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TMI Blog2023 (3) TMI 849X X X X Extracts X X X X X X X X Extracts X X X X ..... when the assessee has treated asset as stock in trade, then sale of said asset to partners is as good as sales to outsiders and the assessee needs to consider profit derived from sales in the hands of the firm. Thus to this extent the findings of the facts recorded by CIT(A) that transfer of flats to partners by way of unregistered MOU does not give rise to any income in the hands of the firm and reasons given by the CIT(A) to reach said conclusion is not correct. Whether is there any tax impact on transfer of flats by the firm to its partners, more particularly when the firm is enjoying the benefit of exemption u/s. 80IB(10)? - Since, the assessee is enjoying the benefit of deduction u/s. 80IB(10) of the Act, we are of the considered view that, whatever profit computed by the AO in the hands of the firm, consequent to transfer of 20 flats to partners by way of MOU dated 08.10.2009, is also eligible for deduction u/s. 80IB(10) of the Act and thus, we direct the AO to compute profit towards transfer of 20 flats to its partners and further, allow benefit of deduction u/s. 80IB(10) of the Act to entire profit derived from transfer of flats to its partners. In this case, although we d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T. Department is a reason for non-payment of service tax. He ought to have noted that according to assessee, transfer took place by way of MOU dated 08.10.2009 whereas attachment by I.T. Department is much later ie. on 24.12.200 and hence assessee ought to have paid service tax, of which liability fell on 08.10.2009. 7. CIT(A) erred in relying on the decision of the Apex Court in the case of Bankipur Club Ltd, when facts are distinguishable. 8. CIT(A) erred in granting deduction u/s80IB(l0) when role of assessee is only as a land owner and not as a developer /builder. 9. CIT(A) ought to have noted that the decision of ITAT has not become final and appeal is pending before the High Court. 10. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored." 3. The brief facts of the case, are that the assessee is a partnership firm engaged in the business of land development and construction of residential buildings. The appellant firm filed its return of income for the assessment year 2014-15 on 30.09.2014, declaring total income of Rs. 14,01,020/-, afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oborative evidence in the form of payment of service tax. The service tax is paid by the firm on account of transfer of 26 flats to partners of firm who happens to be the family members. But the fact of the matter is the second unregistered MOU dated 8/10/2009 by which 20 flats measuring 24648 Sq. Feet is transferred by the firm to its partners is not supported by any corroborative evidence so as to substantiate the document. It is pertinent to mention that assessee has not paid any service tax on the 20 flats transferred to partners by the firm on the basis of purported MOU dated 8/10/2009. In the absence of any corroborative evidence to support the MOU dated 8/10/2009 coupled with the fact that the assets in the form of stock in trade were reflected in the financials of the firm until A Y 2013-14 the contentions of the assessee cannot be acceded to. Accordingly the sale value of 20 flats is assessed in the hands of the firm. The details are as under: Sale proceeds: of 20 flats Rs. 8, 77 ,02,650 Less cost as per Book value @ 739 per Sq. Feet for 24648 sq. feet Rs. 1,82,14,872 Profit on sale of 20 flats Rs. 6,94,87,778/- 4. Being aggrieved by the assessment order, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service tax. However, the AO has treated the transfer of the second batch of 20 flats as nongenuine, only on the ground that it was not supported by the corroborative evidences like payment of service tax. 4.1.4 As explained by the assessee, both sets of transfers of flats (i.e. 26 flats and 20 flats) by the firm to its partners, were by way of MOUs only. The only difference was that in the first case there was payment of service tax and in the latter case no such service tax was paid. As per the service tax rules, existing for F.Y.2009-10, an assessee (firm) was required to remit the service tax quarterly, i.e. on or before 6 July (for first quarter), 6 October (for second quarter), 6 January (for third quarter), 31st March (for fourth quarter). Since the assessee transfer of second batch of flats (20 flats) was on 09.10.2009, it falls in the 3° quarter wherein the assessee was required to remit the service tax on or before 6 January 2010. But before the expiry of the due date the Income Tax Department has attached all the 50 flats. Any action after the attachment of the property by the Income Tax will amount to contempt of the IT provisions. Hence the assessee's claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, but the principle is the same. Can contributors derive profit from contributions made by them, which can only be returned to themselves. Certain tests have been advocated in the decision of Hon'ble Supreme Court in the case of CIT vs. Bankipur Club Ltd. 4.1.6. In the said decision the apex court relied upon a very early decision in the case of The English and Scottish Joint Cooperative Wholesale Society Ltd. v. CIT where the Privy Council has observed that there are three important tests /conditions to prove the existence of mutuality. These tests are : (i) Oneness of the contributors to the fund and the recipients from the fund : No person ought to contribute to the common fund without having the entitlement to participate as a beneficiary in the surplus thereof The moment such a transaction opens itself to non member, either in the contribution or the surplus, the uniformity of identity is impaired and the transaction assumes the taint of a commercial transaction. (ii) Entity constituted merely for the convenience and common benefit of the members: presupposes the contributors and participators to be two separate classes, but there is oneness or equality in the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This issue is a recurring issue coming from the earlier years, The ITAT 'B' Bench, Chennai, while disposing the appeals of A.Ys.2007-08 to 2009-2010, vide order in ITA Nos. 1644 to 1647 (Mas,) /2012(Dept) and ITA Nos.1662 to 1665 (Mds)/2012 (Assessee) dated 22.11.2012, has held that the assessee is eligible for deduction u/s.80IB(l0) of the Act, Therefore, respectfully following the decision of the ITAT in assessee's own case of earlier years, I hold that the assessee is eligible {or 100% deduction u/s.80IB(10) of the Act, on the income derived from the housing project, and the AO is directed to allow the same. This ground of appeal is allowed." 6. The Ld. DR, submitted that the Ld CIT(A) erred in holding that since the assessee accepted the transfer of 26 flats through MOU dated 20.11.2008 as genuine, he ought to have accepted the transfer of 20 flats through MOU dated 08.10.2009 also genuine, without appreciating fact that first transfer of 26 flats is supported by declaration of such sales to contemporaneously before the Service Tax Authorities, whereas, the second transfer of 20 flats is not supported by any evidence. The Ld. DR, further referring to the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been explained with necessary evidences. The CIT(A), after considering relevant facts has rightly deleted additions made by the AO and their order should be upheld. In so far as deduction u/s. 80IB(10) of the Act is concerned, the issue is covered by the decision of the ITAT in assessee's own case in earlier assessment years and said findings has been approved by the Hon'ble Jurisdictional High Court of Madras in TCA No. 387 to 394 of 2013 dated 17.03.2021. 8. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The facts with regard to impugned dispute are that the appellant firm has transferred 20 flats measuring 24,648 sq.ft. by way of unregistered MOU dated 08.10.2009 to its partners. The assessee has not offered any income from transfer of flats to its partners, on the ground that said transfer does not give rise to any income in the hands of the firm. According to the assessee, partners have declared income from sale of flats in their individual hands and also paid highest rate of tax, which is applicable to firm and thus, there is no revenue loss from the transfer. We find that the assessee had transferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tners, and taxability of profit from said transfer in the hands of the firm, no doubt transfer of 20 flats to partners by way of MOU should be treated as sales in the hands of the firm and consequent profit should be offered to tax, because the assessee has classified properties as stock in trade in the hands of the firm. But fact remains that, even if you compute profit from transfer of 20 flats to partners in the hands of the firm, but because the assessee is enjoying the benefit of deduction u/s. 80IB(10) of the Act for 100% profit derived from housing project, the assessee could very well claim the deduction u/s. 80IB(10) of the Act towards profit, if any, derived from transfer of 20 flats to its partners by way of MOU dated 08.10.2009. Since, the assessee is enjoying the benefit of deduction u/s. 80IB(10) of the Act, we are of the considered view that, whatever profit computed by the AO in the hands of the firm, consequent to transfer of 20 flats to partners by way of MOU dated 08.10.2009, is also eligible for deduction u/s. 80IB(10) of the Act and thus, we direct the AO to compute profit towards transfer of 20 flats to its partners and further, allow benefit of deduction u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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