TMI Blog2019 (5) TMI 1490X X X X Extracts X X X X X X X X Extracts X X X X ..... le to pay service tax. In fact, the appellant has not acquired any development right on the basis of the facts placed before us and as per the agreements relied upon by the revenue in the show cause notice, therefore, the question of transfer of development right by the appellant does not arises. Appeal allowed - decided in favor of appellant. - Appeal No. ST/60493/2018 - Final Order No. 60568/2019 - Dated:- 22-5-2019 - Mr. ASHOK JINDAL, MEMBER (JUDICIAL) And Mr. BIJAY KUMAR, MEMBER (TECHNICAL) Shri P. K. Mittal, Advocate for the Appellant Ms. Seema Arora, Authorised Representative for the Respondent ORDER Per: Mr. Ashok Jindal The appellant is in appeal against the impugned order wherein demand of service tax for transfer of land development rights has been confirmed. 2. The facts of the case are that the appellant is engaged in the business Real Estate Development and registered with the service tax department. An intelligence was gathered and developed by the DGCEI that the appellant were not paying service tax on the consideration received for transferring land dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a crossed cheque; f) DCPC shall be responsible for obtaining requisite approvals, documents including power of attorney from land owners that DLF may require form time to time for effectively carrying out the development of the said land; g) DCPC will transfer, assign or nominate DLF in all the arrangements/agreements that DCPC will enter into with land owners for acquisition of Development Rights so as to enable DLF to enter upon the respective lands for the purposes of carrying out development of such land; h) DCPC will not sell, assign or transfer or agree to sell, assign or transfer the Development Rights to any person other than DLF pm their (DLF) nominee, in any manner whatsoever; i) DCPC will comply with terms, conditions, obligations arising out of or in respect of the Development Rights and shall ensure that there was no restriction, prohibition etc. on the sales/assignment of the Development Rights in favour of DLF; and j) DCPC will ensure that actual landowner s title, in respect of which Development Rights have been agreed to be sold by DCPC to DLF is clear and marketable and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 3.5.2016. Obviously, DCPC could not have transferred the DRs in favour of DLF Limited. Similarly, DLF Limited also could not have transferred the alleged and purported DRs in favour of any other person. It is his submission that the development rights had not been transferred by LOC to DCPC and obviously nothing has come to DLF the present appellant. At the time of transfer of DR , a separate agreement is executed conveying or transferring DR in favour of Purchaser. Hence, there is no actual transfer of DRs by DCPC either in favour of DLF Ltd or any of its associates. There is CA Certificate dt.30.4.2018, which further says that neither land nor Development Rights had been acquired by DCPC nor DCPC has transferred any DRs to DLF Ltd (the present appellant) nor to its associates nor received any consideration from DLF Limited for transfer of Development Rights . If DLF Ltd has not acquired anything from DCPC, then naturally, therefore, nothing could be passed on by it to any other person. It is also specifically submitted that the appellant DLF Ltd has not acquired DR from any other sources. v) That the Appellant had entered into an Agreement dated 02.08.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders (P) Ltd Vs. Jt Charity MANU/MH/07912011 e) Chheda Housing Development Corpn Vs. Bibijan Shaikh2007 (2) Bom CR 587 x) The authorization given to a Developer to develop the land and sell super-structure in perpetuity shall undisputedly fall within benefit arising out of the land and shall, therefore, be held to be immovable property . Once there is a transaction in relation to immovable property, that shall, undisputedly, fall outside thepurview of Service within the meaning of Section 65B(44) and no Service Tax shall be payable under Section 66. xi) Further, the Ld Commissioner noted that In the present case, when the land-owning company transfers land development rights to the developers, the developers gets the right to not only to develop project on such land but also the right to sell such developed property along with undivided interest in the land underneath and to receive payments for such transfers from the buyers. Once the land-owning companies transfers the land development rights to developer for a consideration, it is obligated to transfer the undivided interest in the land in favour of developer s buyers for w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forest produce did not involve any Transfer of Title and are only benefits of temporary nature during certain currency of time say few years. Hence these activities are Services (ii). Scope of nature of benefits transferred by the transferee of development rights. The Development Rights clearly involve following benefits:- (a) An exclusive license to enter upon the scheduled property and to develop the same. (b) An exclusive permit and authority to enter upon the scheduled property for construction and development of the buildings. (c) The permission is to enter upon the scheduled the property only for carrying out the development activities. (d) The developer is entitled to undertake development either by itself or through contractors / sub-contractors. (ii) The aforementioned benefits are only for limited purpose of developing the immovable property without involving any transfer of title in the immovable property. (iii) The term benefit to arise out of land as interpreted by Hon ble Apex Court. The term Benefit t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only the benefits where the transfer of title is involved i.e. sale is excluded from taxability. All the remaining benefits being of temporary and limited nature are taxable under aforesaid definition. (vi) Effect of Section 3(26) of general clauses at 1897 in the present dispute. Section 3(26) of General Clauses of 1897 defines the immovable property as follows: 3(26) immovable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth The immovable property as per aforementioned definition includes following:- - Land - Benefits to arise out of land - Things attached to earth - Things permanently fastened to anything attached to the earth. However, the question is whether the immovable properties excluded from 65(B) 44 from taxability of Finance Act 1994 are only for a particular type of transaction / or activity. As evident from the harmonious interpretation of the two sections i.e. 65(B) of Finance Act 1944 and Section 3(26) of Gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts from other companies. In the show cause notice issued to DCPC, service tax have been demanded only on that amount which was used by DCPC (out of total business advance or ad-hoc fund) for procuring development rights from other companies. (d) The Accounts of DLF and DCPC shows that receipt of development rights in their annual audited accounts under the head of Inventory . Once provisions of development rights have been made in annual financial accounts, it does not matter under which cover i.e. performance deposit or business advance or refundable deposit, such amount have been given. The purpose to give such amount is important than the name given to such amount of transfer. Further, the recording of transactions under the head of Inventory shows transactions have been capitalized. (e) To understand the issue of transfer of Development Rights from DCPC to DLF, Business Development Agreement dated 02.08.2006 entered between DLF Ltd. and DCPC should be read harmoniously with agreements entered between DCPC and land owning companies. All Development Agreements entered between LoCs and DCPC shows that there was transfer of Development Rights. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rights, specifically mentions as under: The parties agree that nothing contained herein shall be construed as delivery of possession in part performance of any agreement of sale, under Section 53A of the Transfer of Property Act, and/ or such other applicable law for the time being in force. It is clarified that M/s Red Topaz Real Estate Private Ltd., (RREPL) shall be the owner of the Scheduled Property and the Developer shall have the permission to enter upon the Scheduled Property only for carrying out the development activities. (i) Scrutiny of financial records of DLF revealed that after 01.07.2012, DLF had transferred their land development rights, in favour of other persons/builders/developers and for such transfers, they had received monetary consideration. This makes it clear that transfer of development rights is a commercial activity covered under the definition of service under Section 65B (44) of the Act, w.e.f. 01.07.2012. (viii) Extended period of Limitation: The investigation was initiated by the DGCEI on 21.07.2014 by conducting the search at the office premises of DLF. DLF never approached the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the parties, the sole issue emerges before us is whether the appellant has transferred any land development right in favour of M/s DLF Ltd. or not? To decide the issue, we have to go to the facts of the case, we find that as per the business module of M/s DLF Ltd. they are engaged in the business of Real Estate Development of integrated township and construction. As per their business module, the appointed the appellant to purchase the land on their behalf and thereafter to obtain certain formalities from various Govt. Department and to handover the land to the appellant as per agreement dated 02.08.2006 for further development and thereafter to transfer the same to the appellant for construction and sale the flats/properties developed by M/s DLF Ltd to various prospective buyers. At the time of transferring the constructed property to prospective buyers, there is a tri-pirate agreement between the land owning company, M/s DLF Ltd. and the prospective buyers and documents of transfer of title were executed at that time. It shows that in the entire transaction, the LOCs remain the owner of the land and as per the agreement, the development activities is taken p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances, transfer of development right does not arises. There is no such agreement placed on record that any LOCs (who are the owner of the land) has transferred any development rights to the appellant. If so, how much the consideration paid by the appellant and in that circumstances, the land owning company (LOCs) are liable to pay service tax. Admittedly, LOCs were never issued show cause notice and nor made the party to the show cause notice in question. In such a situation, the question of transfer of development right by the appellant does not arise. These findings are on the factual aspect of the case. 10. We further find that in this case, when the land-owning company transfers land development rights to the developers, the developers gets the right to not only to develop project on such land but also the right to sell such developed property along with undivided interest in the land underneath and to receive payments for such transfers from the buyers. Once the land-owning companies transfers the land development rights to developer for a consideration, it is obligated to transfer the undivided interest in the land in favour of developer s buyers for w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi in Appeal No. ST/50103-50104/2014 wherein the facts of the case are as under:- 2. The appellant Premium Real Estate Developers , New Delhi is a partnership firm and is in the business of real estate trade. The main objective of the partnership firm is to carry on the business of purchase, sale, develop, take and exchange or otherwise, whether for investment or sale in any real estate including lands to carry on the business of builders, contractors, dealers in land, building and any other activity in connection therewith and incidental thereto. 3. Sahara India Commercial Corporation Ltd. ( Sahara India for short) was interested in acquiring large parcels of land for setting up townships. Accordingly Sahara India entered into three separate but similar memorandum of understanding with the appellant firm for acquiring three large parcels of land at three different locations as follows; Name of the Associate Place/Sites Date of the MOU Area of the land (in acre intended to acquire Average r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its right to withhold 50 per cent of the amount (out of margin) to ensure that the obligations on the developer/appellant are fully discharged in terms of the MOU, and in case there was any serious default on the part of the appellant, the same could be made good by way of forfeiture of such amount, so withheld. 5. Pursuant to the MOU, the appellant firm received advance amount from Sahara India for each site. Substantial part of such amount was used by the appellant to pay to the seller or the prospective seller of the land, for agreeing to sell land to Sahara India. The details of such amount based on the payment made by Sahara India, are as follows; Place/Site Amount paid under land purchase head to appellant Area of land transferred in the name of Sahara (in acres) Amount as per sale deeds in Rs. Amount under development head Kanpur 8,98,00,000/- 38.85 2,66,99,800/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereafter having completed and covered the entire land (area) under the MOU through agreement(s) to sell, the appellant shall thereafter get the sale deed (s) executed by the cultivators/ownersof land in favour of Sahara India or its nominees, after payment of remaining amount towards purchase. Where there are several coowners in a Khata (entry in the land record) the second party/appellant shall ensure that all the co owners execute the document (sale deed) at one time. In no case shall any document be executed by part co owners. That in the case the land is owned by minor, lunatic or an insane person, appellant will get appropriate guardianship certificate from the competent court/authority and agreement to sell shall be executed only with such guardian. In case any dispute is pending before any civil court or revenue Court, regarding title, share or for partition of the property, the appellant will try its best to get the settlement arrived among the co sharers/co owners and agreement to sell shall be executed accordingly. 6.7 That it is the responsibility of the appellant for bringing the cultivators/land owners to the Registrar office along with the necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired and obtaining necessary rights for development of the land from the Competent Authority. The remuneration or payment for providing this activity has actually not being quantified in the MoU. The MoU provides that the difference, if any, of the amount being actually paid to the owner of the land and the average rate shall be payable to the second party (appellant). It is very clear from the provision of the MoU that the amount payable to the appellant is not quantified and it is more of the nature of a margin and share in the profit of the deal in purchase of land. We feel that for levy of service tax, a specific amount has to be agreed between the service recipient and the service provider. As no fixed amount has been agreed in the MoU which have been signed between the parties, the amount of the remuneration for service, if any is not clear in this case. In this regard, we also take shelter of this Tribunal s decision in the case of Mormugao Port Trust vs. CC, CE ST, Goa 2017 (48) S.T.R. 69 (Tri. Mumbai). The relevant extract is reproduced here below :- 18. In our view, in order to render a transaction liable for service tax, the nexus between the cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determine whether the payments are indeed recompense for a service before ascertaining whether that identified service is taxable. 29. We feel that since the specific remuneration has not been fixed in the deal for acquisition of the land we are of the view that both the parties have worked more as a partner in the deal rather than as an agent and the principle, therefore we are of view that taxable value itself has not acquired finality in this case. 30. It is also seen that some of the MoUs were not fully executed at the time of the issue of the show cause notice for example, in the case of MoU dated 15/11/2003 entered between Sahara India Ltd. and the appellant, the agreement is for provisioning of 100 acres of land at Village Rora, Distt. Lalitpur, U.P. and for this purpose an amount of ₹ 6,75,00,000/- have been remitted for land cost andan amount of ₹ 1,66,50,000/- have been remitted for the purpose of stamp duty and registration. Thus, a total amount of ₹ 8,41,50,000/- have been remitted to the appellant out of which a total amount of ₹ 3,66,32,000/- have been spent by the appellant for procurement and registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. As immovable property has not been defined in the Finance Act, 1994, therefore, as per Section 3 (26) of the General Clauses Act, 1897, the immovable property means as under:- (26) immovable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth; 16. On going through the said definition, the immovable property includes land benefit arising out of land. In the case of transfer of development rights of the land, therefore, it is to be seen in the legal aspect whether the benefit arising out of land can be equated to transfer of development rights of land or not? The said issue has been examined by the Hon ble Allahabad High Court in the case of Bahadur and Others vs. Sikandar and Others wherein the Hon ble Apex Court observed as under:- Therefore, the principal question we have to consider is whether the right to collect dues upon a given piece of land, the property of the alleged lessor, is a benefit to arise out of land within the purview of Section 3 of the Registration Act. In our opinion, the right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auses Act. From these judgments what appears is that a benefit arising from the land is immovable property. FSI/TDR being a benefit arising from the land, consequently must be held to be immovable property and an Agreement for use of TDR consequently can be specifically enforced, unless it is established that compensation in money would be an adequate relief. Further, the issue was examined by the Hon ble High Court of Bombay again in the case of Shadoday Builders Private Ltd. and Ors. Vs. Jt. Charity Commissioner and Ors (supra) wherein the issue was in respect of sale of transferrable development right is immovable property or not? The Hon ble High Court observed as under:- 5. The principal issue which arose before the learned Joint Charity Commissioner as to whether the TDR could be termed as a movable property, is concluded and is no more res integra in view of the judgment of the Division Bench of this court reported in 2007(3) Mh.L.J. 402 in the matter of Chheda Housing Development Corporation ..vs.. Bibijan Shaikh Farid and ors. Para no.15 of the said judgment is material and is reproduced hereunder. 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictum of the Division Bench is later on followed by a learned single Judge of this court in 2009(4) Mh.L.J.533 in the matter of Jitendra Bhimshi Shah ..vs.. Mulji Narpar Dedhia HUF and Pranay Investment and ors. The learned judge relying upon the judgment of the Division Bench in Chheda Housing Development Corporation (supra) has held that the TDR being an immovable property, all the incidents of immovable property would be attached to such an agreement to use TDR. In view of the judgments of this court (supra), in my view, the order of the Charity Commissioner that no permission under Section 36 is required as TDR is a movable property cannot be sustained and therefore, the application filed by the respondent no.2 - Trust under Section 36 of the said Act would have to be considered on the touch stone of the said Section 36 and also on the touch stone of the principles applicable to such a sale by a Trust. As the Hon ble High Court observed in the case of Sadoday Builders Private Ltd. and Ors. (supra) that transferrable development right is immovable property, therefore, the transfer of development rights in the case in hand is termed as immovable property in term ..... X X X X Extracts X X X X X X X X Extracts X X X X
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