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The Income Tax Officer, Ward-4 (3) , Hyderabad Versus Mr. B. Mahender Reddy (HUF) , Hyderabad

2015 (7) TMI 162 - ITAT HYDERABAD

Transfer of capital asset to the developer in terms of section 2(47)(v) read with section 53A - Whether capital gain will not arise in the impugned assessment year there being no transfer of capital asset? - willingness of the developer to perform his part of the contract questioned - Held that:- The developer not only took immediate steps to implement the project by preparing building plan/lay out, but, as per assessee’s own admission, made an application before the competent authority in 2008 .....

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er any unwillingness or default on the part of the developer to undertake the development activity but because of extraneous circumstances beyond his control which resulted in delay in obtaining the approval from the competent authority. In fact, the assessee has not brought a single piece of evidence on record to demonstrate that at any point of time the developer has expressed his unwillingness to perform his part of the contract of undertaking the development activity.

The Hon’ble .....

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prove that the developer was unwilling to perform his part of the contract as provided under section 53A of the Transfer of Property Act, we are of the view that there is a transfer of capital asset in the impugned assessment year as envisaged under section 2(47)(v) of the Act resulting in capital gain. Keeping that in view we direct, while computing capital gain the A.O. should look into the observations made by the Ld. CIT(A) with regard to adoption of fair market value and indexed cost of acq .....

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7-2008. 2. The solitary issue arising out of the ground raised by the department is with regard to the finding of the Ld. CIT(A) that there being no transfer of capital asset by the assessee to the developer in terms of section 2(47)(v) read with section 53A of the Transfer of Property Act, 1882, capital gain will not arise in the impugned assessment year. 3. Briefly the facts relating to the issue in dispute are, the assessee is a HUF. On receiving information that assessee has received huge am .....

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eedings, it was noticed by the A.O. that assessee was the owner of agricultural land admeasuring ac.8.28 gts. in survey No.185, Narsingpalli (v) of Rajendranagar (M) of Ranga Reddy District. It was further noticed that assessee had executed an unregistered development agreement -cum- General Power of Attorney on 28.04.2005 in favour of M/s. Sri Sai Venkateswara Estates, for developing the said piece of land owned by him. Subsequently, this unregistered development agreement was cancelled and ass .....

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the assessee entered into a supplementary development agreement on 19.10.2006 modifying certain terms of the registered development agreement by providing that the amount of ₹ 51,10,000 received as advance by the assessee from the developer will be treated as non-returnable security deposit. 4. On finding the aforesaid facts, the A.O. called upon the assessee to explain why capital gain will not be charged since there is a transfer of capital asset. In response to the query raised by the A .....

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d substance, it was submitted that as actually no development activity has started by the developer which indicates unwillingness of the developer to perform his part of the contract, neither there is any transfer in terms of section 2(47)(v) nor there is accrual of capital gain. In support of his contention, assessee relied upon the decision of Hon ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadi vs. CIT (2003) 260 ITR 491 (Bom.). The A.O. however did not find merit in the submi .....

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ntract. Thus A.O. relying upon the decision of ITAT, Hyderabad Bench in the case of Krishnakumar D. Shah (HUF) and others vs. DCIT in ITA.No. 1164 to 1167/Hyd/2010 dated 12.07.2012 opined that as all the ingredients of section 2(47)(v) read with section 53A of Transfer of Property Act has been fulfilled, there is a transfer of capital asset during the year under consideration giving rise to capital gain. Accordingly, he proceeded to compute the capital gain which was determined at ₹ 4,59,9 .....

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the submissions of the assessee in the light of decisions cited before him, concluded that since till 2013 no development activity has started, it indicates unwillingness on the part of the developer to perform his part of the contract. He was of the view that though the development agreement was entered into and possession of land was given in the year 2006, but the willingness of the developer to carry on development in terms of development agreement has not been taken-up for more than 7 years .....

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lso handed-over possession of the land to the developer. It was submitted, assessee has also received an amount of ₹ 51,10,000 as non-refundable security deposit from the developer. It is also a fact that the developer has applied for sanction of the plan to start the development activity but it could not be started as sanction was not given by the competent authority due to some difficulties beyond the control of the developer. However, that will not lead to the conclusion that the develo .....

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ssessment year. For such proposition, he relied upon the decision of the Hon ble A.P. High Court in the case of Potla Nageswara Rao vs. DCIT 365 ITR 249 and decision of ITAT, Hyderabad Bench in the case of Krishna Kumar D. Shah (HUF) and others vs. DCIT in ITA.No. 1164 to 1167/Hyd/2010 dated 12.07.2012. 7. The learned A.R. more or less reiterating the submissions made before the departmental authorities submitted that till the date of assessment order, permission could not be obtained by the dev .....

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n view, has paid first installment of advance tax. Thus, in sum and substance, it was submitted by the assessee that since there was unwillingness on the part of the developer to perform his part of the contract during the impugned assessment year and as no development activity has taken place, neither there is any transfer of capital asset during the year under consideration nor capital gain will accrue. For such proposition, he relied upon the following decisions. (1) M/s. Binjusaria Propertie .....

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ecided in the present appeal, precisely is, whether there is transfer of land by assessee to the developer in terms of section 2(47)(v) read with section 53A of the Transfer of Property Act, giving rise to capital gain in the impugned assessment year. There is no dispute to the fact that during the relevant previous year i.e., on 30.08.2006, the assessee had entered into a registered development agreement -cum- General Power of Attorney with M/s. Sri Sai Venkateswara Estates and has also in term .....

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ving allowing of possession of any immovable property to be taken or retained in partperformance of a contract of the nature referred to, in section 53A of the Transfer of Property Act, 1882, is to be treated as transfer. Thus, section 2(47)(v) has to be read in consonance with section 53A of the Transfer of Property Act. A careful analysis of section 53A of the Transfer of Property Act, would indicate that to constitute a transfer under the said provision, the following three situations must ex .....

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in the facts of the present case they stand satisfied. The only dispute remains with regard to satisfaction of the third condition i.e., willingness of the developer to perform his part of the contract. As can be seen the registered development agreement -cum- General Power of Attorney was executed on 30.06.2008 between the assessee and developer. It is also evident that after taking possession of the property, the developer not only took immediate steps to implement the project by preparing bu .....

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on could not be obtained for starting the development activity. From the aforesaid facts, it is very much clear that the delay in development of project is not due to either any unwillingness or default on the part of the developer to undertake the development activity but because of extraneous circumstances beyond his control which resulted in delay in obtaining the approval from the competent authority. In fact, the assessee has not brought a single piece of evidence on record to demonstrate t .....

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hority, the developer could not have started the development work. It is evident from record the developer was ready and willing to implement the project as he has applied for building permission/sanction of plan in the year 2008 itself. However, as sanction was not granted, developer could not start the development work. From these facts, it is clear that the delay in starting the development work is not due to unwillingness of the developer to perform his part of the contract. If the assessee .....

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t after necessary sanction/approval was granted by the competent authority on 28.03.2014 it has started the development work immediately. Under these circumstances, it cannot be said that the conditions of section 2(47)(v) of the I.T. Act read with section 53A of the Transfer of Property Act are not satisfied due to unwillingness on the part of the developer to perform his part of the contract. The Hon ble A.P. High Court in the case of Potla Nageswara Rao vs. DCIT (2014) 365 ITR 249 (A.P) while .....

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s application of law on this fact, that payment of consideration on the date of agreement of sale is not required, it may be deferred for future date. The element of factual possession and agreement are contemplated as transfer within the meaning of the aforesaid section. When the transfer is complete, automatically, consideration mentioned in the agreement for sale has to be taken into consideration for the purpose of assessment of income for the assessment year when the agreement was entered .....

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ere is nothing on record to prove that the developer was unwilling to perform his part of the contract as provided under section 53A of the Transfer of Property Act, we are of the view that there is a transfer of capital asset in the impugned assessment year as envisaged under section 2(47)(v) of the Act resulting in capital gain. In our view, Ld. CIT(A) fell into error in not appreciating the aforesaid facts. As far as the decisions relied upon by the learned A.R. are concerned, on careful anal .....

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