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

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ITA/78/2012HC KarnatakaKAHC01021175201230 April 2014Bench: B.MANOHAR,DILIP B.BHOSALE6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the substantial question of law was covered by its own previous judgment in COMMISSIONER OF INCOME TAX-III v/s VELANKANI INFORMATION SYSTEMS (P) LTD. The Court reiterated the principle that if the intention is to exploit commercial property by putting up construction and letting it out for rental income, even with furniture and fittings, the income from the building falls under 'income from house property'. However, if the assessee is in the business of taking land, constructing commercial buildings, and letting them out with all furniture as a profession or business, then the income falls under 'profits and gains of business or profession'. The Court found that the assessee-company was engaged in the business of developing, operating, and maintaining an industrial park and providing infrastructure facilities as its business. Therefore, the substantial question of law was held against the Revenue.

What were the facts?

The appeals were filed by the Revenue against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Years 1999-2000 to 2004-05. The ITAT had dismissed the Revenue's appeals, upholding the order of the Commissioner of Income Tax (Appeals). The First Appellate Authority had ruled that rental income received by the assessee, M/s. Information Technology Park Ltd., from letting out buildings and other amenities in a Software Technology Park should be treated as 'business income' and not 'income from house property'. The Assessing Officer's order to the contrary was set aside. The High Court clubbed two appeals (ITA No. 76/2012 and ITA No. 78/2012) due to common questions of law and fact.

What were the issues?

1. Whether the Tribunal was correct in holding that 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 issue was covered by the judgment in COMMISSIONER OF INCOME TAX-III v/s VELANKANI INFORMATION SYSTEMS (P) LTD. (2013) 218 Taxman 88 (Karnataka). Revenue's Contention: The Revenue contended that the rental income should be taxed under 'income from house property' and not 'income from business'.

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

I.T.A. No.76/2012 C/w ITA.No.78/2012

BETWEEN:

1.

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

2.

The Income-Tax Officer, Ward -11(2), C.R.Building, Queens Road, Bangalore.

…Common Appellants

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

AND:

M/s.Information Technology Park Ltd., ITPL , Whitefield Road, Bangalore .

….Common Respondent

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

ITA.NO.76/2012

This ITA is filed under Sec.260-A of Income Tax Act 1961, arising out of Order dated 30-11-2011 passed in ITA.No.1152/Bang/2010, for the Assessment Year 2004-2005, praying that this Hon’ble Court may be pleased to:

i formulate the substantial questions of law stated therein.

ii allow the appeal and set aside the order dated 30/11/2011 passed by the ITAT, Bangalore in ITA.No.1152/Bang/2010, confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward-11(2), Bangalore, in the interest of justice and equity.

ITA.NO.78/2012

This ITA is filed under Sec.260-A of Income Tax Act 1961, arising out of Order dated 30-11-2011 passed in ITA.No.1147/Bang/2010, for the Assessment Year 1999-2000, praying that this Hon’ble Court may be pleased to:

i formulate the substantial questions of law stated therein.

ii allow the appeal and set aside the orders passed by the ITAT, Bangalore in ITA.No.1147/Bang/2010 dated 30/11/2011 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, Ward-11(2),

Bangalore, in the interest of justice and equity.

These appeals coming 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 order dated 30-11-2011 in ITA.Nos.1147-1152/Bang/2010 passed by the Income Tax Appellate Tribunal, Bangalore Bench ‘B’ (for short ‘the Tribunal’) whereby the Tribunal dismissed the appeals filed by the revenue and confirmed the order dated 23-07-2010 passed by the Commissioner of Income Tax (Appeals)-IV, 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 1999- 2000 to 2004-05.

2.

Since the common question of law and facts are involved in these two appeals and a common order passed by the Tribunal has been challenged, these two 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 two appeals are dismissed.

Sd/-

JUDGE

Sd/-

JUDGE mpk/-*

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