TMI Blog2015 (8) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... ht 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 incorporate a clause that possession was handed over much earlier to defeat the levy of capital gains. It also does not answer sale to existing tenant who is in possession of property from a longer period. Therefore taking possession alone in to consideration for levy of capital gains ignoring the date of agreement and terms of agreement is not according to law. - Decided in favour of assessee, - I.T.A. No. 1578/HYD/2014 - - - Dated:- 31-7-2015 - SHRI B. RAMAKOTAIAH AND SHRI SAKTIJIT DEY, JJ. For The Assessee : 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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent work, that the provisions of sec.2(47)(v) of the Income Tax Act r.w.s. 53A of the Transfer of Property Act were applicable to the transaction in question and that the capital gains arising on transfer of the assessee's share of land to the developer was liable to tax in the AY 2005-06. 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 concluded that transfer in terms of Section 2(47)(v) had taken place during the AY 2005-06 and brought the capital gains to tax. AO thus holding that assessee has handed over possession of the property on 07- 12-2004 brought the capital gains on the basis of the deemed sale consideration calculated on construction cost of ₹ 3,070/-, arrived at the sale consideration at ₹ 9,33,09,580/- dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 dt. 09-04-2014 [365 ITR 249 (AP)]. With reference to the contention that developer had not undertaken any construction activity in part performance of the agreement, Ld.CIT(A) relied on the decision of the ITAT in the case of Cheedi Srinivas in ITA No. 1651 1652/2012 dt. 31-07-2014 held that though the municipal approval had been granted in the subsequent year, the developer had applied for GHMC approval and other ancillary activities in the assessment year. Because there is no construction 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 lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement, as undertaken by the assessee, the capital gains typically arises from two transactions: 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 brought to tax by the Assessing Officer in the order appealed against. 6.11 The assessment of capital gains on transfer of land to the developer in accordance with sec.2(47) is, therefore, upheld . 6. Contesting the above, assessee is aggrieved and raised the following grounds: 1. The order of the Ld. CIT(A)-IV, Hyderabad is erroneous both on facts and in law in dismissing the appeal filed by the assessee. 2. The Ld. CIT(A) ought to have appreciated the fact that the AO erred in reopening the assessment by issue of notice us 148 without there being any new material on record. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out that AO relied on first agreement which does not pertain to the impugned assessment year but AY. 2004- 05. Therefore, looking at either way, capital gains cannot be taxed in the impugned assessment year. 10. Ld. DR however, defended the action of AO and CIT(A) to submit that assessee having given possession in the year under consideration capital gains is correctly levied in the impugned assessment year. 11. We have considered the rival contentions and perused the paper book placed on record and the orders. 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 case of Potla Nageswara Rao Vs. DCIT [365 ITR 249 (AP)], which Ld.CIT(A) relied upon, the capital gains is certainly attracted on entering into development agreement, even if con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 developer. Even though the owner admitted to grant specific GPA to the developer to enable it to secure sanctions from other authorities, they are all part of the development agreement, but there is no specific undertaking that the property was handed over to the developer as part performance under the Transfer of Property Act. Therefore, reliance on these clauses of first agreement by the Revenue does not help its case. Therefore, the Revenue also relied on the second development agreement dt. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) in allowing assessee's grounds. 15. Assessee relied on the co-ordinate bench decision of ITAT, Hyderabad 'B' Bench in the case of M/s. Fibars Infratech Pvt. Ltd., Vs. ITO in ITA No. 477/Hyd/2013 dated 03-01-2014 in that, the co-ordiante bench has analysed the willingness to perform and whether deemed transfer 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 words, the proposition laid down by their Lordships can at best be inferred as that when conditions under Section 53A are satisfied, and when the assessee enters into a contract which is a Development Agreement, in the garb of agreement of sale, it is the date of this Development Agreement which is material date to decide the date of transfer. However, by no stretch of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the aforesaid, we do not find any reason to interfere with the order of the CIT(A) . 19. In the case of Ms. K. Radhika Vs. DCIT in ITA No. 208/Hyd/2011 the co-ordinate bench has held as under: 48. We are in considered agreement with the view so expressed in this commentary on the provisions of the Transfer of Property Act. It is thus clear that 'willingness to perform' for the purposes of Section 53A is something more than a statement of intent; it is the unqualified and unconditional 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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