-I vs. Reliance Energy Ltd. reported in (2022) 441 ITR 346 in the context of section 80IA, held that the scope of section 80IA (5) is limited to determine the quantum of deduction under sub-section (1) of section 80IA by treating eligible business for ‘only source of income’ and same cannot be pressed into service for reading a limitation of deduction under sub- section (1) only to ‘business income’. The relevant extract of the judgment of Hon’ble Apex Court reads as under :-
“9. The controversy in this case pertains to the deduction under Section 80-IA of the Act being allowed to the extent of ‘business income’ only. The claim of the Assessee that deduction under Section 80-IA should be allowed to the extent of ‘gross total income’ was rejected by the Assessing Officer. ................. ……..A plain reading of Section 80AB of the Act shows that the provision pertains to determination of the quantum of deductible
16 ITA Nos.8524 to 8526/Del./2019 income in the ‘gross total income’. Section 80AB cannot be read to be curtailing the width of Section 80-IA. It is relevant to take note of Section 80A(1) which stipulates that in computation of the ‘total income’ of an assessee, deductions specified in Section 80C to Section 80U of the Act shall be allowed from his ‘gross total income’. Sub-section (2) of Section 80A of the Act provides that the aggregate amount of the deductions under Chapter VI-A shall not exceed the ‘gross total income’ of the Assessee. We are in agreement with the Appellate Authority that Section 80AB of the Act which deals with determination of deductions under Part C of Chapter VI-A is with respect only to computation of deduction on the basis of ‘net income’. …………………. 12. The import of Section 80-IA is that the ‘total income’ of an assessee is computed by taking into account the allowable deduction of the profits and gains derived from the ‘eligible business’. With respect to the facts of this Appeal, there is no dispute that the deduction quantified under Section 80-IA is Rs.492,78,60,973/-. To make it clear, the said amount represents the net profit made by the Assessee from the ‘eligible business’ covered under sub-section (4), i.e., from the Assessee’s business unit involved in generation of power. The claim of the Assessee is that in computing its ‘total income’, deductions available to it have to be set-off against the ‘gross total income’, while the Revenue contends that it is only the ‘business income’ which has to be taken into account for the purpose of setting-off the deductions under Sections 80-IA and 80-IB of the Act. To illustrate, the ‘gross total income’ of the Assessee for the assessment year 2002-03 is less than the quantum of deduction determined under Section 80- IA of the Act. The Assessee contends that income from all other heads including ‘income from other sources’, in addition to ‘business income’, have to be taken into account for the purpose of allowing the deductions available to the Assessee, subject to the ceiling of ‘gross total income’. The Appellate Authority was of the view that there is no limitation on deduction admissible under Section 80-IA of the Act to income under the head ‘business’ only, with which we agree. 13. The other contention of the Revenue is that sub-section (5) of Section 80-IA refers to computation of quantum of deduction being limited from ‘eligible business’ by taking it as the only source of income. It is contended that the language of sub-section (5) makes
17 ITA Nos.8524 to 8526/Del./2019 it clear that deduction contemplated in sub-section (1) is only with respect to the income from ‘eligible business’ which indicates that there is a cap in sub-section (1) that the deduction cannot exceed the ‘business income’. On the other hand, it is the case of the Assessee that sub-section (5) pertains only to determination of the quantum of deduction under sub-section (1) by treating the ‘eligible business’ as the only source of income. It was submitted by Mr. Vohra, learned Senior Counsel, that the final computation of deduction under Section 80-IA for the assessment year 2002-03 as accepted by the Assessing Officer, was arrived at by taking into account the profits from the ‘eligible business’ as the ‘only source of income’. He submitted that, however, sub-section (5) is a step antecedent to the treatment to be given to the deduction under sub- section (1) and is not concerned with the extent to which the computed deduction be allowed. To explain the interplay between sub-section (5) and sub-section (1) of Section 80-IA, it will be useful to refer to the facts of this Appeal. The amount of deduction from the ‘eligible business’ computed under Section 80-IA for the assessment year 2002-03 is Rs. 492,78,60,973 /-. There is no dispute that the said amount represents income from the ‘eligible business’ under Section 80-IA and is the only source of income for the purposes of computing deduction under Section 80-IA. The question that arises further with reference to allowing the deduction so computed to arrive at the ‘total income’ of the Assessee cannot be determined by resorting to interpretation of sub- section (5). 15. In the case before us, there is no discussion about Section 80- IA(5) by the Appellate Authority, nor the Tribunal and the High Court. However, we have considered the submissions on behalf of the Revenue as it has a bearing on the interpretation of sub-section (1) of Section 80-IA of the Act. We hold that the scope of sub- section (5) of Section 80- IA of the Act is limited to determination of quantum of deduction under sub-section (1) of Section 80-IA of the Act by treating ‘eligible business’ as the ‘only source of income’. Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to ‘business income’. An attempt was made by the learned Senior Counsel for the Revenue to rely on the phrase ‘derived … from’ in Section 80-IA (1) of the Act in respect of his submission that the intention of the legislature was to give the narrowest possible construction to deduction admissible under this
18 ITA Nos.8524 to 8526/Del./2019 sub-section. It is not necessary for us to deal with this submission in view of the findings recorded above. For the aforementioned reasons, the Appeal is dismissed qua the issue of the extent of deduction under Section 80-IA of the Act.”
Thus, the ratio and principle of Hon’ble Supreme Court is that, while computing the deduction, what is required to be seen is that the only source of income derived from eligible business, is eligible for deduction and same cannot be limited to only business income. Here in this case also, there is no dispute that the income which has been derived by the assessee is derived from approved activity under SEZ which is the only source of income for which the deduction u/s 80IA(b) is to be allowed. It is immaterial that whether the income derived has been shown from house property or business income or any other head. Thus, we hold that income derived from approved activity from the SEZ is liable to be allowed as deduction u/s 80IA.
Otherwise, this issue is covered by the order of earlier year of the Tribunal. The relevant observation of the Tribunal in AY 2012-13 is reproduced as under :-
“13. In our understanding, the scheme of SEZ is governed by the provision of law contained under the SEZ 2005. Section 51 of the SEZ Act 2005 provides that the SEZ Act shall have overriding effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. In our considered opinion developing SEZ by itself is the business contemplated u/s. 80 IAB of the Act and the SEZ itself provides that the lease rental income generated in the hands of a developer engaged in setting up of the SEZ, is the profits and gains derived from the business of developing a SEZ” 19. In addition, the assessee case is fully supported from the decision of Chennai Bench of ITAT in case of ACIT vs. Lulu Tech Park P. Ltd.
19 ITA Nos.8524 to 8526/Del./2019
(ITA No.593/Mds/16 dated 01.05.2017) and the relevant observations are reproduced as under :-
“The assessee claims that irrespective of the head of income, the (house property) lease rental income shall continue to be eligible for deduction under section 80-IAB. The said section, in its relevant part, reads as under: …. The assessee is without doubt a Developer of a SEZ, having been in fact allowed deduction u/s.80-IAB on it's other income/s, as from service agreements, chargeable u/s.2B. That the said income is assessable as business income, and only rightly so, inasmuch as the source thereof is the commercial activity of providing a range of services, is besides the point. We have in fact found the said services as only enabling services, i.e., enabling the enjoyment and the user of the house property, developed by the assessee as a developer thereof - a term defined under SEZ Act, 2005. By letting the built-up space, the assessee is only turning into account it's investment in the house property, being a building and land appurtenant thereto. It is, in fact, this - the construction of a building suitable for the firms operating in the IT sector, that qualifies it as a developer of an Info-park, approved as a SEZ. That the said activity, i.e. developing real estate and leasing it, which is, broadly speaking, and in common parlance, only a business, is not regarded as so for the purpose of assessment of income there-from, being derived from a house property, a defined source of income for which a specific head of income is provided under the Act, is another matter. This is so even where it is carried in an organized manner, i.e., as a business, as in the present case. It shall, however, not cease, for that reason, to be profits and gains derived from the activity of developing a SEZ. The word 'business' - even otherwise a word of wide and indefinite import, as occurring in section 80-IAB(1), is to be, accordingly, construed in a broad rather than a strict sense, as conveying the gamut of activities, including activities subservient and incidental to developing a SEZ and turning it into account. Now, surely, leasing of house property, inasmuch as the lessees (who are to be, or presumably so, in info- tech business) would be able to undertake their businesses only on the developed property being made available to them, could not therefore but be regarded as the principal activity yielding income from the development of a SEZ. In fact, even the income (to the assessee) from providing ancillary and maintenance services to these businesses arises or stands to arise only on account of, or by virtue of, their being lessees. The lease rental income, on the lease of the house property thereto, would thus, in our view, notwithstanding the use of the words 'profits and gains' and 'business' in section 80-IAB(1), qualify to be eligible for deduction there-under. That is, the lease rental is within the contemplation of the profits derived by a developer of a SEZ from the 'business' of developing it, eligible for deduction u/s. 80-IAB. It is in fact this that forms the basis of the decisions in Coimbatore Hitech Infrastructure (P.) Ltd. (supra) and Global Tech Park Pvt. Ltd. (supra). The head of income under which the said income is assessable, which is on the basis of the source - from amongst the specified sources under the Act, most appropriate for the said income, so that it is not assessable as business income but as
20 ITA Nos.8524 to 8526/Del./2019 income from house property, would not be a limiting or debilitating factor. We decide accordingly, and the assessee succeeds qua it's alternate ground, i.e., in principle.” 20. Once similar facts are permeating in this year, we do not find any reason to deviate from this finding and moreover the lease rental incomes received by the assessee are otherwise liable to be taxed under the head ‘income from house property’. The statute or the provisions contained u/s 80IAB does not make any distinction that if the income has been derived from approved activities in SEZ, the same has to be classified under a particular head and then only deduction would be allowed, albeit it only says that where the gross total income of the assessee, being a developer, includes any profits and gains derived by an undertaking from any business of developing a SEZ, therefore, income has been derived from any activities in the SEZ duly approved by the Board of Approval under the SEZ Act is allowable for deduction u/s 80IAB. Accordingly, the order of the ld. CIT (A) is confirmed and the Revenue’s appeal for AY 2013-14 is dismissed.
Since in AYs 2014-15 & 2015-16 exactly similar ground has been raised with same finding, therefore, our finding given above will apply mutatis mutandis and accordingly, the appeals filed by the Revenue for AYs 2014-15 7 2015-16 are also dismissed. Order was pronounced on 5th day of May, 2022.
SD/- SD/- (DR. B.R.R. KUMAR) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 05.05.2022 TS
21 ITA Nos.8524 to 8526/Del./2019