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2018 (9) TMI 2113 - AT - Income Tax


Issues:
- Validity of reopening the assessment
- Nature of assured return received by the assessee
- Tax treatment of the assured return

Validity of Reopening the Assessment:
The appeals involved different assessees challenging separate orders of the Commissioner of Income Tax (Appeals). The common issue was heard together and disposed of in a single order. The lead case for narration of facts was chosen for convenience. The validity of the reopening of the assessment was challenged by the assessees. The Assessing officer had reopened the assessment based on information received, requiring the assessees to file their returns of income. The assessees contended that the reopening was not valid as per Section 115A(5) and that the Assessing officer's reasons were insufficient. However, the Tribunal held that the reopening was valid as the nature of income was determined as 'income from other sources' based on assured returns received.

Nature of Assured Return Received:
The assessees had invested in an upcoming project and received assured returns from the developer. The Assessing officer treated the assured return as income from other sources, adding it to the assessees' income. The Tribunal analyzed the terms of the investment and the nature of the returns. It was found that the assessees did not have a lien or interest in the property until specific conditions were met. The assured return was considered a financial transaction, akin to interest received on the funds advanced to the developer. The Tribunal concluded that the assured return was rightly treated as interest income, as per the India-UK DTAA, and the assessees had correctly paid taxes on it.

Tax Treatment of the Assured Return:
The Assessing officer relied on the definition of 'interest' under the India-UK DTAA and specific clauses in the allotment letter to determine the nature of the assured return. The Tribunal noted that the assured return was not linked to the property's income potential and was essentially interest on the funds advanced. The assessees' argument that the return was a capital receipt was rejected, citing various court decisions that were not applicable to the case. The Tribunal held that the assured return was rightly treated as interest income, and the assessees had fulfilled their tax obligations as per the DTAA. The lower authorities' decision to treat the receipts as income from other sources was set aside, and the appeals were allowed accordingly.

In conclusion, the Tribunal found that the reopening of the assessment was valid, the assured return received was akin to interest income, and the assessees had correctly paid taxes as per the India-UK DTAA. The appeals were allowed, and the decision applied to all the appeals with identical directions.

 

 

 

 

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