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Facts
The assessee, a real estate developer, entered into a development agreement with a partnership firm. One partner of the firm was an NRI. The assessee developed units in the project and sold two units, which were part of its share, via sale deeds. The Assessing Officer treated the assessee as an agent of the NRI partner under Section 163(1)(c) of the Income Tax Act, deeming the consideration received for these units as income of the NRI. The appeal was directed against the order of the CIT(A) that upheld this assessment.
Held
The Tribunal held that the assessee cannot be treated as an agent of the NRI partner under Section 163(1)(c) because there was no direct or indirect business connection or agreement/contract between the assessee and the NRI partner. The income from the sale of the units was received by the assessee company as part of its share from the development project, not through the NRI partner.
Key Issues
Whether the assessee, a developer company, can be treated as an agent of a Non-Resident Indian (NRI) partner of a partnership firm under Section 163(1)(c) of the Income Tax Act for the sale of units that fall within the assessee's share of the project.
Sections Cited
163(1)(c), 148, 161, 13
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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MANJUNATHA G.
PER VIJAY PAL RAO, VICE PRESIDENT :
This appeal by the Assessee is directed against the Order dated 11.08.2025 of the learned CIT(A)-10, Hyderabad, for the assessment year 2009-2010.
The assessee has raised the following grounds of appeal:
2 ITA.No.1627/Hyd./2025 1. “The Order of the Ld CIT (Appeals) passed in pursuance to Order U/s.163(1)(e) of the Act is contrary to Law and the Facts 2. The Ld CIT (Appeals) ought to have noted Smt. C Anita NRI along with other 4 Partners of Vendor Firm M/s Vijay Tiles and Cements Products executed registered GPA favour of Partner Sti Poornachandra Rao (Father of the NRI) for Sale of Flats
The Ld CIT (Appeals) ought to have further noted Sri Poormachandra Rao accordingly executed Sale Deeds which included 2 Flats fell to the share of the Developer Mis Sai Pragathi Estates & Constructions Private Limited vide Doc No 673 and 699 of 2009 dt. 05.03 2009
In the above facts and circumstances the Ld CIT (Appeals) erred in sustaining the order U/sec.161 of the Act, holding the appellant as the Agent of Smt. C Anita
The Ld CIT(A) ought to have thus noted, under the Development Agreement, Sale of aforesaid flats related to the share of Appellant company and income from said flats was admitted as business income and therefore Order U/s.163 of the Act holding the Appellant as Agent is Bad in Law
Without prejudice to the above the Appellant contends in respect of solitary isolated transaction of Sale of Property the appellant under law cannot be held as the agent Us 163 of the Act for levy of tax on Capital Gains 3 ITA.No.1627/Hyd./2025 7. Without prejudice to the above the Ld CIT (Appeals) ought to have noted the subject flats sold by the Vendor Firm of 5 Partners through GPA Sn. Poornachandra Rao income if any arising to the Share of NRI works out to 1/5 only assessment of Entire Capital Gains in the hands of the Appellant Company is unwarranted.
The LA CIT (Appeals) ought to have noted in the set aside assessment Proceedings the Id AO had issued notice Us 142 (1) dt. 13:01 2023 and in compliance the Appellant filed information and submissions through letter dt 24.01 2023
The Id CIT (Appeals) ought to have noted the Appellant further furnished information and submissions through letter dt 24.04.2023 and the Ld CTT (Appeals) without considering the information and submissions on record, erred in passing the orders di 11.08 2025 upholding the Orders of the ld AO
The Ld CIT (Appeals) ought to have noted that to hold the assessee as an Agent U's 163 of the Act. failed to establish "Business Connection parameters required under taw, and therefore the appellant cannot be held as the agent of NRI.
Without Prejudice to the above the Ld CTT (Appeals) ought to have further Noted a Single & Solitary transaction of sale of Capital Asset by the appellant under development agreement, does not constitute under law "Business connection" Us 163 of the Act and the CIT (Appeals) therefore erred in holding the Appellant as the Agent of NRI under Law.
4 ITA.No.1627/Hyd./2025 12. The Id CTT(A) ought to have noted pursuant to Order U/s.163(1)(c) dated 28 03 2016, Notice U/s.148 of the Act dt. 31.03.2016 was issued and served on 04.07.2016 and as on today, no order of assessment is communicated to the Assessee. The Id CIT(A) ought to have noted ignoring 148 proceedings the Id AO passed the order holding the Assessee as Agent.
The Appellant contends that the proceedings initiated for holding the Appellant as Agent of NRI and also subsequent reopening proceedings are not in accordance with law.
The Appellant contends the case laws cited in the order are not applicable to the facts of the appellants case and the case laws relied upon by the Appellant are covered and are not dealt by the ld CIT(A)
The Ld CIT (Appeals) ought to have further noted the order U's 163 of the Act is required to be passed before the end of the Assessment Year 2009-10 and the Order passed by the Ld AO on 28.03.2016 is bad in law, requires to be cancelled vacated.
The Id CTT (Appeals) ought to have noted Sec 13 of the IT act is fictional and a deeming provision and the Appellant since did not receive any income on behalf of the NRI, the impugned Order is bad in law and the appellant contends the deeming Provisions have to be strictly interpreted
The Ld CIT (Appeals) ought to have noted in the facts of the case, the Sale Deed since was executed by the father of NRI Under a registered GPA and the subject Flats related to the 5 ITA.No.1627/Hyd./2025 Share of the appellant and therefore the appellant cannot be held as the agent
For these and other grounds that maybe urged before the disposal of the appeal the Orders of the lower authorities holding the appellant as the Agent of NRI be cancelled and vacated.”
The assessee is a private limited company and engaged in the business of real estate. The assessee entered into the development agreement dated 17.05.2000 with M/s. Vijay Tiles & Cement Products, a partnership firm represented by its partners. Out of the 05 partners, one partner Smt. Anitha Chalasani is a Non-Resident Indian [in short “NRI”] and was represented by her father and GPA Holder Sri Poorna Chandra Rao who is also a partner in the said Firm. As per the Development Agreement and Supplementary Agreement, the assessee got its share of Flats/constructed area in the project and thereafter the flats/units were sold inter alia, by two sales deeds both dated 05.03.2009. The Assessing Officer while passing the assessment order u/sec.143(3) r.w.s.147 of the Act dated 28.12.2017 treated the assessee as an Agent of NRI
6 ITA.No.1627/Hyd./2025 u/sec.163(1)(c) of the Act in respect of the sale consideration of Unit Nos.602 and 602A for a deemed full consideration of Rs.29,86,600/- and Rs.29,85,600/-, respectively for assessment of capital gain. The assessee carried the matter up to this Tribunal and vide Order dated 04.06.2021 this Tribunal in ITA.No.83/ Hyd./2018 remanded the matter to the record of the Assessing Officer in Para-7.2 as under:
“7.2. On perusal of the aforesaid sub-section (2) of the said section clearly states that no person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such. In the case on hand, the AO has not provided proper opportunity to the assessee. Faced with this situation, we restore the matter back to the file of the AO with a direction to provide an opportunity to the assessee to prove that the assessee is an agent for tax liability as provided in Chapter XV of the Act within three effective opportunities and proceed afresh thereafter as per law.” 3.1. Thus, it is second round of litigation. The Assessing Officer in the order passed in pursuance to the directions of this Tribunal has reiterated the addition which was challenged by the assessee before the learned CIT(A) but could not succeed.
7 ITA.No.1627/Hyd./2025
Before the Tribunal, the learned Authorised Representative of the Assessee has referred to the Partnership Deed of M/s. Vijay Tiles & Cements Products dated 10.04.1965 to show that the Partner Nos.1 and 2 agreed to contribute 6713 sq. yards of land along with building situated at 6-11 and 6-11A, Survey No.573 and 574, Kukatpally, Hyderabad as their capital contribution. He has also referred to the details of the partners and their profit sharing ratio as stated in the Partnership Deed placed at Page nos.6 to 9 of the paper book and submitted that at Sl.No.5 Smt. Chalasani Anitha is the daughter of partner at Sl.No.1 Sri Poorna Chandra Rao, is an NRI and she is being represented by her father who is the Managing Partner and also the GPA holder on behalf of the other partners. The learned Authorised Representative of the Assessee has pointed out that the assessee entered into the Development Agreement dated 17.05.2000 with the said partnership firm to develop the said land owned by the partnership firm on 50% - 50% sharing of the developed area. He has pointed out that the Assessing Officer has made the addition in the hand
8 ITA.No.1627/Hyd./2025 of the assessee by treating the assessee as representative of the NRI u/sec.163(1)(c) of the Act in respect of two transactions of sales of Unit Nos.602 and 602A in the project. He has referred to the Sale Deeds dated 05.03.2009 whereby the assessee along with partnership firm sold the said properties. The learned Authorised Representative of the Assessee has then pointed out that these units are in the share of the assessee as per the details of the units given at Page nos.67 and 68 of the paper book. Further, he has pointed out that even in the sale deed itself these units are stated to be in the share of the assessee company who is the developer and the payments for the sale consideration were also made by the buyer in the name of the assessee company. Thus, the learned Authorised Representative of the Assessee has submitted that when these two transactions of sales are in respect of the two units of the assessee and duly reported in the financial statements of the assessee, then there is no question of any income in respect of these two sale transactions derived or received by the partnership firm or by the NRI partner. The learned Authorised Representative of 9 ITA.No.1627/Hyd./2025 the Assessee then submitted that in any case the provisions of sec.163(1)(c) cannot be applied in the case of the assessee when the partnership firm was the land owner and not the partner or the NRI partner therefore, it cannot be said that the assessee is an Agent of the NRI u/sec.163(1)(c) of the Act. He has referred to the provisions of sec.163(1) and submitted that there is no business connection between the assessee and the alleged NRI nor the NRI has received any income directly or indirectly through the assessee company. In support of his contention, he has relied upon the Judgment of Hon’ble Andhra Pradesh High Court in the case of CIT vs. Navabharat Ferro Alloys Ltd., [2000] 244 ITR 261 (A.P). Thus, the learned Authorised Representative of the Assessee has submitted that the assessment made by the Assessing Officer in the hand of the assessee is not sustainable in law as well as on facts and the same is liable to be deleted.
On the other hand, the learned DR has submitted that the Tribunal remanded the matter to the Assessing Officer to consider whether the provisions of sec.163(1)(c) are applicable in the case of the assessee or not. In the remand
10 ITA.No.1627/Hyd./2025 proceedings, despite various opportunities and notices, the assessee has not furnished any further submissions, details or evidence, except the reply and submissions made by the assessee before the learned CIT(A) and ITAT. Thus, the learned DR has submitted that in the absence of any further supporting evidence, the Assessing Officer has reiterated its earlier order while passing the order in pursuance to the directions of the Tribunal. He has also relied upon the order of the learned CIT(A) whereby the appeal of the assessee was dismissed based on the facts that one of the partners of the partnership firm is an NRI and therefore, the capital gain on account of transfer of immovable property in the hand of Smt. Chalasani Anitha is assessed in the hand of the assessee as an Agent of non-resident u/sec.163(1)(c) of the Act.
We have considered the rival submissions as well as the relevant material on record. At the outset, we note that as per the Development Agreement between the assessee company and M/s. Vijay Tiles & Cement Products, a partnership firm, the assessee company has developed the property in question bearing Nos.6-11 and 6-11A, Survey
11 ITA.No.1627/Hyd./2025 Nos.573 and 574, Kukatpally, Hyderabad. As per the Development Agreement registered on 13.06.2000 the assessee and the owner of the land-partnership firm have agreed to share 50%-50% of the constructed area which was worked out at 2523.94 sq. yards of total area of 5047.89 sq. yards. The subject matter of the dispute is the transfer of the unit Nos.602 and 602A vide two Sale Deeds both dated 05.03.2009 placed at Page nos.32 to 46 and 48 to 63 of the paper book, respectively. Thus, two sales deeds are singed by the assessee as well as the Managing Partner and GPA Holder Sri Poorna Chandra Rao, of M/s. Vijay Tiles & Cement Products. As per the recital of the Sale Deeds, they are identically worded which is stated as under:
“WHEREAS as per the supplemental Agreement dated: 8-11- 2003, Second Supplemental Agron dated: 6-1-2006, and third supplemental Agreement dated 12th January, 2007 entered between the owners and Developer, Office Unit No.602, admeasuring 5371 Sq. Feet in sixth floor, along with proportionate undivided share of land admeasuring 125 Sq. Yards in Vijaya Sai Towers, fallen to the share of Developer herein.
12 ITA.No.1627/Hyd./2025 WHEREAS the Vendors herein have offered to sell part of Office Unit No.602, in sixth floor admeasuring 2685 Sq. feet together with undivided share of land admeasuring 62.5 Sq. Yards.
THAT the Builder/Developer (Vendor No.2 Party of the Second Part herein) has already received their share of sale consideration of Rs.26,11,000/- (Rupees Twenty Six Lakhs Eleven Thousand Only) and the receipt of which the Vendor and the Builder/Developer hereby acknowledge.” (emphasis supplied by us).
6.1. Thus, the Unit No.602 was sold and transferred in two parts vide two Sale Deeds both dated 05.03.2009 wherein it is specifically mentioned that this Unit No.602 falls in the share of the developer i.e., the assessee company. Further, it is also specifically mentioned in these sale deeds that the buyer has made the payment of the sale consideration to the assessee company/developer. It is clear from the sale deeds that these two transactions of sale are in respect of the constructed unit from the share of the assessee company and therefore, the question of any income earned by the partnership firm or the NRI partner through the assessee does not arise. We further note that in the details of the 13 ITA.No.1627/Hyd./2025 constructed units falling in the share of the assessee company in the project, these Unit Nos.602 and 602A are duly reflected in the Schedule-IV placed at Page nos.67 and 68 of the paper book as under:
14 ITA.No.1627/Hyd./2025 6.2. Thus, the assessee company has reported and declared the sales including the sales of these two units in its return of income and hence, the question of invoking the provisions of sec.163(1)(c) of the Act in the case of the assessee does not arise. Accordingly, on the facts as emerged from the record, it is established that the transaction of these two Units-602 and 602A vide two Sale Deeds both dated
15 ITA.No.1627/Hyd./2025 05.03.2009 are exclusive transactions of sale by the assessee company as these units are sold from the share of the assessee company and payment of consideration was paid to the assessee company exclusively as stated in the sale deeds itself. Once the sale deeds itself reflects all the relevant facts and nature of transaction being the sale on the part of the assessee company, then the question of any income derived by the NRI through the assessee company does not arise.
6.3. Even otherwise, as per the provisions of sec.163(1)(c), an assessee can be treated as an Agent of the NRI only when the conditions provided in the said section are satisfied. For ready reference sec.163(1) is reproduced as under:
“163. (1) For the purposes of this Act, "agent", in relation to a non- resident, includes any person in India— a) who is employed by or on behalf of the non-resident; or b) who has any business connection with the non-resident; or c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or d) who is the trustee of the non-resident;
16 ITA.No.1627/Hyd./2025 and includes also any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India :
Provided that a broker in India who, in respect of any transactions, does not deal directly with or on behalf of a non-resident principal but deals with or through a non- resident broker shall not be deemed to be an agent under this section in respect of such transactions, if the following conditions are fulfilled, namely:—
(i) the transactions are carried on in the ordinary course of business through the first-mentioned broker; and (ii) the non-resident broker is carrying on such transactions in the ordinary course of his business and not as a principal. Explanation.—For the purposes of this sub-section, the expression "business connection" shall have the meaning assigned to it in Explanation 2 to clause (i) of sub-section (1) of section 9 of this Act.
(2) No person shall be treated as the agent of a non- resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such.”
6.4. The Assessing Officer has specifically applied clause-(c) of sec.163(1) of the Act which contemplates that “agent” in relation to a non-resident includes any person in India from or through whom the non-resident is in receipt of any income, whether directly or indirectly. In the case in 17 ITA.No.1627/Hyd./2025 hand, there is no transaction between the assessee and the non-resident partner of the partnership firm, but the Development Agreement was between the assessee company and the partnership firm having 05 partners, out of which, only one partner is an NRI. Therefore, even if any income received by the partnership firm, that does not mean that the same is received directly or indirectly through the assessee company, rather the partners receive the income from the profits of the partnership firm. Therefore, except the partnership firm which is a party to the Development Agreement, there is no direct or indirect connection between the assessee and the said NRI partner of the partnership firm. The income of the partnership firm is assessable to tax in India and, therefore, if the NRI has received any income out of the sale transaction of the Unit in the Project, that is through the partnership firm and not through the assessee company. Accordingly, in the facts and circumstances of the case, we are of the considered view that the Assessing Officer has not made out a case which justifies the treatment of assessee as an Agent of NRI partner of partnership firm
18 ITA.No.1627/Hyd./2025 u/sec.163(1) of the Act when there is no direct or indirect business connection or agreement/contract between the assessee and the said NRI partner. Hence, the provisions of sec.163(1) cannot be applied in the case of the assessee. In the conclusion, the addition made by the Assessing Officer in the hand of the assessee by invoking the provisions of sec.163(1)(c) of the Act is not sustainable in law as well as on facts and accordingly, the same is deleted.
In the result, appeal of the Assessee is allowed.