TaxTMI 
TaxTMI 
2014 (3) TMI 1082
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....ax was computed u/s.115JB after including the income it received from the AOP in which it was a member. A survey action u/s. 133A of the I.T. Act was also carried out by the Department in the case of the assessee on 23/12/2010 during which statement of Shri Ashok V. Suratwala, Director of the assessee company was recorded u/s. 131 of the I.T. Act. 2.1 During the course of assessment proceedings the AO observed that the assessee was in possession of the development rights in respect of land/property, admeasuring 37976.90 sq.mt. at Final Plot No. 72, Yerawada Town Planning Scheme at S. No. 210, village Yerawada, Tal. Haveli, Distt. Pune, which were purchased by the assessee from Yerawada Stud and Agricultural Farm for a consideration of Rs. 8,60,00,000/-. Later, the assessee entered into an agreement on 28/04/2003 with M/s.Raviraj Kothari & Company (hereinafter referred to as RKC) for developing the land to the extent admeasuring 31026.90 sq. mt. by way of forming an Association of Persons (AOP) namely M/s Fortaleza Developers, having assessee company as one member and RKC as another member. As per the said agreement the assessee and RKC agreed to develop and construct a housing p....
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.....167B(2) should not be brought to tax. It was submitted that what was received by the assessee from the AOP was indeed the share of profit only but with a slight deviation in the formula devised by it for sharing the profits. The main contentions put forth by the assessee objecting to the view of the Assessing Officer are summarized by the Assessing Officer at para 3 and 4 of the assessment order at para 3 and 4 of the assessment order which reads as under: • Fortaleza Developers was formed as an AOP vide an agreement dated 29-04-2003 between Sanand Properties Pvt. Ltd. and M/s. Raviraj Kothari and Company to develop and construct a housing project at Pune. • In pursuance of above assessee introduced the rights of development in a land held by it as a capital contribution and M/s. RKC contributed financial contribution. • In the statement of total income, profit and loss account and tax audit report, names of the members, profit sharing ratio and working of profit distribution clearly indicates the fact that 35% of the sale proceeds constitute profit sharing ratio of assessee. • It is as per correct understanding between the membe....
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....sted that the assessee was directly entitled to 35% of the gross sale receipts irrespective of the profit aspect, which the assessee could withdraw directly from the bank account maintained for depositing the sale proceeds, as admitted by the Director of the, assessee company in the course of his statement recorded u/s.131. The Assessing Officer, thus, sought to highlight that the assessee had nothing to do with the expenditure incurred to bring the project to its saleable character and the assessee did not expose itself to the inherent risks in a business which might impinge on the profitability of the project. 2.4 Further, to assert his conclusion that what the assessee was entitled for was a direct share in the gross proceeds, the Assessing Officer referred to the relevant column of the Audit Report in Form No.3CD indicating the members and their profit sharing ratio pertaining to the AOP, M/s. Fortaleza Developers, obtained in the course of the assessment proceedings, which is as under: S. No. Members PSR 1. Sanand Properties Pvt. Ltd. 35% of the total sale proceeds 2. Raviraj Kothari and Company Remaining profit after deducting the share of above ....
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.... Developers (AOP) show that assessee is withdrawing its share from gross sales proceeds without having any regard to the profits of M/s. Fortaleza Developers (AOP). f. Assessee is not in possession of enough expertise of construction business do not having any employee with it. Its scope is AOP is limited to introduction of land and receipt of 35% of gross sales against that land." 2.8 After discussing the various aspects of the issue, the Assessing Officer held that the assessee was receiving a fixed share in the sale proceeds of the AOP without having any regard to the profit element of the business of the AOP. He accordingly rejected the contention of the assessee that what it had received was its share of profit from the AOP which was exempted from tax by virtue of the provisions of sec. 167B(2). The reliance placed by the assessee on the decision of the Hon'ble Supreme Court in the case of C.H. Atchaiah (218 ITR 239) was also held to be misplaced on the ground that what was in dispute in the present case was not the income of the AOP but the nature of receipts by the assessee from the AOP. The AO accordingly came to the conclusion which he has summarized at pag....
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....xceeds the maximum amount not chargeable to tax, tax is required to be charged on the total income of the AOP at the maximum marginal rate. It was submitted that member of such an AOP, as in the case of the assessee, is not required to pay income-tax in respect of the income declared in the case of the AOP and received as share of income from such AOP. While arguing so, the attention of the Ld.CIT(A) was drawn to the following observations of the Hon'ble High Court of Bombay while deciding on the Writ Petition filed by the assessee for AY 2007-08, against the reopening of assessment u/s.147. "The AOP filed a return of income tax for the assessment year 2007-08 disclosing a gross total income of Rs. 14.58 crores. The surplus transferred to the members of the AOP was disclosed in the profit and loss account to be 14.25 crores. The share of the Assessee was disclosed at Rs. 3.49 crores which corresponds to what is reflected in the return of income correspondingly filed by the Assessee. The working out of the distribution of profits is reflected in the accounts of the AOP; the computation there shows that the share of the Assessee representing 35% of the basic flats' c....
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....are of income was not chargeable to tax in the hands of the assessee. 3.2 It was argued that keeping in view the aforesaid ratio, if it is held in the appeal in the case of the AOP for AY 2008-09 & AY 2009-10 that such share is liable to tax in the hands of the AOP, as in AY 2007-08, on the basis of the reasoning adopted by the Hon'ble High Court, the present appeal for AY 2009-10 would be required to be allowed in favour of the assessee, respectfully following the ratio of the Hon'ble Mumbai High Court as extracted above. The decision of the Hon'ble Supreme Court in the case of C.H. Atchaiah (218 ITR 239) was relied upon stating that in the said case also, the Hon'ble Court has clearly laid down that if it is the income of an AOP in law, the AOP alone has to be taxed and such income cannot be taxed in the hands of the member of an AOP. Reiterating that M/s. Fortaleza. Developers, the AOP wherein the assessee is a member, having been regularly assessed to tax in the status of an AOP upto and including the Assessment Year 2009-10, the status of the AOP has never been disputed by the Department and as such, following the decision of the Hon'ble Supreme Court in....
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....r erred in law and on facts in not accepting even the alternate contention of the appellant that when it was an undisputed fact that the appellant and Raviraj Kothari & Co. had formed an AOP for development and construction of the housing project, the income received by the appellant from the said activity of the AOP ought to be held as entitled to deduction u/s. 801B(10)." 5. The Ld. Counsel for the assessee strongly challenged the order of the CIT(A). He submitted that the CIT-15, Mumbai having jurisdiction over the AOP M/s. Fortaleza Developers, in which the assessee company is a member, had issued notice dated 21-03-2012 u/s.263 of the Income Tax Act to show cause as to why the assessment order passed by the Assessing Officer in the case of the said AOP for A.Y. 2007-08 should not be set-aside, as the order passed by the AO was prima facie erroneous and prejudicial to the interest of revenue. He submitted that the reasons for initiation of such proceedings u/s. 263 in the case of the AOP M/s. Fortaleza Developers are absolutely identical to the findings as arrived at by the CIT(A) in his appellate order for AY 2009-10 in the case of the assessee, which was passed before the ....
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....ri and company (RKC) formed an AOP namely M/s. Fortaleza Developers for the purpose of developing and constructing a housing project, namely, "Fortaleza' on the land situated in S.No.210 at Yerawada, Pune, the development rights of which were acquired by the assessee company from the owners of the land. Clause 7 of the AOP agreement provides the revenue sharing ratio between the two entities as per which the sales proceeds of the units were to be deposited in a joint account and would be shared at the ratio of 35% and 65% by the assessee and RKC respectively. During the year the assessee received Rs. 5,89,91,145/- from the said AOP and has shown the same as its share of profit from AOP under the head 'other income' in the profit and loss a/c. In the statement of total income filed with the return, the assessee excluded this amount from the total income on the ground that the said income was already taxed in the hands of AOP and the share of profit received from AOP is not taxable as per sec. 167B of the I T Act. On the other hand, the case of the Assessing Officer is that the assessee has not received share of profit from the AOP but has received consideration in the fo....
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....istribution in the account of the assessee SPPL has received Rs. 15.11 crore which is 35% of gross sale proceeds of the unit amounting to Rs. 43. 17 crores. A sum of Rs. 11.62 crore is credited to the account of SPPL on account of land etc. and Rs. 3.49 crore is considered as profit share of SPPL. Out of balance 65%, after including the MSEB and incidental charges and reducing the developmental charges a sum of Rs. 10.76 crore has been considered as prop share of RRKC. Therefore, the distribution of profit made by the assessee between its members is in accordance with clause 7 of the agreement. The interpretation of clause-7 sought to be adopted by Ld. CIT will be against the very intent and purpose for which the assessee AOP has been formed and if such interpretation is adopted it will tantamount to denial of existence of AOP which is not even the case of Ld. CIT. It has already been pointed out that AOP is a separate and distinct assessable entity and is also entitled to claim the deductions permitted under the Income Tax Act provided it fulfil the conditions laid down in the section governing that deduction. The assessee AOP in the present case has been assessed as AOP and found....
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....ance with clause-7 of the agreement and manner of allocation of profit in the account cannot alter the quantum of deduction available to AOP under section 80 18(10). 4. The facts for the assessment year 2007-08 and for the assessment years under consideration are identical as this issue is regarding the clause 7 of AOP agreement dated 29.4.2003. Accordingly following the earlier order of this Tribunal we decide this issue in favour of the assessee. The orders of the authorities below qua this issue set aside." 7.2 Since the Mumbai Bench of the Tribunal in the case of the AOP has categorically held that 35% share received by SPPL was not in the nature of overriding title to the revenue but is only share of profit of SPPL, therefore, respectfully following the above and in absence of any contrary material brought to notice against the order of the Tribunal the grounds raised by the assessee have to be allowed. We accordingly set-aside the order of the CIT(A) and allow the grounds raised by the assessee. ITA No.2446/PN/2012 (A.Y. 2008-09) : 8. The grounds raised by the assessee are as under : "1. That the learned CIT(A) erred in law and on facts in confirmin....