9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (5) TMI 1542 - AT - Income TaxRevision u/s 263 by CIT - payments received by the Assessee under the Development Agreement nature of Capital Gains Income or as business income HELD THAT - We note that the Tribunal had after examining the terms of the Development Agreement returned factual finding that the Assessee did not enter into a joint venture with the Developer for construction and sale of the constructed area and that the relationship between the Assessee and the Developer was on principal to principal basis. AO had after due enquiry accepted the income returned by the assessee under the head Capital Gains as the returned income was accepted as the assessed income of the Assessee for the Assessment Year 2013-14. Similarly in the for the Assessment Year 2014-15 the payments received by the Assessee from the Developer under the Development Agreement were offered to tax as Capital Gains and the same accepted by the Assessing Officer vide Assessment Order dated 18/11/2016. For the Assessment Year 2015-16 vide assessment order dated 27/12/2017 capital gains income offered to tax by the Assessee was accepted by the Assessing Officer. Vide order 2023 (5) TMI 1442 - ITAT MUMBAI the aforesaid assessment order passed for the Assessment Year 2015-16 was upheld as the Tribunal quashed the revisional order passed by under Section 263 of the Act holding inter alia that the assessment order was not erroneous.
The core legal questions considered by the Tribunal in this appeal pertain to the characterization of income received by the Assessee under a Development Agreement with a Developer, specifically:
1. Whether the payments received by the Assessee under the Development Agreement are taxable as Long Term Capital Gains or as business income under the head 'Profits and Gains of Business or Profession'; 2. Whether reliance placed by the CIT(A) on a prior Tribunal decision quashing a revision order under Section 263 of the Income Tax Act, 1961 (the Act) for a preceding assessment year was appropriate, especially given that the Revenue had filed a further appeal against that decision; 3. Whether penalty proceedings under Section 270A of the Act, which were deleted by the CIT(A), should be restored if the Revenue's appeal on the characterization issue is upheld; 4. Whether the Assessing Officer's order for the relevant assessment year was erroneous and prejudicial to the Revenue's interest, thereby justifying revision under Section 263 of the Act. Issue-wise Detailed Analysis: 1. Characterization of Income: Capital Gains vs. Business Income Legal Framework and Precedents: The legal question revolves around the nature of income arising from transfer of development rights under a Development Agreement. The relevant provisions include Section 45 (chargeability of capital gains), Section 50D (valuation where consideration is not ascertainable), and Section 263 (revision of erroneous orders). The principle of consistency in tax treatment across assessment years, though res judicata does not strictly apply in income tax proceedings, is also relevant, as recognized in Supreme Court decisions such as Distributors Baroda (P) Ltd. vs. Union of India and Radhasoami Satsang vs. CIT. Court's Interpretation and Reasoning: The Tribunal examined the terms of the Development Agreement dated 21/09/2010, which granted the Developer exclusive rights to develop the land owned by the Assessee and sell constructed residential units, with the Assessee entitled to 50% of the gross sales revenue. The Developer bore all costs and risks of development, including obtaining statutory approvals, construction expenses, and liabilities for delay damages. The Assessee retained ownership and possession of the land until handover to buyers, and the relationship was expressly stated to be principal-to-principal, excluding any partnership or joint venture. The Tribunal found that the arrangement did not constitute a joint development agreement but was a contract for transfer of development rights, with the Assessee's income arising from the transfer of a capital asset. The Developer's sole risk and financial obligation negated the Revenue's contention that the Assessee was engaged in a business adventure or trade. Key Evidence and Findings: The Development Agreement clauses were pivotal, including:
Additionally, the Assessee had offered INR 16,76,92,000 as capital gains income for AY 2013-14 based on the fair market value under Section 50D, which was accepted by the Assessing Officer after scrutiny. Similar treatment was accepted for AYs 2014-15 and 2015-16. Application of Law to Facts: The Tribunal applied the principle that the mode of consideration and payment structure alone cannot convert a capital asset transfer into business income. The absence of risk and financial liability on the Assessee's part, combined with the contractual provisions, established the nature of income as capital gains. The prior acceptance of capital gains treatment in earlier assessment years reinforced the consistency principle. Treatment of Competing Arguments: The Revenue argued that the Development Agreement was a joint development agreement implying business income, pointing to profit sharing and the Developer's obligation to convey title to purchasers. The Tribunal rejected this, emphasizing the Developer's exclusive risk and cost bearing and the express contractual exclusion of joint venture or partnership. The Revenue's reliance on the fact that the Developer sold constructed units including land value was held insufficient to characterize the income as business income for the Assessee. Conclusion: Payments received by the Assessee under the Development Agreement for AY 2017-18 are capital gains income, not business income. 2. Reliance on Prior Tribunal Decision Quashing Revision Order under Section 263 Legal Framework and Precedents: Section 263 allows revision by Commissioner where an order is erroneous and prejudicial to Revenue's interest. The Tribunal's prior decision for AY 2015-16 quashed a revision order passed under Section 263, holding the assessment order was not erroneous. The Revenue challenged this decision by filing an appeal before the Bombay High Court, which was pending. Court's Interpretation and Reasoning: The Tribunal held that the prior decision was binding for the current appeal because the facts and circumstances remained unchanged. The Tribunal acknowledged that res judicata does not strictly apply in income tax proceedings, but the principle of consistency in tax treatment where facts remain the same must be respected. The Revenue's contention that the prior decision was not binding due to the pending High Court appeal was rejected, as the Tribunal's findings were the latest authoritative pronouncement on the facts. Key Evidence and Findings: The identical Development Agreement and similar factual matrix between AY 2015-16 and AY 2017-18 were central. The prior Tribunal order's detailed factual and legal analysis was reproduced and relied upon. Application of Law to Facts: The Tribunal applied the principle that where no change in facts or law occurs, the tax treatment should remain consistent. The prior Tribunal decision was therefore followed to maintain uniformity and avoid contradictory assessments. Treatment of Competing Arguments: The Revenue argued that the prior decision related only to revision under Section 263 and was not binding on the characterization of income for the current year. The Tribunal rejected this, emphasizing the factual identity and the principle of consistency. Conclusion: Reliance on the prior Tribunal decision quashing the revision order under Section 263 for AY 2015-16 was appropriate and binding for AY 2017-18. 3. Penalty Proceedings under Section 270A Legal Framework and Precedents: Penalty under Section 270A can be levied for under-reporting or misreporting of income. The CIT(A) had deleted penalty proceedings for the relevant year. Court's Interpretation and Reasoning: Since the Tribunal upheld the CIT(A)'s order on the characterization issue in favour of the Assessee, the penalty deletion was sustained. The Revenue's ground to restore penalty was contingent on overturning the characterization of income, which did not succeed. Conclusion: Penalty proceedings deleted by CIT(A) were not restored. 4. Whether the Assessment Order was Erroneous and Prejudicial to Revenue's Interest Legal Framework and Precedents: Section 263 requires that the order under revision must be erroneous and prejudicial to Revenue's interest. Court's Interpretation and Reasoning: The Tribunal found that the Assessing Officer had conducted due enquiry, considered the Development Agreement, and accepted the capital gains income offered by the Assessee after scrutiny for AY 2013-14, 2014-15, and 2015-16. No material was brought to show that those assessments were disturbed or erroneous. The order for AY 2017-18 was consistent with prior years. The Revenue failed to demonstrate any error or prejudice in the assessment order. Conclusion: The conditions for invoking revision jurisdiction under Section 263 were not satisfied. Significant Holdings: "The relationship between the Assessee and the Developer was strictly on principal to principal basis. The Development Agreement did not constitute a joint Development Agreement. While the Assessee was being compensated by way of share of the Gross Revenue received from sale of constructed area, the cost of development of the housing project and the associated risks was born by the Developer." "The mode of computation of consideration and the manner of payment cannot be taken as the sole criteria for determining the character of the payments received by the Assessee from the Developer in terms of the Development Agreement." "The Assessee had offered income of INR. 16,76,92,000/- as Capital Gains Income arising in terms of the Development Agreement for the first time in the return of income for the Assessment Year 2013-14... The Assessing Officer had, after due enquiry, accepted the income returned by the Assessee under the head 'Capital Gains' as the returned income was accepted as the assessed income." "Where there is no change in the facts and circumstances from the preceding assessment year, the Rule of Consistency cannot be ignored." "The sine qua non for exercising revision jurisdiction under Section 263 of the Act is, the order of Assessing Officer should be erroneous and prejudicial to the interest of revenue. Both the conditions have to be satisfied simultaneously. In the instant case, the Revenue has failed to show that the assessment order is erroneous." "The entire risk and liability to bear the damages is that of the developer. Possession and the ownership of the land shall continue to be with the assessee/owner till the time possession of the completed residential units is handed over to the respective buyers of the flats." "The payments received by the Assessee from the Developer during the Assessment Year 2017-18 were in the nature of Capital Gains Income." Final determinations on each issue:
|
