Hemadri Associates vs CIT

IA No. 1/2012 in ITA No. 858 of 2008, IA No. 1/2012 in ITA No. 846 of 2008 and IA No. 1/2012 in ITA No. 840 of 2008 for bringing legal representatives of the deceased respondents in each of these appeals, are ordered and the appellants are permitted to amend the cause title accordingly. Sri A Shankar is permitted to file power for the newly added respondents within two weeks from today in the registry. ITA No. 102 of 2010 u/s 260A of the Income Tax Act, 1961 [for short, the Act] is directed against the order dated 30-10-2009 passed by the income tax appellate Tribunal, A Bench, Bangalore in ITA No. 450/Bang/2009 for the assessment year 2003-04 and has its origin in protective assessment orders passed by the assessing officer in respect of the income of the assessee treated as association of persons [AoP].

The stand of the assessee was that the income should be necessarily assessed only in the capacity of AoP and not in the hands of individual members constituting the association; that if this should have been the basis, the assessment order if at all assessed in the hands of the individual members should have been protective assessment orders etc.

On the other hand, the stand of the revenue was that the income had been assessed in the hands of the individual members constituting the AoP and by recourse to the provisions of Chapter XIV-B of the Act, as an assessment for the block period, due to the reason that the assessment was a sequel to search of the premises of the assessee conducted on 7-6-2002, which resulted in detection of considerable amount of undisclosed income of the assessee [individual members].

While the assessee (AoP) had preferred appeal to the appellate Commissioner on certain issues relating to the extent of taxability of the income even in the hands of AoP and there being no success for the assessee [AoP] before the first appellate authority, matter had been carried to income tax appellate Tribunal, the result being the same, as the appeal was dismissed, the assessee [AoP] has pursued the matter before this court by way of the present appeal.

The assessing officer, had passed the assessment order in the hands of the AoP only as a protective assessment order, but had passed substantial assessment orders in the case of 14 individual members who constituted the AoP and by having recourse to Chapter Xiv-B of the Act.

Some of these 14 individual assessment orders had been appealed against by the assessees and there being mixed success for the assessees before the first appellate authority, the assessees had pursued the matter by way of further appeals to the Tribunal and the revenue had also preferred appeals in some cases viz., ITA Nos. 858, 859, 847, 848, 850, 849, 846, 845, 844 and 840 of 2008.

The Tribunal by a common order dated 31-3-2010 while allowed the appeals preferred by the assessees, had dismissed the appeals preferred by the revenue. It is against this common order, the revenue has come up with appeals relating to individual assessees who had initially carried the matter and met with partial success.

While all these appeals have been listed for admission and could be examined on the questions raised as indicated in the memoranda of appeal, M.V. Seshachala, learned senior standing counsel for the revenue and A Shankar, learned counsel for the assessee, submit that the tax liability relating to income for the period 2003-04, whether assessed as one unit in the hands of the AoP or income of the individual members of the AoP, there is not much difference in the two and it is submitted on behalf of the assessee that if the assessment order which was treated as protective assessment passed in respect of AoP is to be treated as substantial assessment order and tax liability thereon is to be affirmed, the individual assessees are relieved of the assessment orders passed in their names and if the revenue is ready to give credit to the amount of tax which the individual assessees had paid pursuant to the assessment orders passed in their hands whether for the block period in respect of some of the assessees and for others as regular assessment orders, and should be adjusted against the tax liability of the AoP as assessed under the protective assessment order, the assessee will be content with that and will not press the appeal in so far as it relates to other relief sought for in the appeals.

On behalf of the revenue, MV Seshachala also submits that the revenue will not be very keen on pressing its appeals to be examined on merit of the assessee wants assessment in the hands of AoP to be treated as substantial assessment orders and that to be finalized and confirmed, as held by the Tribunal and in such event, appeals preferred by the revenue can be disposed of noticing this development.

A memo is placed before the court on behalf of the assessee, reading as under :

MEMO

The Appellant Association of Persons (APO) instituted an appeal in ITA No. 102/2010 arising out of the order of the Tribunal in ITA No. 450/Bang/2009 dated 30-10-2009.

The revenue is also in appeal in batch of connected matters in ITA No. 858/2008, 859/2008, 847/2008, 848/2008, 850/2008, 849/2008, 846/2008, 845/2008, 844/2008 and 840/2008.

The core issue in these appeals are whether the Capital gains is to be taxed in individual hands or as association of persons (AOP).

The Tribunal has held that the same is liable to be assessed as association of persons (AoP) and not individually.

The Appellant has also raised other substantial questions i.e., year of taxability, extent of income etc., in the Memorandum of income tax appeal.

In order to put an end to the entire litigation the appellants submits that the income in hands of the association of persons (AoP) may be upheld with the payment of taxes paid by the individuals be given credit in the assessment of the association of persons (AoP). Similarly the appeals filed by the revenue in individual hands be dismissed and the income be confirmed in the hands of association of persons (AoP).

The appellant please as stated herein above in the interest of justice and equity.

And another memo is placed by the appellant-revenue, reading as under :

Memo Filed by Appellant

M/s. Hemadri Associates, Bangalore was formed by 14 persons with the following share holders:

M/s. Hemadri Associates acquired a lease hold right for 44 years w.e.f. 14-7-1986 in respect of property at No. 74 to 78, GT Road, Bangalore. On 25-2-2002 M/s. Hemadri Associates entered into a sublease development agreement for Rs. 65,40,000. On search it was found that there was memorandum of understanding between the lessee and sub-lessee dated 25-2-2002 subleased the very same property at Rs. 165 lakhs.

The department proceeded to pass Block Assessment orders in the hands of each of the individual members of the AoP by bringing their respective share to tax. The department also passed a regular assessment order for the assessment year 2003-04 in the hands of the AoP M/s. Hemadri Associates in respect of the entire lease hold amount of Rs. 1,65,00,000.

The ITAT in their order bearing IT(SS)A. Nos. 40 to 46/B/2007 and 317, 356, 318, 357, 13, 14/ B/2007 DD dt. 31-3-2008 has been held that the entire amount of sublease Rs. 1,65,00,000 should be brought to tax in the hands of association of persons Hemadri Associates. The revenue has challenged this order in ITA Nos. 840, 844 to 850/2008, 858 & 859/2008.

The ITAT in ITA No. 450/Bang/2009 DD dt. 30-10-2009 has proceeded to hold that the entire amount of sublease Rs. 1,65,00,000 should be brought to tax in the hands of Hemadri Associates. The assessee has challenged this order in ITA No. 102/2010.

It is respectfully submitted that if the entire amount of sublease of Rs. 1,65,00,000 is brought to tax in the hands of Hemadri Associates as AoP for the assessment year 2003-04 as confirmed by the Tribunal in both the order on substantive basis, the appeals filed by the revenue will not survive for consideration.

In the wake of the submissions made by the learned counsel for the revenue and the assessee and the memos placed before the court, all these appeals are disposed of in terms of the memos filed by both sides and recording the same.