Smt. Banaswadi Chinnappa Anitha Vs DCIT (ITAT Bangalore)
Partnership Firm Cannot Be Disregarded Merely Because Partners Withdrew Rental Receipts; JDA Capital Gains Taxable in Year of Transfer and Not on Completion of Construction
A group of related landowners entered into a registered Joint Development Agreement with M/s Shyamaraju & Company (India) Ltd. on 25-03-2005. Under the JDA, the owners became entitled to a specified super built-up area and proportionate undivided interest in the land.
Thereafter, the landowners and the developer constituted a partnership firm known as M/s Chennakeshava Techpark for constructing Block C1 in an SEZ. The landowners were collectively entitled to 4% share in the profits and losses of the firm, while the developer held the remaining 96%.
The firm was recognised by the Ministry of Commerce and Industry as a co-developer of the SEZ. Various statutory approvals, including power supply and electrical installation approvals, were also issued in the name of the firm. After completion, Block C1 was leased to various companies and rental receipts were directly credited to the firm’s bank account. The firm disclosed the rental income in its books and returns of income.
Following a search conducted on 23-06-2022, the Assessing Officer took the view that the firm was merely a colourable device. According to the AO, the landowners were the real owners of Block C1 since the rental receipts were ultimately withdrawn by them in proportions different from the profit-sharing ratio. The AO consequently assessed the rental income directly in the hands of the individual landowners.
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