Sai Pragathi Estates & Constructions Private Limited Vs ITO (ITAT Hyderabad)
ITAT Hyderabad Holds Developer Not an “Agent” of NRI u/s 163; Capital Gains on Developer’s Share Cannot Be Taxed in Its Hands
The Hyderabad Bench of the ITAT allowed the assessee’s appeal for AY 2009-10 and deleted the addition made by treating the developer company as an “agent” of an NRI u/s 163(1)(c). The Tribunal held that the Assessing Officer was not justified in invoking the representative assessee provisions in respect of sale of Unit Nos. 602 and 602A, which were exclusively from the developer’s share under the development agreement.
On facts, the Tribunal noted that under the registered development and supplemental agreements, the constructed area was to be shared 50:50 between the developer and the land-owning partnership firm. The sale deeds dated 05.03.2009 themselves clearly recorded that Units 602 and 602A fell to the share of the developer, that the sale consideration was paid directly to the developer, and that the transactions were duly accounted for in the developer’s books and return of income (supported by Schedule-IV and sale deed recitals). Hence, there was no income received by or through the developer on behalf of the NRI partner.
Interpreting section 163(1)(c), the ITAT held that a person can be treated as an agent of a non-resident only if the non-resident is in receipt of income directly or indirectly through such person. In the present case, the development agreement was with the partnership firm (not the NRI individually), and any income of the NRI—if at all—would arise through the firm, not through the developer. The mere fact that one of the partners of the land-owning firm was an NRI did not establish a business connection or income flow through the developer. Consequently, the statutory conditions of section 163 were not satisfied.
Accordingly, the Tribunal held that the representative assessee assessment was unsustainable in law and on facts, deleted the addition, and allowed the appeal.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
