Ita/810/2008 Of The Commissioner Of Income Tax v. Mr.irfan Razack Director Of

- 1 - IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THR 18 DAY OF AUGUST, 2014| PRESENT THE HON’BLE MR.JUSTICEK N.KUMAR ANT) THER HON’BLE MRS..JUSTICEK RATHNAKA INCOME TAX APPEAL NO.810/2008|C/WINCOME TAX APPEAL NO.809/2008 BETWEEN: 1.|THE COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, C.R. BUILDING, QUEENS ROAD, BANGALORE. oD THE ASST. COMMISSIONER OF INCOME-TAX,CENTRAL CIRCLE -1(1), C.R. BUILDING,CENTRAL CIRCLE -1(1), C.R. BUILDING, QUEENS ROAD, BANGALORE. _ APPBLLANTS|(COMMON IN ALL APPEALS)| (BY SRI K.V.ARAVIND, ADV.) ANT) MR. IRFAN RAZACK DIRBCTOR OFM/S. PRESTIGE ESTATE PROJECTS PVT. LTD.,NO.303, COPPER ARCH,|NO.83, INFANTRY ROAD,BANGALORE. _ RESPONDENT(COMMON IN ALL APPEALS) (BY SRI ASHOK A.KULKARNI, ADV. FOR M/S.K.R.PRASAD, ADVS.) THESK INCOMB TAX APPBALS ARE FILED UNDER|SECTION 260-A OF IT. ACT, 1961 ARISING OUT OF ORDERDATED 28-03-2008 PASSED IN ITA NOS.718/BNG/2006 AND |719/BNG/2006 RESPECTIVELY FOR THE ASSESSMENT YEAR2001-2002, PRAYING THAT THIS HON BLE COURT MAY BEPLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN,STATED THEREIN, IT.ALLOW THR APPBEAL AND SET ASIDK THR ORDERPASSED BY THE INCOME TAX APPELLATE TRIBUNAL,|BANGALORE,INITA|NOS.718/BNG/2006|AND719/BNG/2006, DATED 28-03-2008 RESEPECTIVELY,|CONFIRMTHEORDERSOF.THEAPPBRLLATECOMMISSIONBR AND CONFIRM THR ORDER PASSED BY|THE ASSISTANT COMMISSIONER OF INCOME TAX,CENTRAL CIRCLE-1(1), BANGALORE IN THE INTEREST|OF JUSTICE AND EQUITY.PASSED BY THE INCOME TAX APPELLATE TRIBUNAL,|BANGALORE,INITA|NOS.718/BNG/2006|AND719/BNG/2006, DATED 28-03-2008 RESEPECTIVELY,|CONFIRMTHEORDERSOF.THEAPPBRLLATECOMMISSIONBR AND CONFIRM THR ORDER PASSED BY|THE ASSISTANT COMMISSIONER OF INCOME TAX,CENTRAL CIRCLE-1(1), BANGALORE IN THE INTEREST|OF JUSTICE AND EQUITY. THESE APPEALS COMING ON FOR HEARING THIS DAY,|N. KUMAR * DELIVERED THE FOLLOWING: JU DBiGMENT The Revenue has preferred these appeals againstthe common order passed by the Income Tax Appellate Tribunal, Bangalore, which has held that the incomederived by these two assesses is to be assessed asincome from short term capital gains and not as anincome from adventure. | 2. The land, which is the subject matter of theseproceedings, originally belonged to M/s.GE PowerControls India Pvt.Ltd. They entered into a contract ofsale under an agreement dated 31.12.1999 with sixpersons. On 20.33.2000, a supplementary agreementwas executed under which the consideration for sale otthe property viz., Rs.9.46 crores was to be paid. But theassessees were included as two new purchasers by wayof a supplementary agreement. Again on 10.8.2000,.one more supplementary agreement came to beexecuted incorporating few new clauses, but retainingthe same sale consideration. On 20.3.2000, M/s.IntelTechnologies India Limited, a Multinational Companymade enquiries of the assessees in their capacity asManaging Directors of the M/s.Prestige Group ofCompanies seeking office space either on lease orownership basis. In _ fact, they had made similarenquiries with the other well known builders ofBangalore. In its letter, M/s.Intel Technologies India Limited had set out its requirements and also indicatedthe broad terms on which it was prepared to enter intoan agreement and specifically sought for offers from.these builders. The enquiry letter was preceded byinformal talks between the top personnel of theCompany and top representatives of many of thebuilders including M/s.Prestige Group of Companiesand that letter was only a formalization and what has_been discussed earlier. On 30.11.2000, with the.consent of original eight purchasers, M/s.GE PowerControls India Pvt.Ltd., entered into a direct agreementfor sale of the same property with M/s.Intel for aconsideration of Rs.13.50 crores, where the eightoriginal purchasers were the confirming parties. As theconfirming parties had already paid a sum of Rs.9.560crores to M/s.GE Power Controls India Pvt.Ltd., beingthe amount payable as per the agreement, the entiresale consideration of Rs.13.50 crores was paid byM/s.Intel to these eight confirming parties. On the same day, there was yet another agreement betweenM/s.Prestige Estates & Projects Limited, on the onehand and M/s.Intel Technology India Pvt.Ltd., on theother, titled as “Design and Construction ServicesAgreement’, under which M/s.Prestige was to provideservices for carrying out the design and construction ofand with reference to the proposed structure forM/s.Intel on the property situated on the Airport Road. —On 4.5.2001, a deed of conveyance was executed byM/s.GE Power Controls India Pvt.Ltd. in favour ofM/s.Intel with the above eight confirming parties. Now,the matter relates to the proportionate surplus receivedby the assessees in the surplus paid by M/s.Intel overand above what was payable/paid to M/s.GE PowerControls India Pvt.Ltd. 3. The assessees filed their return of incomeclaiming the said proportionate surplus received bythem as short term capital gains and paid tax thereon. — However, the Assessing Authority was of the view that.the said amount represents an adventure in the natureof trade and therefore, it has to be taxed as “business”under Section 28 of the Income Tax Act (hereinaiterreferred to as ‘the Act’ for short). Aggrieved by the saidorder, the assessees preferred an appeal before theCommissioner of Income Tax (Appeals), who affirmedthe order of the Assessing Authority, against which theassessees preferred an appeal to the Income TaxAppellate Tribunal, Bangalore. 4. The Tribunal held, nowhere the authoritiesbelow had tried to bring out a situation when theassessees’ action and intention could be termed as!“adventure in the nature of trade” insofar as the veryeffort of buying and selling has been established by theassessee to render income so generated as short termcapital gains. The property belonged to six owners andthese two assessees also became the owners and in view of the fact that M/s.GE Power Controls India Pvt.Ltd.having delivered vacant possession to them had receivedfull consideration from eight members. Therefore, if theAssessing Officer was to consider it as adventure in thenature of trade, he could have only done it in the hands—of the AOP, being the eight members, which has notbeen done. On the contrary, the said six members havebeen taxed on the consideration as short term capitalgains, but the Assessing Officer declined to treat thesame in the hands of the assessees. The intention to'/carry on the business was never there in view of theassessees being already engaged in the business ofdevelopment of properties being a real estate developer. —The onus lies on the Department to prove the soleintention with which the property was purchased was to.carry on the business and therefore, they were of theview that it is not an adventure but a capital gain. —However, the income has to be assessed as income from|short term capital gains, but the year in which the assessees finally parted with the possession has to beconsidered. Therefore, the matter was restored to thefile of the Assessing Officer to verify on the basis of thedocumentary evidence to bring to tax the short termcapital gains in the appropriate assessment year. On.such event, the Assessing Officer has held that thecapital gains arose during the assessment year 2002-03and therefore, the income originally assessed as havingarisen in the assessment year 2001-02 was deleted andthe assessment order under Section 143(3) of the Act.passed earlier was modified. The said order has becomefinal. It is against the said order, the Revenue haspreferred these appeals. | Oo. These appeals were admitted on 9.7.2009 and6.7.2009.respectivelyCO consider.the|followingsubstantial question of law: “Whether the Tribunal was correct in holding|that the income earned by the assessee on|the sale ofproperty at Airport Road should be| brought to tax under the head “capital gains’|and not under the head “business income” as|held by the Assessing Officer and confirmed|by the Appellate Commissioner based on|cogent evidencer” 6. The learned Counsel for the Revenue assailingthe impugned order contended that the assessees havenot shown their investments in their returns. They didnot enter into an agreement to purchase the propertywith an intention of retaining the property forthemselves or putting up any constructions thereon. —Even before they were added as parties to the agreementin the capacity of Directors of M/s.Prestige Group ofCompanies, they had talks with the owner of theproperty. Subsequently, after sale, M/s.Prestige Groupof Companies entered into an agreement to develop the property. Under these circumstances, the findingrecorded by the Tribunal that the surplus incomereceived by the assessees by sale of the property constitutes short term capital gains and not an incomearising out of adventure /business, is erroneous. 7. Per contra, learned Counsel appearing for theassessees supported the impugned order. 8 Krom the aforesaid facts and the rivalcontentions, it is clear that, the assessees entered intoan agreement to purchase the property from its owners. —Thereafter, the very same property, the possession ofwhich was taken by them along with others aiter payingthe entire sale consideration to the owner, was sold to)M/s.Intel directly by the owner of the property withthese eight persons as consenting witnesses. The entiresale consideration was received by these eight members.from M/s.Intel as they had paid the entire saleconsideration agreed upon and payable to the owner ofthe property. Except this solitary transaction, no othertransactions are brought before the authority to showthat the assessees are in the business of selling properties. The Department has accepted the income inthe hands of the other six owners as capital gains. It isonly when it comes to the case of assessees as Directorsof M/s.Prestige Group of Companies and that they arein the business of developing properties, the assessees’case of short term capital gains is not acceptable. 9. In the light of the facts and circumstances ofthe case, we are satisfied that the transaction in)question being a solitary transaction entered into by theassessees and in the absence of any material to showthat they were in the same business and they haveentered into such agreement and that they have soldsuch properties, it is not possible to accept thecontention of the Revenue that the transaction in/question is in the nature of trade or adventure andtherefore, the said contention is rejected. 10. In that view of the matter, we do not see anyinfirmity in the order passed by the Appellate Tribunal. — �./�42@49319<3:�F2/49<>1�>7�:3C�<4�314C/6/8�<1�730>26�>7� 9./�344/44//�318�3;3<149�9./��/0/12/����� �==>68<1;:A��9./4/�355/3:4�36/�8<4?<44/8�� ���(!� ������������ ������ ����� ������