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2016 (5) TMI 1158 - ITAT HYDERABAD

2016 (5) TMI 1158 - ITAT HYDERABAD - TMI - Lease receipts received - assessed under the head ‘business’ or ‘house property’ - Held that:- The Government of Andhra Pradesh has allotted 150 acres of the appellant for development of Biotechnology Park, the appellant developed the Park, constructed the premises, provided required facilities and is exploiting the entire premises as a commercial venture. Therefore, the income is to be assessed under the head ‘business income’.

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RDER PER B. RAMAKOTAIAH, A.M. : This is an appeal by Revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-II, Hyderabad dated 12-11-2014 on the issue whether assessee s lease receipts are to be assessed under the head business or house property ? 2. Assessee had let out its premises in Biotechnology Park and offered its rental income under the head "Income from Business". Assessing Officer (AO) assessed the rental income from premises under the head "Income fr .....

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ises to the following lessees: Sl.No Name of the Tenant Property leased out Lab No./Suite No. Lease rent collected per annum Maintenance collected per annum 1. Finoso Pharma Pvt. Ltd 213, 214 26,94,000 5,38,800 2. Incozen Therapeutics Pvt. Ltd., 223, 224, 233, 234 57,60,000 12,00,000 3. TATA Communications Ltd., 301 2,58,000 - 4. Shakti Bio systems Phase I - Web Labs 18,40,902 2,82,702 5. Biological E-rent 230-243 29,06,835 2,83,440 6. ITC 230-243 1,20,00,000 24,00,000 7. Symphony Pharma 230-243 .....

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income from other sources are as under: - a) Assessee is providing following facilities to the tenants: • Provision of equipment for the lab space • Provision of filtered water of minimum assured standard • Provision of compressed air line • Provision of vacuum line • Provision of nitrogen gas line to the tenants • Provision of effluent treatment and waste management facilities for pharma waste • Provision of sewage treatment facilities • Maintenance of pa .....

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the assessee has only laid pipelines which are fixed to the structure for the use of tenants. But the compressed air, nitrogen gas are provided by others not by assessee. c) Assessee merely constructed a permanent concrete structure suitably modified and called it Technology Park and gave it on rent. Therefore, the income thereon should be treated as income from house property . d) Assessee's alternative claim that activity should be considered as adventure in the nature of trade as defined .....

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usively to Biotechnology and healthcare sector. f) Since number of tenants is more than 10, since each one of them cannot arrange common facilities for themselves, assessee provided the above mentioned services only for the sake of convenience instead of each unit availing the above services independently. g) That assessee collected separate amounts for letting out the premises and for the maintenance of the complex. Assessee is collecting fixed monthly charges towards the rent. The maintenance .....

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47 (Cal). 4. Before Ld. CIT(A), assessee submitted that: a) assessee was formed as a joint venture between Shapoorji Pallomji Company Limited and the Government of Andhra Pradesh with an objective of developing the Biotech Park in the state of Andhra Pradesh for providing necessary infrastructure facilities to users that intend to set up Biotech based industries. b) The appellant has developed and leased out various lab spaces for the purpose of carrying out research and development activities .....

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maintenance services constitute business activity. e) The entire complex was developed and was approved as the industrial park therefore income cannot be considered as rental income. f) That the word "business" defined u/s.2(13) of Income Tax Act 1961 includes "any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture" is an inclusive definition and not exhaustive. The word business is a wide import and must be construed in .....

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inst Revenue stating as under: 6. The information on record is carefully considered. The appellant has its premises in Biotechnology Park, Shamirpet Mandai, Ranga Reddy District, Andhra Pradesh, approved by Government of Andhra Pradesh. It is also surrounded by several other industries doing their activities in the field of biotechnology. The appellant has two separate agreements with each tenant, one for leasing of' the premises and the other is for the purpose of maintenance. During the co .....

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arges are also collected on monthly basis. The maintenance charges include repairs to structures, electrical repairs, plumbing, etc. In addition to fixed maintenance charges, the tenants also have to pay telephone, electricity, water, depending on their usage. Types of services rendered by appellant are- • Filtered water • Water supply of Metropolitan Board • Nitrogen Line for supply of Nitrogen from a centralized cylinder bank located in the Service building. • Compressed Ai .....

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special services like providing Nitrogen gas, compressed air, etc., were provided by third parties. The appellant has entered into agreements with the third parties to provide the services to the tenants. 'It is the obligation of the appellant to provide general and special services to the tenants. The third parties did not have any direct obligation to provide any special services to the tenants. The Hon'ble ITAT, Hyderabad, in the case of Janapriya Engineers Syndicate vs. DCIT in ITA.N .....

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vs. ACIT (2009) 28 SOT 45 (Bangalore), the Hon'ble Tribunal in exactly identical circumstances of that of the appellant held that the entire activity was carried out in an organized manner to earn profit from investment made by the assessee as a commercial venture. Therefore, the income earned was held as business income. Further, the Hon'ble Karnataka High Court in the case of CIT vs. Venlankani Information Systems Private Limited (218 Taxman 88) held that "if the intention is to e .....

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at he has constructed a building and he has also provided other facilities and even if there are two separate rental deeds, it does not fall within the heading of income from house property. Therefore, in view of the judicial precedents, taking into account the overall facts and circumstances of the case, especially that the Government of Andhra Pradesh has allotted 150 acres of the appellant for development of Biotechnology Park, the appellant developed the Park, constructed the premises, provi .....

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l property by putting up construction and letting out for the purpose of getting rental income, then notwithstanding the fact that the furniture and fittings are provided to the lessee, the income from the building fall under the head 'income from house property' in the present case, the assessee developed the commercial property and let out the same to the tenants and getting the rental income. 3. The CIT(A) erred in ignoring the fact that assessee has deducted the tax u/s 1941, which d .....

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. 7. It was the contention of the Ld. DR that assessee has constructed only the buildings and the provision of sewerage plant, compressed air, Nitrogen supply are also part of the building and referred to the agreements entered to submit that there is no provision for separate services. Relying on the principles laid down by the Hon'ble Supreme Court in the case of Shambhu Investments Ltd263 ITR 143(SC) it was submitted that there are no complex commercial activities so as to consider the le .....

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d responsibilities as such. Ld. Counsel also referred to the lab equipment for necessary research and supply of compressed gas and nitrogen, necessary filters and providing environment which is a specialized activity. Ld. Counsel relied on the decision of Hon'ble High Court of Karnataka in the case of CIT Vs. Venlankani Information Systems Private Limited [265 CTR 250] and also on the decision of Hon'ble Supreme Court in the case of M/s. Chennai Properties & Investments Ltd., 373 ITR .....

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than simple letting out of premises, more than 1/3rd of the receipts of the activity are assessed as income from other sources , thereby segregating the receipts under two heads as they are received by way of separate agreements. Thus, AO has accepted that assessee s incomes are not exploiting the property alone. If the facilities provided are simple as contended by DR, the whole of receipts should have been assessed under the head house property . This was not done indicating that the activity .....

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income . 10. Vide para 25/26, it was further held that: 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 .....

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ssee 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 that the main intention is to exploit immoveable property by way of complex commercial activities, in that event it must be held as business income. 26. Sub-s (1) of S. 56 makes it clear that income of every kind which is not to be excluded from the total .....

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le to income-tax under the head 'Profits and gains of business or profession'. Clause (iii) also provides that 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'. Therefore the intention of the legisl .....

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onstruction and letting it out for the purpose of getting rental income, then notwithstanding the fact that the furniture and fittings are provided to the lessee, the income from the building falls under the head 'Income from house property'. But if the assessee is in the business of taking land, pulling up commercial buildings thereon and letting out such buildings with all furniture as his profession or business, then notwithstanding the fact that he has constructed a building and he h .....

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ercial property and carrying a 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 s. 80-1A 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 a .....

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counsel for the parties on the aforesaid issue. Before we narrate the legal principle that needs to applied to give the answer to the aforesaid question, we would like to recapitulate some seminal features of the present case. The Memorandum of Association of the appellant-company which is placed on record mentions main objects as well as incidental or ancillary objects in clause III. (A) and (B) respectively. The main object of the appellant company is to acquire and hold the properties known .....

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properties. It is so recorded and accepted by the assessing officer himself in his order. It transpires that the return of a total income of ₹ 244030 was filed for the assessment year in question that is assessment year 1983-1984 and the entire income was through letting out of the aforesaid two properties namely, Chennai House and Firhavin Estate . Thus, there is no other income of the assessee except the income from letting out of these two properties. We have to decide the issue keeping .....

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veloped by it, had been rented out and income was derived from the renting of the said shops and stalls. In those facts, the question arose for consideration was: whether the rental income that is received was to be treated as income from the house property or the income from the business. This court while holding that the income shall be treated as income from the house property, rested its decision in the context of the main objective of the company and took note of the fact that letting out o .....

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d., V. Commissioner of Income Tax, West Bengal [44 ITR 362 (SC)]. That was also a case where the company, which was the assessee, was formed with the object, inter alia, of acquiring and disposing of the underground coal mining rights in certain coal fields and it had restricted its activities to acquiring coal mining leases over large areas, developing them as coal fields and then sub-leasing them to collieries and other companies. Thus, in the said case, the leasing out of the coal fields to t .....

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ted out that before income, profits or gains can be brought to computation, they have to be assigned to one or the other head. These heads are in a sense exclusive of one another and income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, the Court pointed out that the deciding factor is not the ownership of land or lease but the nature of the activity of the assessee and the nature of the operations in relation to them. It was highlighted and stressed .....

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correct but not so, where the letting or sub-letting is part of a trading operation. The diving line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned . After applying the aforesaid principle to the facts, which were there before the Court, it came to the conclusion that income had to .....

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