Monday, September 23, 2013

Consideration received by an advocated in form of land to undertake patta and layout of properties is taxable as capital gains and not as professional receipts

Facts of the case:

A. The assessee, an practising advocate, entered into an agreement as per which he had to undertake the job of obtaining patta and design the layout of the properties and for the services rendered the owners agreed to transfer 3 plots of land to him;

B. In pursuance of the agreement, possession of the property was handed over to the assessee and General Power of Attorney was executed in his favour;

C. Sale agreement was executed in respect of three plots of land for a consideration of Rs. 1.5 crores out of which the assessee received a consideration of Rs. 90 lakh as ‘confirming party’.

D. The AO held that such receipt was to be assessed as income from professional services. On appeal, the CIT(A) reversed the order of AO and held that the receipt could only be taxed as capital gains. The Tribunal upheld the order of AO.

The High Court held as under:

1) The agreement entered between the assessee and the owners made no reference at all to the professional status of the assessee for taking his services. There was no mention about his being an Advocate and that his services were being taken only in that capacity;

2) The possession given of the entire 5 plots of land to the assessee was with the specific object of getting patta and layout of the property. The sale agreement made it very clear that the transfer of 3 plots of land to the assessee was intended by way of consideration for securing patta and layout and, as such, the original owners had entrusted the entire land to the assessee;

3) The assessee had rightly placed his reliance on section 2(47)(v) of the Income-tax Act, 1961, read with section 53A of the Transfer of Property Act, 1882, that the receipt would attract capital gains at his hands. There was nothing on record to show that the services to be rendered were taken in the capacity as a lawyer. Therefore, the Consideration received by an advocated in form of land to undertake patta and designing of layout of properties is taxable as capital gains and not as professional receipts  – CIT v. J. Mahalingam [2013] 37 taxmann.com 38

No comments: