The Income Tax Appellate Tribunal (ITAT), Cochin has held that the assessee by letting out the industrial undertaking is not having any direct connection with the manufacture or production of an article or thing by the assessee and the same cannot be considered as business income eligible for deduction under Section 80IB of the Income Tax Act, 1961.
The assessee had received lease rent to the tune of Rs.63 lakhs by leasing/renting of factory and one building and claimed it as income from business and on the profit, the assessee claimed deduction under section 80IB of the Act.
The assessee was of the opinion that in case of lease rentals, it was income from leasing out of the unit as a whole to ECPL, which continues the manufacturing activity. The assessee had offered the lease rentals under the head profits and gains of business or profession and the AO had also assessed the same under ‘business’.
The Assessing Officer rejected the claim on the ground that since the assessee was not actually involved in manufacturing or production of an article or thing so as to claim deduction under section 80IB of the Act.
Before the authorities, the assessee contended that the lease rent was earned from the eligible industrial undertaking and hence, deduction under section 80IB is to be granted.
The controversy before the Tribunal was centred around the interpretation of the word “derived from” used by the legislature under section 80IB of the Act.
Though the assessee relied on the decision of the Madras High Court in the case of CIT vs. Universal Radiators (P) Ltd. The Tribunal observed that the decision cannot be applied to the facts of the present assessee’s case.
“Further, in the case of Vikram Cotton Mills Ltd. (169 ITR 597) (SC), the issue was with regard to leasing out assets to another assessee for a temporary period as part of exploitation and temporary suspension of business without any intention to permanently closing down of the business. In that case, the question was whether receipt of lease of commercial asset is business income or income from other sources. There was no issue relating to granting of deduction u/s. 80IB of the Act. The ratio laid down in this case cannot be applied to the facts of the present case,” the Tribunal observed.
“In view of this, the lease rent received by the assessee by letting out the industrial undertaking is not having any direct connection with the manufacture or production of an article or thing by the assessee and the same cannot be considered as business income eligible for deduction u/s. 80IB of the Act. This ground of appeal of the assessee is dismissed,” the Tribunal said.
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