Rental Income received by Infosys fom Its Subsidiary and BSNL constitute Profits from undertaking, Eligible for IT Deduction: ITAT [Read Order]

While granting tax relief to Infosys, Bangalore bench of the Income tax Appellate Tribunal held that the rental income received from Infosys BPO Limited and BSNL, Chennai are eligible for income tax deduction under section 10A of the Income Tax Act, 1961 since the same constitute profits of the business of the undertaking.

The division bench of the Tribunal was hearing appeals filed by both the Company and the Revenue against the first appellate order. Though the assessee-Company raised many claims, the Tribunal granted some partial relief only.

Assessee, Infosys Ltd, claimed deduction u/s 10A in respect rental income of Rs.10,03,25,495 from Infosys BPO Ltd (its Subsidiary Co.) and of Rs.2,50,000 from BSNL, Chennai claiming that the same would amount to profits from the undertaking.

However, the Assessing Officer rejected the claim finding that the rental income cannot be regarded as income derived from the business of export of software.

The assessee contended that the income was incidental to the business carried on by the assessee as such an arrangement facilitated operations, transactions, policies and procedures in this regard. It also contended that the place was let out to BSNL was for the purpose of setting up a mini exchange to equip the assessee’s Chennai Unit with telecommunication facilities.

The first appellate authority, however, rejected the above contentions and confirmed the assessment order.

The division bench of the Tribunal noticed the Karnataka High Court’s decision in Subex Ltd. Vs. ITO wherein it was held that rental income by virtue of sub-section (4) of Section 10 of the Act is deemed to be business of the undertaking for the purpose of extending the benefit of deduction under Section 10A of the Act.

It was also noticed that the High Court, in the case of Wipro Ltd. Vs. DCIT, held that income from sale of scrap, export incentive, rent received, interest income and gain on exchange rate fluctuation etc.,were eligible for deduction under Section 10A of the Act.

Following the above decisions, the bench allowed the plea of the assessee and held that rental income received from Infosys BPO Limited and BSNL, Chennai cannot be excluded from the profits of the business of the undertaking while computing the deduction under Section 10A of the Act.