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Facts
The assessee, engaged in construction and development of a software park, claimed deduction under Section 80IA(4)(iii). The Assessing Officer denied this deduction on two grounds: insufficient number of tenants and one tenant occupying more than 50% of the allocable area. This led to multiple rounds of appeals and remands.
Held
The Tribunal held that the assessee had fulfilled the conditions for deduction under Section 80IA(4)(iii), specifically regarding the functional independence of units and separate power connections. Regarding water charges, it was noted that no provisions for sub-meters existed during the relevant assessment years.
Key Issues
Whether the assessee fulfilled the conditions for deduction under Section 80IA(4)(iii) concerning the number of units, area occupied by a single tenant, and provision for power and water charges.
Sections Cited
80IA(4)(iii), 18C
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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K.
ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER
These are the appeals filed by the revenue, directed against the order of CIT(A), Bangalore for the assessment years 2006-07, 2008-09 & 2009-10.
The brief facts of the case are as follows: The assessee is a company engaged in construction, promotion and development of software park. For these assessment years the claim of deduction u/s.80IA(4)(iii) of the I.T.Act was denied by the Assessing Officer on two grounds namely :- to 924/Bang/2013 (i) There ought to be 4 tenants in the industrial park of assessee, whereas in this case there is only three tenants. (ii) No unit should occupy more than 50% of the allocable area, whereas in this case one tenant, namely M/s.I-Flex Solutions is occupying more than 50% of the total constructed area.
Aggrieved by the denial of benefit of deduction u/s 80IA(4)(iii) of the I.T.Act, the assessee preferred appeals to the first appellate authority. The CIT(A) following his order for assessment year 2004-2005, allowed the claim of benefit u/s 80IA(4)(iii) of the I.T.Act. The Tribunal confirmed the view of the CIT(A). The revenue carried the matter to the High Court u/s 260A of the Act vide 10/15 & 11/15. The High Court vide judgment dated 9.11.2020 remitted with the following direction: “8. In the backdrop of aforesaid factual position, when we advert to the facts of the case, we find that the order of the Tribunal is cryptic and no finding has been recorded by the Tribunal whether or not the assessee has fulfilled the conditions laid down in the scheme. In paragraph 4 of the order, the Tribunal has recorded a finding that an identical issue has been dealt by it in the case of PIRAMAL PROJECTS P. LTD. and the case of the assessee is also similar. However, no reasons have been assigned by the Tribunal. The Tribunal is the final fact finding authority and has to record the reasons for its conclusions. Since the Tribunal has failed to assign any reasons for recording the finding with regard to the fact whether or not the assessee has fulfilled with the terms and conditions laid down in the scheme, we are left with no option but to quash the order passed by the Tribunal. Therefore, it is not necessary to answer the substantial question of law. The Tribunal shall decide the matter afresh and shall after affording an opportunity of hearing to the parties shall record a finding whether the assessee has complied with the conditions laid down in the Industrial Park Scheme, 2002 and whether the assessee is eligible to claim deduction under Section 80IA(4)(iii) of the Act.”
On further, hearing, the Tribunal vide order dated 10.8.2021 held as under:
to 924/Bang/2013 “6. We have heard rival submissions and perused the material on record. The assessee-company developed an IT park called “Millennium Tower” at Kundanahalli, Broke field, Bangalore. The assessee-company, originally made an application on 05.01.2004, in Form No.IPS-1 for approval before the Investment Promotion and Infrastructure Development Cell, Ministry of Commerce and Industries, Department of Industrial Policy and Promotion and for the setting up of Industrial Park on 2 acres of land, in question, for 32 number of Industrial Units. Later, on 8.12.2004, it filed a revised application for setting up of Industrial Park reducing the number of Industrial Units to be located from 32 to only 4 units. On the basis of the revised application and the documents, the Ministry of Commerce and Industrial has approved the proposal of 4 units to be located in the Industrial Park vide their letter No.15/07/04-IP & ID dated 31.12.2004 on certain terms and conditions, viz.. (a) That the conditions mentioned in the approval letter as well as those included in the Industrial Park Scheme 2002 should be adhered to during the period when benefits under the scheme are to be availed. That the income tax benefits u/s 80IA(4)(iii) of the I.T.Act (b) will be available only after the 4 proposed number of Industrial units mentioned in the approval letter are located in the Industrial Park. That the assessee company shall submit half yearly (c) report to the Ministry of Industry and Commerce in IPS-2 Form on 1st Jan and 1st July each year during the period in which the benefits u/s 80IA(4)(iii) of the I.T.Act are to be available. 6.1 Further, as per the provisions of Rule 18C(4) of the Income Tax Rules, 1962, for the purpose of getting eligibility of benefits u/s 80IA(4)(iii) of the I.T.Act to the Industrial Park, the CBDT has to notify the Industrial Park on approval from the Ministry of Commerce and Industry, Government of India. The CBDT has notified this Industrial Park for obtaining the benefits u/s 80IA(4)(iii) of the Income tax Act 1961 vide Notification No.212/2007 in F No.178/82/2007 – ITA I dated 31st July 2007 and copy of the same is on record. The said Notification contains an annexure giving the terms and conditions on which the approval of the Govt. of India has been accorded for setting up of an Industrial Park by the assessee company. The assessee has filed tenancy wise comparative statement on percentage basis of super built up area which contain the details of floor wise area of tenancy in “Millennium Tower” situated on the land at Survey No.133 of Kundalahalli Mahadevapura, Bangalore. Similarly, the assessee has to 924/Bang/2013 filed breakup details of floor wise constructed area of tenancy in “Millennium Tower”, as per sanctioned plan LP.No.81/2001-02 dated 10.07.2002 situated in Sy.No.133 of Kundalahalli, Mahadevapura, Bangalore. 6.2 The Hon’ble jurisdictional High Court in the case of CIT v. M/s. Primal Projects Pvt. Ltd. (supra) has laid down the functional test, i.e., whether each unit is in a position to carry on its activities independently and separately from other units. If such was the case, the Hon’ble High Court held that each of such units should be considered as an independent unit. It was further held by the Hon’ble Court that it does not matter even if the entire developed area has been leased out to a single company. The Hon’ble High Court confirmed the factual finding of the ITAT and the relevant portion of the Hon’ble High Court judgment at para 3 reads as follow:- “3 with separate facilities, instrumentation, power connection, door number and capacity to function independently. It was further held that since, the units are functioning independently on different floors even though are situated under the same roof, the assessee has successfully complied the functional test of five independent units.” 6.3 It was further held by the Hon’ble High Court at para 9 of the judgment as follows:- “9 The tribunal has recorded a finding tht even though, assessee has leased out five / four floors to a particular tenant, but the tenants are carrying on their operations as independent units and their activities are functionally different. It has further been held that each floor is physically identified for all functional purposes.” 6.4 Viewed from the ratio decidendi laid down by the Hon’ble High Court in the case of CIT v. M/s.Primal Projects Pvt. Ltd. (supra), let us examine the facts of the instant case and whether the assessee has satisfied conditions as stipulated under the provisions of section 80IA(4)(iii) of the I.T.Act read with Rules 18C of the I.T.Rules and Notification dated 31.07.2007. The two reasons of the A.O. for the denial of benefit of deduction u/s 80IA(4)(iii) of the I.T.Act read as follows:- (i) One Tenant,i.e., M/s.I-Flex solutions is occupying 1,38,000 sq.ft. out of total constructed built up area / allocable area of 2,54,110 sq.ft. Hence it amounts to that one tenant is in occupation of more than 50% of the total allocable area. (ii) The Income tax benefits u/s 80IA(4)(iii) of the I.T.Act will be available only after the proposed number of Industrial units mentioned in the approval letter i.e. 4 units are located in the Industrial Park. Let us examine each of the reasons:- (i) One Tenant,i.e., M/s.I-Flex solutions is occupying 1,38,000 sq.ft. out of total constructed built up area to 924/Bang/2013 / allocable area of 2,54,110 sq.ft. Hence it amounts to that one tenant is in occupation of more than 50% of the total allocable area. The Industrial Park of assessee consists of 5 floors. The floor-wise measurements are as follows:- Unit-wise allocable Super Allocable area as % Floor Units built up area of total area allocable area Ground floor G-1 54000 sft. 39679 sft. 21.25% First floor F-1 54000 sft. 39679 sft. 21.25% Second floor S-1 54000 sft 39679 sft 21.25% Third floor T-1 55000 sft 40414 sft. 21.55% Fourth floor F4-1 37110 sft. 27274 14.70% Total 254110 sft. 186725 100.00% sft. sft. The area leased to M/s.I-Flex Solutions Limited is admeasuring 1,38,000 sft. of super built up area. According to the assessee, the area leased out to M/s.I- Flex Solutions Limited is not one unit but consisted of 3 units with 54000 sft super built up area in Ground floor (21.25% of allocable area) and 54000 sft. in First floor (21.25%) of allocable area) and 30,000 sft. of super built up area in II floor (16.07%) of the Industrial park. Thus, according to the assessee, the lessee had taken 3 different industrial units and each unit is less than 50% of the allocable area and the AO, instead of considering them as individual functional units, treated them as one combined unit which is wrong in light of functional test laid down by Hon ’ble High Court. In the instant case, even though the CIT(A) had held that the facts of Primal Projects Private Limited and that of the assessee are identical, there is no factual finding either by the AO nor by the CIT(A) that the assessee claims that each of the floors in its industrial park is an independent and separate unit, capable of functioning on its own. Therefore, there should be a factual finding by the A.O. on the above issue. (ii) The Income tax benefits u/s 80IA(4)(iii) of the I.T.Act will be available only after the proposed number of Industrial units mentioned in the approval letter i.e. 4 units are located in the Industrial Park. The assessee had constructed multistoried buildings for the purpose of developing infrastructure facilities as approved by the Ministry of Commerce and Industry. As mentioned earlier, the test to be applied is the functional test, i.e., the unit must be physically independent with independent to 924/Bang/2013 facilities and instrumentation, power connection, door number and the facility of functioning independently, i.e., every unit must be in a position to carry on its activities without depending upon other units even though all the units are situated under the same roof but in different floors. The assessee has to successfully satisfy the above stated functional test of an independent unit, which has not undertaken by the A.O. nor the CIT(A) in this case. Even for A.Y. 2004-2005, though the A.O. in his remand report, had stated that the case of the assessee and of Primal Projects Private Limited are identical had not entered a factual finding of the claim of the assessee that each of the five floors in the industrial park is separate and independent units, capable of function on its own. 6.3 Therefore, the assessee has to factually establish that it has 4 units or more and that no unit has occupied more than 50% allocable area. The criteria relating to restriction of leasing of allocable area to any particular tenant is redundant in view of the functionality test prescribed by the Hon’ble jurisdictional High Court in the case of CIT v. M/s.Primal Projects Pvt. Ltd. (supra). In the light of the aforesaid facts, we are of the view that the matter needs to be examined afresh by the A.O. Accordingly, the cases are restored to the files of the A.O. The A.O. is directed to come to a factual finding that assessee’s claim of five floors of the industrial park are independent and separate units as prescribed in the judgment of Hon’ble High Court in the case of CIT v. M/s.Primal Projects Private Limited. The assessee is directed to co-operate with the revenue for expeditious disposal of the matter. It is ordered accordingly.
In the result, the appeals filed by the Revenue are allowed for statistical purposes.”
Against this order, assessee carried the appeal before the Hon’ble High Court vide 59/2022 & 67/2022. The Hon’ble High Court vide order dated 19.4.2022 in identical manner remitted the matter back to the Tribunal by observing as under:
“We have carefully considered the arguments advanced by the learned counsel appearing for the parties and perused the material on record.
7. It is ex-facie apparent that the Co-ordinate bench of this Court while disposing of has observed that no finding has been recorded by the. Tribunal whether or not the assessee has fulfilled the conditions laid down in the scheme. The Tribunal being to 924/Bang/2013 final fact-finding authority is required to record the reasons for its conclusion. It has been categorically observed that the Tribunal shall decide the matter afresh and shall after affording an opportunity of hearing to the parties, shall record a finding whether the assessee has complied with the conditions laid down in the Industrial Park Scheme, 2002 and whether the assessee is eligible to claim deduction under Section 80IA(4)(iii) of the Act. This specific direction of this Court ought to have been complied with, in stricto sensu, by the Tribunal being the last fact finding authority. The Tribunal in second round of litigation instead of analyzing the material facts available 'on 'record has remanded the matter to the Assessing Officer which cannot be approved by this Court.
8. It is well settled law that when a direction is issued by the jurisdictional High Court, the Tribunal is expected to comply with the same in letter and spirit. Even assuming that no factual finding is recorded either by the Assessing Officer or the CIT (Appeals), that exercise ought to have been done by the Tribunal as the final fact finding authority which has got a co-extensive power with that of the Assessing Officer and CIT (Appeals). Accordingly, remanding the matter to the Assessing Officer is not the solution to the litigation which would open a third round of litigation making the assessee to suffer and the same is nothing but, harassment to both the parties, unnecessarily delaying the entire process of adjudication. Hence, without answering the substantial questions of law, we deem it appropriate to set aside the order impugned and remand the matter back to the Tribunal to consider the directions issued by this Court in dated 09.11.2020 in letter and spirit and comply the same in an expedite manner in accordance with law.
9. Hence, the following ORDER i) The order dated 10.08.2021 passed by the Income Tax Appellate Tribunal, CB' Bench, Bangalore in relating to the assessment year 2006-07 is set aside. ii) The matter is remanded back to tie Tribunal to consider the directions issued by this Court in ITA No.3/2015 dated 9.11.2020 in letter and spirit and comply the same in an expedite manner in accordance with law. iii) All the rights and contentions of the parties are left open. iv) The appeal stands disposed of accordingly.” to 924/Bang/2013
6. Thereafter the appeals were once again listed for hearing before this Tribunal and the Tribunal after considering the elaborate arguments made by the Ld.AR as well as the Ld.DR had partly allowed the appeal filed by the revenue. This Tribunal had given the following finding in the said order dated 31/07/2023. “7.5……………We are of the opinion that the judgement relied by the assessee’s counsel in the case of Primal Project Pvt. Ltd. cited (supra) to be applied, if the following conditions are fulfilled: a) Every unit should be independent with independent facilities b) Independent power connection c) Independent door number d) Independent water connection 7.6 However, in the present case, the condition laid down as above in respect of sl.nos.(a) & (c) is fulfilled, however, (b) & (d) are required to be verified as to whether the submission of the assessee with regard to securing the power connection and water connection in the name of building owner, thereafter, appropriation of the charges to each unit on the basis of sub-meters. Accordingly, we remit this issue for limited purpose of verification of charges of power charges and water charges on the basis of sub- meters installed in the independent unit for consumption of power and water. Accordingly, for this limited purpose, we remit this issue to the file of AO for fresh consideration. The appeals of the revenue are partly allowed.”
7. As against the said order passed by this Tribunal on 31/07/2023, in which this Tribunal had issued directions to the assessing officer to verify the power and water charges on the basis of sub-metres installed in the premises for consumption of power and water, the assessee filed an appeal before the Hon’ble Karnataka High Court in of 2024 and contended that the direction issued by the Tribunal to the AO to verify the power and water charges is not correct since the assessee would not be in a position to satisfy the assessing officer insofar as the water chares are concerned because no sub-metres were permitted to be provided in the premises. The assessee further contended that the Bangalore Water Supply and Sewerage Act, 1964 as well as the circulars issued by the said Board to 924/Bang/2013 does not contemplate for the installation of the sub-metres in a premises having different units. The assessee also further submitted before the Hon’ble High Court that regulation 43A and 43B of the Bangalore Water Supply Regulation 1965 came into effect from the year 2020-2021 in which provision for providing sub-metres has been brought into the statute and therefore the assessee would not be able to establish the fact of payment of water charges paid by the units based on the sub-metres prior to the amendment. The Hon’ble High Court accepted the plea made by the assessee and modified the order passed by the Tribunal in to 924/Bang/2013 dated 31/07/2023 , which reads as follows: “9. Accordingly, we modify the order passed by the ITAT to the extent that the matter shall be considered by the ITAT afresh on the above two aspects and not by the Assessing Officer. It shall decide the issue in accordance with law. Liberty is granted to the appellant to file such documents as deem appropriate in support of its case on the two aspects. Liberty is also granted to the revenue, if need be, to file documents which they intend to rely upon.
10. On filing of the documents by both the parties, the Tribunal shall decide the issue to the extent on which remand was made by the Tribunal without being influenced by any observation made in the impugned order. Appeal is disposed of.”
From the perusal of the above judgment of the Hon’ble High Court, we came to understand that the order passed by the Tribunal on 31/07/2023 was not disturbed in respect of the finding about the existence of the units as an independent one with independent facilities and the independent door number. Insofar as the other two findings and the consequential remand order, the Hon’ble High Court has modified the said order and directed the Tribunal to consider the power and water charges by themselves instead of by the AO. Pursuant to the said direction given by the Hon’ble High Court, the matter was taken up for hearing again and the assessee field two paper books on 14/02/2025 and 21/02/2025. Insofar as the power charges are concerned, the assessee furnished the photos of the main metres and the sub-metres as proof of independent power connection to the units. The assessee also furnished the copies of the invoices raised by the assessee for to 924/Bang/2013 the power charges on the units located in the industrial park and submitted that the above said documents would prove that the power chares are paid by the units based on the sub-metres available in the building.
Insofar as the water charges paid by the units, the assessee submitted that the Bangalore Water Supply and Sewerage Act does not contemplate to have sub-metres for the units located in a building and therefore during the disputed assessment years, the Bangalore Water Supply and Sewerage Board had granted a single connection by considering that the building is a single unit. The assessee further submitted that only from 12/05/2020, Bangalore Water Supply and Sewerage Regulation was amended in which the new regulations 43A and 43B were inserted which reads as follows and therefore the disputed assessment years being the earlier years, the assessee could not provide separate sub-metres for each unit. “43-A. Obligation to provide internal-meters:- Every owner or occupier of a building having sital area of not less than 2400 square feet and building having three or more houses or every owner proposes to construct a building on a sital area of not less than 1200 square feet and building having three or more houses shall install their own internal meters for judicious consumption of water, within such date as may be notified by the State Government. However, the readings of such internal-meters shall not be used for billing or any case to dispute the readings of the meter provided by the Board, in any legal proceedings. 43-B. Obligation to provide Automatic water level control system:- Every owner or occupier of a building shall install Automatic water level control system or any other suitable devices to prevent the overflow of water, automatically from the over head tanks. The punishment for breaching this regulation shall be imposed under regulation 55. Further, if the breach is continued, action shall be taken under regulation 44.”
The assessee also furnished the copy of the bills issued by the Bangalore Water Supply and Sewerage Board and prayed to accept the said documents and allow the claim made by the assessee. The department has not filed any documents at the time of hearing. to 924/Bang/2013 11. We have heard the arguments of both sides and perused the materials available on record.
As directed by the Hon’ble High Court, now we have to decide the issue of power and water charges based on the materials furnished by the assessee and also based on the relevant provisions governing the said two issues. Insofar as the power charges are concerned, the assessee had furnished the photos of the main as well as sub-metres fixed in the premises and proved that the units located in the said park has separate power connections. We have also perused the power bills raised by the assessee in the name of the units based on the sub-metres provided in the said building and we have satisfied ourselves that the units are having separate power connections and therefore the assessee had satisfied that the units are independent with independent facility of power connection.
Insofar as the independent water connection, we have perused the Bangalore Water Supply and Sewerage Act, 1965 prevailed during the disputed assessment years and as rightly contended by the assessee, that there were no provisions for having sub-metres towards the water charges. We have also perused the subsequent amendment made on 12/05/2020 to the Bangalore Water Supply and Sewerage Board regulations in which regulation 43A and 43B were inserted, which mandated that the sub-metres are to be installed for the judicious consumption of water by the owner of the building. By considering the said amendment made to the regulation, we have satisfied ourselves that before the year 2020-2021, the building owners are not permitted to install their own internal metres and therefore the assessment years being the earlier years, the assessee could not be able to show that there were sub-metres available for the consumption of water. The assessee was able to produce the bill for the water charges levied in respect of the industrial park in which the units are located. Therefore, we are satisfied that the assessee had proved that they had complied with the conditions prescribed by the Government of India as well as the CBDT orders and proved that the units located in the said industrial park are to 924/Bang/2013 different entities having independent facilities. Insofar as the water charges are concerned, the assessee could not be finding fault with the non-fixing of the sub-metres for each unit since there is no provision under the Act as well as the Bangalore Water Supply regulations to have separate water metres. From the insertion of regulations 43A and 43B, the sub-metres can be made as a mandatory one for each unit but not in respect of the assessment years i.e. 2006-07, 2008-09 and 2009-10.
In view of the above said findings, we are accepting that the assessee had fulfilled all the conditions imposed to avail the benefit granted u/s. 80IA(4)(iii) of the Act and therefore the order of the Ld.CIT(A) does not require any interference.
In the result, all the three appeals filed by the revenue are dismissed.
Order pronounced in the open court on 13th May, 2025.