TaxTMI 
TaxTMI 
TaxTMI 
2024 (5) TMI 1111
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....d 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)(NFAC) erred in not appreciating that participation in revenue sharing model ....
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....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 Thus, the agreement dated 21.08.2008 was superseded by the agreement dated 17.03.2011.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 exemption u/s. 54F does not arise and this transaction is an adventure in nature of trade and business only....
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..... 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 Village, Anekal Taluq, Bangalore District for a consideration of Rs. 16 lakhs 2 01.02.2007 Vide BBMP order, the said land was converted for nonagricultural purpo....
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....r 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 the assessee has been made solely and exclusively with the intention to resell, raises a strong presumption that the transaction is an adventure in nature of trade. 7. To bring out the surrounding facts and circumstances, wh....
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....uring 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 coming to the conclusion." [Emphasis supplied] 10. The essential indica or elements of trade as referred to in the order of the Hon'ble High have been defined in the Report of the Royal Commission on the Taxation of Profits and Income. (Pg. 109 to Pg. 110 of the material paper book) 11. The report identi....
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....ictionary 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 exposure to the same risks of uncertainty in pricing and salability as the developer. 16. The department submits that the risk borne by the assessee is amplified by the fact that he is sharing proceeds from sale of 1244 flats. Sale of each flat among the 1244 flats will bear its own risk of price fluctuations and salability. (Flats at common pool listed at Pg. 132 of the materi....
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....tention 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'ble Supreme Court in case of Narain Swadeshi Weaving Mills vs. Commissioner of Excess Profits Tax (Pg. 133 to Pg. 141 of the material paper book), a single isolated transaction outside the assessee's line of business may constitute adventure in nature of trade. Hence, Ld. CIT(A)'s observation that the income in question cannot be business income, for lack of repetition or continuity, is erroneous. 3. The department submits that the intention of the assessee to sell th....
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....galore 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 present in the case of the assessee, may kindly be considered while deciding the appeal." 8. The ld.DR was asked by the Tribunal to file the details of proceedings and outcome in respect of other assessee / land owners, who are also similarly situated as the assessee before us. In response thereto, the ld.DR had filed the following details, vide pages 1 and 2 of the paper book. Sl. No Name PAN Jurisdictional Assessing Officer AY 2013-14 AY 2014-15 AY 2015-16 Assessing Officer CIT(A) Assessing Officer CIT(A) Assessing Officer ....
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..... 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 revenue is aggrieved by the decision of Ld CIT(A) in holding that the amounts received by the assessee is assessable as long term capital gains. Hence we confine ourselves with the said issue alone. We notice that the Ld CIT(A) has dealt with this issue as under:- 9.5 Adventure in the nature of trade/capital gain? 9.5.1 The A.O. for treating the same as adventure in the nature of trade has sold 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." ....
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....e 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 necessitating taxing the said capital gains spread over several years. There is no other fact/argument put forth by the AO. Therefore, there is no force in the argument of the AO that the transaction is in the nature of adventure/trade. Accordingly, I am of the view that the transfer of the property shall be treated as a long term capital gain. 9.5.5.... 9.5.6....... 9.5.7 The appellant has also submitted that under the similar circumstances the department has treated the transaction to be that of capital gains in the hands of all the co-owners those who have taken super built up space and also those who have opted for proportionate % of sale proceeds except in his case. The appellant also referred to the orders passed in the cases of his mother Mrs. Sulochanamma and brother Sri Vishnu Swaroop Reddy....
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....der 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 with regard to the fact that the land was held by the assessee as "capital asset" only. Hence the transfer of land would give rise to capital gains only as per the provisions of the Act. 18. It so happened that the consideration for transfer of land was so fixed that the assessee would be receiving 2.64% of the sale consideration of flats that are going to be constructed. Hence the assessee would be receiving amounts as and when the flats are sold. As rightly observed by Ld CIT(A), the receipt of consideration over a period on sale of a capital asset does not change the true nature of transactions from capital gains to business. Irrespective of timing of receipt of sale consideration, the transfer of a capital asset would give rise to capital gains only. Hence we are of the view that the Ld CIT(A) was justified in holding that the....
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....me 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 at Badaraguppe Village, Anekal Taluk, Bangalore Dist. The solitary issue in the present appeal is justification of AO to treat the arrangement of appellant with M/s. SPL for development of his landed property into residential apartments under JDA to be "adventure in nature of trade" / "Business income" and consequently denying the claim of appellant u/s. 54F from Net LTCG shown. 7.4 Business arrangement of appellant with M/s. SPL a) Appellant originally entered into a JDA with M/s. SPL on 21.08.2008 to develop 21 acres and 1.5 gunthas of land into residential apartments and villas. Later it was modified and a fresh agreement was entered on 17.03.2011 to develop land owned by appellant and other coowners into residential apartments / flats. Developer will pay 2.40% of receipts on sale on property to appellant as per Revenue sharing arrangement in exchange for land....
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....g/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 assessable in Hyderabad, wherein he has decided the issue in favour of the assessee. In the case of Vishnu Swaroop Reddy (supra), capital gain was worked out by the assessee for A.Y. 2013-14 at Rs. 1,68,93,484/-. Against the said order, no appeal was preferred by the Revenue before the Tribunal. 10.3. Similarly, in other cases, the details of which are mentioned hereinabove in the submissions of ld.DR, the Department had accepted that the assessee in those cases was entitled for long term capital gain. In our view, the department is supposed to take coherent, consistent and uniform stand against all the assessees, who are similarly situated and whose rights are emanating from the very same agreement. In our view, the department cannot take the contrary view, which has been taken in a group of assessees to the determinant to the assessee before us. The law abhor uncertainty and selective approach against any individual. 10.4. In ....
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....ow to calculate the full value of consideration? In JDA, the land-owner may get monetary or non-monetary consideration from the developer for contributing his land to the project. Monetary consideration can be a share in the sale consideration of the project, and non-monetary consideration means a specified share in the developed estate. In this case, the aggregate of money consideration received by the owner of immovable property and the stamp duty value of the property in respect of the owner's share in the developed project on the date of issuing of the certificate of completion by the competent authority shall be deemed to be the full value of the consideration received or receivable by the owner as a result of the transfer of such immovable property. Meaning of Stamp Duty Value Stamp Duty Value means the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of immovable property, being land or building or both. * Cost of Acquisition For the computation of the capital gains from the joint development agreement, the cost of acquisition and indexed cost of acquisition of the land or bui....
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....l Value of Consideration in Joint Development Agreement includes- (a)monetary consideration (b)Non-monetary consideration (c) Both (a) and (b) (d)None of the above Correct answer: (c) Explanation: In JDA, the land-owner may get monetary or non- monetary consideration from the developer for contributing his land to the project. Monetary consideration can be a share in the sale consideration of the project, and non-monetary consideration means a specified share in the developed estate. Q3. Full Value of Consideration in Joint Development Agreement with respect to non-monetary consideration means (a)Fair Market value of the owner's share in the developed project (b)Stamp Duty Value of the owner's share in the developed project on the date of issue of completion certificate (c) Stamp Duty Value of the owner's share in the developed project on the date of possession of such share (d)None of the above Correct answer: (b) Explanation: In the case of JDA, the aggregate of money consideration received by the owner of immovable property and the stamp duty value of the property in respect of the owner's share in the developed project on the date of i....
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.... 0044 in Syndicate Bank, BTM Layout, Bangalore. This reinvestment was utilized to acquire a new residential property which shows the real intention behind this transaction. This shows that there was no intention of appellant to pursue business in real estate. b) Appellant has rightly treated the earnings as LTCG over a period of 4 FY's and was entitled to deduction u/s. 54F of Act." However, no finding of fact was given with respect to entitlement of the assessee for section 54F and the ld.CIT(A) had mentioned that "the benefit of section 54F be extended to the appellant". 13. The Assessing Officer, while examining the case of the assessee has not decided on the entitlement of the assessee under section 54F of the Act, as the Assessing Officer has considered the income received by the assessee as business income. In fact, the ld.CIT(A) had also not examined the entitlement of the assessee after concluding that the income received by the assessee was long term capital gain. We find the ld.CIT(A) in a cryptic and non-speaking order has held that the assessee is entitled to the benefit of section 54F. In our view, since the issue has not been decided by the lower authorities in ....