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TMI Blog2014 (3) TMI 1082X X X X Extracts X X X X X X X X Extracts X X X X ..... see : Nilesh Khandelwal For the Revenue : M. S. Verma, CIT ORDER R. K. Panda (Accountant Member) The above 2 appeals filed by the assessee are directed against the separate orders dated 31-01-2012 and 25-10-2012 of the CIT(A)-III, Pune relating to Assessment Year 2009-10 and 2008-09 respectively. Since identical grounds have been taken by the assessee in both these appeals, therefore, these were heard together and are being disposed of by this common order. ITA No.1860/PN/2012 (A.Y. 2009-10) : 2. Facts of the case, in brief, are that the assessee is a private limited company, engaged in the business of developing and promoting the real estate. Return of income for the impugned assessment year was filed by the assessee on 21/10/2009 declaring total income of ₹ 1,12,21,203/-, which was subsequently revised on 13/09/2010, wherein tax was computed u/s.115JB after including the income it received from the AOP in which it was a member. A survey action u/s. 133A of the I.T. Act was also carried out by the Department in the case of the assessee on 23/12/2010 during which statement of Shri Ashok V. Suratwala, Director of the assessee company was recorded u/s. 131 of the I.T. Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the AOP, was exempt in terms of the provisions of Sec.167B(2) of the I.T. Act. However, citing the relevant clauses in the agreement entered into while forming the AOP as also corroborated by the Director of the assessee company, Mr. Ashok Suratwala, the Assessing Officer asserted that as per the said clauses, what the assessee was entitled to was a share of 35% in the gross receipts of the AOP and not a share in the profit, Noting that what was exempted from tax u/s.167B(2) was the profit received from the AOP, the Assessing Officer was of the view that the assessee having received a share in the gross receipts of the AOP, the exemption claimed by the assessee under the said section was not valid and needed to be revoked. He, therefore, asked the assessee to explain as to why the amount claimed u/s.167B(2) should not be brought to tax. It was submitted that what was received by the assessee from the AOP was indeed the share of profit only but with a slight deviation in the formula devised by it for sharing the profits. The main contentions put forth by the assessee objecting to the view of the Assessing Officer are summarized by the Assessing Officer at para 3 and 4 of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being income derived from business or profession, had to be computed as per provisions contained in chapter IV D of the Act in the present case and only such profit/income can alone be relevant for application of sec.l67B of the Act. Elucidating on the term 'profit', the Assessing Officer emphasized that profit is arrived at after deducting all the expenses from all the revenue within a specified period which is subject to inherent risks of a business which could be either on revenue side or the expenditure side. The Assessing Officer observed that in the present case, the nature of receipts derived by the assessee from the AOP was not profit, but the relevant clauses in the agreement amply suggested that the assessee was directly entitled to 35% of the gross sale receipts irrespective of the profit aspect, which the assessee could withdraw directly from the bank account maintained for depositing the sale proceeds, as admitted by the Director of the, assessee company in the course of his statement recorded u/s.131. The Assessing Officer, thus, sought to highlight that the assessee had nothing to do with the expenditure incurred to bring the project to its saleable character ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has entered into an agreement with M/s. RKC to form an AOP M/s. Fortaleza Developers. b. Assessee introduced the development rights in a land held by it in the AOP as its capital and M/s. RKC introduced the financial capital. c. Assessee has absolved itself from the inherent risks of business. d. As its share of revenue, assessee was entitled to 35% of the gross sales of housing units in the project developed by AOP. Assessee can actually withdrew such amounts from the bank account. e. Accounts of M/s. Fortaleza Developers (AOP) show that assessee is withdrawing its share from gross sales proceeds without having any regard to the profits of M/s. Fortaleza Developers (AOP). f. Assessee is not in possession of enough expertise of construction business do not having any employee with it. Its scope is AOP is limited to introduction of land and receipt of 35% of gross sales against that land." 2.8 After discussing the various aspects of the issue, the Assessing Officer held that the assessee was receiving a fixed share in the sale proceeds of the AOP without having any regard to the profit element of the business of the AOP. He accordingly rejected the contention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AOP as its income under its return of income for A.Y. 2007-08 and on onwards and existence or validity of the said AOP has not been questioned. It was submitted that in view of the provisions of Sec. 86 of the I.T. Act, income-tax is not payable by an assessee in respect of its share in the income of an association computed in the manner provided in Sec. 67 A. It was further submitted that as per Sec. 167B(2)(i), even in the case of a specified AOP where the total income of any member exceeds the maximum amount not chargeable to tax, tax is required to be charged on the total income of the AOP at the maximum marginal rate. It was submitted that member of such an AOP, as in the case of the assessee, is not required to pay income-tax in respect of the income declared in the case of the AOP and received as share of income from such AOP. While arguing so, the attention of the Ld.CIT(A) was drawn to the following observations of the Hon'ble High Court of Bombay while deciding on the Writ Petition filed by the assessee for AY 2007-08, against the reopening of assessment u/s.147. "The AOP filed a return of income tax for the assessment year 2007-08 disclosing a gross total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble High Court, where an AOP is assessed as such and the share of income of any member is considered for tax purposes in the hands of the AOP, the same cannot be brought to tax again in the case of the member. It was pointed out that since in A.Y. 2007-08, no dispute was raised in the case of the AOP of M/s. Fortaleza Developers in regard to the treatment of the share of income received by the assessee as a member of the AOP, the High Court had no hesitation in categorically holding that such share of income was not chargeable to tax in the hands of the assessee. 3.2 It was argued that keeping in view the aforesaid ratio, if it is held in the appeal in the case of the AOP for AY 2008-09 & AY 2009-10 that such share is liable to tax in the hands of the AOP, as in AY 2007-08, on the basis of the reasoning adopted by the Hon'ble High Court, the present appeal for AY 2009-10 would be required to be allowed in favour of the assessee, respectfully following the ratio of the Hon'ble Mumbai High Court as extracted above. The decision of the Hon'ble Supreme Court in the case of C.H. Atchaiah (218 ITR 239) was relied upon stating that in the said case also, the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts in not appreciating the merits of the appellant's contention that the amount received by the appellant from Fortaleza Developers in accordance with the terms of the AOP Agreement had been duly reflected in the Total Income of the AOP, which was entitled to deduction u/s. 80IB(10) and accordingly the same could not be taxed again in the hands of the appellant in view of the clear provisions of Section 86 r.w.s. 167B of the Income-tax Act. 3. That the learned CIT (A) further erred in law and on facts in not accepting even the alternate contention of the appellant that when it was an undisputed fact that the appellant and Raviraj Kothari & Co. had formed an AOP for development and construction of the housing project, the income received by the appellant from the said activity of the AOP ought to be held as entitled to deduction u/s. 801B(10)." 5. The Ld. Counsel for the assessee strongly challenged the order of the CIT(A). He submitted that the CIT-15, Mumbai having jurisdiction over the AOP M/s. Fortaleza Developers, in which the assessee company is a member, had issued notice dated 21-03-2012 u/s.263 of the Income Tax Act to show cause as to why the assessment order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lines as in AY 2007-08. He accordingly submitted that this being a covered matter, the grounds raised by the assessee be allowed. 6. The Ld. Departmental Representative on the other hand heavily relied on the other of the CIT(A). 7. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We find in the instant case, the assessee along with M/s. Raviraj Kothari and company (RKC) formed an AOP namely M/s. Fortaleza Developers for the purpose of developing and constructing a housing project, namely, "Fortaleza' on the land situated in S.No.210 at Yerawada, Pune, the development rights of which were acquired by the assessee company from the owners of the land. Clause 7 of the AOP agreement provides the revenue sharing ratio between the two entities as per which the sales proceeds of the units were to be deposited in a joint account and would be shared at the ratio of 35% and 65% by the assessee and RKC respectively. During the year the assessee received ₹ 5,89,91,145/- from the said AOP and has shown the same as its share of profit from AOP under the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT in the light of available on our record. We have carefully gone through the clause-7 of the agreement and the distribution of revenue by the assessee in its account. The distribution of the revenue in the account of the assessee is in accordance with intent and purpose of clause-7 of the agreement. According to clause-7 of the agreement SPPL is entitled to 35% share of the gross sale proceeds of the units inclusive of the value of the land. According to distribution in the account of the assessee SPPL has received ₹ 15.11 crore which is 35% of gross sale proceeds of the unit amounting to ₹ 43. 17 crores. A sum of ₹ 11.62 crore is credited to the account of SPPL on account of land etc. and ₹ 3.49 crore is considered as profit share of SPPL. Out of balance 65%, after including the MSEB and incidental charges and reducing the developmental charges a sum of ₹ 10.76 crore has been considered as prop share of RRKC. Therefore, the distribution of profit made by the assessee between its members is in accordance with clause 7 of the agreement. The interpretation of clause-7 sought to be adopted by Ld. CIT will be against the very intent and purpose for whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT DR has to be rejected and it is to be held that 35% share received by SPPL was not in the nature of overriding title to the revenue but it is only share of profit of SPPL. 5.7 In view of above discussion it is held that the impugned assessment order is neither erroneous nor prejudicial to the interest of revenue on account of allocation of profit between members as per accounts of the assessee as allocation of profit in the accounts of the assessee is in accordance with clause-7 of the agreement and manner of allocation of profit in the account cannot alter the quantum of deduction available to AOP under section 80 18(10). 4. The facts for the assessment year 2007-08 and for the assessment years under consideration are identical as this issue is regarding the clause 7 of AOP agreement dated 29.4.2003. Accordingly following the earlier order of this Tribunal we decide this issue in favour of the assessee. The orders of the authorities below qua this issue set aside." 7.2 Since the Mumbai Bench of the Tribunal in the case of the AOP has categorically held that 35% share received by SPPL was not in the nature of overriding title to the revenue but is only share of profit of SP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration for transfer of development rights as against share of profit from AOP. 2. The Ld.CIT(A) ought to have held that in re-assessment proceedings u/s.147 r.w. 3rd proviso, the jurisdiction of Assessing Officer is confined to income, other than income involving matters which are subject matter of any appeal" 8.2 After hearing both sides, the additional grounds raised by the assessee are allowed for adjudication. 8.3 After hearing both the sides, we find the above grounds as well as the first additional ground are identical to grounds of appeal in ITA No.1860/PN/2012. We have already decided the grounds in favour of the assessee. Following the same ratio, the grounds raised by the assessee are allowed. 8.4 So far as the 2nd additional ground is concerned we find the assessee has not advanced any argument before the Ld.CIT(A) towards disallowance of ₹ 2,78,217/- being provision for diminution in the value of investment. Once the same is not pressed, the 2nd additional ground challenging the jurisdiction of the Assessing Officer in a reassessment proceeding becomes academic in nature which in our opinion needs no adjudication. 9. In the result, both the appeals file ..... X X X X Extracts X X X X X X X X Extracts X X X X
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