TMI Blog2021 (3) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... addition were deleted - HELD THAT:- What was transfer by the assessee was, what it got and not anything which it never acquired or owned. No amount was paid in assessment year under appeal for transfering the development right. The rights assigned through agreement Dated 21.07.2006 was conditional in nature. It was also agreed that all the terms and conditions of the agreement Dated 28.04.2006 shall apply to the assignment agreement also. It was also agreed that what was being paid by EMMAR was a refundable/adjustable security deposit which was to be adjusted only according to terms and conditions mentioned in the agreement. In case EMMAR would not have perform its obligation, the said security deposit would have stood forfeited. Therefore, the fulfillment of the obligation to construct and develop the project within the stipulated time was a condition precedent for the assessee to the satisfaction of the PCL as mentioned in the assignment agreement Dated 21.07.2006. Therefore, the security deposit received by the assessee for conditional transfer could never be treated as an income of the assessee. All the conditions of the original agreement shall have to be satisfied and com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of rights made to EMMAR-MGF Land Ltd., is to be assessed in the hands of the assessee. The A.O. accordingly made addition of ₹ 86 crores being the profit accrued to the assessee on sale of development rights during the assessment year under appeal. 3.1. The assessee challenged the addition before the Ld. CIT(A). The Ld. CIT(A) noted that the issue arose from the facts which are enumerated hereinafter (i) The assessee namely SSP Aviation [Formerly known as SSP Properties P. Ltd.,] entered into a collaboration agreement dated 28.04.2006 with Puri Construction Ltd. ( PCL ) pursuant to which PCL transferred development rights in favour of the assessee pertaining to land measuring 19.06 acres. (ii) On 21.07.2006 the assessee entered into an agreement known as Agreement cum Nominations Agreement with Emmar MGF Land Ltd. (Emmar), wherein the assessee transferred the development right to Emmar for a consideration of ₹ 86 crores. (iii) In the opinion of the assessee since the agreement dated 21.07.2006 with Emmar was subject to fulfillment of certain conditions, therefore the consideration of ₹ 86 crore being the sale of development rights, was not liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee or its assignee. It was submitted that decisions relied upon by the A.O. are not applicable to the facts and circumstances of the case. It was, therefore, submitted that no income accrued to assessee in assessment year under appeal. 3.4. The Ld. CIT(A) considering the material on record in the light of findings of the A.O. and submissions of the assessee held that no income accrued to the assessee of the impugned amount in assessment year under appeal, therefore, addition of ₹ 86 crores were deleted and appeal of assessee has been allowed. The findings of the Ld. CIT(A) based on relevant clauses of the Agreement in question in paras 5 to 8 of the impugned Order are reproduced as under : FINDING 5. I have gone through the above submissions of the appellant and have perused the AO's order and have considered the facts and evidences on record and the case laws relied upon both by the appellant as well as the AO. From the above grounds of appeal and submission of the appellant it is seen that the only issue which requires to be adjudicated. Whether the income has accrued or not to the appellant, on the date of the signing of the agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en made aware that the PCL Group has already made huge investments in time and money with respect to the Project Land in : a. acquiring the land; b. getting the land licensed from Group Housing; c. paying EDC and other charges aggregating to ₹ 27.0 Crores (Rupees Twenty Seven Crores and Eighty Lacs only) approximately; d. settling the claim of M/s CREF Finance Ltd., formerly known as ITC Classic Real Estate Finance Ltd. and its successor in interest ITC. e. getting the licenses revalidated from time to time at its own cost and expense; f. furnishing of requisite Bank Guarantee in favour of DTCP, Haryana; and g. furnishing of the Bank Guarantees for ₹ 5 (Five) Crores in favour of the Registrar General of the Hon'ble High Court of Delhi in terms of the order dated 16.04.2004 in I.A.No.8570 of 2003 and I.A.No.8906 of 2003 in Suit No.1614 of 2003 pending for adjudication in the Hon'ble High Court of Delhi, h. and the PCL Group is desirous of expeditiously unlocking its investments by resolving all pending issues and by developing and marketing the Project Land with SSPPL, who is a reputed developer having the necessary experti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing development projects in Gurgaon (specifications annexed herewith as Annexure II to this Agreement) so as to enable the realization of the best possible salable rate; (h) It will appoint consultants and architects of international repute to the consultation with the PCL Group for the implementation of the Project as envisaged in this Agreement; (i) It will get the development plans and building plans with respect to the development of the Project Land and the said Complex approved within 180 (One hundred and eighty) days after the PCL Group executes, signs and verifies all the necessary documents, applications and papers and supplies all the requisite information and documents and papers, as and when called upon by SSPPL un connection therewith including the necessary authorizations, authorities, attorneys etc.; (j) 50% (fifty percent) of the salable built up area would be ready for occupation within a period of 36 (Thirty-six) months of the approval/ sanction of the development plans and building plans, and the balance 50% (fifty percent) of the salable built up area would be ready for occupation within a period of 6 (Six) months from the above said date; (k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant agreed to share the cost of settlement of dispute with Ansal Buildwell amounting to ₹ 36.50 crores in equal proportion. The relevant Clause of the agreement in this regard is Clause A.32 which provides as under : A.32 That in consideration of the mutual covenants contained herein, the PCL Group and SSPPL have entered into this agreement, which is in the nature of a Joint Venture Agreement and it is agreed that after settlement of all disputes with ABL qua the Project Land and subject to the other terms recorded in this Agreement, the PCL Group and SSPPL shall jointly bear, from the date of this agreement in equal measure, all further costs (including but not limited to the cost of licensing of balance unlicensed land, payment of EDC for unlicensed balance land, bank guarantee charges, charges for renewal of licenses, fee payable to consultants and architects, payment made to contractors) of development works and construction of the said Complex upon the Project Land and the developed / constructed / build-up area shall be shared in equal proportion by the PCL Group and SSPPL in the manner hereinafter provided. Further, Clause 2 of the Supplementary Agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable certain rights as mentioned supra by the FIRST PARTY to SECOND PARTY. This amount of ₹ 86.00.00.000 IRupees Eighty Six Crores only) shall be payable by the SECOND PARTY to the FIRST PARTY on and after successful completion of the project by the SECOND PARTY to the satisfaction of PCL group and as per the terms and conditions of agreement date 28.04.2006 specially with reference to Clause 3(i) related to timely completion of the project. (iii) However, it is mutually agreed amongst the parties that in case of successful and timely completion of the project in consonance with Clause 3(j) of the agreement dated 28.04.2006 the security deposit as mentioned herein above would stand adjusted against the consideration mentioned supra. In case of default / failure of the SECOND PARTY in fulfilling its part of the obligations under this agreement, the aforesaid security deposit shall stand forfeited. THEREFORE, IT IS HEREBY AGREED, DECLARED, CONVENANTED AND RECORDED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS: 1. That against: (i) (ii) . (iii) However, it is mutually agreed amongst the parties that in case of successful and timely com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , only on the conditions namely : (a) on the successful completion of the project by Emmar and (b) on the completion of the project within the time bound period i.e. 50% (fifty percent) of the project should be ready with 3 years of necessary approval and the balance 50% of the project is to be completed within further 6 months thereon. Hence, it is very clear from the two agreements, that the income of ₹ 86 crore to the appellant accrues only when both the conditions are cumulatively fulfilled. Therefore without any doubt it is seen that both the agreements dated 28.04.2006 and 21.07.2006 are interconnected and inextricability linked with each other. Therefore, in my humble view the AO's contention does not appear to be correct. In coming to the above conclusion I draw support from the following :- 5.6.1 . Accrue means to increase, to augment, to be added as increase, to arise or spring as a natural growth or result . In order that income, profit or gains may accrue to a person, it is necessary that he must have acquired a right to receive the same or a right to the income, profits or gains has become vested in him, though its valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds. It will bear the character of income only at the time when it accrues in his hands and it becomes liability to tax. What is relevant to determine is whether money received by the assessee was his income or simply an advance. Crediting the sum so received in the books under any head is also not relevant. If no income has resulted, it cannot be said that the income has accrued merely on the ground that the assessee has been following the mercantile system of accounting. The facts and the evidence on the basis of agreement entered between the parties shows that the money becomes due to the appellant only on and after successful completion of the project by Emaar and as per the terms and conditions of agreement dated 28.04.2006 specially with reference to Clause 3(j) which relates to the timely completion of the project. Thus, the contention of the AO is incorrect that on signing of the agreement whereby development rights are given to Emmar, it tantamounts to the sale of development right as such. Further it is also observed that the appellant has not even received any consideration/advance or has acquired the right to receive the income during the year under consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest- free performance deposit, this has not been shown to be representing part of sale consideration for the. development rights. It cannot be so, since, as observed, no such development rights came into existence during the year. In view of the above, finding no error whatsoever with the order of the CIT(A), the same is upheld rejecting the grievance sought to be raised by the Department. In the case of appellant also, the condition is that the amount of ₹ 86 crores shall become due to the appellant on successful completion of the project. Since, like Finian Estates Developers, where the income on account of development rights shall accrue only when a license is granted which is conditional, in appellant's case also, the income on account of development rights shall accrue on fulfillment of a condition only and not before that. 5.6.5. Further also, the time of accrual of income does not always depend upon date of signing of the agreement though it is relevant in certain circumstances. The terms and conditions laid down by the parties to the agreement are the relevant factors which only determines, as to when income would accrue in the hands of the recipient. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e charging of capital gains which would arise on handing over of the possession in part performance of the contract. However, in appellant's case, land as such was not transferred by PCL to the appellant and therefore it could not have transferred land in favour of Emaar. It was only the development rights in relation to the land that were subject matter of transaction and that too on the fulfillment of the conditions laid down in the agreement. The land remained in the ownership of PCL which would be transferred to the purchaser of the flats or the houses or to the society which might be formed of the purchasers. Thus, the appellant's case is not the case of sale of a land but only of dealing in development rights as stock in trade or adventure in the nature of trade as has been held observed by the AO in the assessment order also. Handing over of possession of land to Emaar was not a part performance of contract of sale of the land but it was only a process for getting the land developed through the development rights. 6.2. The facts of Hillside Construction Company Pvt. Ltd. Vs. Deputy Commissioner of Income Tax in brief are as under: The dispute was regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the payments were received in subsequent years, the entire income had accrued during the year. The facts of Hillside Construction Co. (HSC) are not applicable due to the following reasons : (a) No condition is attached in the case of HSC as to when the right to receive the sum would become income of the transferor. However, in appellant's case, right to receive income would accrue to it only on the successful completion of the project and also on timely completion of the project. (b) In HSC's case, land was transferred along with development rights, therefore, income on account of development right had accrued on sale of the land. However, in the present case, there is no sale of the land which squarely remained in the ownership of PCL; (c) The Tribunal in HSC's case observed that the assessee jointly with the trust had handed over possession of the land along with development rights against which part consideration has been received and therefore, the transfer was complete in the relevant year under section 53A, of the Transfer of Property Act. It shows that, it was a case of sale of the land and not merely a case of assigning of development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r appeal, assessee entered into an agreement with Puri Construction Ltd., Group [ PCL ] on 28.04.2006 copy of which along with supplementary agreement are filed in the PB. According to this agreement, assessee undertook to develop the project land for development thereof as per terms contained in the agreement. Certain disputes with regard to project land were prevailing with Ansal Buildwell Ltd., According to the agreement, assessee was entitled to assign development contract to any of its group company. Accordingly, assessee entered into an agreement Dated 21.07.2006 with its associate company namely EMMAR copy of which is filed in the PB. According to Clause-(M) of the said agreement [PB-55], assessee was to receive interest free/adjustable security deposit of ₹ 50 crores against due performances of the project development agreement Dated 28.04.2006. According to Clause-(N) [PB-55] the total amount of ₹ 86 crores was liable to be paid by EMMAR to the assessee after successful completion of the project by EMMAR. He has referred to PB-101 which is balance-sheet of assessee for the A.Y. 2008-2009 to show that ₹ 44 crores have been received as security deposit f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form the duties as per the Collaboration Agreement. The Ld. CIT(A), therefore, rightly concluded that simply on signing the impugned agreement, amount of ₹ 86 crores did not accrue to the assessee and as such the view taken by the Ld. CIT(A) is in accordance with the decision of the Hon ble Supreme Court in the case of E.D. Sasoon Company vs., CIT (supra) and Judgment of the Hon ble Delhi High Court in the case of CIT vs., Dinesh Kumar Goyal (supra) relied upon by the Ld. CIT(A). He has also submitted that the issue is also covered by the Order of ITAT, Delhi G-Bench, Delhi in the case of Saamag Developers (P.) Ltd., vs., ACIT, Central Circle-19, New Delhi [2018] 173 ITD 350 (Del.) (Tribu.) in which in para 9.1 the Tribunal held as under : 9.1. The assessee-company filed all the agreements in question on record which were the basis for making the addition against the assesseecompany in A.Y. 2008-2009. The assessee-company rightly contended that income from transfer of development rights would accrue as per I.T. Act when assessee-company would receive approval for construction for specified FAR area from GDA. Unless and until it does not receive the approval from GDA, inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in question that the development rights were acquired by the assessee vide agreement Dated 28.04.2006 from PCL etc., for execution of the project which were incomplete. The income from such rights was to accrue only on conduct and completion of the project and not otherwise. The development rights with the assessee are also contingent because if due to any reason there is no sale, no amount will accrue to the assessee company, therefore, the income of the assessee will depend on the contingency when the sale of the property would start. The assessee through the impugned agreement agreed to develop the project based on various terms and conditions mentioned in the agreement. M/s. PCL was the owner of the land in question and had incurred initial expenses on obtaining various approvals/licenses from Government Authorities. The revenue from this project was to accrue to the assessee as well as PCL based on the sale proceeds receivables coming out from the project to be deposited in Escrow Account. After compensating PCL to the extent of ₹ 24 crores initially, the funds in Escrow account as accruing from the sale of the project were to be utilised for construction and developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall have to be satisfied and completed by EMMAR only. Then income would accrue to the assessee. The assessee also explained that it has followed POCM method and in A.Ys. 2009-2010, 2010-2011 and 2011-2012 assessee has recognized the income and offered for taxation. In A.Y. 2009-2010 even the A.O. has accepted the similar explanation of assessee in scrutiny assessment under section 143(3) of the I.T. Act. It is also interesting to note that in A.Y. 2009-2010 the same A.O. passed the same assessment order under section 143(3) of the Act in the case of the assessee on the same day. The A.O. accepted the explanation of assessee after recognizing the income based on both the agreements and accepted the explanation of assessee without making any addition. But, in assessment year under appeal, the same A.O. on the same day took a different view against the assessee which is not permissible in Law. It is well settled Law that Income Tax Authorities shall have to follow the Rule of Consistency. But, in the present case, the A.O. did not do so. The Ld. CIT(A) on consideration of the Clauses of both the agreements in question rightly found that they are inextricably linked with each other in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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