2019 (2) TMI 732 - HC - Income Tax

Nature of receipt - taxable as profession receipt or business income or security deposit - amount received by the assessee during the year was an advance and the actual remuneration was to be quantified at the completion of the project - whether payment received by the assessee is not in the form of professional fees covered u/s 194J the assessee is acting as a consultant and getting the fees for work? - Held that - The assessee had earned income out of its engagement, claimed to be as a consultant in development of housing project. AO was of the opinion that the income was assessee s business income. The assessee carried the matter in appeal before the CIT (Appeals), who held that the assessee was acting merely as a consultant and accordingly reversed the decision of the Assessing Officer. The Revenue carried the matter in appeal before the Tribunal. A perusal of the material on record would show that the CIT(A) and the Tribunal on the basis of evidence on record came to the conclusion that the assessee had not engaged in the business of developing real estate. The assessee had engaged itself, may be, as a consultant out of which activity, the assessee would earn commission at predecided rate. The amounts received by the assessee before completion of the project were in the nature of deposits to be adjusted towards alternate payment to be made upon completion of the project. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of income received by the assessee as professional fees under section 194J of the Income Tax Act, 1961.

Analysis:
The High Court of Bombay heard an appeal by the Revenue against a decision of the Income Tax Appellate Tribunal regarding the nature of income received by the assessee. The assessee, a private limited company, was engaged as a consultant in a housing project. The Assessing Officer treated the income as business income, but the Commissioner of Income Tax (Appeals) reversed this decision, stating that the assessee was acting as a consultant. The Tribunal upheld the CIT(A)'s decision, emphasizing that the amount received by the assessee was part of an arrangement where the remuneration was dependent on project completion. The Tribunal found consistency in the accounts of both the payer and payee, concluding that the income was an advance to be adjusted upon project completion.

The High Court reviewed the evidence and concurred with the Tribunal's findings that the assessee was not involved in real estate development but was acting as a consultant earning commission based on a predecided rate. The amounts received before project completion were considered as deposits to be adjusted against future payments. The Court found no error in the Tribunal's decision and upheld the view that the income received was not in the form of professional fees under section 194J of the Income Tax Act, 1961.

In conclusion, the High Court dismissed the tax appeals, affirming the Tribunal's decision regarding the nature of income received by the assessee. The judgment highlights the importance of analyzing the nature of income in specific contexts and considering the terms of agreements to determine the tax implications accurately.