TMI Blog2012 (9) TMI 929X X X X Extracts X X X X X X X X Extracts X X X X ..... out business activities. Section 22 provides only for rental income out of building or land appurtenant thereto, whereas in the case before us, complex and varied services provided and the huge investment therein were in the nature of plant and machinery which could be included within the expression building or land appurtenant thereto. Thus, the assessee has conducted systematic activity to earn profit and accordingly income was to be assessed as income from business. In view of the submissions made on behalf of the assessee, and analysis of various clauses and Schedule-II of the agreement entered with the I.T. company, CIT(A) was justified in holding that in assessee’s case the said income was to be assessed as business income. This reasoned factual finding need no interference from our side. - Decided against revenue. Claim of deduction u/s.80IB(10) in respect of disallowance made u/s. 40(a)(ia)/43B - CIT(A) allowed claim - Held that:- We are not inclined to interfere in the finding of the CIT(A) on the issue. The CIT(A) observed that turnover was from the same source in respect of the claim u/s.80IB(10). Therefore, it was entitled for deduction after including the statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee himself has joined the adjacent flats. In this situation, assessee should not suffer for its no fault if purchaser join the adjoining flats. Thus we hold that assessee is entitled for deduction u/s.80IB(10) in respect of entire profits computed after making additions/disallowances in respect of Cosmos Project consisting of 24 buildings excluding Prime building. See Haware Constructions Pvt. Ltd. (2011 (8) TMI 1080 - ITAT MUMBAI), Emgeen Holdings P. Ltd. (2011 (7) TMI 199 - ITAT MUMBAI) and Arcade Bhoomi Enterprises [2013 (7) TMI 210 - ITAT MUMBAI]. Decided in favour of assessee. - ITA. No. 822/PN/2011 - - - Dated:- 18-9-2012 - Shri Shailendra Kumar Yadav, and Shri R.K.Panda,.JJ. For The Appellant: Shri S.K.Singh, CIT(DR) For The Respondent : Shri Sunil Pathak/ Shri D.R.Barve ORDER PER SHAILENDRA KUMAR YADAV, JM: The Revenue s appeal and the cross objections of the assessee are arising from the same order of CIT(A). So they are being disposed of by this common order for the sake of convenience. The appeal of the Revenue has been filed on the following grounds: 1. The order of the learned Commissioner of Income-tax (Appeals) is contrary to la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the agreement as per which the cost involved in the services is built into the cost per sq.ft. as per the tenancy agreement and without . appreciating that the assessee has provided the services in the properties so that the same could be let out to the target groups. 8. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the infrastructure and services provided by the assessee were incidental to the letting out of the properties and also in failing to appreciate that the very fact that substantial income as per the agreement was towards rent on the let out of the super area and not towards provision of services would testify to the above. 9. The learned Commissioner of Income-tax (Appeals) grossly erred in holding that if any disallowances u/s. 43B, 40(a)(ia) and 35(1)(va) relates to the 'Helliconia' project, then the assessee's claim of deduction u/s. 80-IB(10) in respect of this project would have to be considered on the correspondingly enhanced income. 10. The learned Commissioner of Income-tax(Appeals) grossly erred in failing to appreciate that disallowances u/s. 43B, 40(a)(ia) and 35(1)(va) do not give rise t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs of the earlier years as well wherein such income has been accepted as business income in said earlier years. Further, the local authority, i.e., Pune Municipal Corporation and the Maharashtra State Electricity Development also considered the I.T. Park projects as commercial projects and accordingly the taxes and rates were applied. 3. The Assessing Officer relying on the provisions of section 22 of the Act regarding chargeability under the head income from house property, examined this chargeability in the assessee s case under this head as business income. For this purpose, the Assessing Officer analysed the issue in light of legal preposition on this issue and following main conclusions were drawn by the Assessing Officer: i) The rental income from a building whether a commercial or residential was to be assessed under the head income from house property. ii) If the main intention was to let out property then it was to be considered as income from house property. iii) This was true even it was derived from shops and stalls, and even if it was earned by company formed with the object of developing and setting up of markets. iv) If the main intention was to exploi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he properties collectively formed an I.T. Park and was recognized as such, it did not alter the basic nature of activity of letting out of the properties. The Assessing Officer also relied on the decision of the ITAT Pune Bench in the case of Nutan Warehousing Ltd. (2007) 106 TTJ 137 to hold that income derived from the letting out of the premises of the I.T. Park known as Cyber City was assessable under the head Income from House Property which was computed as under: Total rental receipts (License fees) ` Rs.36,97,05,084/- Less: 30% for repairs Rs.11,09,11,525/- Income under the head House Property Rs.25,87,93,559/- 5. Further, the Assessing Officer disallowed the depreciation claimed on the Cyber City building, furniture and plant and machinery totalling to ₹ 24,87,04,429/- of which the break up was given on page 16 of the assessment order. Further the common expenses under the head Administrative Expenses, i.e., employees cost and marketing cost, totalling to ₹ 39,05,24,415/- was apportioned to the letting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperties in order to derive income there from and not to exploit them commercially and merely because certain infrastructure has been provided to facilitate such letting out, such provision can by no means amount to carrying on complex commercial activities so as to invest the letting out with the character of business. The CIT(A) failed to appreciate that the infrastructure and services provided by the assessee to the tenants were such as any ordinary house owner would provide depending on the nature of the tenement and, therefore, the mere factum of such provision would not alter the nature of the income derived from the property when the dominant intention is to derive income there from. The CIT(A) grossly erred in attaching undue importance to a clause in the agreement as per which the cost involved in the services is built into the cost per sq.ft. as per the tenancy agreement and without . appreciating that the assessee has provided the services in the properties so that the same could be let out to the target groups. The CIT(A) failed to appreciate that the infrastructure and services provided by the assessee were incidental to the letting out of the properties and also in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no complex commercial activity was carried out by the assessee. iii) The Assessing Officer refers to the decision of Hon'ble Supreme Court in the case of Shambhu Investments Pvt Ltd. (supra) to hold that the rent received was for mere letting out of the premises and hence, the income was taxable as Income from House Property. The Assessing Officer has further relied upon the decision of ITAT Pune in the case of Nutan Warehousing Pvt. Ltd. (supra). 8. The Ld. Authorised Representative submitted that CIT(A) has held that income from leasing I.T. Park should be assessed as business income since the assessee has provided various complex integrated services, facilities and equipments and hence, the assessee had conducted a systematic and complex activity to earn profit. The various reasons given by the CIT(A) for allowing the claim of the assessee are as under. i) The assessee has constructed I.T. Park with well equipped and excellent infrastructure along with various specialised integrated amenities and services in the form of car parking area with cabins, independent airconditioning rooms with multiple compressors, chilled water systems, double skin AHUs to take care of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he paper book. The point to be appreciated is that the assessee has incurred substantial expenditure on providing additional amenities which clearly indicate that the assessee s intention was to earn income from complex letting out of the premises. vi) It is also to be noted that the assessee has incurred substantial expenditure on maintenance of the infrastructural facilities provided. vii) The learned CIT(A) thereafter refers to various decisions of the courts to hold that the income received complex commercial activities of letting out premises was taxable as business income and not as income from house property as determined by the learned Assessing Officer. viii) The assessee places reliance on the following decisions wherein the courts have held that the rental income received from complex commercial activities is to be taxed as income from business and not as income from House Property: 1. ITAT, Bangalore Global Tech Park (P) Ltd. (2008) 119 TTJ (Bang) 421. 2. ITAT, Bangalore Golflink Software P. Ltd. (ITA.No.52 53/Bang/10) 3. ITAT, Mumbai Harvinderpal Mehta (2009) 122 TTJ (Mumbai) 163. 4. ITAT, Mumbai Shanaya Enterprises (ITA.No.3647/Mum/2010) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.80IA and was a bonded area under the Software Technology Park of India (STPI) norms. It had huge airconditioning plants, chillers, etc., and special security guards with dog squad. The assessee has invested huge amounts in installation of many specialised amenities/equipments like transformers for the I.T. Park, special power sub-stations to ensure uninterrupted power supply, providing for 24 hours manned CCTVs, fibre satellite connectivity, radio microwave cell phone boosters, restaurants etc., and the premises had been provided to the I.T. companies with all these facilities and amenities. The total investment made was to the tune of ₹ 445.75 crores in the I.T. Park for creating the specific infrastructure required for the I.T. Park. The income from the license agreement with the software companies to whom I.T. Park premises had been let out has been regularly shown as business income in the earlier years. There is nothing on record to suggest that same has been disturbed in any manner. In this regard attention was drawn to decision of the Hon'ble Bombay High Court in the case of Ocean City Trading (India) Pvt. Ltd., in ITA No.2417 of 2009 dated 12.03.2010 speaks o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors etc.; independent transformers of 600 KW per floor to the lessee for sole use of its requirement in the tower, 24 hours manned CCTV in common areas and basement area, fibre and satellite connectivity and a radio microwave tower which would be provided by the STPI, cell phone boosters, and unlimited access to the premises 24 x 7, and in 365 days in a year, with support services like security and parking. Apart from these a substantial parking area were also provided for 50-car parking and 20 two-wheeler parking and 60 cabs parking etc., for the tower building. Such services were indeed of a complex commercial nature and cannot be treated as merely incidental to mere letting out of the premises. In Schedule-II and the earlier mentioned para 15 of the lease agreement that for provision of these specialized services, the cost/rent were included in the per sq.ft. lease rental amount of ₹ 14.30. Therefore, the Assessing Officer was not justified in stating that this amount of ₹ 14.30 per sq.ft. merely represents letting out of the space. So far as the amount of ₹ 0.50 per sq.ft. towards maintenance charges is concerned, it was basically for maintaining and cleaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med Goel Complex and it was held that from the very beginning the construction of the building itself was for commercial purposes and therefore, the rental income was held to be assessable as business income. The Hon'ble Bombay High Court in the case of Mohiddin Hotels (2006) 284 ITR 229 (Bom), has held that when the subject matter that is let out is not a bare tenement, but the complex one with infrastructure facilities, the income derived therefrom which is not separable from letting out of the building, such income shall not be treated as income from house property. ITAT Mumbai Bench in the case of Gesco Corporation Ltd. (2009) 31 SOT 32 (Mum) wherein assessee has let out commercial premises as business centre and a large number of specialised services and facilities were provided in these business centres, like airconditioning, power backup, water filtration plant, security system through CCTV, state of art computer-telephone integration, video conferencing facilities, secretarial services, the Tribunal held as under: It was clearly discernible from the agreements that the parties had entered into the arrangement with the assessee with the intention of using the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded in the lease rent of ₹ 14.30 per sq.ft. The assessee also clarified that cost involved in the services provided to the particular company i.e., exl Services.com was ₹ 2.83 crores which was almost 40% of the land and building cost of that tower. By no stretch of imagination such extensive and specialized services which could only be utilised by the IT/Software/BPOs businesses to be located in the I.T. Park could be treated as forming part of income from house property. It is certainly a constitution of organised structure for carrying out business activities. Section 22 provides only for rental income out of building or land appurtenant thereto, whereas in the case before us, complex and varied services provided and the huge investment therein were in the nature of plant and machinery which could be included within the expression building or land appurtenant thereto. Thus, the assessee has conducted systematic activity to earn profit and accordingly income was to be assessed as income from business. In view of the submissions made on behalf of the assessee, and analysis of various clauses and Schedule-II of the agreement entered with the I.T. company, CIT(A) was j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... add back by the Assessing Officer to the income. All profits of the unit of the assessee have been derived from manufacturing activity. The salaries paid by the assessee, it has not been disputed, relate to the manufacturing activity. The disallowance of the PF/ESIC payments has been made because of the statutory provisions - s.43B in the case of the employers contribution and s.36(v) r.w.s.2(24)(x) in the case of the employees' contribution which has been deemed to be the income of the assessee. The plain consequence of the disallowance and the add back that has been made by the Assessing Officer is an increase in the business profits of the assessee. The contention of the revenue that in computing the deduction u/s. 10A the addition made on account of the disallowance of the PF/ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the Assessing Officer must follow. 5.4 Therefore, the Hon'ble Bombay High Court has allowed deduction u/s.10A on an enhanced profit due to disallowance u/s.43B on the basis that all the profits of the units of the assessee have been deri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t nature which is derived or received by the assessee and which is included in his gross total income . In our humble opinion, this section affords a complete answer to the problem posed before us. In other words, under section 80AB the income that is derived from the eligible business must be computed in accordance with the provisions of sections 30 to 43D, as provided in section 29. Section 29 provides that the income chargeable to tax under the head profits and gains of business shall be computed in accordance with the provisions contained in sections 30 to 43D. Unquestionably, section 40(a)(ia) is a section falling between sections 30 to 43D and therefore effect must be given to the same in computing the profits and gains derived from the eligible business, which in this case is a housing project. It follows that if the assessee has not deducted tax from any payment which it was required to or has failed to deposit the tax within the prescribed time limit, it cannot be claim any deduction in respect of the payment while computing the profits derived from the eligible business. The payment has to be disallowed and added back to the profits, thereby swelling the same. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and gains derived from any business mentioned in section 80IB(10), i.e. for undertaking developing and building housing projects. In view of above, assessee was held entitled for deduction u/s.80IB(10) in case there was enhanced income on account of statutory disallowance u/s.43B, 40(a)(ia) and 36(1)(va), etc. In the instant case nature of receipts on credit side of Profit and Loss Account for eligible housing projects u/s.80IB(10) was the same and disallowance of expenditure on the debit side would only result into enhancement of net profit. Accordingly, the assessee s claim was liable to be allowed in view of the ratio of the decisions cited (supra). As stated above, assessee is not eligible for deduction u/s.80IB(10) pertaining to its Cosmos project. The Assessing Officer has held in assessment order that sum of claim u/s. 80IB(10) was allowable to assessee for its Heliconia project. Thus, if any disallowance u/s.43B, 40(a)(ia) or 36(10(va) etc., relate to Heliconia project that only can be considered for claim u/s.80IB(10) and corresponding enhanced income. This reasoned finding of the CIT(A) on the issue needs no interference from our side. We uphold the same. 15. In the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessee by way of cross objections is with regard to disallowance of deduction u/s.80IB(10) amounting to ₹ 13,62,01,380/-. The Assessing Officer noted that in respect of assessee s projects Daffodils and Helliconia, which were completed in the earlier years relevant to assessment year under consideration, only residual receipts of ₹ 20,000/- and ₹ 16,67,600/- had been shown in the year under consideration. However, the receipt from the project Cosmos which amounted to ₹ 122,78,44,857/- form the major portion of the sale proceeds shown during the year. Additionally for Erica project a loss of ₹ 8,56,900/- was shown. The Assessing Officer has made reference u/s.131(1)(d) to a registered valuer Shri Lele to verify the fulfilment of conditions given u/s.80IB(10) against which the report dated 28.12.2009 was submitted by him. In respect of the Cosmos project, the registered valuer gave a finding that in the Prime building in the project, which is one of the 24 buildings of the project, all the flats have built up area of more than 1500 sq.ft. Further, he reported that 28 other flats of other buildings I, N, R, S, T, U, V, W Z were also combined and had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned separately by the local authority. Thus it was integral part of the Cosmos project. 19. The Assessing Officer further observed that provisions of section 80IB(10) speaks regarding sanction to a housing project and not to an individual building in the project and what was important was whether there are separate sanctions for Prime building or not. According to the Assessing Officer, in fact, building plan for Prime was an enclosure/Annexure of common sanction issued by Pune Municipal Corporation for entire Cosmos Project consisting of 24 buildings and there was no separate building plan sanctioned for building Prime. Thus, the Assessing Officer concluded that since flats in Prime building were all having built-up area exceeding 1500 sq.ft., Cosmos project has failed to satisfy the mandatory condition u/s.80IB(10) rendering it ineligible for deduction u/s.80IB(10) of the Act. Further, it was stated that as per valuer report, Flats No.101 and 102 in I Building were combined of which combined area exceeded 1500 sq.ft., which again violated condition given u/s.80IB(10). This was the additional point for disqualification of Cosmos project. The Assessing Officer further observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld in various cases that whatever portion of the project satisfies the conditions of the section should be considered as a housing project for the purposes of section 80IB(10). We find that Hon'ble Bombay High Court in the case of CIT vs. Vandana Properties [ITA.No.3633 of 2009 with ITA.No.4361/2010] has observed as under: 17. The first question to be considered herein is, whether, in the facts of the present case, construction of E building constitutes building a housing project under section 80IB(10) of the Act. 18. The expression housing project is neither defined under Section 2 of the Act nor under section 80IB(10) of the Act. Even under the Mumbai Municipal Corporation Act, 1988 as also under the Development Control Regulations for Greater Mumbai, 1991, the expression housing project is not defined. Therefore, the expression housing project in section 80IB(10) would have to be construed as commonly understood. 19. As rightly contended by Mr.Inamdar, learned Senior Advocate appearing on behalf of the assessee and Mr.Mistri, learned Senior Advocate and Mr.Joshi, learned Advocate appearing on behalf of the intervenors, the expression housing project in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has to verify as to whether these buildings were completed within the prescribed time limit i.e. 31st March 2008 on the basis of the Completion Certificate in respect of such housing project issued by the PMC. When we examine the facts of the present case under the above background, we find that the authorities below have not disputed the fact furnished in this regard by the assessee that under the project Atul Nagar consisting of buildings A1 to A5, the first building plan for A type was approved by the PMC on 29.4.2003 vide Commencement Certificate No. 4269 (page No. 4 of the paper book). However, actual construction of A type building was executed as per the revised plan vide No. C.C. 4101/27/6/2003 (PAGE No. 5 of the paper book). The size of the plot on which the A type building i.e. A1 to A6 have been constructed is 1,39,466 sq.ft. The project A type building i.e. A1 to A5 consists of 360 residential units and the construction has been completed between 10.1.2005 to 31.8.2005 (page Nos. 6 to 9 of paper book). The authorities below have also not disputed this material fact that residential units has a maximum built up area of 1500 sq.ft. Likewise, these material facts that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 sq.ft. and some of those flats were later converted by the buyers by joining the same wherever the buyers had purchases more than one unit and since Revenue has not filed any cross-objection against this finding, the same has become final and binding on the Revenue Independent units are residential units and have to be treated as separate housing projects for the purpose of deduction under s.80-IB(10) as long as they fulfil the other conditions prescribed under the Act There is no requirement that such undertaking of assessee should be the owner of such land Assessee is a developer of the whole of the project and, therefore, the share could not be allocated only in terms of 51 per cent of the land area because the whole project is developed and constructed by the assessee and 49 per cent share is going to the land owners in respect of the land cost Area under the project was about 7000 sq.mtrs. which was meant for development and which is more than one acre and, therefore, deduction cannot be denied on this ground Assessee was therefore entitled to deduction under s.80- IB(10). 22.4. We find that ITAT Bangalore Bench in the case of Dy.CIT vs. Brigade Enterprises (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prises [ITA.No.366/Mum/10] 23.1. We find that the ITAT Mumbai Bench in the case of Haware Constructions (P) Ltd. vs. ITO (2011) 64 DTR (Mum)(Trib) 251, has held as under: Deduction under s. 80-IB - Income from developing and building housing project-Built up area exceeding 1,000 sq. ft.- Built-up area of each flat as approved by CIDCO is less than 1,000 sq. ft. as per the approved plan and the assessee has sold each flat under separate agreements and not sold two flats by combining them together as one flat to one party- Further, there is no evidence on record to suggest that the assessee has drawn the plan in such a manner that each residential unit is shown as smaller than 1,000 sq. ft. merely to get the benefit of deduction under s. 80-IB(10)-It is also not the case of the Revenue that each flat in the housing project could not have been used as an independent or as a selfcontained residential unit and that there would be a complete habitable residential unit only if two or more flats are joined together-Therefore, merely because some of the purchasers have purchased more than one flat and combined the same, assessee's claim for deduction under s. 80-IB(10) cannot be dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... user, by buying more than one such unit in the name of family members, has merged these residential units into a larger residential unit of a size which is in excess of specified size. That precisely is the case before us. While on the subject, it is useful to take note of legislative amendment by the virtue of which legislature put certain restrictions on sale of residential units to certain family members of a person who has been sold a residential unit in the housing project. Section 80IB(10) now provides an additional eligibility condition that in a case where a residential unit in the housing project is allotted to any person being an individual no other residential unit in such housing project is allotted to any of the following person, namely (i) the individual or the spouse, or the minor children of such individual (ii) the HUF in which such individual is a karta (iii) any person representing such individual the spouse or minor children of such individual or the HUF in which such individual is a karta. The explanation memorandum explained the legislative amendment as follows: (314 ITR(St) 203) Further, the object of the tax benefit for housing projects is to build housing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neither statement recorded ujs.133A has an evidentiary value, nor a legal claim can be declined only because assessee, at some stage, decided to give up the same. In view of these discussions, and bearing in mind entirety of the case, are of the considered view that the deduction ujs.80IB(10) ought to have been allowed to the assessee entirely. To this extent, we modify the order of the CIT(A) and allow further relief to the assessee. 23.3. We find that the ITAT Mumbai Bench in the case of Arcade Bhoomi Enterprises vs. DCIT in ITA.No.366/Mum/2010, has taken similar view. 24. In view of above discussion, we hold that CIT(A) was not justified in holding that flats in building Prime had built up area exceeding 1500 sq.ft., the entire Cosmos Project did not qualify for deduction u/s.80IB(10) in respect of its profits. There is nothing on record to suggest that assessee has claimed deduction in respect of building Prime wherein built up area of its units is exceeding 1500 sq.ft. In fact there were 25 buildings in Cosmos Project out of which except building Prime, all other buildings satisfy the conditions of built up area limit of 1500 sq.ft. Therefore, deduction u/s.80IB(10) sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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