Proceeds from Licence of BOT Projects taxable as Business Income and not Rental Income: ITAT [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has recently held that the proceeds from licence of Build-Operate-Transfer (BOT) Projects are taxable as business income and not rental income.

The appeal has been filed by the Revenue against order passed in appeal for assessment year 2015-16, by the CIT(A)-7, New Delhi in regard to the appeal before it arising out of assessment order under Section 143(3) of the Income Tax Act, 1961.

The assessee company is engaged in the business of Real Estate development. The assessee filed a return declaring loss which was taken up for scrutiny assessment. The assessee has filed his return of income declaring revenue of Rs. 4.41 Crore and other income of Rs. 25,917/-.

As per the MOU of the assessee with DMRC, the assessee was entitled to have access to operate, manage and maintain the Licensed Space at the Specified Area during the Licence Period at the cost and risk of the License. So, the AO took the view that, for the total fixed assets of Rs.128.63 lacs include vehicles and rest of the assets is plant and machinery.

The licence was for the period of 15 years from the date of handing over as per MOU. The assessee has shown its entire income including rental income as business income. Therefore, the assessee was asked to explain as to why the rental income shown in the P&L account may not be taken as income from house property in view of the provisions of Section 269UA(f)(i) of the Income Tax Act, 1961.

It was submitted on behalf of the revenue by the Department Representative that the  CIT(A) has fallen in error in not considering the fact that in the previous years, the assessee had filed a return considering the income as house property income. It was submitted that the AO had rightly examined the issue as the property was given to the assessee on lease and rental income was being derived.

On the contrary, the authorised representative of the assessee submitted that leasing is one of the objects in the memorandum of association. It was submitted that in the Assessment Year 2012-13 and 2013-14 the Assessing Officer had accepted the income from the BOT projects as business income.

It was observed by the two-member tribunal bench that the Assessing Officer has fallen in error in applying the aforesaid provisions of law while not following the previous year assessment. The first and foremost thing that comes up is that Section 53A of the Transfer of Property Act is applicable in regard to transfer of immovable property by way of a registered document.

With regard to this specific case, it was noted that in transactions of the nature ‘Build Operate Transfer’ (BOT), an entity, which is usually a government entity, enters into a build-operate-transfer (BOT) contract, by grant of a concession to a private company to finance, build, and operate a project. The concession given by DMRC to the assessee  operating in the form of a licence only.

It was further observed by Judicial Member Anubhav Sharma and Accountant Member Shamim Yahya that,  “Like in case in hand the bare shell structure inclusive of columns etc has been developed to be available to the tenant for commercial use. The building etc involved always belongs to the DMRC.”

It was thus held that the AO had fallen in error in considering the proceeds of licence to be rental income, dismissing the appeal of the revenue as the grounds raised were groundless in fact and in law.

To Read the full text of the Order CLICK HERE

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