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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
Both the appeals of the Revenue are directed against the common order of the Commissioner of Income Tax (Appeals)-II, Chennai, dated 03.11.2014 and pertain to assessment years 2010- 11 and 2011-12. The assessee has also filed cross-objection against the very same order for the assessment year 2010-11.
Therefore, we heard the appeals of the Revenue and the cross- objection of the assessee together and disposing of the same by this common order.
Shri Jayaram Raipura, the Ld. Departmental Representative, submitted that the only issue arises for consideration in both the appeals is with regard to classification of rental income received by the assessee. According to the Ld. D.R., the assessee constructed a I.T. Park, namely, Olympia Tech Park, and claimed the rental income as “income from business”. Referring to Section 22 of the Income-tax Act, 1961 (in short 'the Act'), the Ld. D.R. submitted that the rental income from letting out of the property has to be assessed under the head “income from house property”. Therefore, according to the Ld. D.R., the CIT(Appeals) is not justified in allowing the claim of the assessee. The CIT(Appeals) has also found that classification of income either from “income from house property” or “income from business” has no relevance for allowing the claim of deduction under Section 80-IA of the Act. According to the Ld. D.R., the rental income received by the assessee by letting out the property cannot be construed as “income from business”, therefore, the assessee is not eligible for deduction under Section 80-IA of the Act.
On the contrary, Shri Ajith Kumar Choradia, the Ld. representative for the assessee, submitted that the assessee constructed a building known as “Olympia Tech Park” and the same was let out exclusively to software companies. According to the Ld. D.R., the “Olympia Tech Park” developed by the company is exclusively meant for software companies and information technology enabled service companies. The building cannot be used for the purpose other than software companies. The building contained special and exclusive facilities for software companies.
There are specialized air-conditioners, special cabling, special electrical fittings, specialized furniture in the form of business modules were provided in the premises while letting out the property to the software companies. The assessee has also organized uninterrupted and continues power supply and heavy power back- up generators. Therefore, the CIT(Appeals) by placing reliance on the judgment of Madras High Court in CIT v. Elnet Technologies Ltd. (2013) 213 Taxman 129, allowed the claim of the assessee.
Referring to the grounds of appeal filed by the Revenue before this Tribunal, the Ld. representative submitted that the Revenue is placing reliance on the judgment of Madras High Court in CIT v.
Chennai Properties & Investments Ltd. (266 ITR 685). This judgment of Madras High Court was reversed by the Apex Court.
Therefore, according to the Ld. representative, the reliance placed by the Revenue in the grounds of appeal in Chennai Properties & Investments Ltd. (supra) is misconstrued. Therefore, according to the Ld. representative, the CIT(Appeals) has rightly allowed the claim of the assessee.
4. We have considered the rival submissions on either side and perused the relevant material available on record. The assessee admittedly developed a technology park by name “Olympia Tech Park”, which is exclusively meant for developing software and I.T. enabled services. The assessee, apart from the building, has also provided infrastructure facilities such as specialized air-conditioners, specialized cabling, specialized electrical fittings, specialized furniture in the form of business modules, etc. Therefore, it has to be construed as infrastructure facility with all specifications and requirements. Therefore, the CIT(Appeals) has rightly placed reliance on the judgment of Madras High Court in Elnet Technologies Ltd. (supra). As rightly submitted by the Ld. representative for the assessee, the judgment of Madras High Court in Chennai Properties & Investments Ltd. (supra) was reversed by the Apex Court. The Apex Court found that when the assessee let out the property as business, the rental income has to be assessed as income from business. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly allowed the claim of the assessee. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
5. Now coming to the cross-objection filed by the assessee for assessment year 2010-11, the grievance of the assessee is that the Assessing Officer disallowed `21,91,665/- under Section 14A of the Act.
6. Shri Ajit Kumar Choradia, the Ld. representative for the assessee, submitted that during the year under consideration, the assessee earned dividend income of `6,77,302/- and the same was claimed as exempted from taxation. The Assessing Officer worked out the disallowance under Section 14A of the Act to the extent of `21,91,665/-. According to the Ld. representative, the investment made by the assessee to the extent of `26,65,60,000/- in Deep Discount Bonds cannot be construed as investment for earning the exempted income. According to the Ld. representative, the income from Deep Discount Bond is taxable. Moreover, the same was offered for taxation for assessment year 2010-11. The Ld. representative further submitted that the net worth of the assessee- company during the assessment year 2010-11 is `63.76 Crores as against investments in alleged exempted investments excluding deep discount bonds of `4.58 Crores. Therefore, it has to be construed as investment made from non-interest bearing funds.
Therefore, according to the Ld. representative, the disallowance made by the Assessing Officer is not justified.
The Ld. representative for the assessee further submitted that while computing disallowance, the investments which have yielded taxable income during the year under consideration have to be excluded. Referring to Rule 8D of Income-tax Rules, 1962, the Ld. representative submitted that only average value of investment giving raise to exempted income, has to be considered for the purpose of disallowance. The Ld. representative further submitted that investments in group companies are strategic in nature.
Therefore, it cannot be considered for disallowance. The Ld. representative further clarified that no dividend / tax free income was earned during the year under consideration from such investments. Hence, the CIT(Appeals) is not justified in disallowing the assessee.
On the contrary, Shri Jayaram Raipura, the Ld. Departmental Representative, submitted that the assessee admittedly received dividend income to the extent of `6,77,302/- and claimed the same as exempted from taxation. Therefore, it cannot be said that the assessee has not earned any exempted income. Hence, the assessee earned the exempted income and the Assessing Officer is not satisfied about the claim of expenditure, the disallowance has to be computed as per the method prescribed under Rule 8D(2) of Income-tax Rules, 1962.
Referring to the assessment order, more particularly at page 5, the Ld. D.R. submitted that the Assessing Officer has taken the direct expenditure attributable to the income and the indirect expenditure incurred by the assessee, which is not relatable to any particular income and also has taken the average investment during the year under consideration and computed the disallowance at `21,91,665/-. Even though the assessee claims that the investment made to the extent of `26,65,60,000/- in deep discount bonds resulted in earning of taxable income, the details of such investments were not furnished by the assessee either before the Assessing Officer or before this Tribunal. In the absence of any such details with regard to investment in sister concern or in deep discount bonds which said to have resulted taxable income. The CIT(Appeals) has rightly confirmed the disallowance made by the Assessing Officer.
We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee disclosed dividend income of `6,77,302/- and claimed as exempted. As rightly submitted by the Ld. D.R., when the assessee earned exempted income or income which does not form part of total income and claimed expenditure, the Assessing Officer may compute the disallowance if he is not satisfied about the claim made by the assessee. In the case before us, the Assessing Officer computed the disallowance under Rule 8D. A perusal of the assessment order, more particularly at page 5, clearly shows that the Assessing Officer has adopted the method prescribed under Rule 8D(2). The only contention of the assessee now before this Tribunal is that the investment in deep discount bonds does not result in any exempted income and the income from deep discount bonds is taxable. However, no details of investments said to be made by the assessee which earned taxable income are available either before the Assessing Officer or before this Tribunal.
Moreover, the so-called investments in subsidiary companies are also not available on record. In the absence of any such details either before this Tribunal or before the CIT(Appeals) or before the Assessing Officer, the claim of the assessee that the investment made in deep discount bonds and subsidiary companies has to be excluded cannot be accepted. When the assessee claims that investment in deep discount bonds resulted in taxable income, it is for the assessee to file necessary material to substantiate its case.
In the absence of any such material, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
In the result, both the appeals of the Revenue and the cross- objection of the assessee are dismissed.
Order pronounced on 5th August, 2016 at Chennai.