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TMI Blog2024 (5) TMI 1111X X X X Extracts X X X X X X X X Extracts X X X X ..... te Bench of the Tribunal in the case of Vinod Narapa Reddy [ 2020 (10) TMI 354 - ITAT BANGALORE] - Department had accepted that the assessee in those cases was entitled for long term capital gain. In our view, the department is supposed to take coherent, consistent and uniform stand against all the assessees, who are similarly situated and whose rights are emanating from the very same agreement. In our view, the department cannot take the contrary view, which has been taken in a group of assessees to the determinant to the assessee before us. The law abhor uncertainty and selective approach against any individual. The assessee can opt for monetary consideration and receive the consideration in the shape of share in the sale of project. In the light of the above, though, the clarification and the MCQ(supra) had been issued subsequently, however, the circular and the MCQ are in the same line of reasoning as given by the co-ordinate Bench and therefore, the order passed by the CIT(A) with respect to treating the income received by the assessee as long term capital gain is permissible and was in accordance with law. Accordingly, we dismiss the grounds of the Revenue on this aspect. Ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er three years and resultant income is Capital Gains and not Business Income in hands of the appellant whereas the land was purchased by the assessee on 19.05.2006 and the land was actually put for JDA on 21.08.2008 (not on 17.03.2011) which is within three years from date of acquisition of property by the assessee. 2.1 The additional grounds raised by the Revenue in ITA No.374/Hyd/2023 reads as under : 1. Learned CIT(A)(NFAC) erred in not appreciating that participation in revenue sharing model is an adventure in nature of trade falling within the definition of 'business u/s 2(13) of the I.T. Act. 2. Learned CIT(A)(NFAC) erred in not appreciating that sharing of revenue is also sharing of profits and risks associated with price fluctuations. 3. Learned CIT(A) (NFAC) erred in holding that just because no business income was earned by the appellant in earlier years, there can be no question of business income arising in A.Y. 2013-14. 4. Learned CIT(A)( NFAC) erred in holding the capital gains as long term in nature when the flats were demarked for the assessee through agreement dated 26-06-2012,and sold during F.Y. 2012-13, 2013-14 and 2014-15, being less than 36 months of holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Bank, Sadasiva Nagar, Bangalore. Thus, the assessee got 2.40% share of total Revenue in lieu of his 1 acre 8 gunthas land as per JDA dated 17.03.2011 and the assessee has not received any flat but revenue share @ 2.40% of total revenue of Developer i.e. M/s. SPL periodically as per agreement dated 17.03.2011. Hence, the Assessing Officer held that the question of claiming exemption u/s. 54F does not arise and this transaction is an adventure in nature of trade and business only. Therefore, Assessing Officer treated the share of assessee of Rs. 2,23,73,573/- received in FY 2012-13 as Business Income and added to returned income and assessed the total income at Rs. 2,23,86,600/-. Accordingly, Assessing Officer completed the assessment and passed order on 15.12.2017 u/s 143(3) r.w.s. 147 of the Act. 5. Feeling aggrieved with the orders passed by the assessing officer, assessee filed the captioned appeals before the ld.CIT(A), who allowed the appeals of assessee. 6. Aggrieved with the orders of ld.CIT(A), Revenue is now in appeal before us on the grounds mentioned hereinabove. 7. Before us, ld. DR had drawn our attention to the assessment order, wherein the Assessing Officer at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . SUBMISSIONS OF THE DEPARMENT I. ON HEAD OF INICOME. 1. The department submits the following synopsis of events leading to the assessment order : Sl. No. Date Particulars 1 19.05.2006 Purchase of agricultural land measuring 1 Acre and 38 Guntas in Survey No. 343/1 at Bidraguppe Village, Anekal Taluq, Bangalore District for a consideration of Rs. 16 lakhs 2 01.02.2007 Vide BBMP order, the said land was converted for nonagricultural purpose. 3 21.08.2008 Shriram Properties Pvt. Ltd. for composite development of the said parcel of land into apartment buildings and residential villas. Vide this agreement, assessee received an amount of Rs. 50 lakhs as refundable deposit. 4 17.03.2011 Another development agreement dated 17-03-2011, was entered into, superseding the agreement dated 21-08-2008. The new agreement dated 17-03-2011 in addition to modifying the property layout also divided the land-owners into Group-A, Group-B and Group-C. Group-A (which includes the assessee), agreed to pool in their entitlement for sharing the revenue, on sale of flats in the common pool. 5 26.06.2012 In pursuance to the terms agreed in development agreement dated 17-03-2011, a supplementary agreement was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g presumption that the transaction is an adventure in the nature of trade. [Emphasis supplied] 6. The department submits that, the fact that, purchase of land by the assessee has been made solely and exclusively with the intention to resell, raises a strong presumption that the transaction is an adventure in nature of trade. 7. To bring out the surrounding facts and circumstances, which will eventually decide the nature of transaction, the department prays to draw attention of the Hon'ble Bench to the development agreement dated 17-03-2011 (Pg. 36 to Pg. 86 of the material paper book). 8. The terms agreed upon in the agreement with regard to the revenue sharing model are summarized below (Summary lifted from Pg. 60 to Pg. 62 of the material paper book): The developer will receive 77.68% of revenue from sale of apartments, car parking and terrace area in the project. The assessee is entitled to 2.40% of the revenue from out of the sale of the total saleable super built-up area in the form of residential apartments falling under the common pool. An Escrow Account is opened in M/s Syndicate Bank, in which the entire sale consideration will be deposited. The account will be debited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warrant have to be kept in view in coming to the conclusion. [Emphasis supplied] 10. The essential indica or elements of trade as referred to in the order of the Hon'ble High have been defined in the Report of the Royal Commission on the Taxation of Profits and Income. (Pg. 109 to Pg. 110 of the material paper book) 11. The report identifies certain badges or identifying features of trade, which have been held as objective tests to define a trading adventure. The indices and their applicability to the transaction in question is summarized below: Index Remarks Property which does not yield to its owner an income or personal enjoyment merely by virtue of its ownership The assessee never intended to use the flats for his personal enjoyment. The quick succession of events leading to the development agreement points to clear intention of re-sale of property. The length of period of ownership The assessee acquired the parcel of land on 19-052006 and relinquished it in favor of the developer through agreement dated 17-03-2011. The conduct of the assessee in the intervening period point to clear intention of disposing off the developed property to reap profits. The frequency or number ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per. 16. The department submits that the risk borne by the assessee is amplified by the fact that he is sharing proceeds from sale of 1244 flats. Sale of each flat among the 1244 flats will bear its own risk of price fluctuations and salability. (Flats at common pool listed at Pg. 132 of the material paper book) 17. Also, if at the end, some flats are left unsold, their advantage and disadvantage will be shared proportionately between the owners and the developer. (Relevant page of Development agreement dated 17-03-2011 at Pg. 62 of the material paper book) 18. The department submits that, by wording it so, the development agreement itself recognizes the fact that the risks and rewards associated with the marketability or not of the flats is shared between the owner and the developer. 19. The department, therefore submits that, when the developer accounts the sale proceeds of all flats as business income in its books, the assessee being exposed to the risks and rewards on sale of 1244 flats must also account it as business income. 20. The department submits that the revenue sharing arrangement is akin to the operation of a partnership, with one partner (assessee) makes capital cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute adventure in nature of trade. Hence, Ld. CIT(A)'s observation that the income in question cannot be business income, for lack of repetition or continuity, is erroneous. 3. The department submits that the intention of the assessee to sell the flats at the time of allotment, his exposure to risks and rewards in pricing of the flats and use of organized means of sale of flats shows that the arrangement was not' a simple financing arrangement but an adventure in nature of trade. 4. The department submits that the finding of the Ld. CIT(A) that the capital gain will be long term in nature is without any basis for reasons discussed in the following paragraph. III. ON NATURE OF CAPITAL GAIN 1. The Department submits that even if it is held that.the income is not out of business but capital gain, such gain would be short term in nature. 2. The department prays to draw attention of the Hon'ble Bench to the order of Hon'ble ITAT, Hyderabad in case of Dr. Maya Shenoy vs. ACIT (Pg. 142 to Pg. 157 of the material paper book), wherein it was held that the transfer of land in consideration of flats constituted one transaction and the sale of flats by the assessee constituted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sl. No Name PAN Jurisdictional Assessing Officer AY 2013-14 AY 2014-15 AY 2015-16 Assessing Officer CIT(A) Assessing Officer CIT(A) Assessing Officer CIT(A) 1 Gadi Vijayasimha Reddy AEYPG0539E ITO, Ward-1, Chitoor Order passed on 15.12.2017 u/s 143(3) r.w.s. 147 of IT Act demand raised of Rs. 1,04,91,400/- (penalty proceedings u/s 271(1)(c) are initiated separately CIT(A) order passed on 27.01.2018 order u/s 250 of IT Act, 1961. The appeal is allowed Order passed on 18.12.2017 u/s 143(3) r.w.s. 147 of IT Act demand raised of Rs. 1,11,19,700/ - (penalty proceedings u/s 271(1)(c) are initiated separately CIT(A) order passed on 28.01.201 8. Order u/s 250 of IT Act, 1961. The appeal is allowed Order passed on 15.12.2017 u/s 143(3). Demand raised of Rs. 28,45,440/ - (Penalty Proceedings u/s 271(1)(c) are initiated separately. Order passed on 28.01.2018 u/s 250 of the Act and the appeal is allowed. 2 Vishnu Swaroop Reddy Narapareddy ACWPN3597R ACIT, Circle-6, Hyd Assessment completed u/s 143(3) on 03.03.2016 making addition towards LONG TERM CAPITAL GAIN of Rs. 1,68,93,484/- and assessing the total income at Rs. 2,73,20,244/- Assessee filed appeal against order u/s 143(3). The CIT(A) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 9.5.2 In reply the appellant has given its submissions saying that initially 25% super built up area was agreed to be given to the land owners by the developer in lieu of the transfer of their rights in the land to the buyers of the flats. The same 25% was proportionately shared by all the co-owners in the ratio of the land owned by them. However, as some of the land owners were not happy with this arrangement, the same was subsequently modified after negotiations with the developer in respect of some of the property owners to translate the 25% share in the super built up space (proportionate) into a fixed percentage of share in the gross revenue of the project as compensation for towards the land. The appellant along with few other owners have opted for this method of compensation. All other terms and conditions remaining the same, this change from fixed percentage of super built up space to a fixed percentage of gross revenue, does not change the essential character of the transaction. Further, it is stated that, as he had no intention to retain the super built up area offered by the developer initially, the appellant has chosen to opt for the fixed percentage compensation ess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal circumstances (receiving certain percentage of gross receipts) held the gain from the sale of land transaction as long term capital gain. It is submitted that in the case of brother of the Appellant, namely Sri N. Vishnu Swaroop Reddy, the Hon ble Commissioner of Income Tax (Appeas)-7, Hyderabad, has passed a favourable order directing the Assessing Officer to give exemption u/s 54F of the Income Tax Act, herein the gain was assumed to be a Long Term capital gain. Copy of the CIT(A) order was also produced. 9.5.8 In view of the above, I am of the view that the fact of receipt of consideration spread over several years does not change the true nature of the transaction from capital gains to business. Even in the case of receipt of sale consideration by way of super built up space also, it may happen that the seller of land may receive the possession of the flats at various intervals falling in different financial years, depending on the completion of various stages of the project, necessitating taxing the said capital gains spread over several years. There is no other fact/argument put forth by the AO for considering the said gain returned as long term capital gains in to busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essable as long term capital gains. 19. At the time of hearing, the Ld A.R submitted that the assessee has claimed deduction u/s 54 of the Act and AO did not examine the same, since he had assessed the receipts as business income. Accordingly he prayed that the assessing officer may be directed to allow the deduction. On the contrary, the ld D.R submitted that there was no occasion for the AO to examine the claim of deduction u/s 54 of the Act. Accordingly the ld D.R submitted that, if the Tribunal holds that the amounts received by the assessee is assessable as long term capital gains, then the question of deduction u/s 54 should be restored to the file of the AO. 20. We have agreed with the view taken by the Ld CIT(A) that the amounts received by the assessee is assessable as long term capital gains. We also notice that the there was no occasion for the AO to examine the claim for deduction u/s 54 of the Act, since he had assessed the receipts as business income. Accordingly, we find merit in the contentions of the Ld D.R. Accordingly, we restore the issue of claim for deduction u/s 54 of the Act to the file of the AO. 9.1. The ld.AR further submitted that the judgments relied up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty was to be developed into residential apartments pursuant to JDA dated 17.03.2011. b) Revenue will be received over a period of time as and when the Developer is able to sell the developed property on year to year basis in line with the revenue sharing arrangement. Appellant received his shares of Rs. 89.39 lac during FY 2011-12 i.e. ceding the proportionate area of land by appellant in favour of ultimate buyer as a transfer u/s. 2(47) of Act. Under Clause 15.3 of JDA the appellant has given limited permission to M/s. SPL to develop the land. This shows that there was neither transfer of land in favour of M/s. SPL at time of signing JDA nor intention of appellant to jointly develop property with M/s. SPL with prorata contribution of cost of development. c) Appellant has no knowledge of real estate business and entire risk was borne by M/s. SPL and appellant was entitled to receive a mutually agreed consideration as 2.40% of Revenue earned by M/s. SPL. This is one off transaction on part of appellant because he owned a certain piece of land that formed part of the block of land to be developed by M/s. SPL. 7.5 Action of AO treating the share of revenue of appellant as Business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are emanated from the same JDA, had decided the issue in favour of the assessee, then the said principle laid down by the co-ordinate Bench is required to be applied to all the assessees unless there is a change in law or facts. The Revenue in the instant case has failed to point out any change in law or facts in the case of assessee and therefore, we are left with no other option but to follow the decision of the co-ordinate Bench of the Tribunal in the case of Vinod Narapa Reddy in ITA No.1853 to 1855/Bang/2018 dt.05.10.2020 (supra). 10.5. There is yet another reason to allow the appeal of assessee as we came across the recent Circular issued by the Revenue and the MCQ replies given by the Revenue in the context of Section 45(5A) of the Act under the heading Joint Development Agreement. The said circular and the MCQ appended thereto provides as under : Joint Development Agreements (JDA) Taxability under Section 45(5A) Taxability of Joint Development Agreements (JDA) If an individual or HUF enters into a joint development agreement (JDA) with a builder or joint developer, it shall be deemed that the capital asset is transferred during the year in which the certificate of complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the full value of consideration for the purpose of computing capital gains under this provision. Period of holding The period of holding shall be counted from the date of purchase or acquisition till the date immediately preceding the date on which the certificate of completion is issued by the competent authority. However, if the owner of land or building transfers his share in the project to any other person on or before the date of issue of the certificate of completion, the capital gains shall be computed as per general provisions of the Act without taking into account the above special provisions, and it shall be deemed to be the income of the previous year in which such transfer takes place. Deduction of Tax [Section 194-IC] Who is a deductor? Any person responsible for paying any sum by way of consideration under a Joint Development Agreement shall deduct tax therefrom. The tax is deducted at the time of payment or at the time of credit of the sum to the account of the deductee, whichever is earlier. Who is the deductee? The tax shall be deducted if the payment is made to resident individual or HUF. Rate of TDS The tax shall be deducted at the flat rate of 10%. The tax sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on till the date . (a) immediately preceding the date on which the certificate of completion is issued (b) of agreement in which the owner agrees to allow another person to develop a real estate project (c) of sale of such developed real estate project (d) None of the above Correct answer: (a) Explanation: The period of holding shall be counted from the date of purchase or acquisition till the date immediately preceding the date on which the certificate of completion is issued by the competent authority. Q5. Tax under section 194-IC is deducted for paying any sum by way of consideration under a Joint Development Agreement when the deductee is ________. (a) Resident Individual (b) Resident HUF (c) Both (a) and (b) (d) Any assessee Correct answer: (c) Explanation: Any person responsible for paying any sum by way of consideration under a Joint Development Agreement shall deduct tax therefrom. The tax shall be deducted if the payment is made to a resident individual or HUF. Q6. Tax under section 194-IC is deducted at the rate of ________. (a) 5% (b) 10% (c) 1% (d) 20% Correct answer: (b) Immovable property. 11. From the reading of the above, it is abundantly clear that the assessee can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer is dismissed. So far as the grounds challenging the allowability of deduction u/s 54F, the same is remanded back to the file of Assessing Officer with a direction to decide the claim of allowability of the assessee u/s 54F of the Act in accordance with law after granting due opportunity of hearing to the assessee. The assessee also shall be at liberty to file documents, if any, as required for proving its case and the Assessing Officer shall consider such evidences, if any, filed by the assessee. Needless to say, the Assessing Officer shall examine those documents / evidence filed by the parties and thereafter pass a detailed speaking order. Accordingly, the appeal of the Revenue is allowed for statistical purposes. 15. In the result, the appeal of Revenue in ITA No.374/Hyd/2023 is partly allowed for statistical purposes. 16. Now coming to the others appeals i.e. ITA No.375 and 376/Hyd/2023, which are identical to the facts and issues raised in ITA 374/Hyd/2023, our decision in ITA No.375 and 376/Hyd/2023 would apply mutatis mutandis. Accordingly, these appeals of the Revenue are also partly allowed for statistical purposes. 17. In the result, the appeals of R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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