THE COMMISSIONER OF INCOME TAX vs. M/S TOYOTA TECHNOPARK INDIA (P)LTD

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ITA/821/2009HC KarnatakaKAHC01086084200918 March 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 decided against the Revenue. The Court referred to its own judgment in the case of COMMISSIONER OF INCOME TAX-III v/s VELANKANI INFORMATION SYSTEMS (P) LTD. (2013) 218 Taxman 88. In that precedent, the Court had 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, constructing commercial buildings, and letting them out with furniture and other facilities as part of its profession or business, then such rental income falls under the heading of 'profits and gains of business or profession'. The High Court found that in the present case, the assessee-company was engaged in the business of developing, operating, and maintaining an industrial park and providing infrastructure facilities, which constituted its business. Therefore, the rental income was correctly treated as business income.

What were the facts?

The Revenue, comprising the Commissioner of Income Tax and the Assistant Commissioner of Income-Tax, filed an appeal before the High Court of Karnataka against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT, in its order dated July 17, 2009, dismissed the Revenue's appeal and confirmed the order of the Commissioner of Income Tax (Appeal). The First Appellate Authority had previously set aside the Assessing Authority's order for the assessment year 2006-2007. The core dispute revolved around whether rental income received by the assessee, M/s. Toyota Techno Park India (P) Ltd., from letting out its building to tenants within its industrial park should be taxed as 'business income' or 'income from house property'.

What were the issues?

1. Whether the Appellate Authorities were correct in holding that the rental income earned by the assessee should be brought to tax under the head ‘Income from Business’ and not under the head ‘Income from House Property’ as held by the Assessing Officer? (Question of law) Assessee's Contentions: The judgment does not record specific contentions made by the assessee before the High Court. However, the ITAT and the First Appellate Authority had held that the rental income falls under 'business income'. Revenue's Contentions: The Revenue contended that the rental income should be taxed under the head ‘Income from House Property’ and not ‘Income from Business’, as determined by the Assessing Officer. The Revenue sought to set aside the orders of the ITAT and the First Appellate Authority.

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 18TH DAY OF MARCH 2014

PRESENT

THE HON'BLE MR.JUSTICE DILIP B.BHOSALE

AND

THE HON'BLE MR.JUSTICE B.MANOHAR

I.T.A.No.821/2009

BETWEEN:

1.

The Commissioner of Income Tax, No.55/1, Shilpashree, Vidyaranya Complex, Vishveshwaranagar, Mysore – 570 008.

2.

The Assistant Commissioner of Income-Tax, Circle -2(1), Vidyaranya Complex, Vishveshwaranagar, Mysore – 570 008.

… Appellants

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

AND:

M/s.Toyota Techno Park India (P) Ltd., Plot No.20, Bidadi Industrial Area, Ramanagaram Taluk, Bangalore Rural District. …. Respondent

(By Smt.Vani.H, Advocate)

This ITA is filed under Sec.260-A of Income Tax Act 1961, arising out of Order dated 17-07-2009 passed in ITA.No.440/Bng/2009, for the Assessment Year 2006-2007, 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 passed by the ITAT, Bangalore in ITA.No.440/Bng/2009, dated 17-07-2009 confirming the order of the Appellate Commissioner and confirm the order passed by the Assistant Commissioner of Income Tax, Circle-2(1), Mysore in the interest of justice and equity.

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 17-07-2009 made in ITA.No.440/Bng/2009, passed by the Income Tax Appellate Tribunal, Bangalore Bench ‘B’ (for short ‘the Tribunal’) whereby the Tribunal dismissed the appeal and confirmed the order dated 17-07-2009

passed by the Commissioner of Income Tax (Appeal), 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 2006-07.

2.

The instant appeal was admitted to consider the following substantial question of law: Whether the Appellate Authorities were correct in holding that the rental income earned by the assessee should be brought to tax under the head ‘Income from Business’ and not under the head ‘Income from House Property’ as held by the Assessing Officer?

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 been 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, this appeal is dismissed.

Sd/-

JUDGE

Sd/-

JUDGE mpk/-*

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