Lease Rent from Letting Out Buildings/developed space along with Other Amenities in an Industrial Park/SEZ is Business Income: CBDT [Read Circular]

The Central Board of Direct Taxes (CBDT) clarified that the lease rent received from letting out buildings/developed space along with other amenities in an Industrial Park/SEZ is taxable as Business Income.

New circular no. 16/2017 stated that “income from the Industrial Park/SEZ established under various schemes framed and notified under section 80IA(4)(iii) of the Income Tax Act, 1961 is liable to be treated as income from business provided the conditions prescribed under the schemes are met.”

The clarification is in the light of recent judicial precedents. In a 2013 decision, the Karnataka High court had held that any other interpretation would defeat the object of section 80IA of the Act and government schemes for development of Industrial parks in the country. This view had been upheld by the Apex Court on appeal.

In a subsequent decision, while deciding the case, CIT v. Information technology Park Ltd, the Karnataka High Court reiterated the above view and held that since the assessee was engaged in the business of developing, operating and maintenance of industrial Park and providing infrastructural facilities to various companies, as its business, the same is liable to be treated as their business income.

The issue had been a debatable one in recent years since the assesses always claimed such income as their business income whereas the revenue hold it to be taxable under the head ‘income from house property.’

The circular claified that “it is now a settled provision that in the case of an undertaking which develops, operates and maintains an Industrial Park/SEZ notified in accordance with the schemes framed and notified by the Government, the income from letting out of premises developed space along with other amenities in an Industrial Park/SEZ is liable to be charged to tax under the head ‘profits and Gains of Business & Profesion.’”

Read the full text of the Circular below.

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