N. Kumar, J. :
The Revenue has preferred these appeals against the common order passed by the Tribunal, Bangalore, which has held that the income derived by these two assesses is to be assessed as income from short-term capital gains and not as an income from adventure.
2. The land, which is the subject-matter of these proceedings, originally belonged to M/s. GE Power Controls India (P) Ltd. They entered into a contract of sale under an agreement dt. 31st Dec., 1999 with six persons. On 20th March, 2000, a supplementary agreement was executed under which the consideration for sale of the property viz., Rs. 9.46 crores was to be paid. But the assessees were included as two new purchasers by way of a supplementary agreement. Again on 10th Aug., 2000, one more supplementary agreement came to be executed incorporating few new clauses, but retaining the same sale consideration. On 20th March, 2000, M/s. Intel Technologies India Ltd., a Multinational Company made enquiries of the assessees in their capacity as Managing Directors of the M/s. Prestige Group of Companies seeking office space either on lease or ownership basis. In fact, they had made similar enquiries with the other well known builders of Bangalore. In its letter, M/s. Intel Technologies India Ltd. had set out its requirements and also indicated the broad terms on which it was prepared to enter into an agreement and specifically sought for offers from these builders. The enquiry letter was preceded by informal talks between the top personnel of the company and top representatives of many of the builders including M/s.Prestige Group of Companies and that letter was only a formalization and what has been discussed earlier. On 30th Nov., 2000, with the consent of original eight purchasers, M/s. GE Power Controls India (P) Ltd., entered into a direct agreement for sale of the same property with M/s. Intel for a consideration of Rs. 13.50 crores, where the eight original purchasers were the confirming parties. As the confirming parties had already paid a sum of Rs. 9.56 crores to M/s. GE Power Controls India (P) Ltd., being the amount payable as per the agreement, the entire sale consideration of Rs. 13.50 crores was paid by M/s. Intel to these eight confirming parties. On the same day, there was yet another agreement between M/s. Prestige Estates & Projects Ltd., on the one hand and M/s.Intel Technology India (P) Ltd., on the other, titled as "Design and Construction Services Agreement", under which M/s.Prestige was to provide services for carrying out the design and construction of and with reference to the proposed structure for M/s. Intel on the property situated on the Airport Road. On 4th May, 2001, a deed of conveyance was executed by M/s. GE Power Controls India (P) Ltd. in favour of M/s. Intel with the above eight confirming parties. Now, the matter relates to the proportionate surplus received by the assessees in the surplus paid by M/s. Intel over and above what was payable/paid to M/s. GE Power Controls India (P) Ltd.
3. The assessees filed their return of income claiming the said proportionate surplus received by them as short-term capital gains and paid tax thereon. However, the assessing authority was of the view that the said amount represents an adventure in the nature of trade and therefore, it has to be taxed as "business" under s. 28 of the IT Act (hereinafter referred to as 'the Act' for short). Aggrieved by the said order, the assessees preferred an appeal before the CIT(A), who affirmed the order of the assessing authority, against which the assessees preferred an appeal to the Tribunal, Bangalore.
4. The Tribunal held, nowhere the authorities below had tried to bring out a situation when the assessees' action and intention could be termed as "adventure in the nature of trade" insofar as the very effort of buying and selling has been established by the assessee to render income so generated as short-term capital gains. The property belonged to six owners and these two assessees also became the owners and in view of the fact that M/s. GE Power Controls India (P) Ltd. having delivered vacant possession to them had received full consideration from eight members. Therefore, if the AO was to consider it as adventure in the nature of trade, he could have only done it in the hands of the AOP, being the eight members, which has not been done. On the contrary, the said six members have been taxed on the consideration as short-term capital gains, but the AO declined to treat the same in the hands of the assessees. The intention to carry on the business was never there in view of the assessees being already engaged in the business of development of properties being a real estate developer. The onus lies on the Department to prove the sole intention with which the property was purchased was to carry on the business and therefore, they were of the view that it is not an adventure but a capital gain. However, the income has to be assessed as income from short term capital gains, but the year in which the assessees finally parted with the possession has to be considered. Therefore, the matter was restored to the file of the AO to verify on the basis of the documentary evidence to bring to tax the short term capital gains in the appropriate assessment year. On such event, the AO has held that the capital gains arose during the asst. yr. 2002-03 and therefore, the income originally assessed as having arisen in the asst. yr. 2001-02 was deleted and the assessment order under s. 143(3) of the Act passed earlier was modified. The said order has become final. It is against the said order, the Revenue has preferred these appeals.
5. These appeals were admitted on 9th July, 2009 and 6th July, 2009 respectively to consider the following substantial question of law :
"Whether the Tribunal was correct in holding that the income earned by the assessee on the sale of property at Airport Road should be brought to tax under the head "capital gains" and not under the head "business income" as held by the AO and confirmed by the Appellate CIT based on cogent evidence "
6. The learned counsel for the Revenue assailing the impugned order contended that the assessees have not shown their investments in their returns. They did not enter into an agreement to purchase the property with an intention of retaining the property for themselves or putting up any constructions thereon. Even before they were added as parties to the agreement in the capacity of Directors of M/s.Prestige Group of Companies, they had talks with the owner of the property. Subsequently, after sale, M/s. Prestige Group of companies entered into an agreement to develop the property. Under these circumstances, the finding recorded by the Tribunal that the surplus income received by the assessees by sale of the property constitutes short term capital gains and not an income arising out of adventure/business, is erroneous.
7. Per contra, learned counsel appearing for the assessees supported the impugned order.
8. From the aforesaid facts and the rival contentions, it is clear that the assessees entered into an agreement to purchase the property from its owners. Thereafter, the very same property, the possession of which was taken by them along with others after paying the entire sale consideration to the owner, was sold to M/s. Intel directly by the owner of the property with these eight persons as consenting witnesses. The entire sale consideration was received by these eight members from M/s. Intel as they had paid the entire sale consideration agreed upon and payable to the owner of the property. Except this solitary transaction, no other transactions are brought before the authority to show that the assessees are in the business of selling properties. The Department has accepted the income in the hands of the other six owners as capital gains. It is only when it comes to the case of assessees as Directors of M/s. Prestige Group of Companies and that they are in the business of developing properties, the assessees' case of short-term capital gains is not acceptable.
9. In the light of the facts and circumstances of the case, we are satisfied that the transaction in question being a solitary transaction entered into by the assessees and in the absence of any material to show that they were in the same business and they have entered into such agreement and that they have sold such properties, it is not possible to accept the contention of the Revenue that the transaction in question is in the nature of trade or adventure and therefore, the said contention is rejected.
10. In that view of the matter, we do not see any infirmity in the order passed by the Appellate Tribunal. The substantial question of law is answered in favour of the assessee and against the Revenue. Accordingly, these appeals are dismissed.