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2012 (7) TMI 464 - ITAT CHENNAIDenial of exemption claim u/s 80-IAB - the assessee has not completed that minimum built up area by the end of the previous year relevant to the assessment year under question - the developed portion of the SEZ cannot be given on lease before completing the development of entire approved land - Held that:- This presumption is against the law stated in the SEZ Act as Rule 6(2) of the SEZ Rules, 2006 provides that the letter of approval of a Developer granted shall be valid for a period of three years within which time at lease one unit has commenced production and the SEZ become operational from the date of commencement of such production. It is clear from the above Rule that the SEZ Act does not contemplate that a Developer can assign the land to the entrepreneurs only after completing the development of the entire approved land. The condition specified in the Rule to sustain the validity of the approval is that at least one unit should commence production and to that extent, the SEZ should become operational - The objection of not having developed land of one lakh sq. mtrs. thus fails. Income declared by the assessee company has not been derived from the business of developing SEZ - Held that:- The assessee is a company engaged in the business of developing sector specific SEZ for IT and IT Enabled Services been granted approval by Government of India. By virtue of overriding effect of the SEZ Act, 2005, it is an established fact that the company is a Developer who is engaged in the business of developing SEZ - assessee is the developer and it need not do any other business to claim the benefit of deduction under sec.80-IAB - Assessee's SEZ is sector specific and is not required to run operating units - the only income derived in the hands of the assessee developer will be the lease rent and other service charges if any - the profits and gains of business of a developer contemplated in sec.80-IAB for the purpose of deduction thereunder, is nothing but lease/rental income. Therefore, it made it clear that the lease rental income generated in the hands of a Developer engaged in setting up of the SEZ, is the profits and gains derived from the business of developing a SEZ. Land given on a perennial lease of 99 years with further scope of renewal which in effect is nothing but a sale - Held that:- SEZ Act, 2005 overrides the provisions of the Income-tax Act, 1961 for deciding the basic character of transactions entered into by the Developer and the approved entrepreneurs it is clear that the assessee-Developer has proceeded with the allotment of developed area on lease hold basis to the approved entrepreneurs, the period of lease is 99 years which is permissible under the SEZ Act, 2005 and where there is no right of sale, the possible way is only lease. It may be a perennial lease but that does not change the character of the lease - when the SEZ Act, 2005 provides that it is not permissible for a Developer to sell the land in a SEZ, it is not conceivable in law that the assessee can transfer the ownership of the property to the approved entrepreneurs through any other means. Therefore, there cannot be a case of capital gains arising in the hands of the assessee - decided in favour of assessee.
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