Commissioner of Income-tax-VI v. Zebian Real Estate Pvt. Ltd
[Citation -2015-LL-1105-13]

Citation 2015-LL-1105-13
Appellant Name Commissioner of Income-tax-VI
Respondent Name Zebian Real Estate Pvt. Ltd.
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 05/11/2015
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags deduction of tax at source • development rights • proportionate disallowance • purchase of land • service charge
Bot Summary: One of the issues that arose even in the case of Finian Estates Developer Ltd. was the nature of the payments made to VEEPL and whether it is a fee for services rendered which required deduction of tax at source. In its order dated 5th October 2011, the ITAT examined the nature of the MoU between Finian and VEEPL with particular reference to the clauses therein and concluded that Finian was transacting with VEEPL on a principal to principal basis and that it could not be said that the payment to ITA Nos. The payment of 2 of the sale amount to VEEPL as consideration for transferring VEEPL s rights in the land was in terms of Clause 3.2 of the MoU and it had not been shown that such payment was not a fair compensation. Learned counsel for the Revenue has been unable to show any difference in the actual clauses of the MoU between ZREPL and VEEPL when compared to the MoU between Finian and VEEPL. In the circumstances, the Court is unable to appreciate on what basis it could be said that the arrangement between ZREPL and VEEPL was not on a principal to principal basis. The AO in the assessment order did make a reference to the figure of purchase of lands having been inflated by the Assessee by a sum of Rs.4,20,15,681 being the amount paid to VEEPL. This was disallowed since according to the AO any payment whatsoever made to VEEPL would accrue only when 27 acres of land would be acquired. There is no averment that the clauses of the MoU entered into between Finian and VEEPL are different from the MoU between PBDPL and VEEPL. There is ITA Nos. Having considered at length the submissions of learned counsel for the Revenue, the pleadings and the documents not only in the case of PBDPL but also in the case of Finian, the Court is unable to find any distinction between the two cases as far as the clauses in the MoU between the parties and VEEPL or the payment made to the latter pursuant thereto.


$ * IN HIGH COURT OF DELHI AT NEW DELHI 1. + ITA 257/2015 COMMISSIONER OF INCOME TAX-VI ..... Appellant Through: Mr. Rohit Madan, Senior Standing counsel. versus ZEBIAN REAL ESTATE PVT.LTD. ..... Respondent Through: Ms. Kavita Jha and Ms. Mehak Gupta, Advocates. AND 2. + ITA 270/2015 PR. CIT-7 ..... Appellant Through: Mr. N. P. Sahni, Senior Standing counsel. versus PENTHEA BUILDERS AND DEVELOPERS PVT. LTD. ..... Respondent Through: Ms. Kavita Jha and Ms. Mehak Gupta, Advocates. CORAM: JUSTICE S. MURALIDHAR JUSTICE VIBHU BAKHRU ORDER % 05.11.2015 1. Both these appeals arise in background of similar facts and are ITA Nos. 257 of 2015 & 270 of 2015 Page 1 of 10 accordingly being disposed of by present common order. 2. ITA No. 257 of 2015 is directed against order dated 12 th April 2013 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 1429/Del/2011 for Assessment Year ( AY ) 2007-08. That order is common to two appeals before ITAT - one appeal was by Zebian Real Estate Pvt. Ltd. ( ZREPL ) (in respect of which appeal has been filed by Revenue in this Court) and other by Zanobi Builders & Constructions Pvt. Ltd. ( ZBCPL ). As noticed by this Court in its order dated 20 th October 2015, no appeal has been filed by Revenue as regards order of ITAT in case of ZBCPL. In fact in present appeal by Revenue i.e. ITA No. 257 of 2015 there was mistake as regards name of Respondent and that was permitted to be corrected by order dated 31st August 2015. net result is that although impugned order dated 12th April 2013 of ITAT is common to two appeals of Assessees both of which were allowed by ITAT, Revenue has filed appeal only in respect of one of Assessees i.e. ZREPL. 3. In ITA No. 257 of 2015, question sought to be urged by Revenue is whether ITAT has erred in holding that ZREPL was not required to ITA Nos. 257 of 2015 & 270 of 2015 Page 2 of 10 deduct tax at source under Section 194H of Income Tax Act, 1961 ( Act ) with regard to payment made by it to Vikram Electric Equipment Pvt. Ltd. ( VEEPL ) and in deleting proportionate disallowance of amount ordered by Assessing Officer ( AO ), as confirmed by Commissioner of Income Tax (Appeals) [ CIT (A) ], under Section 40(a)(ia) of Act. 4. ITA No. 270 of 2015 is directed against order dated 17 th October 2014 passed by ITAT in ITA No.1951/Del/2011 for AY 2007-08. question sought to be urged by Revenue in this appeal also concerns payment by Assessee Penthea Builders & Developers Pvt. Ltd. ( PBDPL ) to same VEEPL. case of Revenue is that said payment was not allowable under Section 40(a)(ia) of Act and that in any event there should have been deduction of tax at source while making said payment under Section 194H of Act. 5. common feature in both orders of ITAT i.e. order dated 12th April 2013 in ITA No.1429/Del/2011 (Zebian Real Estate Pvt. Ltd. v. CIT) and order dated 17th October 2014 in ITA No.1951/Del/2011 (Penthea Builders & Developers Pvt. Ltd. v. CIT) is that ITAT has while allowing ITA Nos. 257 of 2015 & 270 of 2015 Page 3 of 10 appeals of Assessees relied upon its earlier order dated 5th October 2011 in ITA No. 2361/Del/2011 ITO v. Finian Estates Developers P. Ltd. [2012] 23 taxmann.com 360 (Delhi - Trib.). 6. At outset it requires to be noticed that against aforementioned order of ITAT in ITO v. Finian Estates Developers P. Ltd. although Revenue did file appeal in this Court being ITA No. 234 of 2012, Revenue did not urge question in that appeal regarding payment made to VEEPL. said appeal ITA No. 234 of 2012 filed by Revenue was dismissed by this Court on 26th August 2015 in terms of Court s decision dated 15th July 2015 in ITA No. 627 of 2012 and ITA No. 507 of 2013 (CIT v. DLF Commercial Project Corporation). As result, decision of ITAT in ITO v. Finian Estates Developers P. Ltd., including its decision on payment to VEEPL attained finality. 7. Nevertheless, attempt by Revenue in both these appeals is to show that facts of present cases are different from facts in ITO v. Finian Estates Developers P. Ltd. and, therefore, notwithstanding fact that decision of ITAT in ITO v. Finian Estates Developers P. Ltd. has attained finality, Court should nevertheless entertain these appeals. ITA Nos. 257 of 2015 & 270 of 2015 Page 4 of 10 8. In order to examine above contention, Court has perused orders of AO, CIT (A) as well as ITAT in case of ITO v. Finian Estates Developers P. Ltd. Further Court has also been shown notes submitted before AO by Assessee in assessment proceedings in that case. Court has also examined Memorandum of Understanding ( MoU ) entered into between Finian Estates Developers (P). Ltd. and VEEPL as well as MoUs entered into separately between ZREPL and PBDPL with VEEPL. 9. It may briefly be noted that both ZREPL and PBDPL are in business of acquiring and developing land. They entered into separate development agreements with M/s. DLF Commercial Projects Corporation Ltd. ( DLF ), described as Developer for purchase of land in Gurgaon. understanding was that ZREPL and PBDPL would acquire ownership of land and also obtain licenses from Director, Town & Country Planning, Chandigarh for developing land. Subsequently, they were to sell development rights to DLF for consideration. ZREPL and PBDPL in turn appointed VEEPL as Consolidator to acquire land. They entered into separate MoUs with VEEPL for that purpose. understanding was that ITA Nos. 257 of 2015 & 270 of 2015 Page 5 of 10 payments by way of commission would be made to VEEPL only after it was able to acquire at least 27 acres of land. 10. One of issues that arose even in case of Finian Estates Developer (P) Ltd. ( Finian ) was nature of payments made to VEEPL and whether it is fee for services rendered which required deduction of tax at source. That question was decided against Finian both by AO and CIT (A). appeal by Finian before ITAT on said aspect being ITA No. 1953/Del/2011 came to be allowed in its favour by order dated 5th October 2011 of ITAT. precise question in appeal by Finian was whether CIT (A) had erred in upholding order of AO disallowing sum of Rs.1,24,33,326 paid by Finian to VEEPL for transfer of rights under Section 40(a)(ia) of Act. corresponding question was whether Finian was required to deduct TDS from that sum under Section 149H of Act. 11. In its order dated 5th October 2011, ITAT examined nature of MoU between Finian and VEEPL with particular reference to clauses therein and concluded that Finian was transacting with VEEPL on principal to principal basis and that it could not be said that payment to ITA Nos. 257 of 2015 & 270 of 2015 Page 6 of 10 VEEPL was for rendering services. Consequently, it was held that Section 194H of Act was not at all applicable . ITAT noted that in terms of Clause 3.2 of MoU no sum was due to be paid to VEEPL for services rendered by it till it procured 27 acres of land. amount paid to VEEPL was duly reflected by Finian in its purchases and closing stock and no sales had been made during year in question. payment of 2% of sale amount to VEEPL as consideration for transferring VEEPL s rights in land was in terms of Clause 3.2 of MoU and it had not been shown that such payment was not fair compensation. 12. As already noticed hereinbefore, no appeal was filed by Revenue in this Court against decision of ITAT on above aspect in case of Finian. 13. Turning to ITA No. 257 of 2015 filed by Revenue in case of ZREPL one of pleas urged is that although Consolidator VEEPL was same in both cases, terms and conditions in MoU with acquirer were different. It is submitted that while in case of Finian Consolidator invested its own funds for purchasing land for acquirer in present case of ZREPL acquirer paid from its own ITA Nos. 257 of 2015 & 270 of 2015 Page 7 of 10 funds. However, learned counsel for Revenue has been unable to show any difference in actual clauses of MoU between ZREPL and VEEPL when compared to MoU between Finian and VEEPL. In circumstances, Court is unable to appreciate on what basis it could be said that arrangement between ZREPL and VEEPL was not on principal to principal basis. With Revenue having accepted decision of ITAT in case of ITO v. Finian Estates Developers P. Ltd., and with there being nothing to distinguish it in relation to case of ZREPL, Court is not inclined to interfere with impugned order of ITAT which, in opinion of Court, has rightly relied upon its earlier decision in case of Finian. 14. Turning to ITA No. 270 of 2015 being Revenue s appeal in case of PBDPL, earnest effort was made by Mr. N.P. Sahni, learned Senior Standing counsel for Revenue, to show that in assessment proceedings before AO payment to VEEPL was not one of issues considered. However from written note of submissions by Assessee before AO during assessment proceedings, it is seen that specific submission was made on payment to VEEPL. It was urged by Assessee that said payment was for transfer of right in land ITA Nos. 257 of 2015 & 270 of 2015 Page 8 of 10 purchased by it and did not attract TDS. It was further urged that Assessee company has not taken any such type of service from M/s. Vikram Electric Equipment Pvt. Ltd. which is covered under provision of Section 40(a) (ia) of Act. AO in assessment order did make reference to figure of purchase of lands having been inflated by Assessee by sum of Rs.4,20,15,681 being amount paid to VEEPL. This was disallowed since according to AO any payment whatsoever made to VEEPL would accrue only when 27 acres of land would be acquired. AO correspondingly reduced value of closing stock by said sum. When matter travelled to CIT (A) by way of PBDPL s appeal, there was extensive discussion in order of CIT (A) with regard to payment made to VEEPL which was corrected as Rs.1,24,33,326. It was held that this amount is related to payment of service charge for effecting consolidation of land and is revenue expense to (be) separately debited to Profit & Loss account. CIT (A)) upheld order of AO. 15. In appeal filed by Revenue before this Court, there is no averment that ITAT erred in relying on its own decision in Finian. There is no averment that clauses of MoU entered into between Finian and VEEPL are different from MoU between PBDPL and VEEPL. There is ITA Nos. 257 of 2015 & 270 of 2015 Page 9 of 10 no plea that earlier decision of ITAT in Finian is in any manner distinguishable in relation to facts of PBDPL. 16. Having considered at length submissions of learned counsel for Revenue, pleadings and documents not only in case of PBDPL but also in case of Finian, Court is unable to find any distinction between two cases as far as clauses in MoU between parties and VEEPL or payment made to latter pursuant thereto. Again, with Revenue having accepted decision of ITAT in case of Finian, and with Revenue being unable to bring out any distinguishing feature as far as case of PBDPL, Court sees no reason why it should interfere with impugned order of ITAT. 17. Consequently, no substantial question of law arises in either appeal. appeals are dismissed. S. MURALIDHAR, J VIBHU BAKHRU, J NOVEMBER 05, 2015/dn ITA Nos. 257 of 2015 & 270 of 2015 Page 10 of 10 Commissioner of Income-tax-VI v. Zebian Real Estate Pvt. Ltd
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