Delhi High Court
Cit vs Malibu Estate (P) Ltd. on 2 August, 2006
Equivalent citations: (2006)205CTR(DEL)134, [2008]298ITR72(DELHI)
ORDER
By The Court The revenue is aggrieved by an order dated 28-11-2003 passed by the Tribunal, Delhi Bench ‘G’ in ITA Nos. 991 and 992/Del/2000 relevant for the assessment year 1996-97.
2. The assessed is said to be a flagship company in what it describes as a joint venture agreement with four other companies.
A project called the “Malibu Township” was initiated by these five companies in the State of Haryana, It appears that under the local laws no entity could hold more than 28 acres of land and for a township to be set up there was a requirement of a minimum land holding of 100 acres. It is under these circumstances that the five companies decided to form a joint venture for development of land under the name of ‘Malibu Town’.
3. The question that arose before the IT authorities was whether these companies constitute an “AOP” within the meaning of section 2(31)(v) of the Income Tax Act, 1961.
4. According to the assessing officer, the entire control and management of all the five companies was in the hands of Shri Sudershan Kohli and his wife Mrs. Kumkum Kohli. The Commissioner (Appeals) in her order dated 9-12-1999 and the Tribunal in the impugned order have come to the conclusion that the five entities are different and independent entities and, therefore, the joint venture between them should be taxed as an “AOP”.
5. Assailing the view taken by the Tribunal, learned counsel for the revenue has relied upon certain facts, which appear in the order passed by the Commissioner (Appeals). These facts are :
(i) The entire development activities of Malibu Town have been undertaken by the assessed-company.
(ii) All expenses incurred for the purpose of the development of Malibu Township have been borne by the assessed- company.
(iii) The entire fund/loan utilised for the development activities has been borrowed by the assessed- company.
(iv) The entire sale of plots has been done by the assessed and booking advance deposited in its own accounts.
(v) The entire marketing of the Malibu Project and advertisement therefore has been carried out by the assessed- company.
(vi) All the abovementioned five companies were incorporated on the same date 28-4-1992.
(vii) In all the abovementioned five companies Mr. and Mrs. Sudershan Kohli were the only two shareholders and directors with the same number of shares.
(viii) The entire agreement and other legal formalities on behalf of the abovementioned five companies is carried out by Shri Sudershan Kohli.
(ix) All the expenses relating to the activities of financing, development and sale of land reflected in the books of the assessed- company and similarly all the sales are shown in the books of the assessed- company.
It is contended on the basis of these facts that there is no difference between the assessed and the other four companies and, therefore, the taxable entity is the assessed and not the AOP.
6. Learned counsel for the revenue has relied upon B.R. Ltd. v. V.P. Gupta, CIT (1978) 113 ITR 647 (SC), Juggilal Kamlapat v. CIT (1969) 73 ITR 702 (SC) and CIT v. National Finance Ltd. (1962) 44 ITR 788 (SC) in support of her contention.
7. The broad contention of learned counsel for the revenue is that since there is unity of control and interdependence of these four companies with the flagship company, that is, the assessed, it is the assessed which is really the taxable entity.
8. Learned counsel for the assessed has also relied upon certain facts which have been determined by the Commissioner (Appeals) and these are as follows
(a) The four companies had purchased plots of land in their own name by investing their own funds.
(b) The four companies obtained license from the Government of Haryana for development of Malibu Township specifically in their own names.
(c) The assessed also contended that basic profit arises on the basis of land holding and licenses for development. Thus right to receive the profit is embedded in the land for which the license to develop has been granted separately.
(d) That the land is held by each company and only the said company registered the conveyance of the plots in favor of the buyer by obtaining Form 34A clearance from the authorities.
On the basis of these facts, it is contended by learned counsel for the assessed that the business is really being carried out by a joint venture and, therefore, it is the joint venture known as ‘Malibu Estate Joint Venture’ that should be taxed and not the assessed. Learned counsel for the assessed has distinguished all the judgments that have been referred to by learned counsel for the revenue.
9. On a consideration of B.R. Ltd. (supra), we find that the decision in this case is not applicable to the present case because here only one assessed was carrying on different businesses. But what is important in that judgment is that the conclusion of law that has been relied upon, namely, that if there is a common management, a common business organisation, a common administration, a common fund and a common place of business with interlacing and interdependence of business, then it could be said that there is no difference between two or more different businesses. But as noted above, the facts in B.R. Ltd. (supra) are not at all applicable to this case where the entities are different.
10. In Juggilal Kamlapat (supra) and National Finance Ltd. (supra), there were two separate entities and the issue was whether there is interdependence and interlacing in respect of these two entities. The Supreme Court used the doctrine of lifting the corporate veil to come to the conclusion that both the entities in these two cases were really one. However, what is significant is that in both these decisions, the Supreme Court has said that the doctrine of lifting the corporate veil ought to be applied only in exceptional circumstances and not as a routine matter. If the intention of the assessed is to avoid tax through a collusive device, and the real purpose was something else than what appeared on the face, then the court may lift the veil of corporate entity to pay due regard to the economic realities behind the legal facade.
11. We find from the facts that have been determined by the Commissioner (Appeals) and the Tribunal that neither the four companies nor the assessed had entered into a collusive transaction with any intention of trying to avoid tax. They were merely carrying on business together because of the requirements of the local laws.
Under the circumstances, there is no exceptional circumstance which requires us to lift the corporate veil. On the other hand, the facts that have been determined by the Commissioner (Appeals) and which we have reproduced above seems to suggest that the transactions between all the companies are at arm’s length. That being the position, the question of applying the doctrine of lifting the corporate veil to find out whether the assessed and the other four companies are one and are carrying on the business with a view to denying tax to the revenue does not arise.
12. It is also worthwhile to note that the Commissioner (Appeals) has specifically referred to certain conclusions that he has arrived at. These facts are as follows :
1. There are five companies owning land and contributing these land holdings to a joint venture. Their ownership of land has not been questioned by the assessing officer.
2. They are not bogus companies. Their genuineness has not been questioned by the assessing officer.
3. Four of these companies have given a power of attorney to the assessed under which the assessed is developing/has developed the township. Thus the assessed is only working on behalf of the other four companies and on its own behalf.
4. It is not an attempt to reduce taxation because tax liability anyhow remains the same or at least the assessing officer has not established this fact otherwise. The five companies have come into existence because of the land laws of the Haryana Government and not to defraud the revenue.
5. The assessed has no objection to being assessed as a joint venture that is an AOP. The only request is that the income should be apportioned in the hands of all the five companies in proportion to their land holdings.
6. There is nothing in the IT law that prohibits formation of various companies with various permutations and combinations of the same persons.
13. The fact that the other four companies are not bogus companies is not even doubted by learned counsel for the revenue. Consequently, we come to the conclusion that the joint venture between the assessed and the other four companies is a genuine joint venture and the taxable entity, therefore, would be this joint venture, an AOP and not the assessed, as contended by the learned counsel for the revenue.
14. The second issue that has been urged by learned counsel for the revenue is that certain amounts were given by the assessed to the other four members of the joint venture as interest-free loans and, therefore, the interest paid by the assessed to various banks on its borrowings ought to be disallowed to the extent of the notional interest that should have been charged from the other four companies.
15. It appears from the record that the Commissioner (Appeals) as well as the Tribunal have come the conclusion that these were not in fact loans that were given by the assessed to the other four companies but it was their proportional share of the amounts earned by the business activities of the joint venture. The joint venture had received a sum of Rs. 65.96 crores as advance from the customers in respect of lands owned by all joint venture partners and sold by them. Out of this amount, a sum of Rs. 37.24 crores had been spent on the project and the balance funds were disbursed to the other companies after retaining some part by the assessed. As such, there was no question of any loan having been given by the assessed to any of the four companies.
16. We may also note that in the year in question, the assessed did not even claim any deduction in respect of the interest incurred by it and therefore the question of disallowance in this regard did not arise. However, we are not going into this aspect of the matter because we are of the view that whatever was given by the assessed to the other companies was not a loan but their share of the amounts that were due to them as a result of the joint venture activity.
17. In our view all the issues that have been raised are essentially questions of fact and both the Commissioner (Appeals) as well as the Tribunal have come to the conclusion that the business of developing the township in Malibu Estate was a joint venture activity and there were no amounts that were given by the assessed to the other partners of the joint venture as loan. We do not find any perversity in these concurrent findings of fact and consequently no substantial question of law arises for our consideration.
The appeal is dismissed.