TMI Blog2013 (8) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... from properties. In case, if it is found that the main intention is to exploit immovable property by way of complex commercial activities, in that event it must be held as business income. 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. In fact, any other interpretation would defeat the very object of introduction of Section 80-IA as well as the scheme which is framed by the Government for development of industrial parks in the country. In that view of the matter, the finding recorded by the Appellate Authority as well as the Tribunal is in accordance with law and does not suffer from any legal infirmity which calls for interference. - Decided in favor of assessee. Short term Capital Gain - sale to sister concern at the rate of less than market value - Held that:- the sale of land to the sister concern is not in dispute. The legality of the said transaction is not questioned. The consideration received under the said agreement is also ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n submissions. The assessee claimed that they are in the business of providing comprehensive facilities to IT Industry. Such facilities include provision for specially furnished buildings, special electrical connections, and special arrangement for antennae and dish, good net connectivity for transmission of data and special furniture. All these facilities include letting out specialized buildings and office premises that are built to cater to the special requirements of the I.T. Industry. 4. The submissions of the assessee were not accepted by the Assessing Authority. According to the assessing authority, the lease agreements clearly reveal that the main activity of the company is renting out property. Majority of the investments has gone into construction of buildings. The assessee is neither manufacturing, exchanging nor selling any goods or services. Mere letting out the properties with facilities like furniture, air conditioners, dish antennae, etc. does not change the nature of the receipt. The business activities are usually concerned with transfer and exchange of goods and services. The primary motive behind such activity is profit making. Business may be defined as an ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered as such. Apparently, the letting out of space is independent of the other. The lessee may or may not opt for these benefits. Therefore, the income arising from the letting out of buildings or lands appurtenant thereto clearly constitutes 'income from House Property'. The income for providing services will constitute 'income from other sources'. Therefore, the Assessing Authority proceeded to assess the income from the buildings under the head of 'income from house property' and the income from furniture, fittings and other accessories and services rendered, under the heading 'income from other sources'. 5. During the course of scrutiny proceedings, it was noticed that the assessee company had sold 82,152 sq. ft. of land in the Tech Park at Challaghatta on 24th January 2005 to its sister concern M/s. MD Properties Pvt. Ltd., at Rs. 389.52/- per sq. ft. Further, the assessee company has sold 14,516 sq. ft. of land to M/s. Mac Charles Pvt. Ltd., at Rs. 1193/- per sq. ft. on 18.06.2004. Both the lands are situated inside the same Tech Park Compound. On 12.12.2007, the assessee was called upon to file explanation as to why sale value of the land sold to M/s.MD Propertie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, the Appellate Authority directed the Assessing Authority to treat the income under the head 'Business' and allow the claim of expenditures made thereon by the assessee. Insofar as the Capital gains on the sale of land to one of its sister concerns namely M/s. MD Properties Pvt. Ltd., is concerned, relying on Section 50C of the Act providing for adoption of the guideline value as the consideration for transfer of a capital asset, Section 80IA(8) requiring adoption of market value of goods in place of the actual sale price in the cases of certain specified sales, and the transfer pricing rules, it held the Assessing Authority does not have the power to substitute the value for the actual sale price in the absence of any evidence of understatement of the value. Therefore, the said finding recorded by the Assessing Authority was also set aside and the appeal was allowed. 7. Aggrieved by the said order, revenue preferred an appeal to the Income-tax Appellate Tribunal. The Tribunal held that it is an undisputed fact that the assessee had developed a Technology park wherein a number of IT Companies have been housed. The Assessee has not merely let out its building for rent, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.389.52 per sq. ft. in favour of the sister concern cannot be treated as inadequate, when the land in the same premises was sold by the assessee in favour of the third party at Rs.1,193/- per sq. ft. for the purpose of computing short term gains and recorded a perverse finding? 4. Whether the Appellate Authorities were correct in deleting the re-computation of short term capital gains made by the Assessing Officer by adopting the value of land sold by the assessee to its sister concern at Rs. 1,193/- per sq. ft. (the value of land sold by the assessee in favour of M/s. Mac Charles Pvt. Ltd.,)? 9. From the aforesaid facts set-out above, it is clear that the assessee is in the business of providing comprehensive facilities to IT Industries and such facilities include provision of specially furnished buildings, special electrical connections and special arrangement for antennae and dish, good net connectivity for transmission of data and special furniture. All these facilities include letting out specialized buildings and office premises that are built to cater to the special requirements of the I.T. industry. A separate agreement is entered into in respect of the buildings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... geable to income-tax under the head "Income from other sources", namely : (i) . (ii) (iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head "Profits and gains of business or profession"; 13. Section 80IA of the Act was inserted by the Finance Act 2/1991 with effect from 01.04.1991. and later on amended by the Finance Act, 1992 w.e.f. 1.4.1993. There were several amendments. However, the present Section 80IA was substituted by Finance Act, 1999 w.e.f. 1.4.2000. Deduction in respect of profits and gains from industrial undertakings reads as under: [Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 80-IA. [(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. [Provided that nothing contained in this sub-section shall apply in the case of transfer, either in whole or in part, of machinery or plant previously used by a State Electricity Board referred to in clause (7) of section 2 of the Electricity Act, 2003 (36 of 2003), whether or not such transfer is in pursuance of the splitting up or reconstruction or reorganization of the Board under Part XIII of that Act] Explanation 1.-For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely.- (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not taken place. ' Explanation-For the purpose of this clause 'infrastructure facility' means- (a) xxxxxxxxxxxxx (b) xxxxxxxxxxxxx (c) xxxxxxxxxxxxx (d) xxxxxxxxxxxxxx (ii) (iii) any undertaking which develops, develops and operates or maintains and operates an industrial park or special economic zone notified by the Central Government in accordance with the scheme framed and notified by that Government for the period beginning on the 1st Day of April, 1997 and ending on the 31st day of March, 2006." 14. In exercise of the powers conferred by clause (iii) of sub-section (4) of section 80 IA, the Central Government has framed Industrial Park Scheme, 2002. In Clause - 2 Definition, defines the "common facilities" includes the facilities of air conditioning, roads (including approach roads), water supply and sewerage, common effluent treatment facility, telecom network, generation and distribution of power used by two or more industrial units in an industrial park and "undertaking" means any undertaking which is engaged in the business of developing, developing and operating or maintaining and operating an industrial park notified by the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty, (4) profits and gains of business, profession or vocation, (5) income from other sources and (6) capital gains. This classification under distinct heads of income profits and gains is made having regard to the sources from which income is derived. Income-tax is undoubtedly levied on the total taxable income of the taxpayer and the tax levied is a single tax on the aggregate taxable receipts from all the sources; it is not a collection of taxes separately levied on distinct heads of income. But the distinct heads specified in s. 6 indicating the sources are mutually exclusive and income derived from different sources falling under specific heads has to be computed for the purpose to taxation in the manner provided by the appropriate section. If the income from a source falls within a specific head set out in s. 6 the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. The income derived by the company from shops and stalls is income received from property and falls under the specific head described in s. 9. The character of that income is not altered because it is received by a company formed within object of developi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts business, or, in other words, in the holding of the business." 19. This Court had an occasion to consider both the judgments and attempted to reconcile the same in the case of Addl. Commissioner of Income tax v. Hindustan Machine Tools Ltd. reported in [1980] 121 ITR 798 (Kar.) held as under: "5. The question as to whether a particular income falls under one head or the other has to be decided having regard to facts and circumstances of a case. In Nalinikant Ambalal Mody v. CIT [1966] 61 ITR 428, the Supreme Court observed. Whether an income falls under one head or another has to be decided according to the common notions of practical men for the Act does not provide any guidance in the matter." 20. Section 22 of the Income-tax Act reads thus: "The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head 'Income from house property'." The section itself indicates that mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et premises to tenants in Calcutta and elsewhere. The sold assets were three properties which were let out and all the registered company did was the management and collection of rents. Rankin, CJ, held that the receipts were income from property within section 9 of the Income-tax Act, that letting out such property and collecting rents was not doing business, and that profits and gains from business were very different from income from property." It is, therefore, seen that the activities, in the case of Commercial Properties Ltd. and East India Housing were very restricted and consisted of only in owning property and collecting of rent. There was no exploitation of the property for commercial or business purposes in these cases. The Supreme Court considered the question in the case of CIT v. National Storage (P.) Ltd. [1967] 66 ITR 596. In that case the assessee after purchasing a plot of land constructed 13 units thereon, 12 units meant for the members of the Indian Motion Picture Distributors' Association, who had floated the company, and one unit for Foreign Film Distributors in Bombay, who were not members of the Association. Each unit was divided into four vaults, having a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actment." From the above judgments of the Apex Court in the case of East India Housing Land Development Section 12(4) of the old Act did not come for consideration. However, a constitution Bench of the Apex Court m the case of Sultan Brothers (P.) Ltd. v. Commissioner of Income Tax reported in [1964] 51 ITR 353 (SC) evolved a concept of inseparability. The concept of inseparability has been explained as under: "12. (1). The tax shall be payable by an assessee under the head 'Income from other sources' in respect of income, profits and gains of every kind which may be included in his total income (if not included under any of the preceding heads)... (3) Where an assessee lets on hire machinery, plant or furniture belonging to him, he shall be entitled to allowances in accordance with the provisions of claimants. (iv), (v), (vi) and (vii) of sub-s. (2) of s. 10. (4) Where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, he shall be entitled to allowances in accordance with the provisions of claimants. (iv), (v) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or window and one ventilation was provided in the ceilings. The units were built at a distance of fifty feet from one another the assessee entered into agreements with the film distributors. There were two types of agreements, one was classified as "A" licence and the other "B' license the agreements were more or less in identical term with minor variation here and there. One agreement has been annexed to the statement of the case as Annexure-A and some of the relevant clauses are under. In that background, the Apex Court has held as under: "In our view, the High Court was right in holding that the assessee was carrying on an adventure or concern in the nature of trade. The assessee not only constructed vaults of special design and special doors and electric fittings, but it also rendered another services to the vault -holders. It installed fire alarm and was incurring expenditure for the maintenance of fire alarm by paying charges to the Municipality. Two Railway booking offices were opened in the premises for the despatch and receipt of film, parcels. This, it appears to us, is a valuable service. It also maintained a regular staff consisting of a secretary, a peon, a w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties. 25. We have to find out in that context what was the intention of the parties in entering into the lease transaction. It is not the number of agreements, which are entered into between the parties which is decisive in determining the nature of transaction. What is the object of entering into more than one said transactions is to be looked into. However, if for enjoyment of lease, the subject matter of all the agreements is necessary, then notwithstanding the fact that there are more than one agreement or one lease deed, the transaction is one. As all the agreements are entered into contemporaneously and the object is to enjoy the entire property viz: building, furniture and the accessories as a whole which is necessary for carrying on the business, then the income derived there from cannot be separated based on the separate agreement entered into between the parties. What has to be seen is, what was the primary object of the assessee while exploiting the property. If it is found applying such principle that the intention is for letting out the property or any portion thereof, the same may be considered as rental income or income from properties. In case, if it is found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. In fact, any other interpretation would defeat the very object of introduction of Section 80-IA as well as the scheme which is framed by the Government for development of industrial parks in the country. In that view of the matter, the finding recorded by the Appellate Authority as well as the Tribunal is in accordance with law and does not suffer from any legal infirmity which calls for interference. Accordingly, the substantial questions 1 and 2 are answered in favour of the assessee and against the revenue. 27. Insofar as the tax on capital gain is concerned, reliance is placed on the Apex Court judgment in the case of Commissioner of Income Tax v. George Henderson ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided that if certain conditions are satisfied as mentioned in the first proviso to section 12B(2), the market value of the asset transferred, though not equivalent to the full value of the consideration for the transfer, may be deemed to be the full value of the consideration. To give rise to this fiction the two conditions of the first proviso are:- (1)that the transferor was directly or indirectly connected with the transferee, and (2) that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 12B. If the conditions of this proviso are not satisfied the main part of section 12B(2) applies and the Income-tax officer must taken into account the full value of the consideration for the transfer". 28. However in the new Act, the aforesaid two conditions are deleted. Section 50C categorically states that where the consideration received on transfer of a capital asset is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall for the purposes of section 48, be deemed to be the full value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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