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S. Malla Reddy, Hyderabad Versus Income-tax Officer, Ward – 8 (3) , Hyderabad

2016 (8) TMI 418 - ITAT HYDERABAD

Long Term Capital Gain arising out of the transfer of "goodwill" - Held that:- The assessee has entered into development agreement with M/s Krishna Reddy Constructions to develop the land under their families disposal. In that process, they agreed to receive developmental goodwill of ₹ 65 lakhs, out of which ₹ 10 lakhs were received during previous AY and balance ₹ 55 lakhs during the current AY 2009-10. The main issue before us is, whether these receipts of ₹ 55 lakhs ar .....

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posite assets linked to development of land. Hence, it cannot be separated. - In this case, assessee had received the goodwill and handed over the land for development. The payment of goodwill is prior condition for handing over of land for development. This being the case, the expression goodwill is nothing but part performance towards development of land. It has to be part and parcel of the purchase consideration accepted for the whole project. Till the project is complete, the payment wi .....

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scussion, in our considered view, the goodwill receipt is only an advance and can be chargeable to tax as part of total sale consideration, when the ownership get transferred. Hence, addition made by the AO is deleted. - As regards the addition towards income from other sources AR has not argued during the appeal proceedings on this addition and, therefore, this ground is dismissed as not pressed. - ITA No. 1293/Hyd/2013 - Dated:- 29-6-2016 - SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. .....

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n assuming ₹ 32,50,000/- as Long Term Capital Gain arising out of the transfer of "goodwill". 3) The learned CIT (A) in confirming the action of the Assessing Officer in assuming the receipts of ₹ 3,12,000/- as income under the head "other sources". 2. Briefly the facts of the case are that the Assessee is a HUF and notice u/s 148 of the Act was issued on 04/03/2011. In response, assessee filed return of income for the AY 2009-10 on 02/04/2011 admitting total rent .....

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e along with his brother had sold the property jointly. The assessing officer found that as per the MOU executed on 09.01.2008 the assessee and his brother had received a total amount of ₹ 65 lakhs as goodwill. He held that the assessee had received goodwill and not advance. Accordingly, he assessed the goodwill 50% in the hands of the assessee and the balance in the hands of the assessee's brother during the year. However, the assessing officer admitted that out of the assessee's .....

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d the important portions of the written submissions filed by the assessee in his order at pages 3 to 5 of his order. 5. After considering the submissions of the assessee, the CIT(A) discussed the issue at length and examined the same with various case laws and confirmed the addition to the extent of ₹ 27,50,000/-, the amount of which was received during the current year, by observing as under: 5.12 Applying all the aforementioned legal cannons and decisions to the case of the assessee, I f .....

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ly of goods. Interestingly, both the MOUs referred to the advance as being "Non-refundable" .This word negates the very meaning of the word "advance". This implies that whatever has been paid or received is nonnegotiable and final. In other words, the amount paid by the builder has also accrued to the assessee. 5.13 It is very clear from the above that the word "advance" appears in the agreements only for the purpose of getting out of the liability to pay taxes on t .....

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has rightly brought to tax as capital gains. However, the assessee has received only ₹ 27,50,000/- during the current year. Therefore, only this amount is to be brought to tax during the year since the amounts received were non-refundable and accrued to the assessee at the time of payment. These grounds of appeal are decided in favour of revenue. 6. Before us, the ld. AR submitted that the assessee Shri S. Malla Reddy along with Shri Pochi Reddy, who are the absolute owners of the land adm .....

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le amount of ₹ 1.20 crores) with the payment schedule of ₹ 10 lakhs to be paid at the time of signing MoU i.e. on 09/01/2008 and balance shall be paid at the time of commencement of the work. He, however, emphasized that the above agreement is unregistered. 6.1 The ld. AR further submitted that assessee entered into supplemental MoU with Shri S. Pandu Ranga Reddy and Shri K. Krishna Reddy on 21/07/08. As per the agreement, it was agreed between the parties that the second party will .....

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ailam Reddy 2. Smt. Sekursa Premalatha Reddy, W/o Sri S. Malla Reddy 3. Sri Sekursa Pradeep Reddy, s/o Sri S. Malla Reddy 4. Smt. Vangate Divya Reddy, W/o Sri V. Bala Krishna Reddy 5. Sri Sekursa Pochi Reddy, S/o Late Sri S. Srisailam Reddy 6. Smt. Sekursa Vedhavathi Reddy, W/o Sri S. Pochi Reddy 7. Kum. Sekursa Vivitha Reddy, D/o Srri S. Pochi Reddy 8. Master Sekursa Vivek Reddy, (Minor), D/o. Sri S. Pochi Reddy. 9. Kum. Sekursa Vinitha Reddy (Minor), D/o Sri S. Pochi Reddy The first party Nos. .....

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the earlier two unregistered agreements the developers were Shri S. Pandu Ranga Reddy and Shri K. Krishna Reddy, whereas, in the registered document/agreement, developers were different i.e. M/s K. Krishna Reddy Contractors. Moreover, the agreed goodwill also reduced to ₹ 65 lakhs. As per the registered agreement, contractors has paid cash on 09/01/08 ₹ 10 lakhs and the balance of ₹ 55 lakhs paid during the year 2008-09. He vehemently argued that goodwill is part and parcel of .....

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nt. He further relied on the orders of revenue authorities. 8. In the rejoinder, the ld. AR of the assessee brought to our notice that property of the assessee was handed over for development during 2010-11. In fact, the land was handed over for development only after signing the registered document on 15/12/2010. ( refer page 15 of the paper book). 9. We have considered the rival submission and perused the material facts on record as well as the orders of revenue authorities. The assessee has e .....

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