TMI Blog2012 (7) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty is already vested with the transferee and the impugned development agreement has not been duly cancelled and it is still in operation, it has to be decided that there is a transfer u/s. 2(47)(v). In our opinion, the real intention of the parties herein to be seen, accordingly, issue is set aside to file of the CIT(A) to decide the same afresh in light of the above observations and decision in case of Chaturbhuj Dwarkadas Kapadia v. CIT (2003 (2) TMI 62 (HC)) and Dr. Maya Shenoy v. ACIT (2008 (10) TMI 262 (Tri)) - Appeal allowed for statistical purposes. - IT APPEAL NOs. 407, 408, 409, 483 and 484 (HYD.) OF 2011 - - - Dated:- 2-7-2012 - CHANDRA POOJARI, smt. ASHA VIJAYARAGHAVAN, JJ. ORDER Chandra Poojari, Accountant Member ITA No. 483/Hyd/2011 and 484/Hyd/2011 are appeals by different assessees and ITA Nos. 407 to 409/Hyd/2011 are Departmental appeals. As certain issues involved in these appeals are common in nature, all these appeals are clubbed, heard and disposed of together by this common order for the sake of convenience. 2. Firstly we will take up assessee's appeals. The issue is common in nature. The common grounds are follows: 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income admitting an amount of ₹ 2,04,000/-as income under the head Other Sources. The assessing officer vide his order under section 143(3) r.w.s. 147 dated December 31, 2009 determined Long Term Capital gains on the transaction of Development Agreement and arrived at an assessed income of ₹ 9,00,09,850/- of which the capital gain part constitutes ₹ 8,98,05,850/-. (Balance ₹ 2,04,000/- admitted by the assessee). 3.2 The Capital Gain of ₹ 8,98,05,850/- was arrived at by the assessing officer as under: SI. No. Particulars Details 1. Total area to be received by the assessee including car parking 71,478 S.Ft 2. Sale price per S.Ft. Obtained from a statement of the Managing Director of Janapriya Engineers Syndicate recorded by the DDIT in the course of search operations ₹ 1450 3. Gross Profit rate estimated by the MD of the company and stated in the statement before DDIT mentioned above 25% 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving been entered into on 04-03-2008 the duration of 36 months closes on 04-03-2011. However, the project did not progress as anticipated. The assessment of the assessee was completed in the month of December 2009 and the first appeal was filed in the month of January 2010. 3.6 The assessee in pursuance of the said clause of the agreement executed an agreement with the builder on 05-04-2010 cancelling the original development agreement and getting into fresh terms and conditions in respect of the transaction relating to the said land. A copy of the said agreement is submitted at pages 10 to 16 of the material paper book. This being a development as per the agreed terms, that has taken place subsequent to the completion of the assessment the assessee has brought the fresh agreement dated 05-04-2010 to the record of the Hon'ble Commissioner of Income Tax (Appeals)-I, Hyderabad. The assessee prayed before the first appellate authority that the transaction of development agreement entered into by the assessee does not result in Transfer within the meaning of the term under section 2(47) of the Income Tax Act, 1961 so as to attract Capital Gains tax. 3.7 The assessee hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial pronouncements relied on by the assessing officer as well as the first appellate authority the transactions have been completed. Whereas in the case of the assessee the transaction has been cancelled. In the event of cancellation the agreement and the terms and conditions thereof cease to exist as if the agreement never took place and this legal position should have been appreciated by the learned Commissioner (Appeals). 4.2 The AR submitted that since the development agreement has been cancelled what remains between the parties is the compensatory rights for the damages in respect of the said cancellation and the transfer stands cancelled and this is what exactly happened in the case of the assessee. He submitted that this can be very clearly observed from the agreement dated 05-04-2010 exhibited at pages 10 to 16 of the material paper book. Accordingly, the AR submitted that the assessment be cancelled and that no transfer has taken place and consequently no capital gain arises. 4.3 The AR, on applicability of section 2(47)(v) of the income tax Act, 1961, submitted that the provisions of section 2(47)(v) of the Income Tax Act, 1961, do not apply to the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty by itself does not provide for immediate transfer of possession, the date of entering into the agreement cannot be considered to be the date of transfer within the meaning of sub-clause (v) of section 2(47). 2. To attract sub-clause (v) of section 2(47), it is not necessary that the entire sale consideration up to the last instalment should be received by the owner. 3. In the instant case, having regard to the terms of two agreements and the irrevocable GPA executed pursuant to the agreement, the execution of GPA shall be regarded as the 'transaction involving the allowing of the possession' of land to be taken in part performance of the contract and, therefore, the transfer within the meaning of section 2(47)(v) must be deemed to have taken place on the date of execution of such GPA. The irrevocable GPA was executed on 8-5-2006, i.e., during the previous year, relevant to the assessment year 2007-08 and the capital gains must be held to have arisen during that year. Incidentally, it may be mentioned that during the said year, i.e., financial year 2006-07, a final licence was granted and the applicant/owners received nearly two-third of the consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht before the Tribunal is the case before the Calcutta High Court reported in Baisakhi Bhattacharjee v. Shayamal Bose Ors. [2002 (4) CHN 115] wherein the Calcutta High Court has held that Development agreement comes out of the scope of the ambit of section 53A of the Transfer of Property Act. Therefore, section 53A of the TP Act, has no manner of application to a development agreement. 4.10 According to the AR, this being the case an agreement being out of the scope of section 53 A of the Transfer of Property Act, the AR submitted that the assessing officer as well as the learned CIT (Appeals) erred in law in holding that the transaction is within the meaning of transfer under section 2(47)(v) of the Act. As stated earlier the case and the course of arguments before the Hon'ble Bombay High Court and the Authority for Advance Ruling is that the amendment to the section 2(47) which defines Transfer has been made with a view to plug the loop hole of the assesses entering into development with builders and evading taxes. Accordingly, the AR submitted that this is not the actual legal position nor is it the intention of the legislature. 4.11 Further he submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the relevant clause (clause 27) of the Memorandum Explaining Provisions in Finance Bill 1987 which states the objective and purpose of the amendment as under: SIMPLIFICATION AND RATIONALIZATION OF PROVISIONS Enlarging the meaning of owner of house property 27. Under the existing provisions of section 22 of the Income Tax Act, any income from house property is chargeable to tax only in the hands of the legal owner. As per section 27 of the Income Tax Act, certain persons who are not otherwise legal owners are deemed to be owners for the purposes of these provisions. Under the Transfer of Property Act, the transfer of ownership can be effected only by means of a registered instrument. However, in the recent times various other devices are sought to be employed to transfer one's ownership in property. As a result, there are situations in which the actual owner, say, of an apartment in a multi-storeyed building, or a holder of a power of attorney is not the legal owner of a property. In some cases, pending resolution of disputes, the legal owners as well as the beneficial owners are assessed to tax in respect of the same income. As a measure of ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC), where the computation of chargeable interest on the basis of interest actually received and not accrued interest, found support in the statement of the Finance Minister's Budget Speech, so that the Supreme Court found that it could be relied upon to throw light on the object and purpose of particular provisions introduced in the Finance Bill. The AR thus submitted that the case of the assessee does not come within the ambit of provisions of section 53A of the Transfer of Property Act and consequently under the provisions of section 2(47)(v) of the Income Tax Act. 4.17 The AR further submits that the provisions of section 2(47)(v) of the Income Tax Act do not apply to the case of the assessee nor is it the intention of the legislature that they be so intended. Therefore, he prayed that the determination of capital gains in his case be quashed. 4.18 Without prejudice to the above, regarding computation of capital gains, the AR submitted that the assessing officer acted arbitrarily in taking the sale price as ₹ 1450 purely based on a statement given by the Managing Director of the developer company in a statement before Dy. Director of Income-tax. The assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the same may be directed to be deleted. 5. The learned DR submitted that an identical issue has been decided by the CIT(A)-I, Hyderabad in the case of B. Narasimha Reddy for the assessment year 2008-09 in ITA Nos. 0348/CC-6, HYD/CIT(A)-I/09-10 dated 7.1.2011. In that case also, the assessee has entered into a development agreement with Janapriya Engineers Syndicate Ltd. and the Assessing Officer had charged capital gains on the transaction relating to the development agreement. The Assessing Officer had relied on the same set of judicial decisions as in the case of the present assessee. While deciding the appeal in the case of B. Narasimha Reddy it was held that the Assessing Officer was justified in bringing to tax the transaction relating to the development agreement in view of the provision of sec. 2(47) of the I.T. Act. While doing so, the CIT(A) relied on the decision of ITAT Pune Bench in the case of Taher Alimohammed Poonawala v. Addl. CIT [2009] 124 TTJ (Pune) 387 wherein the Tribunal observed as under: Where owners (assessees) had entered into an agreement for development of property and certain rights were assigned to developer who in turn had made sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was liable to get 27% of the constructed area. 8. We have heard both the parties and perused the material available on record with reference to the contentions of the assessee with regard non-chargeability of capital gains in respect of the land, according to AR which was not 'transferred' but only given for development. We may refer to the provisions of S. 2(47)(v) which reads as follows:- 2. ..... (47) ..... (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act, 1882 (4 of 1982) 9. The importance of the word transfer is due to the reason that under the charging section, viz. S. 45, and the capital gain is taxable on transfer of a capital asset . Precisely, this section prescribes that any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head capital gains and shall be deemed to be the income of the previous year in which the transfer took place . (Emphasis supplied by italicized print) 10. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows: Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, And the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, And the transferee has performed or is willing to perform his part of the contract, Then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transfer or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od meaning of the definition transfer while interpreting this term for tax purpose. On the facts of this case, the developer has got bundle of rights and thereupon entered into the property. Thereafter, we have to see what has happened and what steps the transferee has taken to discharge the obligation on his part. If transferee has taken any steps to construct the flats, undisputedly then, under the provision of Income Tax Act a transfer has definitely taken place. (c) The existence of the consideration is the essence of the contract. In this case the amount of consideration has to be paid to the assessee in the form of cash as well as in kind i.e., the flats to be constructed by the developers to be handed over to the owners. (d) Next is the important phrase i.e., terms necessary to constitute the transfer can be ascertained with reasonable certainty . According to us, in this case, the terms and conditions of the contract were unambiguous thus clearly spoken about the rights and duties with certainty of both the signing parties. We are concerned mainly with two certainties; one is passing of substantial consideration and second is passing over of possession. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is meant in clause (v) is the transfer which involves allowing the possession so as to allow developer to undertake development work on the site. It is a general control over the property in part performance of the contract. The date of that transaction determines the date of transfer. To our understanding of the language of the Act, it is enough if the transferee has, by virtue of the impugned transaction, has a right to enter upon and exercise the act of possession effectively then such an act amounts to legal possession over the property. (f) The last noticeable ingredient is, the transferee has performed or is willing to perform his part of the contract . To ascertain the existence of willingness on the part of the transferee one must not put stop at one event but willingness is to be judged by the series of action of the transferee. The transferees survey the land and to attract purchases put up hoardings plus sales-office and carry out site development work. Landscaping, sales promotion, execution of construction and completion of project are all incidental to demonstrate the willingness of the transferee. On one hand, the power of attorney grants bundle of possess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would prevail against the obvious and ordinary meaning of the words used. Entering into the property and handing over of the possession was instantaneous thus entire conspectus of the case has attracted the provision of S. 45 of the Act on fulfilment of conditions laid down in section 53A of the Transfer of Property Act. In our opinion, the real intention of the parties herein to be seen. 16. Accordingly, we set aside the above issue relating to transfer of property u/s. 2(47)(v) of the IT Act to the file of the CIT(A) to decide the same afresh in light of the above observations and after considering the ratio laid down by the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT ( supra ) and also the order of the Tribunal in the case of Dr. Maya Shenoy v. ACIT (124 TTJ (Hyd.) 692). He is also directed to consider the order of the Tribunal Pune Bench in the case of Dyaneshwar N. Mulik v. ACIT , 98 TTJ 179 wherein held that Clause (47) of s. 2 was amended by the Finance Act, 1987 w.e.f. 1st April, 1988 by inserting new sub-cls. (v) and (vi). These two new sub-clauses provide that 'transfer' includes (i) any transaction which allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is partly allowed for statistical purposes. It is needless to say that reasonable opportunity of hearing shall be given to the assessee. The other grounds raised by the assessee in these two appeals are relating to computation of capital gains. With regard to this, the assessee's grievance is that the assessing officer considered the rate at ₹ 1,296/- per sq.ft. for both the built up area as well as the parking area. In our opinion, at this stage this issue does not require adjudication as the main issue gone back to CIT(A)to be decided afresh. 18. Now we will take up Revenue appeals in ITA Nos. 407 and 409/Hyd/2011 wherein the issues are common in nature. The common grounds as in ITA No. 407/Hyd/2011 are as under: a. The CIT(A) erred on facts and in law in allowing deduction of 25% from the sale realisation value of constructed area/space as the sale consideration of the land transacted. b. The CIT(A) failed to appreciate the fact that the rate of 12% reduction from the total sale realisation value at the rate of ₹ 1450/- per sq. yard is the consideration received by the assessee in pursuance of the development agreement. 19. Brief facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange within the meaning of Transfer of Property Act, there was a transfer within the meaning of sec. 2(47) of the IT Act. The Assessing Officer relied on the decision of ITAT, Hyderabad in the case of CIT v. Akashganga Estates . Considering the same, the Assessing Officer held that the assessee was liable for capital gains based on the development agreement entered into with Janapriya Engineers Syndicates Ltd. On the basis of details filed by the assessee, it was found that the assessee was entitled to 62,482 sft of built up area and 15,962 sft car parking area as per the Agreement dated 4.3.2008. The Assessing Officer referred to the statement of Sri K. Ravinder Reddy, Managing Director of Janapriya Engineers Syndicate Ltd. which was recorded on 14-5-2008 wherein he has submitted that the sale realisation is ₹ 1450 per sft and the profit is 12%. Considering the same, the Assessing Officer arrived at a figure of 1276 per sft (Rs. 1450-12% profit of the builder i.e. ₹ 174) towards cost of construction including indirect expenses to the builder. Adopting this rate, the Assessing Officer computed the long term capital gains on 78,445 sft of area to be received by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or explanation for items that pertain to periods beyond the time limits of notice. Accordingly, the addition made by the Assessing Officer treating the opening balance as unexplained money u/s. 69A is unjustified and should be deleted. 24. The learned DR submitted that in the receipts and payments account, opening cash balance of ₹ 16,00,000 is shown for the year under consideration. The assessee is not maintaining any records and no capital accounts and Balance Sheets have been filed along with original returns of income or along with returns filed in response to notice u/s. 153C. The receipts and payments account is submitted only during the course of scrutiny proceedings. The assessee has not filed any satisfactory evidence for the source of huge opening cash balance of ₹ 16,00,000. Accordingly, the learned DR supported the order of the Assessing Officer. 25. The learned AR submitted the Assessing Officer had issued common notice dated 7-9-2009 and 23-9-2009 u/s. 143(2). From the letter dated 7-9-2009, the Assessing Officer had called for some general information for the assessment years 2002-03 to 2008-09 regarding computation of income sheet, Profit and L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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