THE COMMISSIONER OF INCOME-TAX vs. M/S INFORMATION TECHNOLOGY PARK LTD

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ITA/320/2013HC KarnatakaKAHC01026777201330 April 2014Bench: B.MANOHAR,DILIP B.BHOSALE8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the substantial question of law is decided against the Revenue. The Court respectfully agreed with a Division Bench judgment of the same Court in the case of COMMISSIONER OF INCOME TAX-III v/s VELANKANI INFORMATION SYSTEMS (P) LTD. (2013) 218 Taxman 88 (Karnataka). The Court noted that in the Velankani case, it was held that if the intention is to exploit commercial property by construction and letting it out for rental income, it falls under ‘income from house property’. However, if the assessee is in the business of taking land, putting up commercial buildings, and letting them out with furniture and other facilities as its profession or business, then the income falls under ‘profits and gains of business or profession’. In the present case, the assessee-company is engaged in the business of developing, operating, and maintaining an industrial park and providing infrastructure facilities to different companies as its business. Therefore, the rental income is to be treated as business income. The appeals filed by the Revenue are dismissed.

What were the facts?

The Revenue (Commissioner of Income Tax and Income-Tax Officer) filed these appeals against a common order dated March 8, 2013, passed by the Income Tax Appellate Tribunal (ITAT), Bangalore. The ITAT had dismissed the Revenue's appeals, thereby upholding the order of the Commissioner of Income Tax (Appeals). The Commissioner (Appeals) had ruled that rental income received by the assessee, M/s. Information Technology Park Ltd., from letting out buildings along with other amenities in a Software Technology Park should be treated as 'business income' and not 'income from house property'. This decision set aside the order of the Assessing Authority for assessment years 2005-06 to 2009-10. The dispute concerns the classification of this rental income.

What were the issues?

1. Whether the Tribunal was correct in holding that the lease rent received by the assessee from letting out buildings along with other amenities in a Software Technology Park is chargeable to tax under the head ‘income from business’ and not under the head ‘income from house property’ as held by this Hon’ble Court in Bhoopalam Commercial Complex & Industries and by the Apex Court in East India Housing & Land Development Trust Ltd.? Assessee's Contention: The assessee argued that the rental income is business income. The judgment does not explicitly record the assessee's arguments but refers to the ITAT's decision which favored the assessee. Revenue's Contention: The Revenue contended that the rental income should be classified under ‘income from house property’. The Revenue relied on the judgments of this Hon’ble Court in Bhoopalam Commercial Complex & Industries and the Apex Court in East India Housing & Land Development Trust Ltd. to support their claim. The Revenue is aggrieved by the ITAT's order confirming the Commissioner (Appeals)'s decision.

Which sections of the Income-tax Act were involved?

Section 260-A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 30TH DAY OF APRIL 2014

PRESENT

THE HON'BLE MR.JUSTICE DILIP B.BHOSALE

AND

THE HON'BLE MR.JUSTICE B.MANOHAR

ITA.NO.318/2013 C/W ITA.319/2013, ITA.320/2013, ITA.321/2013, ITA.322/2013

BETWEEN:

1.

The Commissioner of Income Tax, C.R.Building, Queens Road, Bangalore.

2.

The Income-Tax Officer, Ward -11(2), Rashtrothana Bhavan, Nrupathunga Road, Bangalore.

…Common Appellants

(By Sri.K.V.Aravind, Advocate)

AND:

M/s.Information Technology Park Ltd., 1st Floor, Innovator Building, International Tech Park, Bangalore - 560 066. ….Common Respondent

(By Sri.T.Suryanarayana, Adv for M/s.King & Partridge)

ITA.No.318/2013

This ITA is filed under Sec.260-A of Income Tax Act 1961, arising out of Order dated 08-03-2013 passed in ITA.No.812/Bang/2012, for the Assessment Year 2005-06, praying this Hon’ble Court to:

i. formulate the substantial questions of law stated therein. ii. allow the appeal and set aside the order of the ITAT, Bangalore in ITA.No.812/Bang/2012, dated 08-03-2013 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward- 11(2), Bangalore.

ITA.No.319/2013

This ITA is filed under Sec.260-A of Income Tax Act 1961, arising out of Order dated 08-03-2013 passed in ITA.No.813/Bang/2012, praying this Hon’ble Court to:

i formulate the substantial questions of law stated therein. iii. ii allow the appeal and set aside the order of the ITAT, Bangalore in ITA.No.813/Bang/2012, dated 08-03-2013 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward- 11(2), Bangalore.

ITA.No.320/2013

This ITA is filed under Sec.260-A of Income Tax Act 1961, arising out of Order dated 08-03-2013 passed in ITA.No.814/Bang/2012, for the Assessment Year 2007-08, praying this Hon’ble Court to:

i. formulate the substantial questions of law stated therein. ii allow the appeal and set aside the order of the ITAT, Bangalore in ITA.No.814/Bang/2012, dated 08-03-2013 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward-11(2), Bangalore.

ITA.No.321/2013

This ITA is filed under Sec.260-A of Income Tax Act 1961, arising out of Order dated 08-03-2013 passed in ITA.No.815/Bang/2012, for the Assessment Year 2008-09, praying this Hon’ble Court to:

i formulate the substantial questions of law stated therein. ii allow the appeal and set aside the appellate order of the ITAT, Bangalore in ITA.No.815/Bang/2012, dated 08-03-2013 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward-11(2), Bangalore.

ITA.No.322/2013

This ITA is filed under Sec.260-A of Income Tax Act 1961, arising out of Order dated 08-03-2013 passed in ITA.No.816/Bang/2012, for the Assessment Year 2009-10, praying this Hon’ble Court to:

i formulate the substantial questions of law stated therein. ii allow the appeal and set aside the appellate order of the ITAT, Bangalore in ITA.No.816/Bang/2012, dated 08-03-2013 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward-11(2), Bangalore.

These appeals coming on for Hearing this day, B.MANOHAR J., delivered the following: J U D G M E N T

These Income Tax appeals are filed by the Revenue under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’), being aggrieved by the common order dated 08-03-2013 passed by the Income Tax Appellate Tribunal, “C” Bench, Bangalore (for short ‘the Tribunal’) made in ITA Nos.812-816/Bang/2012 whereby the Tribunal dismissed the appeals filed by the revenue and

confirmed the order dated 28-03-2012 passed by the Commissioner of Income Tax (Appeals)-I, Bangalore, (hereinafter referred to as ‘the First Appellate Authority’), wherein the First Appellate Authority held that rental income received by the assessee from letting out buildings along with other amenities in Software Technology Park falls under the head of ‘business income’ and not under the ‘Income from house property’ while setting aside the order passed by the Assessing Authority for the assessment years 2005-06 to 2009-10.

2.

Since the common question of law and facts are involved in these appeals and the common order passed by the Tribunal has been challenged, all these appeals are clubbed together and disposed of by this common order.

3.

The above appeals are admitted to consider the following substantial question of law:

Whether the Tribunal was correct in holding that the lease rent received by the assessee from letting out buildings along with other amenities in a Software Technology Park is chargeable to tax under the head ‘income from business’ and not under the head ‘income from house property’ as held by this Hon’ble Court in Bhoopalam Commercial Complex & Industries and by the Apex Court in East India Housing & Land Development Trust Ltd.?

4.

Learned counsel appearing for the parties submitted that the substantial question of law raised in these appeals are fully covered by the judgment reported in (2013) 218 Taxman 88 (Karnataka) in the case of COMMISSIONER OF INCOME TAX-III v/s VELANKANI INFORMATION SYSTEMS (P) LTD.

5.

Division Bench of this Court in the above said judgment at paragraph 26 has clearly held as under: 26…………… If the intention is to exploit commercial property by putting up construction and letting it out for the purpose of getting rental income, then notwithstanding the fact that the furniture and fittings are provided to the lessee, the income from the building fall under the head ‘income from

house property’. But if the assessee is in the business of taking land, putting up commercial buildings thereon and letting out such buildings with all furniture as his profession or business, then notwithstanding the fact that he has constructed a building and he has also provided other facilities and even if there are two separate rental deeds, it does not fall within the heading of income from house property. Therefore, firstly what is the intention behind the lease and secondly what are the facilities given along with the buildings and documents executed in respect of each of them is to be seen. Thirdly it is to be found out whether it is inseparable or not. If they are inseparable and the intention is to carry on the business of letting out the commercial property and carrying at complex commercial activity and getting rental income therefrom, then such a rental income falls under the heading of profits and gains of business or profession.”

6.

We are in respectful agreement with the judgment of the Division Bench of this Court. In the instant cases the assessee-company engaged in the business of developing, operating and maintaining an industrial park and providing infrastructure facilities to different companies as its business. In view of that, the

substantial question of law is held against the Revenue. Accordingly, these appeals are dismissed.

Sd/-

JUDGE

Sd/-

JUDGE

mpk/-*

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