Rental Income incidental to business of assessee is eligible for deduction U/s. 10A

M/s. Infosys Limited Vs. Addl. Commissioner of Income Tax (ITAT Bangalore)

Assessee assails the order of the learned CIT (Appeals) for not allowing the assessee in computing the deduction under Section 10A of the Act in respect of rental income of Rs. 10,03,25,495 from Infosys BPO Ltd. and of Rs. 2,50,000 from BSNL, Chennai as being profits from the undertaking. The Assessing Officer was of the view that the aforesaid rental income cannot be regarded as income derived from the business of export of software. On appeal, the learned Authorized Representative submitted before the learned CIT (Appeals) that the rental income received from its subsidiary, Infosys BPO Ltd. was incidental to the business carried on by the assessee as such an arrangement facilitated operations, transactions, policies and procedures in this regard. It was also submitted that out of the rental income received from Infosys BPO Limited, lease rent of Rs. 1,14,21,155 was paid to the landlord of that premises by the assessee and contends that rental income to that extent was a mere recovery of expenditure and therefore cannot be excluded from the profits of 10A units of the assessee. In respect of the letting out of the space to BSNL at Chennai, it was submitted that it was for the purpose of setting up a mini exchange to equip the assessee’s Chennai Unit with telecommunication facilities. It was urged that the letting out of space to Infosys BPO Ltd. and BSNL at Chennai were therefore incidental to the business carried on by the assessee and therefore eligible for deduction under Section 10A of the Act. The learned CIT (Appeals) however did not accept the contention put forth by the assessee and upheld the Assessing Officer’s view that the aforesaid rental incomes are not eligible for deduction under Section 10A of the Act.

We have heard the rival contentions, perused and carefully considered the material on record. The issue as to whether interest income, income from sale of scrap, export incentive, rental income, etc. are eligible for deduction under Section 10A of the Act has been considered by the Hon’ble High Court of Karnataka in the case of Subex Ltd. Vs. ITO in ITA Nos. 46 & 47 of 2009 date 2.10.2014 and 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.