Rental Receipts from IT Parks – Business Income or House Property?

DCIT Vs Advant IT Park Private Ltd. (ITAT Delhi)

Characterisation of Rental Receipts from IT Parks – Business Income or House Property?; IT Park Receipts Treated as Business Income Due to Commercial Exploitation; Lease Rent Reclassified as Business Income Based on Nature of Activity; Lease Rent Reclassified as Business Income Based on Nature of Activity; Composite IT Park Operations Qualify for Business Income Treatment; CBDT Circular Cannot Deny Business Income Without Factual Analysis; Consistency Principle Applied in Head of Income Classification Dispute; IT Park Leasing With Services Held as Organised Business Activity; ITAT Delhi Reaffirms Commercial Exploitation Test and Principle of Consistency

The Delhi Bench of the Income Tax Appellate Tribunal, Delhi Bench in Deputy Commissioner of Income Tax, Central Circle-1, Noida v. M/s Advant IT Park Private Limited (and vice-versa), decided on 22 January 2026, has examined the long-standing controversy relating to the correct head of income applicable to receipts arising from leasing of commercial infrastructure along with provision of integrated facilities and services. The decision is significant in the context of IT Parks, business centres and commercial complexes where rental receipts are intertwined with continuous operational and infrastructural support.

The dispute arose from assessments completed under section 143(3) for Assessment Years 2016-17 to 2018-19, wherein the Assessing Officer re-characterised the income declared by the assessee as business income into income from house property and income from other sources. The assessee company was incorporated with the principal object of developing, operating and maintaining Software Technology Parks and IT Parks and providing comprehensive infrastructure facilities to occupants. Pursuant to allotment of land by NOIDA, the assessee developed an IT Park strictly in accordance with institutional norms, with the predominant area earmarked for IT and IT-enabled services and the balance for ancillary facilities.

In the return of income, the assessee offered lease rent, hire charges for infrastructure such as furniture and fittings, and maintenance charges for common facilities as profits and gains of business. The Assessing Officer, however, held that the predominant income was rental income derived from ownership of immovable property and accordingly assessed lease rent under section 22 as income from house property, while treating maintenance and hire charges as income from other sources under section 56. Reliance was placed on CBDT Circular No. 16/2017 dated 25 April 2017, with the reasoning that only notified Industrial Parks or SEZs are entitled to treat lease rental income as business income.

On appeal, the Commissioner of Income Tax (Appeals) reversed the findings of the Assessing Officer and accepted the assessee’s claim of business income. The CIT(A) recorded detailed findings on the nature of activities carried on by the assessee, the extent and complexity of services provided, the manpower employed and the composite character of the agreements executed with occupants. It was held that the assessee was not merely exploiting property as an owner but was carrying on a systematic and organised commercial activity of operating an IT Park, of which letting out space was an integral part.

The Tribunal, while dismissing the Revenue’s appeals, upheld the order of the CIT(A) and reaffirmed the settled legal principle that the decisive factor for determining the head of income is not ownership of property but the nature of activity and the manner of exploitation of the asset. The Tribunal observed that the assessee’s receipts could not be viewed in isolation as mere rent, as the premises were let out only after being fully equipped with essential infrastructure and were continuously supported by operational and maintenance services without which the occupants could not carry on their business activities. The segregation of receipts into lease rent, hire charges and maintenance charges through separate agreements was held to be a matter of form, whereas in substance the entire arrangement constituted a single composite commercial activity.

A significant aspect of the ruling is the Tribunal’s interpretation of CBDT Circular No. 16/2017. The Tribunal held that the circular is clarificatory and beneficial in nature and cannot be construed as an exclusionary provision to deny business income treatment to assessees who are not notified under an Industrial Park or SEZ scheme. Non-notification may have relevance for claiming deductions or incentives under specific provisions, but it does not, by itself, determine the character of income. The Tribunal emphasised that the head of income must be decided based on the factual matrix and judicially evolved tests, rather than by mechanical application of the circular.

The Tribunal placed reliance on a consistent line of judicial precedents, including the decisions of the Supreme Court in Chennai Properties & Investments Ltd. v. CIT, Rayala Corporation (P) Ltd. v. ACIT, Karanpura Development Co. Ltd. v. CIT and PCIT v. M.P. Entertainment & Developers (P) Ltd., which lay down that where letting of property is itself the business of the assessee or forms part of a larger commercial activity, the resultant income is assessable as business income. Reference was also made to various High Court decisions recognising the principle of commercial exploitation of property as distinct from passive earning of rent.

The Tribunal further applied the principle of consistency, noting that in earlier and subsequent assessment years, identical receipts from the same property and same activities had been accepted by the Revenue as business income in scrutiny assessments. In the absence of any change in facts or law, the Revenue was held to be unjustified in adopting a contrary view in the years under appeal.

The ruling reinforces the jurisprudential position that classification of rental receipts cannot be made on a rigid or superficial basis and must instead be guided by the substance of the business activity, the intention of the assessee and the degree of commercial involvement. For operators of IT Parks, business centres and integrated commercial complexes, the decision provides authoritative support for treating composite receipts from leasing and allied services as business income, even in cases where the project is not formally notified as an SEZ or Industrial Park.

FULL TEXT OF THE ORDER OF ITAT DELHI

These three appeals are filed by the Revenue against the common order of Learned Commissioner of Income Tax (Appeals)-3, Noida (‘the CIT(A)’ in short) all dated 13.06.2025 arising out of the orders passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’ for short) for Assessment Years 2016-17 to 2018-19 respectively. The assessee has also filed cross objections.

2. The Appeals filed by the Revenue and Cross Objections filed by the assessee are tabulated as under: