R.R. Industries Ltd. vs Income Tax Officer

Chitra Venkataraman, J.—The above tax case (appeals), filed at the instance of the assessee as against the order of the income tax

Appellate Tribunal for the assessment years 2002-03 to 2008-09, allowing the Revenue''s appeals thereby remanding the matter back to the

Assessing Officer for consideration on the question of character of a receipt, by raising the following substantial questions of law:

Whether the income tax Appellate Tribunal has erred in considering an issue, which has attained finality and not been challenged by the

respondent in their appeal before the income tax Appellate Tribunal?

Whether the Tribunal has the jurisdiction to go into issues (like deduction u/s 80-IA(4)) that are not subject matter of the appeal or have never

been raised in the grounds of appeal without following the procedure set out in rule 11 of the income tax (Appellate Tribunal) Rules, 1963?

Whether the income tax Appellate Tribunal is right in setting aside the matter to the files of the respondent when there was no grievance in the

appeal of the respondent before the income tax Appellate Tribunal?

Whether, in the facts and in the circumstances of the case, the income tax Appellate Tribunal is right in setting aside the matter to the respondent

for re-examination without considering the paper books containing details materials filed by the appellant?

Whether, in the facts and in the circumstance of the case, the income tax Appellate Tribunal is right in setting aside the matter to the files of the

respondent on issues, towards which specific findings of facts are already recorded by the learned Commissioner of income tax (Appeals)?

Whether, in the facts and in the circumstances of the case, the income tax Appellate Tribunal also failed to consider that the notification issued

by the Central Board of Direct Taxes is binding on the respondent?

Whether, in the facts and in the circumstances of the case, the income tax Appellate Tribunal is right in setting aside the matter to the files of the

respondent for re-examination without consideration the approval of the appellant''s buildings as ''industrial park'' pursuant to the Industrial Park

Scheme, 1999, framed by the Central Government u/s 80-IA(4) of Act?

Whether the income tax Appellate Tribunal erred in holding that unless the income falls under the head of ''profits and gains from business'', no

deduction u/s 80-IA is available?

It is seen from the facts narrated that the assessee is a company engaged in the business of manufacture and export of leather goods. Subsequently,

it diversified its business into developing operating and maintaining an industrial park and leasing out the premises after making suitable alterations

as required by the lessee. Admittedly, the assessee, being a developer of industrial park was duly recognised by the Investment Promotion and

Infrastructure Development Cell of the Secretariat of Industrial Assistance of the Department of Industrial Policy and Promotion in the Ministry of

Commerce and Industry, the Government of India under the Industrial Park Scheme, 1999, framed by the Central Government u/s 80-IA(4) of the

income tax Act. The recognition was given as early as August, 2001. It is stated by the assessee that it constructed towers in the Industrial park

and let them out to software concerns providing a platform with plug and play infrastructure. Pointing out to the various facilities offered in the

buildings let out treating the rental income as business income, the assessee claimed deduction u/s 80-IA of the income tax Act. The Assessing

Officer, however, rejected the contention of the assessee and assessed the income as income from the house property and disallowed the

assessee''s claim for deduction u/s 80-IA of the Act. This led to the assessee filing an appeal before the Commissioner of income tax (Appeals).

Before the Commissioner of income tax (Appeals), the assessee raised two questions, one as regards the assessment of the monthly rental

income as income from house property and, secondly, as a consequence, the disallowance of the claim of deduction u/s 80-IA of the Act. The

Commissioner of income tax (Appeals) held that the assessee had borrowed large sums of money from financial institution against the mortgage of

the property as well as against the future rent receivables to develop the state of the art infrastructure, which went much beyond the construction of

the building. Thus, it provided plug and play environment for the software companies, so that the lessee could start its operations therein. Thus, the

assessee was not merely exploiting the property as a owner but was venturing into the realm of business, by providing an environment for software

companies to function. Considering the fact that the assessee had obtained recognition for its infrastructure under the Industrial Park Scheme of the

Government of India and the scheme has defined the undertaking to mean any undertaking which is engaged in the business of developing and

operating or maintaining the industrial park notified by the Central Government in accordance with the scheme, the first appellate authority held that

income derived by the assessee from letting out of industrial park was to be regarded as income from business. Having held so, the Commissioner

of income tax (Appeals) held that in any event, for the purpose of considering the deduction u/s 80-IA of the income tax Act, the question of

considering the character of the receipts was immaterial. Once the approval of the Ministry was there, then the assessee was eligible for deduction

u/s 80-IA(4)(iii) of the income tax Act. Considering the fact that the scheme recognise the activity of any undertaking engaged in the development

of infrastructural facilities or in any area allotted or earmarked for the purposes of software development eligible as an industrial park and such

activity being a business activity, the claim of the assessee u/s 80-IA would be maintained in law. Thus, the Commissioner of income tax (Appeals)

agreed with the contention of the assessee that even if the income was to be treated as income from house property, yet, the assessee would be

entitled to the relief u/s 80-IA of the Act. Thus, the Commissioner of income tax (Appeals) allowed the appeals in part holding that the assessee

was entitled to claim deduction u/s 80-IA of the Act. As against the order of the Commissioner of income tax (Appeals), the Revenue went on

appeal before the income tax Appellate Tribunal.

It is seen from the order of the Tribunal that the Revenue challenged the view of the Commissioner of income tax (Appeals) only on his holding

the income derived from letting out of industrial park buildings as income from business as against the finding made by the Assessing Officer that it

was to be treated as income from house property. Admittedly, no question was raised on the view of the Commissioner of income tax (Appeals)

that irrespective of the character of the receipt, the deduction was available. On considering the nature of the receipt, the Tribunal agreed with the

submission of the assessee that income derived by developing and operating or maintaining an industrial park was assessable under the head

Profits and gains of business or profession"" as could be inferred from the provisions of section 80-IA(4)(iii) of the Act. Pointing out to the view of

the Commissioner of income tax (Appeals) that the relief u/s 80-IA(4)(iii) of the Act would be available even if the properly in question was treated

as income from house property, the Tribunal held that the assessee as well as the Revenue had not brought out any materials to show that the

facilities developed by the assessee after completion of the development was treated as an industrial park by any authority and it was not clear

whether the alleged industrial park was so notified by the Central Government or not. In the absence of any material to show that what was

predominant in the letting out of the building and whether the facilities were incidental, the Tribunal viewed that it was necessary to restore the issue

back to the Assessing Officer for proper verification. Aggrieved by this, the above appeals by the Revenue (assessee?).

By consent of both the parties, even at the time of admission stage, the main appeals are taken up for consideration.

Learned senior counsel for the appellant pointed out that on the admitted fact that the Revenue had not challenged the issue u/s 80-IA of the

income tax Act before the Tribunal, the order now passed by the Tribunal directing the Assessing Officer to go into the character of the receipt, is

too academic on facts and the order of remand is wholly unjustified. To that end, he referred to section 80-IA(4) of the income tax Act and

submitted that the relief u/s 80-IA of the Act is available only for the undertaking which are eligible as per the eligibility criteria given under sub-

section (4) of section 80-IA Thus, when, once the Department had accepted the reasoning of the Commissioner of income tax (Appeals), that

irrespective of the character of the receipt, the assessee was entitled to the relief u/s 80-IA with other conditions therein u/s 80-IA(4) thus

admittedly stood satisfied, the remand order of the Tribunal by directing the Assessing Officer to find out the nature of the receipt is not sustainable

in law. He submitted that such enquiry is inconsequential as to the relief u/s 80-IA.

We agree with the submissions made by learned senior counsel for the assessee. As already seen, two questions were raised before the

Commissioner of income tax (Appeals), one relating to nature of receipt on letting out the property as an industrial park as approved by the

designated authority from the Investment Promotion and Infrastructure Development Cell of the Secretariat of Industrial Assistance of the

Department of Industrial Policy and promotion in the Ministry of Commerce and Industries of the Government of India and other relating to

disallowance of claim of deduction u/s 80-IA of the Act on the ground of the receipt being held as income from house property. On analysing the

facts and on going through the certificate issued, the first appellate authority-held that the unit was eligible for relief u/s 80-IA of the Act. As to the

character of the receipt he held that income received by the assessee was to be assessed as income from business only. Thus, on the claim of

deduction for the abovesaid receipt u/s 80-IA, the Commissioner of income tax (Appeals) pointed out that the approval of the Ministry stated that

the assessee was eligible for deduction u/s 80-IA(4)(iii) of the Act which specifically referred to developing, operating and maintaining of industrial

part. Admittedly, the assessee had made the application for development of an industrial park under the scheme notified by the Government in

accordance with law. The Commissioner of income tax (Appeals) further pointed out that the scheme recognised the activity of any undertaking

engaged in the development of infrastructure facilities or built up space with common facilities in any area allotted or earmarked for the purpose of

software development as industrial park as business activity. Thus, while agreeing with the assessee on the character of the receipt of lease rental

as business income, he also agreed in principle that the deduction u/s 80-IA would be allowed, even if the rental income is assessed as income

from house property. Further, he relied on the decision of the apex court reported in Commissioner of Income Tax, Andhra Pradesh Vs.

Cocanada Radhaswami Bank Ltd., that the head under which income is assessed is not relevant for the purpose of claiming exemption under the

Act. When the Revenue had accepted the view of the Commissioner of income tax (Appeals) on section 80-IA that the assessee had complied

with section 80-IA(4)(iii) of the Act there remains nothing for an enquiry either as to the nature of the receipt or for that matter the facilities

developed to be treated as an, industrial park to consider the question of deduction u/s 80-IA(4)(iii) of the Act. In the background of the above

state of affairs, we hold that the view of the Commissioner of income tax (Appeals) in this regard does not call for any interference. For the reasons

best known and we think, rightly so, the Revenue did not challenge order of the Commissioner of income tax (Appeals) on section 80-IA

deduction before the Tribunal. The said fact is not disputed by the Revenue too. Thus, when the character of the receipt is not a question to be

gone in the matter of considering the claim of deduction u/s 80-IA(4)(iii) of the Act, we do not find that any useful purpose would be served for the

Revenue to again insist on a decision on the character of the receipt.

In the light of the above, the order of remand passed by the Tribunal is only academic that the Tribunal cannot pass an order of remand for

further enquiry on the issue which had already reached finality. Even though the learned standing counsel for the Revenue placed heavy reliance on

rule 11 of the income tax (Appellate Tribunal) Rules, 1963, we do not find any ground to uphold the said stand considering the fact that the subject

matter of the appeal before the Tribunal being one on the character of the receipt and the issue regarding the deductibility u/s 80-IA irrespective of

the character of the receipt not being an issue raised by the Revenue even as an additional ground, when the Revenue had no grievance at all as

regards the consideration for grant of relief u/s 80-IA(4)(iii) of the Act, we do not find any justification in the order of the Tribunal, ordering

remand on the issue which does not arise at all for the purpose of a decision thereon. Further, there is nothing on record to show that the Revenue

raised this as an additional issue even for the purpose of considering rule 11. In the circumstances, the order of the Tribunal is set aside and the

appeals filed by the assessee are allowed. No costs. Consequently, connected MPs are closed.