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Income Tax Appellate Tribunal, BANGALORE BENCH ‘C’, BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI A. K. GARODIA
disposed of by way of this common order for the sake of convenience. In these appeals and cross objections, the following grounds were raised for the assessment years: 2008-09 to 2010-11 respectively. -1014-13, CO Nos.5,6,& 7-14 & 930-932-13 & 714 to 718-16 In “1.The order of the CIT(A) is opposed to law and facts of the case. 1.The CIT(A) erred in deleting the additions made of Rs. 42,16,090/- in the hands of the assessee in the status of AOP, despite that the share of each one of the family members was not ascertainable. 3.The CIT(A) erred in deleting the additions made of Rs. 42,16,090/- under the head "Profits and Gains from Business" while confirming the same on Page 13 of the same order. 4.The CIT(A) erred in not considering the fact that the assessee AOP is in the real estate business and has entered into a Joint Development agreements with the Developers for development of land at Mavanur Village, Hubli into residential layout and for the development of its land at Karwar Road, Hubf into commercial and residential complex. 5.The CIT(A) erred in considering the fact that the assessment order was passed ex- parte u/s 144 of the I.T.Act 1961 for the reason that the assessee failed to file any evidences despite ample opportunities afforded during the assessment proceedings. 6. i. The CIT(A) erred in deleting the additions of Rs. 42,16,090/- made on account of receipts deposited in the bank account of the familymembers of Shri. Nasiruddin Bagawan as net income in lieu of the joint venture agreements entered into with the developers. ii. As such, the CIT(A) erred in not appreciating the fact that the receipts in the bank account represents the net income of the assessee AOP as per the joint venture agreements. iii. The CIT(A) erred in not considering the fact that as per the Joint Development agreements, the entire expenditure for the development of these projects is to be borne by the Developers and as such, the entire receipts received by the assessee represents the net income of the assessee AOP for the assessment year in question and is rightly brought to tax in the hands of the assessee AOP. iv. The CIT(A) grossly erred in not appreciating that the issues dealt with by him in the appellate order for deletion as such are not emanating from the assessment order of the AO and the Ld. CIT(A) has decided the issues on different footing after considering the fresh evidences in contravention to Rule 46A(3) of the LT. Rules. 7.The appellant craves leave to add, alter, amend and delete any of the grounds of leave.
In (AY:2009-10)
1. The order of the CIT(A) is opposed to law and facts of the case.
2. The CIT(A) erred in deleting the additions made of RS.4,14,81,540/- in the hands of the assessee in the status of AOP, despite that the share of each one of the family members was not ascertainable. -1014-13, CO Nos.5,6,& 7-14 & 930-932-13 & 714 to 718-16
3. The CIT(A) erred in deleting the additions made of RS.4,14,81,540/- under the head "Profits and Gains from Business" while confirming the same on Page 13 of the same order.
4. The CIT(A) erred in not considering the fact that the assessee AOP is in the real estate business and has entered into a Joint Deve!opment agreements with the Developers for development of land at Mavanur Village, Hubli into residential layout and for the development of its land at Karwar Road, Hubli into commercial and residential complex.
5. The CIT(A) erred in considering the fact that the assessment order was passed ex- parte u/s. 144 of the I.T.Act 1961 for the reason that the assessee failed to file any evidences despite ample opportunities afforded during the assessment proceedings.
6. i. The CIT(A) erred in deleting the additions of Rs. 4,14,81,540/- made on account of receipts deposited in the bank account of the family members of Shri. Nasiruddin Bagawan as net income in lieu of the joint venture agreements entered into with the developers. ii. As such, the CIT(A) erred in not appreciating the fact that the receipts in the bank account represents the net income of the assessee AOP as per the joint venture agreements. iii. The CIT(A) erred in not considering the fact that as per the Joint Development agreements, the entire expenditure for the development of these projects is to be borne by the Developers and as such, the entire receipts received by the assessee represents the net income of the assessee AOP for the assessment year in question and is rightly brought to tax in the hands of the assessee AOP. iv. The CIT(A) grossly erred in not appreciating that the issues dealt with by him in the appellate order for deletion as such are not emanating from the assessment order of the AO and the Ld. CIT(A) has decided the issues on different footing after considering the fresh evidences in contravention to Rule 46A(3) of the I.T. Rules. 7.The appellant craves leave to add, alter, amend and delete any of the grounds of leave.
In (AY: 2010-11)
1.The order of the CIT(A) is opposed to law and facts of the case. 2.The CIT(A) erred in deleting the additions made of Rs.3,70,61,496/- /- in the hands of the assessee in the status of AOP, despite that the share of each one of the family members was not ascertainable. 3.The CIT(A) erred in deleting the additions made of Rs.3,70,61,496/- under the head "Profits and Gains from Business" while confirming the same on Page 13 of the same order. -1014-13, CO Nos.5,6,& 7-14 & 930-932-13 & 714 to 718-16 4.The CIT(A) erred in not considering the fact that the assessee AOP is in the real estate business and has entered into a Joint Development agreements with the Developers for development of land at Mavanur Village, Hubli into residential layout and for the development of its land at Karwar Road, Hubli into commercial and residential complex. 5.The CIT(A) erred in considering the fact that the assessment order was passed ex-parte u/s. 144 of the IT.Act 1961 for the reason that the assessee failed to file any evidences despite ample opportunities afforded during the assessment proceedings.
6. i. The CIT(A) erred in deleting the additions of Rs.3,70,61,496/- made on account of receipts deposited in the bank account of the family members of Shri. Nasiruddin Bagawan as net income in lieu of the joint venture agreements entered into with the developers. ii. As such, the CIT(A) erred in not appreciating the fact that the receipts in the bank account represents the net income of the assessee AOP as per the joint venture agreements. iii. The CIT(A) erred in not considering the fact that as per the Joint Development agreements, the entire expenditure for the development of these projects is to be borne by the Developers and as such, the entire receipts received by the assessee represents the net income of the assessee AOP for the assessment year in question and is rightly brought to tax in the hands of the assessee AOP. iv. The CIT(A) grossly erred in not appreciating that the issues dealt with by him in the appellate order for deletion as such are not emanating from the assessment order of the AO and the Ld. CIT(A) has decided the issues on different footing after considering the fresh evidences in contravention to Rule 46A(3) of the LT. Rules.
7. The appellant craves leave to add, alter, amend and delete any of the grounds of leave 2. The assessee has also raised additional grounds which are as under;
“ 1. The ld., CIT(A) is not justified in directing the income reported erroneously by Janab Nasiruddin Bagwan, Janabi Fatima Begum, Janab Rahees Ahmed and Raja Rameez,Prop: of M/s RNB Enterprises under the head ‘Capital Gains” is assessable in the hands of the AOP under the facts and in the circumstances of the case, as there was no AOP inexistence to be so assessed.
Without prejudice to the above, even if the income is so assessable in the hands of the AOP, it is assessable under the head capital gains and not as business income after giving indexation to the cost of acquisition and deducting the cot incurred in the development of the property after the contribution as a due deduction.
-1014-13, CO Nos.5,6,& 7-14 & 930-932-13 & 714 to 718-16 3. The ld. CIT(A) has not given any notice about the proposal to give such direction and finding which amounts to enhancement and consequently, such finding and direction are bad in law and requires to cancelled.
4. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered”.
The assessee has also raised the following grounds in its Cross Objection:
1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT[A] has seriously erred in holding that their existed an Association of Person [AOP] amongst Janab Nasiruddin Bagwan, Janabi Fatima Begum, Janab Rahees Ahmed and Raja Rameez Proprietor of M/s. RNB ENTERPRISES, who have acquired agricultural lands independently and cultivating them and deriving income therefrom for a long period prior to the date of Development Agreement and who have executed a common agreement with Mr. Milan M.Parekh, Prop: Golden Homes Trading Corporation for the joint development of their separate land have formed an AOP consisting of the three landlords/lady on 09/06/2006 and they are liable to be assessed in the status of "AOP" in respect of the said joint development agreements entered on 09/06/2006 and 30/06/2008.
3[A] The learned CIT[A] failed to appreciate that if the 3 landlords lady were merely by executing a common development agreement with a common developer should be assumed to have form an "AOP" then, the AOP would consist of not only the above 3 persons but also the Developer, who agreed to develop the lands especially for sharing the sital area obtained or extracted from the total lands passed by the landlord/lady and therefore, the AOP if any should consist of not only Janab Nasiruddin Bagwan, Janabi Fatima Begum and Janab Rahees Ahmed [excluding the other members of the family, who have not contributed the land] and Mr. Milan M.Parekh, Prop: Golden Homes Trading Corporation, as members of the AOP and as an assessable unit having regard to the ratio of the following decisions of the Hon'ble Supreme Court :- [1] CIT V. INDIRA BALAKRISHNAN reported in 39 ITR 546 [SC] [2] G. MURUGESAN & BROTHERS reported in 88 ITR 432 [SC] [3] N.V.SHANMUGAM & CO., reported in 81 ITR 310 [SC] [4] FAQIR CHAND GULATI V. UPPAL AGENCIES P. LTD. reported in 10 SCC 345 [2008] 3[B] The learned CIT[A] has failed to note the joint development agreement having been entered into on -1014-13, CO Nos.5,6,& 7- 14 & 930-932-13 & 714 to 718-16 09/0612006 and the possession to the developer given on 09/06/2006 itself notwithstanding the fact that there was a litigation would not make any difference to the application of the ratio of the decision of . the Hon'ble Karnataka High Court in the case of DR.T.K.DAYALU reported in 202 TAXMAN 531 and the person litigating was not in possession of the property at all and had only a fake agreement and it was comprised to avoid hindrance and hurdles for the development of the property and not to give physical possession and therefore, there is no valid reason for excluding the application of the finding decision of the jurisdictional High Court in the case of DR. T.K.DAYALU [supra] and the distinction pointed by the learned CIT[A] for not following the said binding decision is without any difference and therefore, such gain or part of the gain is not liable for assessment for the assessment year under appeal and therefore the addition made on this count requires to be deleted.
4. Without prejudice to the above, since no notice u/s.142[1] of the Act or u/s.148 of the Act, was issued to the appellant AOP and what was issued were notices u/s.142[1] of the Act to the individual members viz., Janab Nasiruddin Bagwan, Janabi Fatima Begum and Janab Rahees Ahmed in their individual capacity in respect of whom even assessments were completed protectively and not to the appellant AOP and consequently, the assessment made on the AOP without a valid notice u/s.148 of the Act or u/s.142[1] of the Act, is contrary to the decision of the Hon'ble Supreme Court in the case of ADINARAYANA MURTHY reported in 65 ITR 607 and the decision of the Hon'ble Karnataka High Court in the case of ABDUL SATIAR MOKASHI reported in 174 ITR 368 and consequently, the assessment made requires to be annulled as votd-ab-inttio.
5. Without prejudice to the above, the learned CIT[A] has erred that the amount received by the appellant either from Mr. Milan Parekh in respect of GOLDEN HILLOCK PROJECT or with MIs. M/s.Golden Homes Shelters Pvt. Ltd., in respect of GOLDEN HEIGHTS PROJECTS are not realization of capital or share income from the AOP not taxable at all, during the previous year relevant to the assessment year under appeal in view of the fact capital gains accrued on the development of the land and giving possession and not on realization of the amounts receivable pursuant to the development agreement as per the ratio of the decision of the Hon'ble Karnataka High Court in the case of DR. T.K.DAYALU [supra] and further such receipts are not business receipts but realization of the transfer of the capital asset within the meaning of section 2[47][v] of the Act and from that angle the same is not taxable.
6. Without prejudice to the above, The learned CIT[A] failed to appreciate that in respect of joint development agreement entered into on 30/06/2008 for a project known as GOLDEN HEIGHTS, the land is owned by only two persons viz., Janabi Fatima Bagwan and Janab Rahees Ahmed and the development of -1014-13, CO Nos.5,6,& 7- 14 & 930-932-13 & 714 to 718-16 the land was also with another company called M/s.GOLDEN HOMES SHELTERS PVT. LTD., not with Mr. Milan Parekh and if for any reason it brings into existence an AOP then, as upheld by the learned CIT[A] such an AOP consists of only 3 persons viz., Janabi Fatima Bagwan and Janab Rahees and M/s.GOLDEN HOMES SHELTERS PVT. LTD., and such AOP would be distinct and different from the AOP consisting of Janab Nasiruddin Bagwan, Janabi Fatima Begum, Janab Rahees Ahmed and Mr.Milan Parekh and therefore, such income should be separately assessed it would be a different unit of assessment.
7. The learned CIT(A)is not justified in sustaining the assessment u/s. 144 of the Act, especially in view of the fact no notice u/s.142[1] of the Act or u/s.148 of the Act that were issued to the appellant in the status of AOP and as such there is no default either to file the return or having filed the return of income in the status of AOP, there was any failure to comply with any of the terms in the notice u/s.142[1] attracting passing the order u/s.144 of the Act, therefore assessment made u/s.144 of the Act, requires to be cancelled.
8[A]. The learned CIT[A] has erred in sustaining the amount received individually by Janab Nasiruddin Bagwan, Janabi Fatima Nasiruddin and Janab Rahees Ahmed in respect of their share on the sale of the sital area subject matter of 2 development agreements viz., 09/06/2006 and 30106/2008 is liable for assessment for the assessment years under appeal in the hands of the AOP as business receipts.
8[B] The learned CIT[A] failed to appreciate in so far as the development of the project known as GOLDEN HILLOCKS is concerned, it is pursuant to the development agreement dated 09/06/2006 and consequently, the capital gains if any, would be assessable for the assessment year 2007-08 and not for the year under the appeal and in so far as the amounts received appertaining to the project known as GOLDEN HEIGHTS is concerned, it is with reference to the development agreement dated 30/06/2008 and the capital gains if any, is liable for the assessment year 2009-10 and not for the year under appeal having regard to the binding decision of the jurisdictional High Court in the case of DR. T.K.DAYALU reported in 202 TAXMAN 531after allowing the indexed cost after allowing the indexed cost and therefore, the learned CIT[A] has seriously erred in sustaining the assessment in the hands of the appellant that too as business receipts for the year under appeal.
9. The learned CIT[A] is not justified in sustaining an addition of Rs.34,02,415/- being the deposits made in cash of Rs.11,19,950/-, advance received from Sri F.N.Bagwan of Rs.11,30,000/-, advance received from M/s.RNB Enterprises of Rs.8,15,000/ - and advance received of Rs.37,500/- from Sri N.P.Bagwan and interbank transfers among the members of Rs.3,00,000/-, -1014-13, CO Nos.5,6,& 7-14 & 930-932-13 & 714 to 718-16 all explained and self-evident from the financial statements filed before the learned CIT[A] on being called upon to file and therefore, there is no justification in sustaining the said addition.
10. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may kindly be allowed and Justice rendered and the appellant may be awarded costs for the learned CIT[A] has not followed the ratio of the binding decisions of the Hon'ble Supreme Court in the case of ADINARAYANA MURTHY reported in 65 ITR 607 and the decision of the Hon'ble Karnataka High Court in the case of ABDUL SATIAR MOKASHI reported in 174 ITR 368 and the decisions of the Hon'ble Supreme Courts referred to above by refunding the institution fees and other expenses by way of professional fees, etc., as part of the costs.
-1014-13, CO Nos.5,6,& 7-14 & 930-932-13 & 714 to 718-16
First of all, learned AR of the assessee pointed out the chronology of events. As per the same, on 04-10-2010, notices u/s 142(1) of the IT Act, 1961 for the assessment years: 2008-09 to 2010-11 were issued to the assessee Shri Nasiruddin Bagwan and his wife Smt. Fatima N Bagwan and his son Shri Rahees Ahmed Bagwan asking them to appear and file the returns of income in their individual cases and not in the case of AOP. In response to these notices, the assessees filed their return of income individually. Thereafter on 26-11-2010, another notices were issued u/s 142(1) for the same three assessment years 2008-09 to 2010-11 to these three different assessees in their individual capacity to produce or cause to be produced accounts and documents as per Annexure to these notices. In response to the returns filed by them in their status of “individual”, the AO sought certain details as per Annexure to the individual notices. It is also submitted by the ld. AR of the assessee that in the notices issued to each one of these assessees, their PAN is also noted. This was also one of the query of the AO in these notices as to why the income shown by these assessees individually in their returns filed by them should not be assessed as income of the AOP. But there was no formal notice to the AOP consisting Shri Nasiruddin P Bagwan, his wife and his son as the members of AOP. It was also submitted that there was also no indication by the AO in these notices that these notices are issued to all the three persons individually and it should be treated as the notice issued to them for the purposes of AOP. It is also submitted that there was no clear indication or requirement by the AO of his intention to withdraw the earlier notices issued to them individually and or to treat the notices as the notice issued to them on behalf of AOP. It is also submitted by the ld. AR of the assessee that the AO also assessed them pursuant to notices given in their individual capacity although, protectively which would show that the notices were not withdrawn. It is the contention of the ld. AR of the assessee that under these facts, there was an assessment on AOP without any notices, as required by law. He submitted that under these facts, the assessment framed by the AO in the capacity of AOP is bad in law and therefore, should be quashed. In support of this contention, reliance was placed by him on the following judicial pronouncements;
Abdul Sattar M .Mokasi Vs CIT 174 ITR 368 2. CIT Vs K.Adinarayana Murthy 65 ITR 607 3. Meera & Co., Vs CIT 2124 ITR 635 4. Faqir Cahnd Gulati 10 Supreme Court Cases 345 5. Lindeag Linde Engg. Dvn. Vs DDIT 365 ITR 1 Thereafter, he submitted that copy of these five judgments are available along with the list of citations relied upon by the ld. AR of the assessee. He also submitted that incase, the assessee succeeds on this aspect of the matter then, nothing more remains to be decided because in that situation, the assessment itself has to be quashed but if the assessee does not succeed on this account then the matter should be restored back to the file of the AO for fresh decision on merit of the additions because assessment order were passed u/s 144 of the IT Act, 1961 because the assessee could not make compliance for unavoidable reasons and therefore, in the interest of justice, the issue on merit should go back to the file of the AO for fresh decision.
The ld. DR of the revenue supported the assessment order. He also agreed to this proposition put forward by the ld. AR of the assessee that in case the assessment in the status of the AOP is held to be valid, then the matter should go back to the file of the AO for a fresh decision regarding merit of the addition.
We have considered the rival submissions. We find that on pages 70-71 of the paper book is a copy of notice issued by the AO to the assessee Shri Nasiruddin P Bagwan u/s 142(1) of the Act issued on 26-11- 2010 for assessment year 2008-09 along with annexure. As per para-3 of the annexure, the AO asked the assessee as to why the income should not be assessed as business income and also as to why the status should not be adopted as AOP consisting of Shri Nasiruddin P Bagwan, his wife and his son. It was agreed that similar notices were also issued in all the three assessment years 2008-09 to 2010-11 to all the three assessees i.e. Shri Nasirudin P Bagwan, Smt. Fatima N Bagwan and Shri Rahees Ahmed Bagwan. In the light of these facts, now we examine the applicability of various judgments cited by the ld. AR of the assessee.
First judgment cited by the ld. AR of the assessee is by the Hon’ble jurisdictional High Court of Karnataka in the case of Abdu Sattar M Mokashi Vs CIT (Supra) and the question no.2 raised in this case before the Hon’ble Karnataka High Court reads as under;
” Whether on the facts and circumstances of the case, the Tribunal was justified in law in holding that the appellate authorities could convert an order of reassessment made by the ITO in respect of an individual assessee pursuant to reassessment proceedings commenced in his case as an individual and consequent upon a return filed by him In his individual capacity into that of a reassessment in the status of an association of person of which the said individual was a member?.
From the relevant question, as reproduced above, it comes out that in that case, the appellate authorities converted the reassessment order made by the AO in respect of an individual assessee pursuant to reassessment proceedings commenced in his case as an individual and consequent upon a return filed by him in his individual capacity into that of a reassessment in the status of an association of persons of which the said individual was a member. In the present case, the AO himself has assessed the assessees as an AOP and that too after raising a specific query and after asking these assessees to explain as to why the assessment should not be completed in the status of AOP. Because of these differences in facts, in our considered opinion, this judgment is not applicable in the present case. Moreover, it is also to be noted that in that case, the issue in dispute was regarding reassessment proceedings and it was noted by the Hon’ble High Court that notice u/s 148 was required to be issued after recording of reasons and such recording of reasons will be entirely different and will have a bearing upon the status of the assessee in respect of whom the assessment is sought to be re-opened. In the present case, there is no re-opening involved in the present case and hence, there was no requirement to record reasons. For this difference of facts also, this judgment is not applicable in the present case.
The second judgment relied upon by the ld. AR of the assessee was rendered by the Hon’ble Apex Court in the case of CIT Vs Adinarayana Murthy(Supra). In that case, it is noted by the Hon’ble Apex Court on page no.610 of this judgment that the ITO could not have validly acted on the returns filed by the assessee in the status of HUF and any assessment made by the ITO on such return would have been invalid in law because the notice u/s 34 of 1922 Act had been issued in the status of ‘individual’ and sanction of the Commissioner for the issue of a notice u/s 34 of the IT Act, 1922 was also obtained on that basis. Hence, it is seen that as per the provisions of Sec.34 of the IT Act, 1922, sanction of Commissioner for the issue of notice u/s 34 of the IT Act, 1922 was required to be obtained and in that case, such approval was obtained for an individual and therefore, fresh notice u/s 34 of the IT Act, 1922 was required to be issued to the HUF after obtaining approval of the Commissioner for issue of such notice u/s 34 of the IT Act, 1922. In the present case, this is not the case of the ld. AR of the assessee that any permission was required to be obtained by the AO to issue notice u/s 142(1) of the Act to the AOP and therefore, the AO could not convert such notice issued to these individuals as a notice to them in their capacity as a member of AOP, particularly when show cause notice was issued by the AO to these individuals asking them to explain why the assessment should not be completed in the status of AOP. In view of our above discussion, in our considered opinion, this judgment is also not applicable in the present case.
The third judgment cited by the ld. AR of the assessee is the judgment of the Hon’ble Apex Court rendered in the case of Meera & Company Vs CIT (Supra). In that case, the facts were that business was carried on by an individual and on his death, the business was continued by his wife widow on her behalf and on behalf of the three children. Under these facts, it was held that there was an organized activity jointly carried no to produce income and therefore, it was a clear case of joint business venture of a few individuals and it was held that such income of business had been rightly assessed in the status of a ‘body of individuals’. Hence, it is seen that this judgment is also not helping the case of the assessee.
Fourth judgment cited by ld. AR of the assessee is the judgment of the Hon’ble Apex Court rendered in the case of Faqir Chand Gulati Vs Uppal Agencies Pvt.Ltd., and Another (Supra). In this judgment, as noted on page no.346 of the judgment, only two questions were raised before the Hon’ble Apex Court which are re-produced hereunder;
“i. Whether a landowner, who enters into an agreement with a builder, for construction of a apartment building and for sharing of the constructed area, is a ‘consumer’ entitled to maintain a complaint against the builder as a service provider under the Consumer Protection Act, 1986 and ii. whether a complaint against the builder is maintainable under the Consumer Protection Act, 1986 for a prayer seeking delivery of completion certificate and C&D forms (pertaining to building and whether the prayer for completion certificate/C&D forms involves a prayer for rectification of the deficiencies in the building so as to secure the completion certificate and C&D forms”.
From the questions raised before the Hon’ble Apex Court as reproduced above, it comes out that the dispute was under the Consumer Protection Act, 1986 and there was no dispute in this case under IT Act and therefore, in our considered opinion, this judgment is also not applicable in the present case.
The fifth judgment relied on by the ld. AR of the assessee is the judgment of the Hon’ble Delhi High Court rendered in the case of Linde AG Linde Engineering Division & Another Vs DDIT (Supra). Seven questions were raised before the Hon’ble Delhi High Court in this case, which are noted by the Hon’ble Delhi High Court on pages 9-10 of the judgment and the same are reproduced herein below for the sake of ready reference.
“i) Whether in terms of the contract dated Feb. 10, 2009(hereinafter referred to as the contract) between ONGC Petro additions Ltd.,(Hereinafter referred to as “OPAL”)and consortium of Linde AG, Germany and Samsung Engineering Co.Ltd., Korea (hereinafter referred to as “SEC”)the appellant and SEC are taxable in the status of AOP?. ii) Whether, in terms of the contract, the amount receivable/received in respect of design and engineering prepared solely for the manufacture, procurement of equipment outside India and being inextricably linked to such equipment to be supplied, liable to tax in India, under the provisions of the IT Act, 1961(‘The Act’) or under the Double Taxation Avoidance Agreement read with Protocol between India and Germany (‘The DTA’) iii) If the answer to question No.2 is in the affirmative, to what extent and at what rate of tax, are the amounts received/receivable for design and engineering liable to tax in India?. iv) Whether, in terms of the contract, the amount receivable by the applicant for supply of equipment, material and spares, outside India are liable to tax in India, under the provisions of the IT Act, 1961 or under the DTAA read with protocol? v). If the answer to (iv) is in the affirmative, to what extent are the profits from supply of plant and equipment taxable in India? vi). Whether, in terms of the contract, consideration for onshore services comprising supervision of installation, testing, commissioning and construction, management/ supervision is liable to tax on the profits of the permanent establishment, as may be deemed to exist in India, in terms of sec.44DA of the Act read with the provision of the DTAA? Vii) If the answer to question no.(vi) is in the affirmative, whether for the purpose of determining the profits o the permanent establishment in India, the actual expenditure incurred by head office exclusively and specifically in relation to onshore activities of the permanent establishment (not being general administrative/executive expenses) and reimbursed to it, are allowable in full and not subject to limits in sec.44C of the IT Act, 1961”.
The facts in this case are that two companies formed a consortium for the limited purpose and each party was required to perform its specified portion of the contract separately and each one was separate and allocation of work was also separate. The payments were made to them separately and under these facts, it was held that these facts did not indicate sufficient degree of joint action justifying a conclusion that it had formed an AOP. Other question raised before the Hon’ble Delhi High Court were not on this aspect as to whether there was an AOP or not. In the present case, the facts are totally different because in the present case, the degree of joint action between these three individuals is sufficient to form an AOP and because of this difference in facts, this judgment of Hon’ble Delhi High Court is also not rendering any help to the assessee in the present case.
Later on, ld. AR of the assessee also placed reliance on the judgment of the Hon’ble Kerala High Court rendered in the case of P.N.Sasikumar and Others Vs CIT 170 ITR 80. In this case also, the notices were issued u/s 148 of the IT Act, 1961 and in the notices, the AO did not specify the capacity in which it was issued to the assessee whether in individual capacity or as Principal Officer or member of an association or body of individuals.
We have already discussed above that for the purpose of issuing notice u/s 148, reasons are required to be recorded and if such reasons are not recorded in a proper status then the issue of notice u/s 148 of the Act in a wrong status is not valid u/s 148 of the Act but since in the present case, notice was not issued u/s 148 of the Act, requiring recording of reasons, this judgment of Kerala High Court is also not applicable in the present case.
14.1 He also placed reliance on a judgment of the Hon’ble Kerala High Court rendered in the case of Ravinder Narain Vs ITO 96 ITR 612.
In this case also, the issue in dispute was regarding re-opening of the assessment by issue of notice u/s 148 of the Act which was issued without indicating in the notice that the AOP was sought to be assessed and since in the present case, no notice was issued u/s 148 of the Act, for the reasons discussed above, this judgment is also not applicable to the present case.
14.2 He also relied upon a judgment of the Hon’ble Punjab & Haryana High Court rendered in the case of CIT Vs Smt.Saraswati Bai and Others 137 ITR 656 and in this case also, the dispute was about notice issued u/s 148 of the Act in which there was no indication that the notice was issued to an AOP but since in the present case, no notice is issued u/s 148 of the Act, this judgment is also not applicable in the present case.
Reliance was also placed on the judgment of the Hon’ble Mysore High Court rendered in the case of Lakshmibai Vs ITO 86 ITR 804 and in this case also, the dispute was regarding re-assessment by issue of notice issued u/s 148 of the Act and therefore, this judgment is also not applicable in the present case because in the present case, there was no dispute about any re-assessment.
The last judgment on which reliance was placed by the ld. AR of the assessee is the judgment rendered in the case of Prabhudas Jagjivandas & Others Vs ITO as reported in 40 ITR 1. In this case also, the issue in dispute was regarding re-assessment proceedings initiated by the AO by issuing notices u/s 34 of the Act, 1922. We have already discussed above that in the case of re-assessments, reasons required to be recorded by the AO before issuing of notices u/s 148 of the Act, 1961 and approval had to be obtained from the Commissioner and therefore, issue of notice in a wrong status for re-opening is not valid notice and any consequent assessment is also not valid. But in the present case, since there was no reassessment proceedings, this judgment is also not applicable in the present case.
As per the above discussion, we have seen that none of the judgments cited by the ld. AR of the assessee renders any help to the assessee in the present case. There is no other argument by the ld. AR of the assessee regarding his contention that the present assessment on AOP is not a valid assessment and therefore, we hold that the assessment order framed by the AO in the capacity of assessee as a AOP is a valid assessment order.
Now after deciding this aspect of the matter, as to whether the assessment order in the status of AOP is valid or not and in view of our decisions on this aspect that such assessment in the capacity of AOP is a valid assessment, we restore the entire matter back to the file of the AO for fresh decision on merit of the addition regarding quantum of additions as well as regarding head of income under which income has to be assessed in each of these cases. Therefore, no adjudication is called for on these aspects at the present stage. The AO should pass necessary order as per law after providing adequate opportunity of being heard to the assessee.
In the result, all these appeals and cross objections are allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.