Renting of space integral part of cargo business, rental income eligible for deduction u/s 80IA: ITAT

The assessee is engaged in the business of providing cargo handling services to airlines and clearing, forwarding at Bangalore International Airport Ltd. [BIAL]. The assessee filed return of income for AY 2017-18 on 30.11.2017 declaring a total income of Rs.4,89,21,770 which was revised on 29.3.2019 declaring an income of Rs.4,89,93,460. The case was selected for scrutiny under CASS and a notice u/s. 143(2) was duly served on the assessee. The AO disallowed a sum of Rs.36,68,95,134 claimed as a deduction u/s. 80IA while completing the assessment. Further the AO held that a sum of Rs.3,13,43,633 received as rental income by the assessee is liable to be taxed under the head ‘income from other sources’ and accordingly made an addition towards the same.

Aggrieved, the assessee filed appeal before the CIT(Appeals), who upheld the disallowances/additions. The assessee is in appeal before the Tribunal aggrieved by the order of the CIT(A).

ITAT held that providing cargo service as agreed between the assessee and BIAL includes cargo handling services, mailing services, post office mail services etc. Further the tribunal notice from the perusal of records that the assessee has entered into License Agreement for using of the space in the Cargo Terminal operated by the assessee with Cargo Handling Agents, Airlines, Banks, Post Office etc. The list of licensee from whom the assessee has received the rental income is given page 120 to 123 of paper book.

In view of ITAT therefore the service commitment by the assessee to BIAL is directly related to the services provided by the licensees who have taken the space in the cargo terminal. ITAT also saw merit in the argument that in order to meet the requirement of cargo services 365* 7*24, it is essential for the licensees’ to operate within the cargo terminal so that the assessee can provide uninterrupted cargo service as committed to BIAL. From the perusal of the various terms of the sample agreements entered by the assessee with the licensees (page 124 to 156 of paper book) it is noticed that the licensees’ cannot use the facility for any purpose other than for supporting the cargo services. Renting of the space is an integral part of the cargo business of the assessee since the licensees are using the space to render services which are committed by the assessee to BIAL as part of Cargo services. In view of these discussions, we are of the considered view that the rental income is inseparably connected with the business carried on by the assessee and emanate directly from the business of the undertaking. Accordingly we hold that the rental income derived by the assessee from Cargo Agents, Airlines, Banks etc., is derived from the cargo business and eligible for deduction u/s. 80IA. The addition is deleted.

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