2024 (4) TMI 922 - AT - Income Tax

Gain on sale of land - real owner - arising of real income or not? - whether Respondent had facilitated the purchase and sale of lands on behalf of the Assessee - rightful purchaser and owner of the agricultural land - as alleged Assessee, a company, has purchased the lands and transferred the lands to the individual as local law precludes a company from purchasing lands - whether T Nadakrishna held the land for Assessee's benefit? - taxation on Facilitator of transaction - only reason for taxing the alleged income in the hands of present assessee was that assessee has lent money to T. Nadakrishna to purchase the immovable property but the real owner is assessee company Substantive assessment only when it is clear as to in whose hands the income is to be taxed - AO's approach of taxing the Assessee as the lender of the funds - income taxed both substantively and protectively - whether Assessee is neither the legal nor economic owner? - as argued by assessee cannot be held to be the owner of the land, that is agricultural, given the provisions of the Karnataka Land Reforms Act, 1974 which explicitly prohibit a company from acquiring agricultural land. AO held that since the lands are converted, the surplus arising on transfer of such converted lands is brought to tax as 'Short Term Capital Gains' and since the Assessee had funded part of the transaction by way of a loan to the Respondent, the short term capital gains earned were taxed in the hands of the Assessee - Additions of income earned from transactions carried in the hands of present assessee holding as acted as a conduit of the present assessee - HELD THAT - Providing source of funds to Mr. T. Nadakrishna to purchase the property cannot be only reason to treat the transaction as carried out by the present assessee. The assessee is just the lender of the funds to facilitate the transaction of purchase of impugned property. As rightly pointed out by the ld. A.R., assessee is only a financier, who provided the finance to Mr. T. Nadakrishna to purchase the property just like a banker and these transactions are duly reflected in the hands of T. Nadakrishna and immovable property being owned by T. Nadakrishna and subsequently, he himself only transferred the property in his name to M/s. SPR Developers Pvt. Ltd. who is a different legal entity. The burden of proving the transaction as carried out by T. Nadakrishna on behalf of the present assessee and the apparent purchaser T. Nadakrishna is not the real owner always rests on the person asserting it to be so. This burden has to be strictly discharged by adducing legal evidence of a definite character, which is neither directly proved by the lower authorities directly nor established by indirectly and no inference could be drawn to hold it so. While considering the particular transaction as colourable device, the intention of the person, who contributed the purchase money is determinative of the nature of transaction. The intention of the person, who contributed the purchase cost has to be decided on the basis of surrounding circumstances, the relationship of the parties, the motives governing their action in bringing about the transaction and their subsequent conduct. The revenue authorities failed to prove anything otherwise by adducing cogent evidence. There was no intention of the present assessee to purchase the property in the name of T. Nadakrishna and the intention was only to advance money to T. Nadakrishna to purchase the property by himself . The payment part of the sale consideration provided by present assessee could not be the sole criterion to infer that the sale deed in favour of T. Nadakrishna as a transaction for and on behalf of the present assessee. For this purpose, we place reliance on the judgement in the case of Mangathai Ammal (Decd.) through LRS and Others Vs. Rajeshwari Ors. 2019 (5) TMI 1086 - SUPREME COURT - Accordingly, we are of the opinion that if any income arise out of this impugned transaction to be considered in the hands of T. Nadakrishna only. Any transaction in which the professed intention and the intention gathered from the documentation are the same, must be considered to be genuine transaction and not colourable device adopted to evade tax by assessee. In the present case, the parties involved herein entered into a transaction according to their free will and that choice has always been protected, the only rider being that both the professed intention and real intention should be the same. The departmental authorities have no right to vary the terms of contract are result of the transaction between the parties merely because the agreed terms are not to their liking in the sense that they do not add to the collection of the taxes. In our opinion, in the present case, the transaction have to be given effect as they are executed on bona fide belief though it was resulted in reduction of tax liability since these transactions are genuine, bona fide and not colourable transactions. Further, the impugned transaction undertaken by T. Nadakrishna was right from the inception conceived and controlled by himself not by the present assessee M/s. SPR Spirits Pvt. Ltd. To sum up as held by Hon ble Supreme Court, Binapani Paul 2007 (4) TMI 752 - SUPREME COURT that the source of money had never been the sole consideration. It is merely one of the relevant considerations but not determinative in character. Accordingly, this ground of appeal of the assessee is allowed. Protective additions made by ld. AO in the hands of T. Nadakrishna - As we have deleted the substantive addition made in the hands of M/s. SPR Spirits Pvt. Ltd., the protective addition required to be examined afresh in the light of our above observation. Accordingly, the issue in dispute is remitted back to the file of ld. CIT(A) for fresh adjudication.

Summary

Issues Involved:
1. Substantive assessment of business income in the hands of M/s. SPR Spirits Pvt. Ltd.
2. Protective assessment of business income in the hands of Mr. T. Nadakrishna.

Summary:

Issue 1: Substantive Assessment of Business Income in the Hands of M/s. SPR Spirits Pvt. Ltd.

The Tribunal first dealt with the assessee's appeal in ITA No. 130/Bang/2023 for the AY 2007-08. The assessee challenged the substantive addition of Rs. 7,30,77,776/- under the head business income. The facts revealed that M/s. SPR Spirits Pvt. Ltd. facilitated land transactions through Mr. T. Nadakrishna, who purchased agricultural land and sold it to Vijaya Bank Employees Housing Co-operative Society (VBEHCS). The Assessing Officer (AO) treated the income from these transactions as business income of the assessee. The CIT(A) confirmed this addition. However, the Tribunal found that the CIT(A) did not adequately examine the documents and statements related to these transactions. The Tribunal remitted the issue back to the CIT(A) for fresh consideration, emphasizing that the burden of proving a transaction as benami lies on the person asserting it, and mere provision of funds by the assessee does not justify treating the transaction as its own.

Issue 2: Protective Assessment of Business Income in the Hands of Mr. T. Nadakrishna

The Tribunal then addressed the department's appeal in ITA No. 653/Bang/2023. The AO had made a protective assessment of Rs. 7,30,77,776/- in the hands of Mr. T. Nadakrishna, asserting that he acted as a conduit for M/s. SPR Spirits Pvt. Ltd. The CIT(A) deleted this protective addition on the grounds that the substantive addition had been confirmed in the hands of M/s. SPR Spirits Pvt. Ltd. The Tribunal, however, noted that since the substantive addition in the hands of M/s. SPR Spirits Pvt. Ltd. was remitted for fresh consideration, the protective addition in the hands of Mr. T. Nadakrishna also needed re-examination. The Tribunal remitted the issue back to the CIT(A) for fresh adjudication, instructing the CIT(A) to consider the Tribunal's earlier orders in similar cases and provide a detailed examination of the merits of the addition.

Conclusion:

The Tribunal allowed the appeal of the assessee (M/s. SPR Spirits Pvt. Ltd.) and remitted the substantive assessment issue back to the CIT(A) for fresh consideration. The Tribunal also remitted the protective assessment issue back to the CIT(A) for fresh adjudication, ensuring that both issues are comprehensively re-examined.