Commissioner Of Income Tax I,Chennai v. M/S.khivraj Tech Park Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 14.09.2020 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE KRISHNAN RAMASAMY Tax Case (Appeal) No.271 OF 2011 Commissioner of Income Tax I,Chennai...Appellant versus M/s.Khivraj Tech Park Pvt. Ltd.,No.617, Anna Salai,Chennai 600 006...Respondent Appeal filed under Section 260A of the Income Tax Act,1961 against the order of the Income Tax Appellate Tribunal,Chennai “D” Bench, dated 01.02.2011 in ITA No.2127/Mds/2010for AY 2006-07. Against the order of the Commissioner of Income Tax,Chennai -1, dated 27.10.2010 and made in C.No. 218(38)/ CIT-I/263/2010-11 for the Assessment Year 2006-07; and againstthe Assessment Order of the Income Tax Officer (OSD), CompanyCircle II (4), Chennai, dated 19/12/2008 and made in GIR/PANNo. AACCK4418 P for the Assessment Year 2006-07. (Delivered by DR.VINEET KOTHARI, J.) This Tax Case Appeal has been filed by the Revenue,calling in question the correctness of the order passed by theIncome Tax Appellate Tribunal, Chennai “D” Bench, dated01.02.2011 in ITA No.2127/Mds/2010 for AY 2006-07. 2. The controversy involved in this appeal is covered bythe order of the same Bench in the case of Assessee itself inT.C.A.Nos. 314 and 315 of 2017 (Principal Commissioner ofIncome Tax vs. M/s.Khivraj Tech Park, order dated 27 July2020, reported in 2020 (118) Taxmann.com 224 Madras). https://hcservices.ecourts.gov.in/hcservices/ 3. The relevant portion of the judgment is quoted belowfor ready reference. 5. Having heard the learned counselfor the petitioner, we are of the clearopinion that the controversy is no longerres integra and it is squarely covered bythe recent judgment of the Division Benchof this Court in the case of M/s. PSTSHeavy Lift and Shift Ltd., Wavoo Mansion,2nd Floor 48, (Old No.39), Rajaji Salaivs. M/s. CeeDeeYes IT Parks Pvt. Ltd.,decided on 30 January 2020, in Tax CaseAppeal Nos.2193 to 2195 of 2008 & 979 of2009. Paragraphs 17 to 22 of that judgmentare quoted below for ready reference :- ?17. We are of the clear opinionthat once the property in question isused as business asset and theexclusive business of the assesseecompany or firm is to earn income byway of rental or lease money, thensuch rental income can be treatedonly as the ?Business Income of theAssessee? and not as ?Income fromHouse Property?. The Heads of Incomeis divided in various six heads,including?IncomefromHouseProperty?, which defines the specificsource of earning such incomes. Theincome from house property isintended to be taxed under that headmainly if such income is earned outof idle property, which could earnthe rental income by user thereoffrom the lessees. But, where theincome from the same property in theform of lease rentals is the mainsource of business of the Assessee,which has its business exclusively orsubstantially in the form of earningof the rentals only from the BusinessAssets in the form of such landedproperties, then, in our opinion, themore appropriate Head of Incomeapplicable in such cases would be ?Income from Business?. 18. A bare perusal of the Schemeof the Income Tax Act, 1961, wouldreveal that while computing thetaxable income under the Head ?Incomefrom business or profession?, the various deductions, including theactual expenditure incurred andnotional deductions like depreciationetc. are allowed vis-a-vis incentivesin the form of deductions underChapter VIA. But, the deductionsunder the Head ?Income from HouseProperty?; are restricted to thosespecified in Section 24 of the Act,like 1/6th of the annual incometowards repairs and maintenance to beundertaken by landlords, interest oncapital employed to construct theproperty etc. Therefore, in allcases, such income from propertycannot be taxed only under the head ?Income from House Property?. It willdepend upon the facts of each caseand where such income is earned bythe Assessee by way of utilisation ofits business assets in the form ofproperty in question or as an idleproperty which could yield rentalincome by its user, by the lessees.In the earlier provisions of Incomefrom House Properties, even thenotional income under the Head ?Income from House Property?; wastaxable in the case of self-occupiedproperties by landlords, is a pointertowards that. 19. Since, in the present cases,it is not even in dispute that allthe exclusive and main source ofincome of the Assessee was only therentals and lease money received fromthe lessees in both the cases and theAssessing Authority took a differentand contrary view mainly to deny theclaim of depreciation out of suchbusiness income in the form ofrentals, without assigning any properand cogent reason. Merely because thelease income or rental income earnedfrom the lessees, could be taxed as ?Income from House Property?, ignoringthe fact that that such rentals werethe only source of ?Business Income?;of the Assessee, the Authoritiesbelow have fallen into the error inholding that the income was taxable under the Head Income from houseproperty. The said application of theHead of Income by the Authoritiesbelow was not only against the factsand evidence available on record, butagainst the common sense itself. 20. The amended definition underSection 22 of the Income Tax Act,1961, now defines the ?Income fromHouse Property?; as the annual valueof property, as determined underSection 23 of the Act, consisting ofbuildings or lands appurtenantthereto of which the assessee is theowner, other than such portions ofsuch property, as he may occupy forthe purposes of any business orprofession carried on by him, theprofits of which are chargeable toincome tax, shall be chargeable toIncome Tax under the head ?Incomefrom house property?. Thus, even theamended definition intends to tax thenotional income of the self occupiedportion of the property to runAssessee's own business therein asbusiness income. Therefore, the otherrental income earned from letting outof the property, which is thebusiness of the Assessee itself,cannot be taxed as Income from houseproperty. 21. Moreover, the Heads ofIncome, as defined in Section 14 ofthe Act do not exist in silos or inwatertight compartments under theScheme of tax and thus, these Headsof Income, as we have noted above,are fields and heads of sources ofincome depending upon the nature ofbusiness of the Assessee. Therefore,in cases where the earning of therental income is the exclusive orpredominant business of the Assessee,the income earned by way of leasemoney or rentals by letting out ofthe property cannot be taxed underthe Head ?Income from houseproperty?, but can only be taxedunder the Head ?Income from businessincome?. 21. Moreover, the Heads ofIncome, as defined in Section 14 ofthe Act do not exist in silos or inwatertight compartments under theScheme of tax and thus, these Headsof Income, as we have noted above,are fields and heads of sources ofincome depending upon the nature ofbusiness of the Assessee. Therefore,in cases where the earning of therental income is the exclusive orpredominant business of the Assessee,the income earned by way of leasemoney or rentals by letting out ofthe property cannot be taxed underthe Head ?Income from houseproperty?, but can only be taxedunder the Head ?Income from businessincome?. 22. In view of the aforesaid,where the facts of the cases areundisputed that both the Assessees inthe present case carry on thebusiness of earning the rentalincome, as per the Memorandum ofAssociations only and the fact isthat they were not carrying on anyother business, compels us to come tothe conclusion that the presentappeals of the Assessees are requiredto be allowed. The same areaccordingly allowed and the questionof law framed above is answered infavour of the Assessee and againstthe Revenue. No costs.6. Though the learned counsel for theRevenue Mr.Karthik Ranganathan, sought tourge before us that the development ofI.T. Park was not the main businessactivity of the Assessee company, hefailed to establish his contention withthe help of any relevant evidence,including the memorandum of association ofthe company or any other relevantdocuments. 7. On the contrary, we found from thediscussion in the order of theCommissioner of Income Tax (Appeals) aswell as the learned Tribunal that theAssessee has not only shown part of itsincome as income from other property, buthas only allowed the claim of the Assesseeto tax the income from the softwarecompanies in the form of lease rentalsfrom Olympia Tech Park as income frombusiness and thereupon allowing thisdeduction under Section 80IA of the Act,which is allowed only if the income frombusiness is taxed under the head ?Incomefrom business? at the hands of theAssessee. We do not find any material onrecord to establish that such income ofthe Assessee during the relevant year wasfrom any of its idle properties and theAssessee company used to enjoy suchproperties as a landlord from only earningthe rental income. 8. On the contrary, it seems that theAssessee diversified and added its business line for the development of realestate of particular type, namely softwarecompanies and even though the name of thecompany continue to remain as M/s. KhivrajMotors Pvt. Ltd. The burden of theargument of the learned counsel for theRevenue, perhaps emanated from only thename of the company, forgetting that themain business activity of the company fromits motor business had been diversifiedinto developing a special kinds ofproperty and earning lease rental incomeas its main business income. By no stretchof imagination, could a software parkdeveloped with the special facilities andamenities for software companies, bedescribed or believed to be a propertycreated for earning rental income asincome from house property. The Tribunalnot only relied upon an earlier decisionof Madras High Court in the case of CIT v.Elnet Technologies Ltd. [(2012) 213 Taxman129], but also having considered all theseaspects in great detail, the DivisionBench of this Court to which one of us(VKJ) was a member, in M/s. PSTS HeavyLift and Shift Ltd., had clearly held thatwhere the main business of the company isto earn rental income as its businessincome, the income would be taxable underthe head ?Income? entitling the petitionerAssessee to have the deductions ofnotional expenses like depreciation andspecial deductions like Section 80IA etc. 9. It appears that just to take acontrary view in favour of the Revenue,the authorities unneccesarily create aforum for litigation for the assessee bytaking different and divergent views,despite there being binding precedentsfrom the jurisdictional high Court. Thistendency of the revenue authorities not tofollow the judgments of superiorConstitutional Courts deserves to bestrongly deprecated by imposition ofsuitable costs on them. 10. We would have imposed costs onthe Assessing Authority for not followingthe binding precedents of the Court, but,at the repeated request of the learnedcounsel for the Revenue, we are making it https://hcservices.ecourts.gov.in/hcservices/ cost easy for the appellant Revenue withthe hope that the Revenue will understandthe ratios of the judgments clearly andapply the same in its letter and spirittruthfully. 11. With the above observations, wedismisstheappeals.Nocosts.Consequently,connectedmiscellaneouspetition is also dismissed. 4. Accordingly, the present appeal is also disposed of inthe same terms. No costs. Sd/-Assistant Registrar (CS-V)//True Copy//Sub Assistant RegistrartarTo1. Income Tax Appellate Tribunal, 'D' Bench, Chennai.2.The Commissioner of Income Tax – I, Chennai.3.The Commissioner of Income Tax, Chennai -1.4.The Income Tax Officer (OSD), Company circle II (4), Chennai.+1cc to Mr.N.V.Balaji, Advocate, S.R.No. 30054 T.C.A.No.271 OF 2011PA(CO)GN(15/10/2020)