Royalty received by Developer would constitute Business Income: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Chennai bench has held that the receipt of royalty by the real estate developer was rightly declared as business income under the provisions of the Income Tax Act, 1961.

Before the Tribunal, the assessee, PVP Ventures Ltd., contended that the only challenge is deletion of treatment of royalty of Rs.2 lakhs as business income as against treatment given by AO as ‘income from other sources’.

The bench comprising ITAT Vice-President Mr. Mahavir Singh and Accountant member Manoj Kumar Agarwal noted that the assessee is already in the business of real estate through its subsidiary and also has taken over a merged entity Buckingham Real Estate and Asset Developers.

Relying on a catena of decisions, the Tribunal observed that “The assessee found that there is substantial scope in residential housing segment and thereby identified a chunk of land available under the above said company, thereby it had started the process of acquiring and with the approval of Hon’ble High Court, the entity called Buckingham Real Estate and Asset Developers was merged with the assessee. This brought into a new line of business in real estate and company got merged vide order dated May 2006 as proposed in January, 2006. We noted from the facts that this company after merging with Buckingham Real Estate and Asset Developers is in synergy with its real estate holding control directly or indirectly through its subsidiaries. By this process, the assessee company has initiated steps for development of real estate project on the land parcel of 70 acres.”

While dismissing the appeal filed by the Revenue, the Tribunal concluded that “In the present case before us, from the facts noted above we are of the view that the non-compete fee has rightly been declared by assessee as business income u/s.28(iv) of the Act and declared as income chargeable in profits & gains of business or profession. Similarly, royalty also held by CIT(A) as business receipt is as per the facts of the case and stated position of law because the assessee is engaged in the business. Hence, we find no infirmity in the order of CIT(A) and the same is confirmed. The appeal of the Revenue is dismissed.”

To Read the full text of the Order CLICK HERE

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