Order dt.27.07.2020 in TCA Nos.314 & 315/2017 1/14 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 27.07.2020 CORAM HON'BLE DR.JUSTICE VINEET KOTHARI AND HON'BLE MR.JUSTICE KRISHNAN RAMASAMY TCA Nos.314 and 315 of 2017 and CMP 8709/2017 Principal Commissioner of Income Tax 4 No.121, Mahatma Gandhi Road, / Chennai - 600 034 ... Appellant vs. M/s. Khivraj Motors Pvt. Ltd, 623, Anna Salai, Chennai - 600 006. ... Respondent Prayer ::- Appeal filed against order of Income Tax Appellate Tribunal, Madras B Bench, dated 5.8.2016 in ITA Nos.1179/Mds/2015 and 1180/Mds/2015. For appellant : Mr.Karthik Ranganathan For respondent : Mr.N.V.Balaji COMMON JUDGMENT (Made by DR.VINEET KOTHARI, J.) Court was held by Video Conference, as per Resolution of Full Court dated 3 July 2020, by Judges at their respective residence and counsel, staff of Court appearing from their respective residences. http://www.judis.nic.in Order dt.27.07.2020 in TCA Nos.314 & 315/2017 2/14 2. Revenue has filed present appeals aggrieved by order of learned Income Tax Appellate Tribunal, Madras B Bench, dated 5.8.2016 in ITA Nos.1179/Mds/2015 and 1180/Mds/2015 for assessment years, 2010-11 and 2011-12, dismissing appeals of Revenue and upholding order of learned Commissioner of Income Tax (Appeals) II, Chennai, dated 3.11.2014 for assessment years 2010-11 and 2011-12 and holding that rental income from I.T. Park, namely, Olympia Tech Park is taxable under head Income From Business and under head "income from house property". 3. following purported substantial questions of law are sought to be raised in present appeals filed by Revenue :- 1. Whether on facts and in circumstances of case and in law Appellate Tribunal is correct in upholding order of CIT(A) directing Assessing Officer to treat rental income from letting out of property as "income from business" and to allow claim on deduction u/ s.80IA(4)(iii)of Income Tax Act? 2. Whether on facts and circumstances of case and in law, Tribunal was justified in holding that rental receipts to be assessed under head "Income from Business" when assessee was not engaged in any business activity http://www.judis.nic.in Order dt.27.07.2020 in TCA Nos.314 & 315/2017 3/14 and as condition for chargeability of property income as provided under provision of Section 22 of IT Act are satisfied in present case and thereby to be assessed under head "Income from house property" only? 3. Whether on facts and circumstances of case, Appellate Tribunal was correct in disregarding fact that assessee has not developed or developed and maintained Industrial Park by 31.03.2006 as stipulated by Industrial Park Scheme-2002, and hence same has not yet been notified by CBDT, therefore assessee is not eligible for claiming deduction u/ s.80IA(4)(iii) of Income Tax Act? 4. Whether Appellate Tribunal is right in not following ratio of Apex Court's decision in Keyaram Hotels vs.CIT (2015) 63 taxmann.com 301 (SC) wherein Apex Court has uphleld Madras High Court's decision 373 ITR 494 that where assessee was not engaged in any business activity, rental income earned out of letting out of commercial complex would be assessed as income from house property and not as business income" and further whether non-appreciation/ ignorance of ratio of decision of Hon'ble Apex Court, while deciding issue, had made order of ITAT perverse, both in law and facts ? http://www.judis.nic.in Order dt.27.07.2020 in TCA Nos.314 & 315/2017 4/14 4. finding of learned Tribunal in this regard are quoted below from its order. 10. We have considered rival submissions on either side and perused relevant material available on record. Admittedly, assessee disclosed dividend income of Rs.6,77,302/- and claimed as exempted. As rightly submitted by Ld. O.R., when assessee earned exempted income or income which does not form part of total income and claimed expenditure, Assessing Officer may compute disallowance if he is not satisfied about claim made by assessee. In case before us, Assessing Officer computed disallowance under Rule 80. perusal of assessment order, more particularly at page 5, clearly shows that Assessing Officer has adopted method prescribed under Rule 80(2). only contention of assessee now before this Tribunal is that investment in deep discount bonds does not result in any exempted income and income from deep discount bonds is taxable. However, no details of investments said to be made by assessee which earned taxable income are available either before Assessing Officer or before this Tribunal. Moreover, so-called investments in subsidiary companies are also not available on record. In absence of any such http://www.judis.nic.in Order dt.27.07.2020 in TCA Nos.314 & 315/2017 5/14 details either before this Tribunal or before CIT(Appeals) or before Assessing Officer, claim of assessee that investment made in deep discount bonds and subsidiary companies has to be excluded cannot be accepted. When assessee claims that investment in deep discount bonds resulted in taxable income, it is for assessee to file necessary material to substantiate its case. In absence of any such material, this Tribunal do not find any reason to interfere with order of lower authority and accordingly same is confirmed. 5. Having heard learned counsel for petitioner, we are of clear opinion that controversy is no longer res integra and it is squarely covered by recent judgment of Division Bench of this Court in case of M/s. PSTS Heavy Lift and Shift Ltd., Wavoo Mansion, 2nd Floor 48, (Old No.39), Rajaji Salai vs. M/s. CeeDeeYes IT Parks Pvt. Ltd., decided on 30 January 2020, in Tax Case Appeal Nos.2193 to 2195 of 2008 & 979 of 2009. Paragraphs 17 to 22 of that judgment are quoted below for ready reference :- 17. We are of clear opinion that once property in question is used as business asset and exclusive business of assessee company or firm is to earn income by way of rental or lease money, then such rental income can be treated only as Business Income of Assessee and not as http://www.judis.nic.in Order dt.27.07.2020 in TCA Nos.314 & 315/2017 6/14 Income from House Property . Heads of Income is divided in various six heads, including Income from House Property , which defines specific source of earning such incomes. income from house property is intended to be taxed under that head mainly if such income is earned out of idle property, which could earn rental income by user thereof from lessees. But, where income from same property in form of lease rentals is main source of business of Assessee, which has its business exclusively or substantially in form of earning of rentals only from Business Assets in form of such landed properties, then, in our opinion, more appropriate Head of Income applicable in such cases would be Income from Business . 18. bare perusal of Scheme of Income Tax Act, 1961, would reveal that while computing taxable income under Head Income from business or profession , various deductions, including actual expenditure incurred and notional deductions like depreciation etc. are allowed vis-a-vis incentives in form of deductions under Chapter VIA. But, deductions under Head Income from House Property ; are restricted to those specified in Section 24 of Act, like 1/6th of annual income towards repairs and maintenance to be undertaken by http://www.judis.nic.in Order dt.27.07.2020 in TCA Nos.314 & 315/2017 7/14 landlords, interest on capital employed to construct property etc. Therefore, in all cases, such income from property cannot be taxed only under head Income from House Property . It will depend upon facts of each case and where such income is earned by Assessee by way of utilisation of its business assets in form of property in question or as idle property which could yield rental income by its user, by lessees. In earlier provisions of Income from House Properties, even notional income under Head Income from House Property ; was taxable in case of self-occupied properties by landlords, is pointer towards that. 19. Since, in present cases, it is not even in dispute that all exclusive and main source of income of Assessee was only rentals and lease money received from lessees in both cases and Assessing Authority took different and contrary view mainly to deny claim of depreciation out of such business income in form of rentals, without assigning any proper and cogent reason. Merely because lease income or rental income earned from lessees, could be taxed as Income from House Property , ignoring fact that that such rentals were only source of Business Income ; of Assessee, Authorities below have fallen into error in http://www.judis.nic.in Order dt.27.07.2020 in TCA Nos.314 & 315/2017 8/14 holding that income was taxable under Head Income from house property. said application of Head of Income by Authorities below was not only against facts and evidence available on record, but against common sense itself. 20. amended definition under Section 22 of Income Tax Act, 1961, now defines Income from House Property ; as annual value of property, as determined under Section 23 of Act, consisting of buildings or lands appurtenant thereto of which assessee is owner, other than such portions of such property, as he may occupy for purposes of any business or profession carried on by him, profits of which are chargeable to income tax, shall be chargeable to Income Tax under head Income from house property . Thus, even amended definition intends to tax notional income of self occupied portion of property to run Assessee's own business therein as business income. Therefore, other rental income earned from letting out of property, which is business of Assessee itself, cannot be taxed as Income from house property. 21. Moreover, Heads of Income, as defined in Section 14 of Act do not exist in silos or in watertight compartments under Scheme of http://www.judis.nic.in Order dt.27.07.2020 in TCA Nos.314 & 315/2017 9/14 tax and thus, these Heads of Income, as we have noted above, are fields and heads of sources of income depending upon nature of business of Assessee. Therefore, in cases where earning of rental income is exclusive or predominant business of Assessee, income earned by way of lease money or rentals by letting out of property cannot be taxed under Head Income from house property , but can only be taxed under Head Income from business income . 22. In view of aforesaid, where facts of cases are undisputed that both Assessees in present case carry on business of earning rental income, as per Memorandum of Associations only and fact is that they were not carrying on any other business, compels us to come to conclusion that present appeals of Assessees are required to be allowed. same are accordingly allowed and question of law framed above is answered in favour of Assessee and against Revenue. No costs. 6. Though learned counsel for Revenue Mr.Karthik Ranganathan, sought to urge before us that development of I.T. Park was not main business activity of Assessee company, he failed to establish his contention with help of any relevant evidence, including memorandum of http://www.judis.nic.in Order dt.27.07.2020 in TCA Nos.314 & 315/2017 10/14 association of company or any other relevant documents. 7. On contrary, we found from discussion in order of Commissioner of Income Tax (Appeals) as well as learned Tribunal that Assessee has not only shown part of its income as income from other property, but has only allowed claim of Assessee to tax income from software companies in form of lease rentals from Olympia Tech Park as income from business and thereupon allowing this deduction under Section 80IA of Act, which is allowed only if income from business is taxed under head Income from business at hands of Assessee. We do not find any material on record to establish that such income of Assessee during relevant year was from any of its idle properties and Assessee company used to enjoy such properties as landlord from only earning rental income. 8. On contrary, it seems that Assessee diversified and added its business line for development of real estate of particular type, namely software companies and even though name of company continue to remain as M/s. Khivraj Motors Pvt. Ltd. burden of argument of learned counsel for Revenue, perhaps emanated from only name of company, forgetting that main business activity of company from its http://www.judis.nic.in Order dt.27.07.2020 in TCA Nos.314 & 315/2017 11/14 motor business had been diversified into developing special kinds of property and earning lease rental income as its main business income. By no stretch of imagination, could software park developed with special facilities and amenities for software companies, be described or believed to be property created for earning rental income as income from house property. Tribunal not only relied upon earlier decision of Madras High Court in case of CIT v. Elnet Technologies Ltd. [(2012) 213 Taxman 129], but also having considered all these aspects in great detail, Division Bench of this Court to which one of us (VKJ) was member, in M/s. PSTS Heavy Lift and Shift Ltd., had clearly held that where main business of company is to earn rental income as its business income, income would be taxable under head Income entitling petitioner Assessee to have deductions of notional expenses like depreciation and special deductions like Section 80IA etc. 9. It appears that just to take contrary view in favour of Revenue, authorities unneccesarily create forum for litigation for assessee by taking different and divergent views, despite there being binding precedents from jurisdictional high Court. This tendency of revenue authorities not to follow judgments of superior Constitutional Courts deserves to be strongly deprecated by imposition of suitable costs on them. http://www.judis.nic.in Order dt.27.07.2020 in TCA Nos.314 & 315/2017 12/14 10. We would have imposed costs on Assessing Authority for not following binding precedents of Court, but, at repeated request of learned counsel for Revenue, we are making it cost easy for appellant Revenue with hope that Revenue will understand ratios of judgments clearly and apply same in its letter and spirit truthfully. 11. With above observations, we dismiss appeals. No costs. Consequently, connected miscellaneous petition is also dismissed. (V.K.,J.) (K.R.,J.) 27.07.2020 kpl/tar http://www.judis.nic.in Order dt.27.07.2020 in TCA Nos.314 & 315/2017 13/14 To Income Tax Appellate Tribunal, Madras B Bench http://www.judis.nic.in Order dt.27.07.2020 in TCA Nos.314 & 315/2017 14/14 DR.VINEET KOTHARI, J. and KRISHNAN RAMASAMY, J. (tar) TCA Nos.314 and 315 of 2017 27.07.2020 http://www.judis.nic.in Principal Commissioner of Income-tax 4, Chennai v. Khivraj Motors Pvt. Ltd