AI Drafter 
TaxTMI 
TaxTMI 
2024 (5) TMI 1111
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....n the facts of the case and in law. 2. The Learned CIT(A) (NFAC) erred in not appreciating the stand taken by the AO in considering the revenue receipts by the assessee as business income by treating pooling of assessee's land as his investment in the business and income received as business income as the assessee had opted for 'revenue share only' as per the agreement and received the amounts in instalments spread in four financial years. 3. The Learned CIT(A) (NFAC) erred in extending the benefit of Sec. 54F of the Act to the assessee even though the assessee had not used the receipts from JDA towards investment in property. 4. The Learned CIT(A) (NFAC) erred in stating that capital asset was held for a period over three years and resultant income is Capital Gains and not Business Income in hands of the appellant" whereas the land was purchased by the assessee on 19.05.2006 and the land was actually put for JDA on 21.08.2008 (not on 17.03.2011) which is within three years from date of acquisition of property by the assessee. 2.1 The additional grounds raised by the Revenue in ITA No.374/Hyd/2023 reads as under : "1. Learned CIT(A....
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....rtain modified clauses were agreed to. 4.2. Subsequently, the assessee, other co-owners and M/s.SPL entered into an agreement dated 26.06.2012 and possession of property was handed over to M/s. SPL for the purpose of construction of residential units. Thus, the agreement dated 21.08.2008 was superseded by the agreement dated 17.03.2011. As per this agreement the assessee will receive 2.40% of Revenue from sale of residential apartments by M/s. SPL. As per the computation statement filed with ITR, the assessee has shown the sale of property at Rs. 2,23,73,573/-. M/s. SPL has paid the amounts to assessee in installments as per agreement which was shown by the assessee as income from Capital Gains. Assessee received his share of Rs. 2,23,73,573/- in FY 2012-13. They had opened an Escrow account with Syndicate Bank, Sadasiva Nagar, Bangalore. Thus, the assessee got 2.40% share of total Revenue in lieu of his 1 acre 8 gunthas land as per JDA dated 17.03.2011 and the assessee has not received any flat but revenue share @ 2.40% of total revenue of Developer i.e. M/s. SPL periodically as per agreement dated 17.03.2011. Hence, the Assessing Officer held that the question of claiming exem....
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..... DR submitted that the activities of the assessee are in the nature of business as the assessee had entered into the JDA. The ld. DR submitted that the assessee had in fact had entered into JDA, which was akin to partnership, as there was an element of profit sharing between the assessee and the developer. It was submitted that the Assessing Officer had captured the relevant clauses of the JDA to show that the JDA was not merely an agreement to develop the property but was an agreement to do the business and earned the profits. It was submitted that the elements of risk and rewards are available in the JDA and therefore, the Assessing Officer was correct in treating the income arriving out of the JDA as business income instead of capital gains. The ld.DR had filed an elaborate detailed written submissions on 21.12.2023 which reads as under : ".... C. SUBMISSIONS OF THE DEPARMENT I. ON HEAD OF INICOME. 1. The department submits the following synopsis of events leading to the assessment order : Sl. No. Date Particulars 1 19.05.2006 Purchase of agricultural land measuring 1 Acre and 38 Guntas in Survey No. 343/1 at Bidraguppe Vill....
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....rial paper book) wherein the Hon'ble Court held that: "Where a purchase is made with the intention of resale, it depends upon the conduct of the assessee and the circumstances of the case whether the venture is on capital account or in the nature of trade." [Emphasis supplied] 5. Following the same ratio, the Hon'ble High Court of Madhya Pradesh in the case of CIT vs. Jawahar Development Association (Pg. 27 to Pg. 35 of the material paper book) held "There may, however, be circumstances which may show that the purchase of the land was not made as an investment of capital and the sale thereof at a profit is not merely a return of capital with accretion and that the whole thing was an adventure in the nature of trade. Cases may arise where the purchase is made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention raises a strong presumption that the transaction is an adventure in the nature of trade." [Emphasis supplied] 6. The department submits that, the fact that, purchase of land by ....
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....more likely to be an accretion of capital and not an yield of income which may be brought to tax. The question whether a certain speculation is an adventure in the nature of trade has to be determined on a consideration of a variety of circumstances, regard being had to the nature of organising the speculation; nurturing the property; disposing it off and also the circumstances leading to its sale; whether the article purchased in kind and in quantity is capable only of commercial disposal and not of retention as an investment or of use by the purchaser; what was the nature of occupation and profession of the assessee; whether the transaction is in the line of business or' trade carried on by the purchaser; what was the dominant intention of the purchaser at the time of purchase; whether the purchaser before resale has caused expenses to be incurred in making the commodity more readily saleable; and whether the transaction is exactly of the kind that takes place in ordinary trade in which resale requires a number of separate disposals or a series of operations. These and various other ,considerations which the facts of the particular case may warrant have to be kept in view in ....
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....Kasat, which was subsequently upheld by the Hon'ble High Court of Bombay (Pg. 111 to Pg. 131 of the material paper book). The Hon'ble ITAT in this case held that: "We have also examined the meaning of the term 'adventure in the nature of trade' mentioned in Section 2(13) of the Act. It has not been defined in the Income-tax Act. As far as the dictionary meaning of the word 'adventure' is concerned, it implies a pecuniary risk, a venture, a commercial enterprise. The word 'venture' in its turn is defined as a commercial activity in which there is a risk of loss as well as a chance of gain. " [Emphasis supplied] 14 The department submits that the revenue-sharing model of Joint Development being followed by the assessee is a composite arrangement wherein land is contributed by one party and the development being carried out by the other party with a clear understanding on sharing of the proceeds from sale of entire developed property and also with an understanding on sharing of unsold inventory between both the parties. 15. The department submits that by sharing the sale proceeds and unsold inventory, the assessee is taking....
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....turns of the assessee in this case will be variable, which is typical of an adventure in nature of trade. 24 The department submits that by entering into a revenue sharing arrangement the assessee has in effect converted the flats in capital account into stock-in-trade. Any profit realized on sale of stock-in-trade is business income and not capital gain. II. ON ORDER OF THE LD. CIT(A) 1. The department prays to draw attention of the Hon'ble Bench to the findings of the Ld. CIT(A) at Pg-28 and Pg-29 of CIT(A) order. The Ld. CIT(A) held that the income is to be taxed under the head 'capital gains' for the following reasons: • The Ld. CIT(A) held that the revenue sharing arrangement was a financing arrangement or a deferred payment arrangement which does not change the nature of the transaction. • As no business income was earned by the appellant in the earlier years and hence the income from the transaction is to be taxed as capital gains. • Capital asset was held for more than 3 years resulting in long term capital gain in hands of the assessee. 2. The department submits that as held by the Hon&#....
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.... 7. The department submits that Ld. CIT(A) erred in concluding that the capital gain will be long term and thus allowing the claim of deduction u/s 54F. 8. The department further submits, that the claim of assessee towards deduction u/s 54F was allowed without examination of its allowability. IV. ON ORDER OF THE HON'BLE ITAT, BANGALORE IN CASE OF SRI VINOD NARAPPA REDDY 1. The department prays to draw the attention of the Hon'ble Bench to the order of Hon'ble ITAT, Bangalore in case of DCIT, Circle-2(1)(1), Bangalore vs. Sri. Vinod Narappa Reddy. (Pg. 233 to Pg. 242 of the material paper book) 2. The department submits that the Hon'ble ITAT, Bangalore allowed the appeal of the assessee on observing that the receipt of the consideration over a period on sale of a capital asset does not change the nature of transaction from capital gains to business. 3. The department humbly submits, that, the facts and circumstances pertaining to the sale transaction were not brought to the knowledge of the Hon'ble ITAT, Bangalore. 4. The department prays before the Hon'ble Bench, that, the facts and circumstances....
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.... No appeal Only u/s 143(1) done No appeal 5 Vinod Narappa Reddy ACGPN8586N -do- Common order dt.28.03.2018 passed by ld.CIT(A) to Bangalore, holding the head of income as LTCG. Hon'ble ITAT Bangalore set aside the claim for deduction u/s 154 of the Act on the file of Assessing Officer. All the appeals of Revenue are treated as partly allowed for statistical purposes. 6 Padma C. Reddy AIFPP2241M -do- No scrutiny assessment No scrutiny assessment Demand of Rs. 30,840/- raised u/s 143(1a) dt.09.10.2016 7 Amaravenkata Satyanarayana AWHPA8594N ITO, IT1(1), Chennai No assessment order passed -do- No scrutiny assessment. 9. Per contra, ld.AR submitted that the co-ordinate Bench of the Tribunal while interpreting the very same JDA in the case of Vinod Narapa Reddy in ITA No.1853 to 1855/Bang/2018 dt.05.10.2020 had granted the relief to the assessee and he had drawn our attention to paras 16 to 20 which are as under : "16. We heard the parties and perused the record. A perusal of the grounds of appeal urged by the revenue would show that the ....
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....er 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 necessita....
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.... 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." 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....
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....tion under the Income Tax Act for the assessee to opt for particular model i.e., option available either to get the monetary or non- monetary consideration from the developer for contributing the land in the project. It was submitted that the money consideration, if opted by the assessee can be in the form of share in the sale consideration of the project in a specified ratio or can be upfront determination of sale consideration and receiving the same in the manner provided in the agreement. It was submitted that the Assessing Officer cannot substitute for the assessee and decide what is most suitable for the assessee. The assessee should be left to take the commercial decisions as per his understanding and circumstances prevailing at the time of entering the JDA. The Assessing Officer should not substitute or occupy the armchair of the assessee at the time of making the decision. 10. We have heard the rival submissions and perused the material on record. The ld.CIT(A) in Para 7.3 to 7.5 of his order has decided the issue as under : "7.3 Finding on GOA No. 2 to 35:- From AY 2012-13 to AY 2015-16 the appellant has shown income from LTCG on sale of parcel of land....
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....isk associated with business which was borne by M/s. SPL. b) It is a fact that appellant purchased this land as agricultural land on 19.05.2006. It was converted to non agricultural land vide BBMP order dated 01.02.2007 of Spl. Dy. Commissioner, Bangalore much before the JDA was entered i.e. 17.03.2011. c) No business income was earned by appellant in any of the earlier AY's. This acquisition of land on 19.05.2006 was pure investment by appellant of a capital asset and does not form part of stock in trade. d) Receipt of Revenue share is mode of receiving the consideration of a transaction involving transfer of Long Term Capital Asset only. This capital asset was held for a period over 3 years and resultant income is Capital Gains and not Business Income in hands of appellant." 10.1. The co-ordinate Bench of the Tribunal in the case of the assessee namely, Vinod Narapa Reddy in ITA No.1853 to 1855/Bang/2018 dt.05.10.2020 (supra) had decided the same issue in favour of the assessee and decided the issue of long term capital gains. 10.2. In fact, the similar view was taken by the ld.CIT(A) in the case of Vishnu Swaroop Reddy, PAN No. ACWPN3597, who was....
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....lopment Agreement Joint Development Agreement means a registered agreement in which a person owning land or building agrees to allow another person to develop a real estate project on such land or building, in consideration of a share in such project, whether with or without payment of part of the consideration in cash or by a cheque or draft or by any other mode. • Meaning of Competent Authority Competent authority means the authority empowered to approve the building plan by or under any law for the time being in force. • Calculation of Capital Gains The capital gains shall be computed in the following manner: Particulars Amount Full value of consideration xxx Less: Cost of acquisition / Indexed cost of acquisition xxx Cost of improvement / indexed cost of improvement xxx Expenditure in connection with the transfer xxx Less: Exemption under Section 54 to Section 54GB xxx Short term / long term capital gains xxx • How to calculate the full value of consideration? In JDA, the land-owner may get monetary or non-monetary consideration fr....
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....lier. • Who is the deductee? The tax shall be deducted if the payment is made to resident individual or HUF. Rate of TDS The tax shall be deducted at the flat rate of 10%. The tax shall be deducted at 20% if Section 206AA or Section 206AB apply. MCQs on Joint Development Agreements (JDA) Q1. If an individual or HUF enters into a joint development agreement (JDA) with a builder or joint developer, it shall be deemed that the capital asset is transferred during the year in which the ___________. (a) certificate of occupancy of the project is issued by the competent authority (b) certificate of completion for the whole or part of the project is issued by the competent authority (c) possession of the asset is transferred to the buyer (d) Sale deed is executed in favour of the buyer. Correct answer: (b) Explanation: If an individual or HUF enters into a joint development agreement (JDA) with a builder or joint developer, it shall be deemed that the capital asset is transferred during the year in which the certificate of completion for the whole or part of the project is issued by th....
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....nt HUF (c) Both (a) and (b) (d) Any assessee Correct answer: (c) Explanation: Any person responsible for paying any sum by way of consideration under a Joint Development Agreement shall deduct tax therefrom. The tax shall be deducted if the payment is made to a resident individual or HUF. Q6. Tax under section 194-IC is deducted at the rate of ________. (a) 5% (b) 10% (c) 1% (d) 20% Correct answer: (b) Immovable property. 11. From the reading of the above, it is abundantly clear that the assessee can opt for monetary consideration and receive the consideration in the shape of share in the sale of project. In the light of the above, though, the clarification and the MCQ(supra) had been issued subsequently, however, the circular and the MCQ are in the same line of reasoning as given by the co-ordinate Bench and therefore, the order passed by the ld.CIT(A) with respect to treating the income received by the assessee as long term capital gain is permissible and was in accordance with law. Accordingly, we dismiss the grounds of the Revenue on this aspect. 12. Grounds with respect to section 5....