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2022 (12) TMI 845 - AT - Income TaxRevenue recognition - Income in respect of the plots/villas - AO was of the view that substantial work has been executed and hence the revenue have to be recognised as per AS-7 - Considering 20% profit margin on projected cost the AO worked out the net profit - CIT(Appeals) partly allowed assessee s appeal and restricted the addition by holding that the net profit of the assessee has to be taken at 15% - HELD THAT - It is on completion of the transaction of purchase and sale culminating into an extinguishment of the title of the vendor and simultaneous creation of the title of the vendee that the assessee earns profit or suffers loss. Receipt of Rs. 2, 13, 772 would therefore assume the character of income or profit only when sale transaction was completed in accordance with law. Doctrine of part performance embodied in section 52A of the Transfer of Property Act could not also be brought into aid to treat the said receipt as trading receipt. The agreement in writing to sell coupled with parting of possession would not confer any legal title on the purchaser i.e. the society and take the land out of the assessee s stock-in-trade. The assessee s method of accounting has no relevance in determining whether receipt of the above nature was trading receipt or income. The method of accounting whether cash method or mercantile method would have bearing only in respect of completed business transaction. Thus the impugned receipt would not constitute the assessee s taxable business income in the assessment year 1971-72. In the case of Shah Doshi Co 1981 (3) TMI 56 - GUJARAT HIGH COURT the Assessee firm dealing in land agreed to sale of land which it agreed to purchase from original owner to a third party though no sale deed had been executed in assessee s favour by original owner. The Gujarat High Court held that assessee could not treat part of profit arising from such transaction as value of its stock-in-trade in assessment year prior to execution of sale deed in favour of third party by original owner. Further High Court held that profits arising from impugned transaction accrued to assessee only in assessment year in which sale deed was executed in favour of third party. The judicial precedents on the subject as discussed above in our considered view the amounts received as interest free deposits by the assessee from the allottees could not be subject to tax as income in its hands during the year under consideration. TDS u/s 195 - Disallowance of commission income - AO made disallowance in respect of commission income paid for marketing services to three parties based out of UK on account of not deduction of tax at source - HELD THAT - In the case of Inox India (P.) Ltd 2021 (1) TMI 1283 - ITAT AHMEDABAD held that where since services in respect of commission expenses were stated to be rendered outside India as well as utilized outside India income arising by way of commission against rendition of agency services could not be deemed to accrue or arise in India in hands of recipients of such commission payments. ITAT held that where income arising to non-resident commission agents is not found to be chargeable in India under section 4 read with section 5(2) obligation under section 195 for deduction of tax at source cannot be fastened upon assessee and in absence of statutory obligation arising under section 195 for deduction of tax in absence of chargeability of remittances corresponding disallowance under section 40(a)(i) is without any merit and thus uncalled for. In our considered view there was no requirement for the assessee to deduct tax at source on such payments made to non-resident agents based out of UK without anything to substantiate that such agents had a permanent establishment in India or that the services were rendered India or that the agents had visited India in connection with providing such services. Accordingly in our view the assessee was not required to deduct tax at source u/s 195 of the Act in respect of such payments. Ground of the assessee s appeal is allowed. 1. ISSUES PRESENTED and CONSIDERED The core legal questions presented and considered in the judgment are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Recognition of Income from Sale of Plots and Villas
Issue 2: Tax Deduction at Source on Commission to Non-Resident Agents
3. SIGNIFICANT HOLDINGS
In conclusion, the appellate tribunal allowed the appeal of the assessee, holding that the income from the sale of plots and villas should not be recognized in the assessment year 2012-13 and that there was no requirement to deduct tax at source on the commission paid to non-resident agents.
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