Five Bangalore landowners secured a landmark ITAT ruling on May 15, 2024, after the Income Tax Department accused them of hiding rental earnings from an IT park built in 2005.
In 1999 the owners earmarked the site for an IT park and signed a memorandum of understanding with a local builder. Six years later, a joint development agreement granted the builder construction rights and a power of attorney, while the partners collectively held only 4% of the future C1 block.
The builder set up a partnership firm that owned 96% of the block and leased it to technology firms. Rent flowed into the firm’s bank account, the firm filed tax returns and paid ₹13.2 lakh in tax, and the partners withdrew money as capital contributions.
The Department’s 2022 search of a related family company led the assessing officer to declare the landowners the true owners of the block and label the partnership a tax‑dodging shell. The Commissioner of Appeals agreed, ordering the owners to pay the full rental income.
The ITAT Bangalore bench, citing audited statements, development approvals in the firm’s name, and the fact that partner withdrawals are treated as debits to capital accounts, overturned the department’s position. It ruled that the firm was a bona‑fide business entity and that the partners’ shares did not convert the rental into personal income.
The decision confirms the partnership’s tax filings are valid and the landowners can keep their 4% stake without further scrutiny. No appeal has been filed, and the owners expect to resume normal operations.