Five Bangalore landowners have secured relief from the Income Tax Appellate Tribunal (ITAT) in a significant income tax dispute over alleged undisclosed rental income. According to The Times of India, the landowners established that their partnership firm was the legitimate owner of the IT park building, which received rent directly into its bank account and filed income tax returns. The tribunal ruled in favor of the landowners on August 27, 2026, deleting all disputed additions and providing comprehensive relief in the long-standing tax controversy.
The dispute originated from a 1999 decision by five landowners to develop their property into an IT park and SEZ zone through a memorandum of understanding (MOU) with a builder. As reported by The Times of India, in 2005, the landowners and builder executed a registered joint development agreement (JDA), under which the builder was granted development rights and received a ₹37.25 lakh refundable, interest-free deposit. The builder subsequently established a partnership firm to manage the C1 Block, retaining a 96% stake while the landowners collectively held the remaining 4%.
The Income Tax Department took the position that the landowners, rather than the partnership firm, were the actual owners of Block C1. According to The Times of India, the Assessing Officer cited that withdrawals made by landowner families were not proportionate to their declared 4% profit-sharing entitlement and alleged that the partnership deed had not been registered. The Commissioner of Appeals agreed with this assessment approach, viewing the arrangement as a tax-avoidance structure designed to evade tax obligations.
Chartered Accountant Suresh Surana told ET that the ITAT Bangalore relied on substantial documentary evidence to establish the partnership firm as a genuine business entity. As reported by The Times of India, the tribunal noted that government and statutory authorities had recognized it as a co-developer of the SEZ, while infrastructure and electricity approvals were issued in its name. The ITAT dismissed the department's contention that partner withdrawals established personal ownership, emphasizing that such amounts are typically entered as debits to their respective capital accounts in the partnership firm's books.
The ITAT examined the capital gains issue arising from the JDA, with the Assessing Officer proposing taxation in AY 2016-17 when the builder completed construction and handed over the developed area to the landowners. According to The Times of India, the tribunal found that the transfer had actually occurred in AY 2005-06 when the JDA and Power of Attorney were executed, as the developer had been granted extensive rights including access to the property, securing approvals, and signing agreements with purchasers. The tribunal concluded that the transfer could not be treated as occurring in AY 2016-17 merely because the completed area was handed over during that year.
