THE COMMISSIONER OF INCOME TAX vs. M/S TOYOTO TECHNO PARK INDIA PVT LTD

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ITA/73/2014HC KarnatakaKAHC01007005201401 April 2014Bench: B.MANOHAR,DILIP B.BHOSALE5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the substantial question of law was against the Revenue. It 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. The Court reiterated the principle 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', unless the assessee is in the business of taking land, constructing buildings, and letting them out as a profession or business. In such a business scenario, even with provided facilities and separate rental deeds, the income falls under 'profits and gains of business or profession' if the activities are inseparable and the intention is to carry on a complex commercial activity. In the instant case, the assessee-company was engaged in developing, operating, and maintaining an industrial park and providing infrastructure facilities as its business. Therefore, the rental income was correctly classified as business income.

What were the facts?

The Revenue, comprising the Commissioner of Income Tax and the Deputy Commissioner of Income-Tax, filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order dated September 6, 2013, passed by the Income Tax Appellate Tribunal (ITAT), Bangalore Bench 'B'. The ITAT had dismissed the Revenue's appeal, thereby upholding the order of the Commissioner of Income Tax (Appeals), Mysore. The First Appellate Authority had ruled that rental income received by the assessee, M/s. Toyota Techno Park India (P) Ltd., from letting out its building to tenants within the Toyota Technical Park should be classified as 'business income' and not 'income from house property'. This decision was for the assessment year 2009-2010, overturning the Assessing Authority's order.

What were the issues?

1. Whether, in the facts and circumstances of the case, the Tribunal was legally correct in holding that the entire income derived by the assessee from letting out buildings and providing services should be assessed under the head 'Income from Business', even though it was not a composite activity? The Revenue contended that the Tribunal erred in classifying the income as business income. The assessee's contentions are not explicitly recorded in the judgment. The Tribunal's decision was based on its interpretation of the nature of the assessee's activities. The core of the dispute revolves around the classification of rental income, specifically whether it constitutes 'income from house property' or 'income from business or profession' under the Income Tax Act, 1961.

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 01ST DAY OF APRIL 2014

PRESENT

THE HON'BLE MR.JUSTICE DILIP B.BHOSALE

AND

THE HON'BLE MR.JUSTICE B.MANOHAR

I.T.A. No.73/2014 BETWEEN:

1.

The Commissioner of Income Tax, Mysore.

2.

The Deputy Commissioner of Income-Tax, Circle -2(1), Mysore.

… Appellants

(By Sri.E.I.Sanmathi, Advocate)

AND:

M/s. Toyota Techno Park India (P) Ltd., No.20, Bidadi Industrial Area, Ramanagaram Taluk, Bangalore Rural-562 109.

…. Respondent

This ITA is filed under Sec.260-A of Income Tax Act 1961, arising out of order dated 06-09-2013 passed in ITA.No.23/Bang/2013, for the Assessment Year 2009-2010, praying that this Hon’ble Court may be pleased to:

i Decide the foregoing question of law and/or such other questions of law as may be formulated by the Hon’ble Court as deemed fit.

ii Set aside the appellate order dated 06/09/2013 passed by the ITAT, ‘B’ Bench, Bangalore, in ITA.No.23/Bang/2013 for Assessment year 2009-10.

This appeal coming for hearing this day, B.MANOHAR.J., delivered the following:

J U D G M E N T

This Income Tax appeal is filed by the Revenue under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’), being aggrieved by the order dated 06-09-2013 made in ITA No.23/Bang/2013, passed by the Income Tax Appellate Tribunal, Bangalore Bench ‘B’ (for short ‘the Tribunal’) whereby the Tribunal dismissed the appeal and confirmed the orders dated 03-10-2012 passed by the Commissioner of Income Tax (Appeals), Mysore, (hereinafter referred to as ‘the First Appellate Authority’), wherein the First Appellate Authority held that rental income received by letting out the building to

the tenants in Toyoto Technical 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 year 2009-10.

2.

The Revenue has raised the following substantial question of law for our consideration: In the facts and circumstances of the case, whether the Tribunal is right in law in holding that entire income derived by the assessee from letting out buildings and providing services has to be assessed under the head Income from Business though it was not a composite activity?

3.

Learned counsel appearing for the parties submitted that the substantial question of law raised in this appeal is 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.

4.

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.”

5.

We are in respectful agreement with the judgment of the Division Bench of this Court. In the instant case the assessee-company has 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, the appeal is dismissed.

Sd/-

JUDGE

Sd/-

JUDGE

mpk/-*

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