2024 (5) TMI 1111 - AT - Income Tax

Assessee's 2.40% revenue share from Joint Development Agreement treated as long-term capital gains under Section 54F

Income Tax Officer, Ward – 1, Chittoor Versus G. Vijayasimha Reddy, Bangalore

Income Tax Officer, Ward – 1, Chittoor Versus G. Vijayasimha Reddy, Bangalore - TMI Issues Involved:1. Whether the revenue receipts from the Joint Development Agreement (JDA) should be treated as business income or capital gains.2. Whether the assessee is entitled to the benefit of Section 54F of the Income Tax Act, 1961.Summary of Judgment:Issue 1: Treatment of Revenue ReceiptsThe Revenue contended that the income received by the assessee from the JDA should be treated as business income, arguing that the pooling of the assessee's land and the revenue-sharing model indicated an adventure in the nature of trade. The Revenue also argued that the assessee's participation in the JDA involved profit-sharing and risk, which are characteristics of a business.The Tribunal, however, noted that the assessee had entered into a JDA with M/s. Shriram Properties Ltd. and received a share of the revenue from the sale of residential apartments. The Tribunal observed that the assessee's role was limited to transferring the land and receiving consideration, and the land was held as a capital asset. The Tribunal referred to a similar case (Vinod Narapa Reddy) where it was held that the receipt of consideration over a period does not change the nature of the transaction from capital gains to business income. The Tribunal also highlighted that the Revenue had accepted similar transactions as capital gains in other cases involving co-owners of the same JDA.The Tribunal concluded that the amounts received by the assessee should be treated as long-term capital gains.Issue 2: Entitlement to Benefit of Section 54FThe Assessing Officer had not examined the assessee's claim for deduction u/s 54F as the income was treated as business income. The CIT(A) also did not provide a detailed finding on the assessee's entitlement to the benefit of Section 54F but mentioned that the benefit should be extended to the assessee.The Tribunal remanded the issue back to the Assessing Officer to decide the claim of allowability u/s 54F in accordance with the law, after granting due opportunity of hearing to the assessee.Conclusion:The appeals of the Revenue were partly allowed for statistical purposes. The Tribunal directed the Assessing Officer to treat the revenue receipts as long-term capital gains and to re-examine the assessee's claim for deduction u/s 54F.