You are on page 1of 7

1. M/s. Mysore Premier Investment Company Ltd.

vs Department of Income Tax


(2013) &
2. The Commissioner of Income Tax vs M/s. Mysore Premier Investment Company
Ltd. (2014)

Facts of the case & background of the company

The concise facts of the case are that the assessee is a 'company'. It had not filed its
'return' for the impugned assessment year at the first instance. In the assessee's board,
it had a director by the name Shri. MB. Nagakumar, having a proprietary concern
namely 'M/s. Premier Properties'.
On 14th August, 2002, the assessee had entered into a Memorandum of
Understanding (MOU) with the said director and his concern to sell its property
situated at Diwans Road, Mysore for 2 crores by way of joint venture development
agreement. As per the same, the assessee was entitled to exercise its option by which
it could take cash amount or developed built up area in lieu thereof. There is no
dispute that the assessee had opted for cash consideration. It had shown the same as
'profit on sale/transfer of land' in its profit and loss account. Its balance sheet treated
the transaction as 'sundry debtors' of 2 crores.
The assessee company had been carrying on businees only in insurance.

Judgement

INTHEINCOMETAXAPPELLATETRIBUNAL
'B'BENCH:CHENNAI

[BEFOREDR.O.K.NARAYANAN,VICEPRESIDENTANDSHRIS.S.
GODARA,JUDICIALMEMBER]

I.T.A.No.1880/Mds/2012
Assessmentyear:20072008.

TheAssistantCommissionervsM/s.MysorePremierof
Income Tax, Investment Company Ltd,
Company Circle IV(3), No.2270/1, Chittaranjan
Chennai 600 034. Mahal, Vinoba Road,
JLPuram,Mysore570012.
[PANAAACM4346G]

(Appellant)(Respondent)

Appellantby:Dr.S.Moharana,CIT
Respondentby:Shri.T.Srinivasan,CA
DateofHearing:05062013
DateofPronouncement:11062013

ORDER

PER S.S. GODARA, JUDICIAL MEMBER This Revenue's appeal for assessment
year 2007-2008, arises from the order of Commissioner of Income (Appeals)-V,
Chennai dated 23.7.2012 in case No.CIT(A)-V/ITA No.506/2010-2011. In the present
case, the Assistant Commissioner of Income Tax, Company Circle-IV(3)(I/c),
Chennai had framed re-assessment vide order dated :- 2 -: I.T.A.No. 1880/Mds/2012.

31.12.2010 under section 143(3) read with section 147 of the 'Income Tax Act,' 1961
(in short the 'Act').

2. Concise facts of the case are that the assessee is a 'company'. It had not filed its
'return' for the impugned assessment year at the first instance. In the assessee's board,
it had a director by the name Shri. MB. Nagakumar, having a proprietary concern
namely 'M/s. Premier Properties'. On 14th August, 2002, the assessee had entered into
a Memorandum of Understanding (MOU) with the said director and his concern to
sell its property situated at Diwans Road, Mysore for 2 crores by way of joint venture
development agreement. As per the same, the assessee was entitled to exercise its
option by which it could take cash amount or developed built up area in lieu thereof.
There is no dispute that the assessee had opted for cash consideration. It had shown
the same as 'profit on sale/transfer of land' in its profit and loss account. Its balance
sheet treated the transaction as 'sundry debtors' of 2 crores.

3. Coming to the impugned assessment year, since no return had been filed, a notice
under section 148 of the 'Act' dated 6.10.2009 stood issued to the assessee after
getting required information about the aforesaid MOU. In response thereof, the
assessee filed its 'return' :- 3 -: I.T.A.No. 1880/Mds/2012.

on 30.12.2009 and declared taxable income of 1,12,11,366/- under the head 'capital
gains'. It also had other receipts from 'house property' and 'interest income'. The
assessee's return was 'summarily' processed.

4. In the course of 'scrutiny', the Assessing Officer was of the view that assessee
receipt of 2 crores (supra) was liable to be treated as 'business' income. He referred
the matter to the District Valuation Officer (DVO) for ascertaining its fair market
value. In explanation, the assessee pleaded before the Assessing Officer that it had
retained the property for more than five decades and thereafter only, the joint venture
agreement in question had been executed. In light thereof, it justified the treatment of
the amount of 2 crores aforesaid under the head 'capital gains'. We notice from the
assessment order that the assessee's explanation failed to convince the Assessing
Officer, who was of the opinion that development agreement by way of MOU (supra)
for construction of commercial/ residential apartments, even though by a single
transaction would cloath it as 'trading' activity. Therefore, he treated the receipt as
from 'business' and assessed total income as 1,83,97,372/-.

:- 4 -: I.T.A.No. 1880/Mds/2012.

5. Aggrieved, the assessee preferred appeal. It is noticed from the CIT(A)'s order that
he has agreed to assessee's contentions that the transaction did not involve any
element of adventurous trading in the instant case. He has also held that the assessee
is yet to part with possession of the property as on 31st March, 2007 and the
consideration is to be received. Apart from this, he has taken into consideration catena
of case laws and observed that the Assessing Officer could not have sought for DVO's
report qua fair market value of the property. We clarify that the assessment had been
finalised by the Assessing Officer without the DVO's report since limitation was
approaching. In this backdrop, the Revenue is aggrieved, and raises the followings
grounds:-

"01. The order of the learned CIT(A) is contrary to law and facts of the case.
02. The learned CIT(A) erred in treating the sale of land taxed under the head Capital
Gain against the head of Business Income assessed by A.O.
2.1 The learned CIT(A) failed to consider that as per Directors report it has been
mentioned that the Directors were keen in developing the land purchased at ECR
which had immense hope for development of Holiday Resorts and Amusement park.
2.2. It is submitted that the Directors report dated 31.3.2005 it was stated that the
company decided to develop farm house site partly and develop approved site for
Tourism activity in the company's vacant land and put for sale :- 5 -: I.T.A.No.
1880/Mds/2012.
which would wipe up off accumulated loss and bringing substantial profit to continue
the main project i.e its real estate activity.
In the facts of the present case the AOs decision was not based on the assertion that
purchase of the said land was for subsequent sale but that it was not a mere sale but
entering into a joint venture, offering the land as security for loan taken by the buyer
and waiting for a substantial period after the MOU for returns to be received.
2.3. In the above circumstances the CIT(A) ought to have upheld the action of the
Assessing Officer in assessing the sale purpose of the property under the business
income.
2.4 It is submitted that the order of ITAT relied upon by CIT(A) in the assessee's own
case had not become final as the appeal before High Court has been preferred by the
Department.
3. The ld.CIT(A) erred in holding that the reference to the DVO for determination of
FMV by the AO was invalid as the same is permissible by the provisions of section
55A(b)(ii) of the Income Tax Act.
4. For these and other grounds that may be adduced at the time of hearing, it is prayed
that the order of the learned CIT(A) may be set aside and that of the Assessing Officer
restored."

6. In the course of hearing, the Revenue is fair enough to submit that ground no.2.4
does not arise in the instance case. Thereafter, it reiterates the pleading in ground no. 2
to 2.3, & 3 and prays for acceptance of appeal.

:- 6 -: I.T.A.No. 1880/Mds/2012.

7. The assessee on the other hand places strong reliance on the findings contained in
CIT(A)'s order under challenge and prays for confirmation thereof.

8. We have heard rival contentions and perused the case file. Admittedly, the assessee
had retained the property in question for more than five decades. There is no material
filed by the Revenue to rebut the CIT(A)'s findings that the assessee is yet to part with
its possession and consideration has not been received as on 31.03.2007. In principle,
the contention of the Revenue is that the 'MOU' (supra) gives rise to 'business income'
instead of 'capital gains' as claimed by the assessee. In this background, we are of the
view that the present case involves a single transaction in question. There is no
evidence or any cogent material produced before us which could prove that the
property in question held by the assessee for more than five decades has ever been
converted into stock-in-trade. In this view of the matter, we are unable to accept the
contention of the Revenue. Further, in our opinion, in the absence of any evidence to
the contrary to prove that the 'MOU' in question is not proved as an instance of
adventurous trading, we hold that CIT (A) has rightly treated income :- 7 -: I.T.A.No.
1880/Mds/2012.

from the transaction in question under the head 'capital gains' instead of 'business'
income as done by the Assessing Officer.

9. In view of our above findings, ground no.3 raised by the Revenue only enjoy
academic significance. Therefore, it is not specifically adjudicated upon.

10. Consequently, the appeal is dismissed.

Order pronounced on Tuesday, the 11th of June, 2013, at Chennai.

Sd/Sd/
(DR.O.K.NARAYANAN)(S.S.GODARA)
VICEPRESIDENTJUDICIALMEMBER
Dated:11thJune,2013K.V

The matter was further presented in appeal before the Madras High Court.

INTHEHIGHCOURTOFJUDICATUREATMADRAS
Dated:16.04.2014

Coram

TheHonourableMrs.JusticeCHITRAVENKATARAMAN
and
TheHonourableMr.JusticeT.S.SIVAGNANAM

TaxCase(Appeal).No.66of2014

TheCommissionerofIncomeTaxChennai






...AppellantvsM/s.MysorePremierInvestmentCo.LtdNo.2270/1,
ChittaranjanMahal,VinobhaRoadJ.L.Puram,Mysore570012
...Respondent

Vs

M/s.MysorePremierInvestmentCo.Ltd
No.2270/1,Chittaranjan
Mahal,VinobhaRoad
J.L.Puram,Mysore570012 ...Respondent

TaxCaseAppealfiledunderSection260AoftheIncomeTaxAct,1961
againsttheorderoftheIncomeTaxAppellateTribunal,Madras'B'
Bench,dated11.06.2013inITA.No.1880/Mds/2012.

Forappellant : Mr.T.R.Senthilkumar,StandingCounsel
forIncomeTaxDepartment.

JUDGMENT
(Judgment of the Court was made by CHITRA VENKATARAMAN, J.) Following is
the question of law raised by the Revenue seeking admission of the Tax Case
(Appeal) filed for the assessment year 2007-08.

" Whether under the facts and in the circumstances of the case, the Income Tax
Appellate Tribunal was right in that the sum of Rs.2 crores received by the assessee
pursuant to the MOU entered into by it for joint development of its property is
assessable under the head income from capital gains and not income from business?"

2. The assessee herein, a company, entered into Memorandum of Understanding on


14.08.2002 for development of its property on joint venture. Pursuant to the
agreement, the assessee received a sum of Rs.2 crores, which was offered under the
head 'capital gains'. The Assessing Officer, however, stated that the said income was
income from business and profession.

3. The assessee filed appeal before the Commissioner of Income Tax (Appeals), who
concluded that the transaction was not in the nature of business, hence, the income
could not be assessed under the head "income from business". Thus, the
Commissioner of Income Tax (Appeals) agreed with the assessee's contention that the
income was to be assessed under the head "capital gains". Aggrieved by this, Revenue
went on appeal before the Income Tax Appellate Tribunal.

4. On an overall material consideration, the Income Tax Appellate Tribunal came to


the conclusion that there was no evidence or material produced by the Revenue that
the property in question held by the assessee for more than five decades was
converted into stock-in-trade. In the absence of any evidence to show that
Memorandum of Understanding in question was in the nature of trade, the Income
Tax Appellate Tribunal agreed with the view of the Commissioner of Income Tax
(Appeals) and treated the income as assessable under "capital gains" and not as
"business income". Aggrieved by such finding, the Revenue has preferred the present
Tax Case (Appeal) seeking admission on the above cited question of law.

5. Learned Standing Counsel appearing for the Revenue submitted that even though
the assessee had carried on business in insurance, yet, it had started its business in real
estate; consequently, the agreement in question was to be treated as business venture
resulting in business income.

6. We do not agree with the said submission of the Revenue. It is not denied by the
Revenue that the assessee was holding the property for more than five decades and
that it had been carrying on business only in insurance. The consistent case of the
assessee is that when it had entered into joint venture agreement, it had decided to
retain 19,300 sq.ft of developed area or a cash compensation of Rs.2 crores in lieu
there off. The assessee contended that the ownership of the property was never
transferred to the developer in absolute terms and never it was the intention to embark
or venture in the nature of trade in properties. The Assessing Officer rejected the
contention of the assessee without any material and adopted 30% tax treating the
income as income from "business" and not as "capital gains", which assessable at the
rate of 20%.

7. We find that the Assessing Officer, in so adopting this view had not spelt out any
material based on which such conclusion was reached. The Revenue does not dispute
the fact that the assessee was carrying on business only in insurance and in the year
under question, the income returned from business as negative. The fact that the
assessee had gone for a joint venture agreement for development of the property itself
would not lead to the inference that the joint venture was more in the nature of
business and that the assessee was engaged in property development. Leaving aside
the fact that the said venture as a solitary instance, as rightly pointed out by the
Income Tax Appellate Tribunal, the Revenue had not placed any material to show that
the property in question was to be treated as "business asset" or the assessee converted
it into stock-in-trade for the purpose of carrying business with it. In such
circumstances, we do not find any justifiable ground to admit the Tax Case (Appeal).
Accordingly, the same stands dismissed. No costs.

(C.V.,J)(T.S.S.,J)
16.04.2014

Index:Yes/No

Internet:Yes
nvsri

To

1.TheCommissionerofIncomeTaxChennai

2.TheCommissionerofIncomeTax(Appeals)VChennai34

3.TheIncomeTaxAppellateTribunal"B"Bench,Chennai.

CHITRAVENKATARAMAN,J.

and
T.S.SIVAGNANAM,J.

nvsri

TaxCase(Appeal).No.66of2014

16.04.2014

Analysis of the Case


The question of law which arose in the case was whether under the facts and
circumstances of the case, the Income Tax Appellate Tribunal was right in that the
sum of Rs. 2 Crores received by the assessee pursuant to the MoU entered into by it
for joint development of its property is assessable under the head income from capital
gains and not income from business ?
This was the main point of contention which gave rise to the present appeal first filed
before the Income Tax Appellate Tribunal and subsequently filed before the Madras
High Court.
On further analysis of the case it can be said that the contention of the assessee was
right in the sense that even though he received the sum of Rs 2 crores pursuant to the
MoU entered into by it and that the joint venture was undertaken to develop the
property only and not to convert it into stock-in-trade which was contended by the
revenue authority.
Another main point to be mentioned here is that since the assessee company dealt in
the business of insurance only, it cannot be said that the sum realised from the above
transaction be assessed under the income slab of Income from business but should
be assessed under the head of Income from capital gains because it cannot be
conclusively said that the above joint venture entered into by the assesse was more in
the nature of business and the assessee was actively engaged in the business of
property development.
Therefore it can be said that before categorising the income, the nature of business of
the assessee has to be looked into and whether the transactions entered into by the
assessee are in the normal course of business which includes any trading activity.

Recommendations (if any) and Group learning

We strongly affirm the judgement of Honble High Court of Madras.


The present case has enabled us to gain some valuable insight in the field of income
tax particularly income from business and income from capital gains.