Profits from Transfer of Interest in Hydro Projects is Income from Business: ITAT [Read Order]

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) ruled that profits from transfer of interest in Hydro Projects is income from business.

The assessee, M/s. Arch Hydro Power Projects Pvt. Ltd is engaged in the business of developing Hydro Power projects on BOT basis, for Govt. of Maharashtra. During the course of assessment proceedings, it was submitted by the assessee that as the approval for transfer of project was not received from State Government the profit from transaction was not recognised in the books of account for the year. The AO was not satisfied with the explanation of the assessee.

The A.O found that during the year under consideration, the assessee has received an amount of Rs. 4 crores out of total sale consideration for transfer of said project which was 90% of total consideration. As per the AO, M/s. R.M. Mohite Textiles Pvt Ltd (RMMTL) has incurred substantial amount of expenditure at the site. Thereafter the A.O came to the conclusion that the assessee has transferred the possession to the transferee who has commenced the work relating to the said project.

The AO emphasised that major risk and reward associated with the project has been transferred during the year itself and the transferee has taken possession of the property and done some act in furtherance of the contract. Therefore, according to the A.O there is transfer of property as per section 2(47) of the Income Tax Act and the gains from the transaction are liable to be assessed under Section 45 of the Income Tax Act.

The Commissioner of Income Tax concluded that “What is transferred in the present case is creation of a hydro project i.e, interest in the Hydro Project and not land or property. Therefore, in my considered opinion the- profits and gains arising from such transfer of interest in the subject project is liable to be assessed under the head ‘income from business’ as the appellant is in the business of execution and development’ of such projects and the interest in the project was transferred/assigned to RMMTL in the course of business of the appellant.”

A Bench consisting of Inturi Rama Rao, Accountant Member and Partha Sarathy Chaudhury, Judicial Member observed that “We find that the CIT(A) has held that the gains are taxable under the head ‘income from business’ and not under the head ‘short term capital gains‟. The reasoning assigned by the CIT (A) is cogent and we find no infirmity with the findings and the decisions rendered by the CIT (A).”

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