S. 22 and S. 28 — Income earned by company from leasing infotech park constructed by it on land (initially taken on lease and later acquired), construction financed by borrowings from banks secured on immovable property, providing various amenities charge

14 Global Tech Park Pvt. Ltd. v. ACIT

ITAT ‘A’ Bench, Bangalore

A.Y. : 2003-04. Decided on : 30-6-2008

Counsel for assessee/revenue: H. N. Khincha/

Etwa Munda

The assessee developed the land allotted to it by Karnataka
Industrial Areas Development Board and constructed an information technology
park thereon. The information technology park consisted of two large blocks of
buildings with four floors in each block, service block, cafeteria, library,
gymnasium, utilities for staff, rest rooms, security, ATM, and Geodesic Dome.
The assessee provided/installed in the said information technology park
landscaping and construction of steel reinforced cement roads and high-security
compound wall fitted with motorised gate, huge water tank fitted with high
pressure-pumps, reservoir and sump, borewell, sewage treatment plant, lifts,
rainwater harvesting system, high-standard electrical installation including
transformer and generators, air conditioning, fire fighting and smoke detector
equipments, etc. Various amenities and services were provided in the nature of
maintenance of staff, monitoring of the generator room, water supply, etc. Land
and infrastructure were provided by the assessee by obtaining loan from a bank
which had mortgaged the immovable property and had also taken personal
guarantees of the Directors. The assessee received rental income from persons
with whom it entered into an agreement for leasing the information technology
park. The assessee considered rental income to be chargeable under the head
‘Income from Business’. The Assessing Officer was of the view that the lease
deed has been entered into by the assessee as absolute owner of the property
with the tenant and therefore placing reliance upon the decisions of Podar
Cement P. Ltd., East India Housing and Land Development Trust Ltd. and Bhoopalam
Enterprises, he assessed rental income under the head ‘Income from House
Property’. The Commissioner of Income-tax (Appeals) upheld the action of the
Assessing Officer. The assessee preferred an appeal to the Tribunal.

The Tribunal observed that the assessee was incorporated with
the sole intention of developing technology park for which it obtained leasehold
land from the Karnataka Industrial Areas Development Board and also obtained
loan from Union Bank of India for constructing super structure thereon. Such
conduct according to the Tribunal could not be considered as investment in a
property for earning rental income only. The Tribunal noted that since the lease
of the property was shown as part of the business activity, the income received
therefrom cannot be said as income received as a land owner but as a trader.
According to the Tribunal, if the property is taken on lease and thereafter
developed and leased it, is part of the business activity of the assessee as an
owner, and the income has to be treated as business income. The Tribunal found
that the activity was done by the assessee as a business venture and was in
accordance with the main object of the company. It observed that the intention
of any prudent businessman is to earn profit at a maximum level and investment
made in the business never lost its main intention for which the assessee was
incorporated. Since the entire cost of construction was met by way of obtaining
loan, it was found to be a risk as adventure in the nature of trade. According
to the Tribunal, the conversion from leasehold to ownership leads to a pure
commercial proposition resulting in a business venture carried out by the
assessee company. The Tribunal was of the view that the assessee’s providing
amenities, such as ward and watch, maintenance of common area, maintenance of
light in the common area, supply of water, providing lift, installation of
electric transformer, power to the lessees, providing generator, overhead water
tanks, maintenance of drainage, etc. clearly establish that the entire activity
is carried on in an organised manner to earn profit out of investment made by
the assessee as a commercial venture. The Tribunal noted that the case law cited
by the jurisdictional High Court in the case of Balaji Enterprises had
considered the Apex Court decision in the case of S. G. Mercantile Corporation.
It found the case law relied upon by the learned CIT(A) (Bhoopalan Commercial
Complex & Industries Pvt. Ltd.) to be distinguishable on facts. It found force
in the submission of learned counsel that the term ‘business’, as defined in the
provision of infrastructure facility as provided in sub-clause (iv) of S. 80IA
clearly explains the development and operation of the technology park, has not
been controverted by the authorities below. It noted that in the assessee’s case
the main intention was to exploit the immovable property by way of commercial
application and there was no room for doubting that the intention of the
assessee was in providing software development facility in the Electronic City
in the industrial area within the limits of Bangalore South District, Bangalore.
According to the Tribunal, any activity undertaken with a profit motive would
amount to business and not a mere return on investment when it is exploited. It
found the facts of the assessee’s case to be similar to those of Balaji
Enterprises and also S. G. Mercantile Corporation. In view thereof, the Tribunal
directed the AO to assess the rental income as from business.