LULU TECH PARK PVT LTD vs. PRINCIPAL COMMISSIONER OF IN

TCA.No.886/2018 In the High Court of Judicature at Madras Dated : 02.9.2020 Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mrs.Justice PUSHPA SATHYANARAYANA Tax Case Appeal No.886 of 2018 Lulu Tech Park Pvt. Ltd., Kochi-682402 ...Appellant Vs Principal Commissioner of Income Tax-4, No.121, Uthamar Gandhi Salai, Chennai-34 ...Respondent APPEAL under Section 260A of the Income Tax Act, 1961 against the order dated 01.5.2017 made in ITA.No.593/Mds/2016 on the file of the Income Tax Appellate Tribunal, Chennai 'C' Bench for the assessment year 2008-09. For Appellant: Mr.N.V.Balaji For Respondent: Mr.Karthik Ranganathan, SC Judgment was delivered by

T.S.Sivagnanam,J

We have heard Mr.N.V.Balaji, learned counsel appearing for the 1/11 http://www.judis.nic.in TCA.No.886/2018 appellant – assessee and Mr.Karthik Ranganathan, learned Standing Counsel appearing for the respondent – Revenue. 2. This appeal, filed by the Revenue under Section 260A of the Income Tax Act, 1961 (for brevity, the Act), is directed against the the order dated 01.5.2017 made in ITA.No.593/Mds/2016 the file of the Income Tax Appellate Tribunal, Chennai 'C' Bench (for short, the Tribunal) for the assessment year 2008-09. 3. The appeal was admitted on 05.12.2018 on the following substantial questions of law : “i. Whether, under the facts and circumstances of the case, the Tribunal was right in holding that the income of the appellant from software technology park developed by it is to be assessed as income from house property and not under the head 'income from business'? ii. Is the finding of the Tribunal that the appellant's income from the technology park owned, developed and maintained by it is assessable under the head 'income from house property' and not under the head 'income from business', not perverse ? iii. Whether, on facts and circumstances of the case, the Tribunal was right in remitting 2/11 http://www.judis.nic.in TCA.No.886/2018 back the matter to the Assessing Officer to examine whether the appellant qualifies for deduction under Section 80IAB after holding it is eligible for deduction under Section 80IAB even if the income is assessable under the head 'income from house property'? and iv. Under facts and circumstances of the case, is the appellant not eligible for deduction of expenditure incurred by it in its organised business of owning, developing and maintaining the software technology park in computing its business income, even if the lease rental income is to be assessed under the head 'income from house property?” 4. The above extracted substantial questions of law were considered by a Division Bench of this Court, to which, one of us (TSSJ) was a party, in the case of CIT Vs. Tidel Park Ltd. [TCA.Nos.732 & 733 of 2018 dated 07.7.2020] wherein the Court took note of various decisions and answered the substantial questions of law against the Revenue and in favour of the assessee. It is not in dispute that the said decision squarely covers the issue in the case on hand. The relevant portions of the said judgment reads as follows : “5. It is relevant to point out that in the said decision the Division Bench of the Delhi 3/11 http://www.judis.nic.in TCA.No.886/2018 High Court referred the decision in the case of Commissioner of Income Tax VI Vs. Taikisha Engineering India Limited [ITA No.115/2014 decided on 25.11.2014] 6. Further, the Bombay High Court in the case of Godrej & Boyce Manufacturing Company Limited, Mumbai Vs. Deputy Commissioner of Income Tax, reported in (2010) 328 ITR 0081, has elaborated the procedure to be followed by the Assessing Officer under Section 14A in the following terms : “The following principles would emerge from s. 14A : (a) the mandate of s. 14A is to prevent claims for deduction of expenditure in relation to income which does not form part of the total income of the assessee; (b) sec. 14A(1) is enacted to ensure that only expenses incurred in respect of earning taxable income are allowed; (c) the principle of apportionment of expenses is widened by s. 14A to include even the apportionment of expenditure between taxable and non-taxable income of an indivisible business; (d) the basic principle of taxation is to tax net income. This principle applies even for the purposes of s. 14A and expenses towards non-taxable income 4/11 http://www.judis.nic.in TCA.No.886/2018 must be excluded; (e) once a proximate cause for disallowance is established —which is the relationship of the expenditure with income which does not form part of the total income— a disallowance has to be effected. All expenditure incurred in relation to income which does not form part of the total income under the provisions of the Act has to be disallowed under s. 14A. Income which does not form part of the total income is broadly adverted to as exempt income as an abbreviated appellation. Under sub-s. (2), the AO is required to determine the amount of expenditure incurred by an assessee in relation to such income which does not form part of the total income under the Act in accordance with such method as may be prescribed. The method, having regard to the meaning of the expression 'prescribed' in s. 2(33), must be prescribed by rules made under the Act. What merits emphasis is that the jurisdiction of the AO to determine the expenditure incurred in relation to such income which does not form part of the total income, in accordance with the prescribed method, arises if the AO is not satisfied with the correctness of the claim of the assessee in respect of the expenditure 5/11 http://www.judis.nic.in TCA.No.886/2018 which the assessee claims to have incurred in relation to income which does not form part of the total income. Moreover, the satisfaction of the AO has to be arrived at, having regard to the accounts of the assessee. Hence, sub-s. (2) does not ipso facto enable the AO to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The AO must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the AO must be arrived at on an objective basis. It is only when the AO is not satisfied with the claim of the assessee, that the legislature directs him to follow the method that may be prescribed. Sub-s. (3) of s. 14A provides for the application of sub-s. (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act.” 7. The above legal position has been 6/11 http://www.judis.nic.in TCA.No.886/2018 rightly followed by the tribunal while deciding the assessee's case and therefore, rightly dismissed the appeal filed by the revenue. Thus, we find that the Substantial Question of Law No.2 has to be answered against the revenue and in favour of the assessee. 8. So far as Substantial Question of Law No.1 is concerned, it has to be seen as to whether the income derived from letting out of the property in an industrial park/SEZ including the amenities and the income received by the owners for such property and the amenities therein would be business income in the hands of the owner of the property. 9. We need not labour much on this issue, on account of the circular No.16 of 2017 issued by the CBDT dated 25.04.2017. The CBDT after taking note of the two decisions of the Karnataka High Court held that it is now a settled position that in the case of an undertaking which develops, develops and operates or maintains and operates an industrial park/SEZ notified in accordance with the scheme framed and notified by the Government, the income from letting out the premises / developed space along with other 7/11 http://www.judis.nic.in TCA.No.886/2018 facilities in an industrial park/SEZ is to be charged to tax under the head 'Profits and Gains of Business'. 10. As rightly pointed out by Mr.R.Vijaya Raghavan, the emphasis is on not only letting out of the premises / developed space but along with other facilities in an industrial park/SEZ. The tribunal in this regard followed a decision of the Division Bench of this Court in the case of CIT Vs. Elnet Technologies Limited, reported in (2013) 30 Taxmann.com 63 (Mad). In the said decision, at paragraph No.11, the Division Bench, has held as follows: "11. In considering whether the income arising on the leasing of the property was business of the assessee, one has to get into the nature of the business of the assessee, to find out the receipts are assessable under the head of income from house property or as business income and if receipts does not fall in any of those classified heads, would fall consideration under the residuary head of income as income from other sources." 11. After referring to the decision in the case of CIT Vs. Chennai Properties and Investments Limited, reported in (2005) 274 ITR 117, it was pointed out that income 8/11 http://www.judis.nic.in TCA.No.886/2018 derived from letting out of the property with all amenities and facilities would be income from business and cannot be assessed either as income from house property or as income from other sources. The said decision of the Hon'ble Division Bench was appealed against by the revenue before the Hon'ble Supreme Court in SLP No.11638 of 2013 and we are informed that the appeal was dismissed on 27.01.2020 on the ground of Low Tax Effect. 12. Considering all those facts as wells as the circular issued by CBDT, substantial question of law No.1, has to be answered against the revenue and in favour of the assessee. The Tax Case Appeals are dismissed and the Substantial Questions of Law are answered against the revenue.” 5. Furthermore, the decision of the Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd. Vs. CIT [reported in (2015) 373 ITR 673] will also come to the aid and assistance of the assessee wherein it was held that where, in the terms of memorandum of association, the main object of the assessee given was to acquire properties and earn income by letting out the same, such income was brought to books as business income and not as income from house properties. 9/11 http://www.judis.nic.in TCA.No.886/2018 6. For the above reasons, the above appeal has to be allowed and the substantial questions of law are to be answered in favour of the assessee. 7. Accordingly, the above tax case appeal is allowed, the order of the Tribunal is set aside and the substantial questions of law are answered in favour of the assessee. No costs. 02.9.2020 To 1.The Income Tax Appellate Tribunal, Chennai 'C' Bench. 2.The Principal Commissioner of Income Tax-4, No.121, Uthamar Gandhi Salai, Chennai-34. RS 10/11 http://www.judis.nic.in TCA.No.886/2018 T.S.SIVAGNANAM,J AND PUSHPA SATHYANARAYANA,J RS TCA.No.886 of 2018 02.9.2020 11/11 http://www.judis.nic.in