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2015 (8) TMI 363 - ITAT HYDERABAD

2015 (8) TMI 363 - ITAT HYDERABAD - TMI - Year of taxability of capital gains - Revenue bringing to tax the capital gains on the reason that transfer has occurred during the year - whether there was no transfer of property as per Section 2(47) under Clause-5 and Clause-3(b) of the development agreement dt. 11-02-2004? - Held that:- There is no dispute with reference to the fact that the first agreement was dt. 11-02-2014 in which assessee was entitled to 50% of the constructed area. In case, the .....

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evelopment agreement, even if consideration was not received. In that way, assessee's contention that capital gains cannot be brought to tax in this assessment year( AY 2005- 06) is valid.

Both AO and CIT(A) are not correct in contending that year of possession or the deemed possession is the year of capital gains, ignoring the year of agreements entered by assessee and the terms of agreement. If this logic of Revenue is accepted, then a situation may arise that parties try to incorp .....

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ssee : Shri P. Murali Mohan Rao, AR For The Revenue : Shri M. Ravindra Sai, DR ORDER PER B. RAMAKOTAIAH, A.M. : This is an assessee's appeal against the order of the Commissioner of Income Tax (Appeals)-IV, Hyderabad dated 22-08-2014. Assessee has raised as many as 8 grounds on the issue of reopening u/s. 148 of the Income Tax Act [Act] and also bringing to tax the capital gains on the reason that transfer has occurred during the year. 2. Briefly stated, assessee was owner of 4,986 Sq. Yds., .....

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ing the provisions u/s. 147, issued a notice u/s. 148. Assessee contended that no capital gain accrued during the year, as assessee was not having complete possession of the property. It was submitted that the assessee was not liable to pay capital gains on the transaction arising out of the development agreement since the transaction did not fall within the scope of transfer u/s 2(47), that no rights were given to the developer' under the development agreement dated 11-02-2004 till the muni .....

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exclusive rights of execution of agreements of sale which had been retained by the assessee. Municipal approvals for the building plans were granted on 03-06-2006 and a registered development agreement was entered on 03-11-2007. It was contended if at all capital gain arises, that should be in AY. 2008-09 not in AY. 2005-06. It was contended that Assessee admitted capital gains in AYs. 2010-11 to 2012-13. The Assessing Officer relied on the terms and conditions of the development agreement dated .....

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The Assessing Officer held that the assessee had vacated and delivered the property to the developer on 07-12-2004 as per para 4 (page 6) of the development agreement dated 03-11-2007. The Assessing Officer also held that the power of attorney granted to the developer conveyed a bundle of possessor rights to the developer simultaneously and on the other hand, the developer's gesture of development work was evidence of its willingness to perform his part of the contract. The Assessing Officer .....

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7; 7,79,160/- and cost of building at one Lakh. The net capital gains were determined at ₹ 9,25,30,420/-. 3. Before the Ld.CIT(A) it was contended that there was no transfer of property as per Section 2(47) under Clause-5 and Clause-3(b) of the development agreement dt. 11-02-2004. It was further submitted that the property was subject to urban land ceiling and there is no proper demarcation / identification of assessee's share of the constructed area. It was further submitted that the .....

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h would give rise to a situation envisaged in Section 53A of the TP Act. Assessee relied on the following decisions: i. Sri K. Gopal Raj Vs. DCIT (ITA No. 140/Hyd/2012); and ii. Binjusaria Properties P. Ltd., Vs. ACIT (ITA No.157/Hyd/2011) It was further submitted before the CIT(A) that in development agreement dt. 11-02-2004 (referred as first agreement), there was no handing over of possession to the developer but only permission to demolish the existing building thereon. Referring to the deve .....

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states that the payment of tax related to the property with handing over of property and Clause-5 records that all outstanding dues upto 07-12-2004 has been paid by assessee and possession was handed over on 07-12-2004. Therefore, it was held that possession was handed over on 07-12-2004 i.e., in AY. 2005-06. With reference to the argument that no consideration has been paid, Ld.CIT(A) relied on the jurisdictional High Court decision in the case of Potla Nageswara Rao Vs. DCIT in ITTA No. 245/14 .....

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on work during the year, it could not be said that there was absence of willingness on the part of the developer in commencing development activities. Relying on page 4 of the second agreement, it was considered as under: "6.6 Page 4 of the Second Agreement states as follows: "Whereas both the parties after negotiations arrived at certain terms and conditions in pursuance of which the developer has extended full cooperation to get the surplus land of 1041.63 sq. meters out of the land .....

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ll be borne by the 'Developer'. " 6.7 The averment in the second agreement shows that contrary to the assessee's claim, the developer did undertake activities for the development of the property and specifically for the exclusion of part of the land from the purview of the UCLA during the FY 2004-05 which culminated in the issue of GO Ms No. 103 dated 17.1.2005. Indeed, the clause as quoted above, acknowledges the 'full cooperation' of the developer, contrary to the clai .....

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rovide that in case of delay on the part of the developer to complete the project within the specified period, the assessee had the right to entrust the completion of the project to any other builder. Thus, the Agreements themselves envisaged time-delays since it is not an unusual problem in this line of business and cannot be interpreted as an unwillingness on the part of the developer to perform as per the contract. Indeed, the fact that the assessee chose not to exercise her right under the A .....

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: firstly, on transfer of land to the developer in lieu of the constructed area and secondly, on sale of the constructed area (along with undivided share in the land). The capital gains disclosed by the assessee in the AYs 2010-11, 2011-12 and 2012-13 pertain to the second transaction, i.e sale of the constructed area (along with undivided share in the land). The assessee has failed to admit the capital gains from the first transaction of transfer of land to the developer. This has rightly been .....

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ning the assessment by issue of notice us 148 without there being any new material on record. 3. The Ld. CIT(A) ought to have appreciated the fact that the A.O erred in not passing the speaking order for the assessment year 2005-06 u/s. 147 of the Act. 4. The Ld. CIT(A) ought to have appreciated the fact that the AO erred in reopening the assessment beyond 4 years which is void ab initio. 5. The Ld. CIT(A) erred in upholding the view of the AO regarding the year of transfer of property. 6. The L .....

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modify or substitute any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal". 7. Before us, Ld. Counsel did not press the grounds from 2 to 4, as the same did not arise out of the order of the CIT(A), in fact assessee did not challenge the reopening of assessment before the Ld.CIT(A). No arguments were placed before us with reference to above additional grounds. Therefore, we deem them as not pressed and are treated as 'withdrawn'. 8. Gro .....

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l reiterated the same submissions made before the CIT(A) that capital gains cannot be taxed in the impugned year. He referred to the first agreement, the second agreement and the submissions made before the CIT(A) and drew our attention to specific clauses of the agreements to submit that the possession was handed over to the developer only after urban land ceiling clearance certificate and further sanction of municipal permissions which came in later assessment year. He also pointed out that AO .....

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ders. There is no dispute with reference to the fact that the first agreement was dt. 11-02-2014 in which assessee was entitled to 50% of the constructed area. In case, the possession was given as per the contention of Revenue consequent to this agreement, certainly the capital gains was leviable in AY. 2004-05 itself, as the agreement entered has been fulfilled by giving possession if not immediately but after some time. Therefore, following the principles of jurisdictional High Court in the ca .....

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at physical possession of property was handed over by assessee to the developer on 07-12-2004, for which the development agreement dt. 03-11-07 was relied upon by the AO and CIT(A). As extracted by the Ld.CIT(A) in para 6.1, the clauses of the development agreement are very clear. What the assessee has handed over is not the scheduled property, as the property is subject to urban land ceiling clearance which admittedly came in a later year. Assessee also stated in clause 3B that after the Munici .....

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was relied upon by the Revenue is as under: "05. The owner shall deliver the existing structures on the Schedule-I property to the developer for demolition, after the removal of all identified re-usable materials by the owner at the developer's cost and after the sanction of plans by the Municipal Corporation of Hyderabad". 13. This above clause indicate that the owner shall deliver the existing structure on the schedule-I property to the developer for demolition, after the remova .....

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by Revenue. The owner is not having complete ownership on the entire land, as exemption from ULC is yet to be received and how much of the land will be parted with for ULC was not known. In view of this, the contention of the Revenue that possession was handed over on 07-12-2004 does not stand the test of actual possession required under the provisions of Transfer of Property Act. Therefore, on the basis of the first agreement, it cannot be deduced that owner has handed over the property to the .....

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03-11- 2007, wherein it was noted in clause-4 that as of 07-12-2004, the owner vacated and delivered the existing structures on the schedule-I property to the developer for demolition. The developer after which applied to Municipal Corporation, Hyderabad for building premises and is in receipt of conditional sanction from Municipal Corporation, Hyderabad dt. 30-06-2006. Developer has commenced the construction work on 02-10-2006 in pursuance of the meeting of the criteria mentioned therein for i .....

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a limited extent of handing over the existing building but not the land in possession). If one were to go by the second agreement, the second agreement comes into effect in AY. 2008-09 and not in AY. 2005-06. In either way, just because some of the terms indicate that building for demolition was handed over on 07- 12-2004, the capital gains cannot be brought into tax in the year under consideration. Therefore, both AO and CIT(A) are not correct in contending that year of possession or the deeme .....

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ng the date of agreement and terms of agreement is not according to law. 14. As can be seen from para 6.10 of the CIT(A)'s order, assessee seems to have offered capital gains in AYs. 2010-11 to 2012-13 when the constructed area was handed over to her. These require examination by the AO in the respective years and computation of capital gains in those years but capital gains cannot be brought into tax in the impugned assessment year as neither agreement fall in the year nor the terms of firs .....

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u/s. 2(47)(v) can be invoked. Vide para 51, the ITAT considered as under: "51. It is important to bear in mind that Section 2(47)(v) refers to possession to be taken or retained in part performance of the contract of the nature referred to in Section 53A of the Transfer of Property Act and in the case before Hon'ble Bombay High Court, there was no dispute that the conditions of Section 53A were satisfied. In other words, the proposition laid down of Section 53A were satisfied. In other .....

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ns of Section 53A which is a sine qua non for invoking Section 2(47)(v)". 16. After analyzing the facts of the case and also the legal position, the bench has come to conclusion that there is no transfer within the provisions of Section 2(47)(v) in that case. 17. In the case of M/s. Binjusaria Properties Pvt. Ltd., Vs. ACIT Central Circle-4, Hyderabad, in ITA No. 157/Hyd/2011 for AY. 2006-07 dt. 04-04-2014, co-ordinate bench has analysed a similar situation of bringing to tax on the basis o .....

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ich emerges is unless there is willingness on the part of the developer to perform his part of the contract, there cannot be a transfer of capital asset as envisaged u/s 2(47)(v) read with section 53A of the TP Act. The ratio laid down as above squarely applies to the facts of the present case as the department has failed to controvert the finding of the learned CIT(A) by bringing material on record to show that the developer has taken any steps towards development activity. Further, we may obse .....

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s order being well founded and well reasoned needs to be upheld. Another crucial aspect which needs to be commented upon is the CIT(A) has also held that the transaction will not attract capital gain as the asset transferred being an agricultural land is not a capital asset as defined u/s 2(14) of the Act. This finding of the learned CIT(A) remains unchallenged and uncontroverted by the Department. For this reason also, short term capital gain computed by the AO cannot be sustained. In view of t .....

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itional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of Section 53A of the Transfer of Property Act will come into play on the facts of that case. It is only elementary that, unless provisions of Section 53A of the Transfer of Property Act are satisfied on the facts of a case, the transa .....

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