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Income Tax Appellate Tribunal, “C’’BENCH: BANGALORE
Before: SHRI N.V. VASUDEVANAND SHRI B.R. BASKARAN
All the three appeals filed at the instance of the revenue are directed against the common order dated 28-03-2018 passed by Ld CIT(A)-2, Bengaluru and they relate to the assessment years 2013- 14 to 2015-16.
We notice that the Ld CIT(A) has passed a common order covering AY 2012-13 to 2015-16. The Ld A.R submitted that the revenue had preferred appeal challenging the order passed by Ld CIT(A) for AY 2012-13 also, but the said appeal could not be pursued by the revenue, as tax effect involved in that appeal was Page 2 of 10 below the monetary limits prescribed by CBDT. Hence the appeals for remaining three years are being pursued by the revenue.
Since the issues urged in all the three years are identical in nature, they were heard together and are being disposed of by this common order, for the sake of convenience.
The Grounds of appeal urged by the revenue in AY 2013-14 are extracted below:- i. The CIT(A) erred in treating the business profits, earned by the assessee in the form of share of revenue from entire residential project from A.Y. 2012- 13 to the A.Y. 2015-16, as Capital Gain. ii. The CIT(A) erred in holding the business transaction of the assessee as investment even after acknowledging the fact that the assessee had no intention to retain any super built up area but he wanted to get an immediate return out of this adventure in the nature of trade. iii. The CIT(A) erred in treating the land of the assessee as Capital asset for the A.Y. 2012-13 to the A.Y. 2015-16 despite the fact that it was converted into a trading asset even prior to these assessment years. iv. Without prejudice to the above ground, the CIT(A) erred in placing reliance on the decision of Delhi ITAT in the case of Mohinder Kumar Jain where multiple properties were sold in different assessment years but the proceeds were applied in only one New Asset, whereas in the case of the assessee only one asset was sold with the consideration spread out in various AYs.
For other two years also, the revenue has raised identical grounds of appeal.
5. The issue urged by the revenue is whether the Ld CIT(A) was correct in law in holding that the share of revenue received by the assessee from the developer of residential project is assessable as Capital gains and not as business income.
Page 3 of 10 6. The facts relating to the issue are set out in brief. The assessee’s father named Shri Kodandarama Reddy had owned certain lands in Bidaraguppe Village, Attibele Hobli, Anekal Taluk, Bangalore district. M/s Shriram Properties Ltd entered into a development agreement on 21.08.2008 with the father of the assessee and also with other persons, who owned adjacent lands. As per the development agreement, residential villas were proposed to the constructed. In the mean time, Shri Kodandarama Reddy died intestate on 05-01-2011 leaving behind his wife, two daughters and two sons as his legal heirs. Two daughters of late Shri Kodandarama Reddy executed a release deed in favour of their mother and brothers. Accordingly, the wife and two sons of Shri Kodandarama Reddy became owners of the land, referred above. The assessee herein is one of the sons and one of the legal heirs of Shri Kodandarama Reddy.
Subsequent to the death of Shri Kodandarama Reddy, the assessee and other co-owners entered into another development agreement on 17.03.2011, which superseded the earlier agreement entered on 21.08.2008. As per the new agreement, residential apartments were proposed to be constructed, instead of residential villas. As per the old agreement, the land owners were proposed to be given a portion of built up area. However, as per the new agreement, the assessee herein opted to receive 2.64% of the revenue arising on sale aggregate saleable area of the residential apartments. The above said Joint Development Agreement was again modified on 26.6.2012. According to the assessee the possession of land was handed over to M/s Shriram Properties Ltd only on 26.06.2012 after execution of modified agreement.
Page 4 of 10 8. The assessee received following amounts from M/s Shriram Properties Ltd:- F Y 2011-12 ( AY 2012-13) - 97,23,585 FY 2012-13 (AY 2013-14) - 2,53,02,119 FY 2013-14 (AY 2014-15) - 1,94,41,184 FY 2014-15 (AY 2015-16) - 1,86,85,404 FY 2015-16 (AY 2016-17) - 88,00,610 The assessee offered the amounts received by him as Long term capital gains in respective year of receipts. The assessee also claimed exemption u/s 54 of the Income-tax Act,1961 ['the Act' for short] against the Long term capital gains in respect of investment made by him in a house property.
It is stated that in AY 2012-13, the AO assessed the amount of Rs.97,23,585/- as Short term capital gain. However, in AY 2013-14 to 2015-16, the AO held that the assessee has undertaken adventure in the nature of trade and accordingly assessed the amount received by the assessee in each of the years as income from business.
The Ld CIT(A), however, held that the amount received by the assessee in AY 2012-13 to 2015-16 is assessable as income from Long term capital gains. Aggrieved, the revenue has filed these appeals. As noticed earlier, the appeal relating to AY 2012-13 was dismissed on account of low monetary effect.
The Ld D.R submitted that the AO has taken a view that the transfer of land has taken place in FY 2008-09, when the father of the assessee had initially entered agreement with M/s Shriram Properties Ltd. After making enquiries with the officials of above said company, the AO had come to the conclusion that the possession of land was handed over to them prior to March, 2010 itself, when the developer had started his project. Further, the AO noticed that the assessee has been received amounts year after year
Page 5 of 10 upon sale of apartments, as his share. Hence the AO took the view that the assessee is doing business in the nature of adventure in the nature of trade. Accordingly he assessed the receipts as business income in AY 2013-14 to 2015-16.
The Ld D.R submitted that the AO had reopened the assessment of AY 2009-10 by issuing notice u/s 148 of the Act in order to assess the capital gains in that year, since he has taken the view that the possession of land was given in FY 2008-09. However, the succeeding AO has taken the view that the land was actually transferred to the developer on 26.6.2012 and it is relevant for AY 2013-14 only.
The Ld D.R submitted that there is some confusion in this matter and accordingly prayed that the matter may be restored to the file of AO for examining it afresh.
On the contrary, the Ld A.R submitted that the grounds urged by the revenue do not relate to the year of taxation of income. He submitted that the case of the revenue is that the amounts received by the assessee is assessable as business profits and not as long term capital gains as held by Ld CIT(A). He submitted that the AO has taken the view that the amounts received by the assessee is in the nature of business receipts, only for the reason that the assessee has been receiving amounts year after year. He submitted that, as per development agreement, the assessee was given 2.64% of the gross receipts received by the developer on sale of flats and hence the assessee has been receiving his share as and when the flats are sold. He submitted that the receipt of sale consideration in instalments cannot be the sole criteria to determine the nature of receipt. He submitted that the assessee has transferred his right over the land to the developer and the said
Page 6 of 10 land was held by the assessee as capital asset. Hence the amount received on transfer of capital asset is assessable under the head capital gains. Since the capital asset was held for more than 36 months, the gains arising on transfer of land is assessable as long term capital gain only.
The Ld A.R further submitted that the other co-owners of the land, i.e., mother and brother of the assessee, have declared the receipts as long term capital gains only and the same has been accepted by their respective assessing officers. Further, in the assessee’s own case, the AO has assessed the receipts as Short term capital gain in AY 2012-13. He submitted that the AO has taken contradictory stand in different years.
We heard the parties and perused the record. A perusal of the grounds of appeal urged by the revenue would show that the revenue is aggrieved by the decision of Ld CIT(A) in holding that the amounts received by the assessee is assessable as long term capital gains. Hence we confine ourselves with the said issue alone. We notice that the Ld CIT(A) has dealt with this issue as under:-
9.5 Adventure in the nature of trade/capital gain? 9.5.1 The A.O. for treating the same as adventure in the nature of trade has sold as under:
“The assessee has agreed to receiving the revenue on the sale of each of the apartment in its share and is accordingly receiving it year on year. In such a case, it can only be considered that the assessee is doing business in the nature of adventure in the nature of trade or concern and hence the receipt has to be considered as business profit.” 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
Page 7 of 10 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 essentially to avoid getting stuck with super built up space in the project if in case he is not able to sell the same and also he wanted to get immediate returns from the JDA for reinvestment in the house property, on which exemption u/s 54F has been claimed. It is also stated that the appellant being an IT professional had no intention to do any business in the property which has been inherited from his father as a co-owner along with mother and brother. Considering all the above, it is seen that the transaction is essentially a transfer of co-ownership property by entering into a JDA along with the other co-owners and the same cannot be treated as adventure in the nature of trade.
9.5.3 In this regard, the AO in the Asst order for the AY 2013-14 (which was followed for the A.Y 2014-15 & 2015-16) has essentially held as under: The assessee has agreed to receiving the revenue on the sale of each of the apartment in its share and is accordingly receiving it year on year. In such a case, it can only be considered that the assessee is doing business in the nature of adventure in the nature of trade or concern and hence the receipt has to be considered as business profit. 9.5.4 The fact of receipt of consideration spread over several years does not change the nature of transaction. Even in the case of receipt of sale consideration by way of super built up space also, it may happen that the seller 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. Therefore, there is no force in the argument of the AO that the transaction is in the nature of adventure/trade. Accordingly, I am of the view that the transfer of the property shall be treated as a long term capital gain. …………………………………………….
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9.5.7 The appellant has also submitted that under the similar circumstances the department has treated the transaction to be that of capital gains in the hands of all the co-owners those who have taken super built up space and also those who have opted for proportionate % of sale proceeds except in his case. The appellant also referred to the orders passed in the cases of his mother Mrs. Sulochanamma and brother Sri Vishnu Swaroop Reddy wherein under the identical 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, wherein 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 business income. Therefore, I am of the view that there is no force in the argument of the AO that the transaction is in the nature of adventure/trade.
9.5.9 Accordingly, respectfully following the decision of the ITAT in the case of Mohinder Kr. Jain supra also following the decision taken in identical circumstances, in the hands of other co- owners who have pooled the land, more so in the hands of the mother and brother of the appellant (two joint family co-owners) by the concerned AO and the CIT(A), to be consistent in the approach of the department. I am of the view that the transfer of the property shall be treated as a loing term capital gain for all the Asst Years involved. Accordingly, the AO is directed to treat the gain as Long Term Capital Gain as returned by the appellant for the years involved in this batch of appeals.”
Page 9 of 10 17. We notice that the assessing officer has treated the amounts received by the assessee as business receipts, solely for the reason that the amounts were received in instalments. The undisputed facts remain that the assessee is the owner of land and he has transferred the same to the developer, M/s Shriram Properties Ltd under a Joint Development Agreement. It is a fact that the assessee has not carried on any venture or business activity by so transferring the land. On the contrary, it is M/s Shriram Properties Ltd, which is carrying on business activity. The role of the assessee is restricted to transferring the land and receiving the consideration. There is no dispute with regard to the fact that the land was held by the assessee as “capital asset” only. Hence the transfer of land would give rise to capital gains only as per the provisions of the Act.
It so happened that the consideration for transfer of land was so fixed that the assessee would be receiving 2.64% of the sale consideration of flats that are going to be constructed. Hence the assessee would be receiving amounts as and when the flats are sold. As rightly observed by Ld CIT(A), the receipt of consideration over a period on sale of a capital asset does not change the true nature of transactions from capital gains to business. Irrespective of timing of receipt of sale consideration, the transfer of a capital asset would give rise to capital gains only. Hence we are of the view that the Ld CIT(A) was justified in holding that the amounts received by the assessee is assessable as long term capital gains.
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 to 1855/Bang/2018 Sri Vinod Narappa Reddy, Bangalore Page 10 of 10 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.
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. 21. In the result, all the appeals of the revenue are treated as partly allowed for statistical purposes.
Order pronounced in the open court on 5th Oct, 2020.