Itxa/524/2012 Of The Commissioner Of Income Tax -16 v. Rajesh G. Kapadia Huf

*1* IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.524 OF 2012 Commissioner of Income Tax-16..Appellant-Versus-Rajesh G. Kapadia HUF..Respondent ........... Mr. A. R. Malhotra with N. A. Kazi for the Appellant.Mr. P. J. Pardiwalla, Senior Counsel, with Mr. Balasaheb Yewale i/b. Rajesh Shah & Co. for the Respondent. ........... CORAM: S.C. DHARMADHIKARIAND A. K. MENON, JJ. DATE :- 18[th] SEPTEMBER, 2014 P.C.: 1]This Appeal challenges the order passed by the Income Tax Appellate Tribunal on 16[th] September, 2011 in Income Tax Appeal No.3242/Mum/2010. The assessment year in question is 2005-06. 2]The Appeal was filed by the Assessee challenging the order of the Commissioner of Income Tax. 3]The Commissioner exercised his power under section 263 of the Income Tax Act, as he was the opinion that the assessment order in the case of the Assessee passed under section 143(3) of the Income Tax Act, 1961 is erroneous and prejudicial to the interest of the Revenue inasmuch 1/4 as the same fails to note the true effect of the agreement dated 6[th] January, 1998. The Assessing Officer, according to the Commissioner had completely misread and misinterpreted the agreement and of the nature arrived at between the Assessee and one M/s. Floreat Investments Ltd. M/s. Floreat Investments Limited had acquired certain rights in an immovable property at Gamdevi, Mumbai from the owners. That was being developed and the Assessee agreed to acquire 10% beneficial interest and title in the property. However, according to the Commissioner, this was nothing but a joint venture or development and construction activity jointly undertaken. This is not a investment but an adventure in the nature of trade. The inherent risks in development of the property which was occupied by structures and tenants, would show that the Assessee shared the risk and was involved in the joint development. In such circumstances, the Commissioner concluded that the order needs to be set aside. 4]Against such a finding of the Commissioner, this Assessee approached the Tribunal and the Tribunal allowed the Appeal. 5]Mr. Malhotra, learned counsel, appearing for the Revenue submits that the substantial question of law and as framed in the memo of Appeal arises for determination and consideration in this matter. He submits that the Tribunal's findings cannot be sustained in law. This was a clear case where the construction activity was jointly undertaken and in terms of the agreement. Mr. Malhotra has taken us through the order of the Assessing Officer and the findings of the Commissioner in that regard. 6]On the other hand, Mr. Pardiwalla, learned Senior Counsel, submits that this Appeal does not raise any substantial question of law. The Tribunal has understood the agreement and rightly as nothing but an investment in a ongoing project. Neither the development or construction was at any time taken over by the Assessee either partly or jointly nor was the Assessee in the business of development of immovable properties. The Assessee had made the investment and was to be compensated for the same by way of grant of 10% of right, title and interest in the property. The property was tenanted and was developed in phases. Mr. Pardiwalla submits that in the case of Assessee's daughter Brinda and who was also a party to the agreement with M/s. Floreat Investments Ltd., the department accepted her stand that the income derived was liable to be taxed under the head “capital gains”. Therefore, now, a different stand cannot be adopted and in relation to the same agreement. For all these reasons, he submits that the Appeal be dismissed. 7]We have perused with the assistance of Mr. Malhotra and Mr. Pardiwalla both orders. We have found from the record that the Tribunal had before it the agreement and the facts pertaining to the other two 3/4 14.itxa524.12 7]We have perused with the assistance of Mr. Malhotra and Mr. Pardiwalla both orders. We have found from the record that the Tribunal had before it the agreement and the facts pertaining to the other two 3/4 14.itxa524.12 persons whose shares were demarcated under the said agreement itself. The Tribunal found that after the property was developed in phases and the Assessee was partly compensated by giving the share assured under the agreement, later on, the Assessee decided to terminate the agreement and give up all the right, title and interest which vested in him in respect of the property. That was in lieu of payment of a sum of Rs.3 crores and built up area of 2200 sq. ft. approximately comprising of two flats. The Tribunal has rightly understood this not as a joint venture or a development activity jointly undertaken but a pure investment in the project and for which the returns were assured in the form of 10% . The Assessee shared the costs to the extent indicated but as held by the Tribunal, this cannot in any manner be termed as an association with the project and particularly as a joint venture. In such circumstances and for the reasons set out in paragraph 5, 12 and 13 of the order of the Tribunal, we are of the opinion that pure findings of fact and which are consistent with the materials placed on record, do not raise any substantial question of law. The Appeal is, therefore, devoid of any merits and accordingly it is dismissed. No costs. (A. K. MENON, J.) (S.C. DHARMADHIKARI, J.)