2023 (9) TMI 203 - AT - Income Tax

Correct head of income - correct income chargeable to tax for the current year - head of income under which the income arising on the sale of developed property in SSI is assessable under the Act -20% share of the easement right fee (ERF) - HELD THAT - The claims made, i.e., qua capital gains; ERF; AOP, are not sustainable in law; rather, mutually contradictory. In fact, as would be apparent, as indeed admitted during hearing, the claims qua the latter two were made only with a view to enable a reasonable assessment of income. We agree in principle; it being only the real income that is, subject to the provisions of law, to be brought to tax. This is precisely, as would be presently seen, what we have attempted to. There is no gainsaying, however, that the claims, to be acceptable, are to be valid in law and, further, conform to process known to law. Why, even income assessed in the hands of another, much less returned, is nevertheless liable to be assessed in the hands of the right person. AO cannot, without issuing a finding as to the person to whom the income in reality belongs, and which can only be on the basis of material in his possession, assess income arising to one in the hands of another, even if agreed to by the latter, or even both. Tax can only be levied under the authority of, and following the due process of, law. In the instant case, on the other hand, we have, even at this stage, no clue as to when, and by whom the Approval was sought, or even if the same was later amended to co-opt others. Why, as against seven entities, with the land ceiling of 15 acres, the total area developed is a mere 9 acres. Here it also needs to be appreciated that while the land ceiling in Malibu Estate Pvt. Ltd. 2006 (8) TMI 168 - DELHI HIGH COURT was with reference to the township area, in the instant case the same is only w.r.t. land holding per se, i.e., without any reference to any project. In fact, 3 of the 6 companies, stated to be a part of AOP, came up much later, i.e., after a time lag of 20 years, i.e., which itself was much after the work began, even as the bulk of the development was done in the initial years. In Conclusion The assessments, in view of the foregoing, are restored back to the file of the assessing authority. We have, considering the indeterminate state of affairs, with the assessee s claims being both unsubstantiated and inchoate, construed the issue arising before us holistically, i.e., the income assessable, including the head under which it is, in the facts and circumstances of the case, i.e., in accordance with law, also addressing the additional grounds. The claim of AOP does not survive, being both untenable and without jurisdiction. As regards ERF, the assessee itself seeks it s disregard despite returning it. In our view, the same could hold only where the same is shown to represent an economic charge, i.e., where one gains at the expense of the other, while, that as presented bears anomalies, discussed in detail in the order. We are conscious that assessments have been made in the group companies, assessing loss on account of ERF, and which, being undisputed, may have attained finality. That however would not detain us inasmuch as the said assessments are not before us and, two, it is only the correct legal position, and not the view of the parties in the matter, that would hold. If an assessee benefits under the circumstances, in view of the statutory limitation/s, so be it. The income arises as business income and, accordingly, is to be computed in accordance with the relevant provisions which, as observed, have been highlighted. The AO shall, where and to the extent contested, issue definite findings on each of the computational aspects, including ERF, and assess the total income in accordance with law after affording reasonable opportunity of hearing and to present it s case before him to the assessee. Retention of ERF by him would again require definite findings, meeting the issues raised herein in its respect. Assessee s appeals are allowed for statistical purposes.

Issues Involved:
1. Condonation of Delay
2. Nature of Income (Capital Gains vs. Business Income)
3. Claim of Association of Persons (AOP)
4. Easement Right Fee (ERF)
5. Computational Issues

Summary of Judgment:

1. Condonation of Delay:
The Tribunal observed a delay of 679 days in the filing of the appeal by GHPL. The delay was attributed to the Covid-19 pandemic, which caused dislocation of services and skeletal staff operations. The Tribunal condoned the delay, citing the blanket saving by the Hon'ble Apex Court in its suo motu petition in Cognizance For Extension of Limitation.

2. Nature of Income (Capital Gains vs. Business Income):
The Tribunal assessed the income from the sale of developed property as business income, consistent with the facts and circumstances of the case. The assessee's claim of capital gains was rejected, as the activities undertaken, including land development, construction of roads, and maintenance, were part of a business venture with commercial interest.

3. Claim of Association of Persons (AOP):
The Tribunal rejected the claim of income being liable to be assessed in the hands of an AOP. The returns of income were filed by individual companies/entities, and there was no material to support the claim of a joint venture. The Tribunal found no legal basis for the AOP claim, as there was no delineation of the contribution by each member or sharing of profits/losses.

4. Easement Right Fee (ERF):
The Tribunal examined the ERF charged by the Promoter Companies (PCs) to the New Companies (NCs) and found inconsistencies. The ERF was considered a mechanism for profit equalization or saving on stamp duty, rather than a valid economic charge. The Tribunal directed the AO to re-examine the ERF, ensuring it represents a valid charge with economic rationale.

5. Computational Issues:
The Tribunal identified several computational issues, including:
- Land Sold Prior to 1996: The reduction of cost of development should be based on actual cost, including proportionate development cost.
- Land Abandoned Due to Excessive Cost: All costs related to the abandoned project should be excluded.
- Interest Cost: Interest cost should be included in the project cost only if it represents a normative cost and is paid as per the loan agreement.
- Development Cost: The development cost should be validated and supported by material evidence.
- General, Administrative, and Maintenance Expenditure: These costs should be expensed for the year to which they relate.
- Sale Commission: Sale commission should be deductible if shown to be incurred bonafide.
- Repayment to Allottees: Repayment of advance to allottees should be supported by documents and confirmations.

The Tribunal restored the assessments back to the file of the assessing authority for fresh adjudication, directing the AO to issue definite findings on each of the computational aspects and assess the total income in accordance with law after affording reasonable opportunity of hearing to the assessee.

Conclusion:
The appeals were allowed for statistical purposes, and the Tribunal directed the AO to re-examine the issues in detail and issue definite findings. The Tribunal emphasized the need for a reasonable assessment of income, consistent with the correct legal position and supported by material evidence.

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