TMI Blog2021 (3) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... eral Power of Attorney. After obtaining the consent from the land owners, the assessee shall take appropriate steps to obtain No Objection Certificate, other permissions required for undertaking the Project within 12 months from the date of the JDA. As seen from the above, it is actually mentioned that the assessee is only permitted by the land owners to develop the scheduled property as residential apartment buildings and also mentioned that it cannot be construed as delivery or possession in terms of Section 53 of the T.P. Act r.w.s. 2(47)(v) of the Act. Legal possession of scheduled property are continue to remain with the possession of the land owner. There is a time limit to get the permission from the competent authority which is 12 months from the date of Agreement, thereafter 60 months time to complete the construction of residential apartment buildings form the receipt of the sanction plan, thereafter grace period has been given which show that the time is the essence of the contract. In the Assessment Year under consideration, nothing is brought on record to show that the assessee got approval of the sanctioned plan vis- -vis any construction is started. Being so, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 194-IA of the Act in respect of refundable deposit paid. 2.3. The learned AO and CIT(A) have erred in invoking section 194-IA in respect of the impugned transaction without appreciating that the (a) section 194-IA was introduced by Finance Act 2013, with effect from 01.06.2013; (b) assessee had credited the land owners in the books of accounts, on 29.05.2013 (i.e.) before introduction of section 194-IA. 2.4. The learned AO and CIT(A) have erred in not appreciating that existence of income is a sine qua non for attracting TDS provisions and that the refundable security deposit paid did not constitute income in the hands of land owners. 2.5. Without prejudice to the above, the learned AO and CIT(A) have erred in concluding that the refundable security deposit is consideration for transfer of immovable property made by the assessee to land owners and liable for TDS under section 194-IA of the Act, without appreciating that: a. The promise made by the assessee was to construct the superstructure and transfer a share in it to the land owners; constituted consideration for transfer of land; b. That every payment in relation to development a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys accordingly. 3. The facts of the case are narrated below : 3.1 The assessee is an Indian Company engaged in the business of real estate development. In the course of its business, the assessee entered into joint development agreements with 54 parties (hereinafter referred as land owners ) on 03-06-2013. The said agreement had been entered in respect of 11 acres of land located in Ranga Reddy district of Andhra Pradesh. As per the agreement, the assessee agreed to construct and deliver a share of the total built up area (31.66%) along with car parking spaces, terrace areas, private areas and all other built up areas to the land owners in consideration of 68.34% of land being conveyed to it by the land owner. 3.2 In terms of the agreement, a sum aggregating to ₹ 21,85,00,000/- had been paid by the assessee to the land owners as interest free refundable security deposit . This deposit is refundable to the assessee after 18 months of commencement of the construction. As per clause 15.3 of the Agreement the security deposit paid by the assessee is recoverable through sale of constructed area of the land owners. The Agreement also recognizes that any deficit shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the same is not in the nature of consideration for transfer. The assessee also argued that the accounting treatment of the refundable security deposit as current asset in its books of account coupled with the accounting treatment of the refundable security deposit as current liability in the books of land owners supports its argument that the refundable security deposit cannot be characterized as consideration for transfer of immovable property. 3.7 The A.O. rejecting the contentions of the assessee passed the impugned order on 31.12.2013. The A.O. in the impugned order has held that the assessee has failed in deducting tax under section 194-IA from refundable security deposit given to the land owners. The A.O. has reasoned that the refundable security deposit given to land owners constitutes consideration for the transfer of the immovable property (land) under section 194IA. In arriving at this conclusion, the A.O. relied on the meaning of the term consideration as defined in section 2(d) of Indian Contract Act 1872. The A.O. concluded that out of 54 land owners, the assessee is in default of not discharging TDS liability in respect of 15 land owners who were paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immovable property. 3.12 The learned AR submitted that the term consideration is not defined in the Act. The Bombay High Court and the Kerala High Court in Keshub Mahindra v. CGT [1968] 70 ITR 1 and CGT v Smt C K Nirmala 215 ITR 156 respectively held that the term consideration in the absence of a definition under the direct taxes legislation would carry the meaning as defined in the Indian Contract Act. Section 2(d) of the Indian Contract Act defines the term consideration in the following manner: When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. 3.13 Evidently the definition of consideration under the Indian Contract Act broadly means, a promise, an act or abstinence by the promisee. Such act, abstinence or promise could be past, present or future. Such act, abstinence or promise should be at the desire of the promisor. 3.14 He relied on the judgment in the case of The House of Lords in Currie v Misa (1875) 10 Exch. 153, 162 [as quoted at Page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (hereinafter referred to as the Project / Residential Apartment Building/s), subject to the terms and conditions hereinafter contained: (a) The Second Party / Developers are hereby empowered and authorized to develop the Schedule Property into Residential Apartment Building/s at their cost. (b) The Second party / Developers' shall construct and deliver to the First Party 31.66% of the total super built-up area comprised in the Residential Apartment Buildings to be constructed in or upon the Schedule Property, together with 31.66% car parking spaces, terraces areas, private garden areas and all other built up areas, hereinafter referred to as OWNERS' CONSTRUCTED AREA' which is further detailed below. The remaining 68.34% of the total super built-up area in the Residential Apartment buildings to be constructed in the Schedule Property together with 68.34% of car parking spaces, terraces areas, private garden areas and all other built up areas is for the share of the Second Party and shall hereinafter be referred to as DEVELOPERS' CONSTRUCTED AREA which is further detailed below. (c) In consideration of the Second Party carrying out and completing the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the First Party shall be recovered through sale of part of the OWNER S CONSTRUCTED AREA . The First Party shall sell through the Second Party, after 18 months from the date of Second Party has commenced construction, a minimum of ₹ 1,50,000/- (Rupees One Lakh Fifty Thousand) sq ft from out of the OWNERS CONSTRUCTED AREA to be identified by the First Party at a price to be mutually agreed and fixed by the First Party and the Second Party, It is clarified as long as the Second Party offers to sell the aforesaid portion of the OWNERS' CONSTRUCTED AREA' at price not lower than Its own selling price, the First Party shall not unreasonably withhold its consent for selling the aforesaid area. The First Party shall authorise the Second Party to collect and recover from the purchasers this portion of OWNERS' CONSTRUCTED AREA' all amounts and the amount so collected shall be appropriated against the refund of the Security Deposit amount to be made by the First party. Any deficit amount shall be made, good by the First Party on completion of the development against hand over 01 remaining portion of the OWNERS' CONSTRUCTED AREA' and excess if any collected by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion for transfer of land by the land owner. In this connection one could refer to the following observations of the Kolkata Tribunal in ITO v Vikas Bahal (2010) 131 TTJ 229: The assessee along with his co-owners entered into a development agreement on 31st Oct., 2000 with the developer for development and construction activity on the said premises and handed over the impugned land accordingly to the developer. As per said agreement, placed in the paper book at pp. 2 to 23, the developer was to construct on the said land two six storied buildings consisting of flats shops, common parking area etc. As per the said agreement, upon development of the premises, the developer shall retain with him as his share 67.5 per cent of the land and constructed area and the balance 32.5 per cent land and constructed area shall be allotted to all the five owners of the land. As per second schedule to the said agreement, the assessee's 1/5th share out of 32.5 per cent land and constructed area comes to 6,225 sq. ft. Therefore, in effect, vide the said development agreement, the owners of the land, i.e., assessee and other co-owners, transferred 67.5 per cent of the total land belonging to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer. 3.29 According to the learned AR, the amount paid to the land owners under clause 15 of the said agreement is in the nature of refundable security deposit . In fact the A.O. has also accepted in para 11 of the impugned order that the amount paid by the assessee is in the nature of refundable security deposit. 3.30 In the real estate industry the land owners generally obtain refundable security deposit from the developers to ensure proper execution of terms of agreement. It is repaid by the land owner to the developer on achieving certain level of construction or complying with certain terms and conditions as stipulated in the development agreement. 3.31 The learned AR submitted that in the case of the assessee the land owners have agreed to repay the deposit to the assessee after 18 months of commencement of construction. This has been specifically stipulated in clause 15.3 of the development agreement. This fact has been accepted by the A.O. in para 13 of the impugned order.Despite noticing the fact that the security deposit would be repaid by the land owners, the A.O. held that the refundable security deposit constitutes payment of consideration for transfer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation (iii) to section 269T of the Act also supports the proposition that the amount of deposit is repayable on demand. The definition reads as follows: loan or deposit means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes loan or deposit of any nature. 3.35 According to the learned AR, the land owner in the instant is contractually bound to pay the impugned amount to the assessee. The land owner received the said amount with an obligation to repay the same to the assessee. The land owners cannot appropriate the said amount. Under such circumstances, the impugned amount cannot be characterized as consideration for transfer of immovable property. 3.36 The term consideration in section 194IA is followed by the expression for transfer of any immovable property . This indicates that the term consideration should be understood to include such payments which are made in order to achieve the transfer of the immovable property. Refundable security deposit is insisted upon by the land owner to ensure that the developer adheres to the stipulations of the development ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the part of the assessee in refunding such deposit, the same shall be adjusted at the time of final delivery, by the developer against the area to be handed over to the assessee applying a mutually agreeable rate. Considering these specific clauses and peculiar facts and circumstances of the case, we are of the considered view that the capital gains in the case on hand, are liable to be taxed only in the year, in which the developed area, coming to the share of the assessee, has been handed over to the assessee, in terms of the development agreement. In the present case, as the undisputed facts on record reveal, the developer has not undertaken any developmental activity to execute the construction work even today, even though in the final supplemental agreement dated 18th October, 2007 provided extension of time for the execution of the construction, by stating that the construction activity should be completed and developed area coming to the share of the assessee should be handed over within a further time of 48 months from the date of that supplemental agreement. 12. It is an undisputed fact that as on date, there was no developmental activity on the land which is subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment of the project and not with the intention to transfer of land. The above facts are fortified in the light of clause 5 of the development agreement which gives an option to the developer to purchase the land if they want @ ₹ 3.50 crores per acre. It is also a fact that assessee received a security deposit of an amount of ₹ 39,55,95,900/- and not the proportionate amount of ₹ 41,94,75,000/- which was not disputed by ld. DR at the time of hearing. The assessee has not received any additional amount over and above the amount as mentioned in the orders of the authorities below. We agree that the security deposit received by assessee and shown as liability is in order and same cannot be considered as sale consideration for transfer of land. (emphasis supplied) 3.40 The decision of Bangalore Tribunal in Shri V Pushpraj v ITO ITA No 686/Bang/2011 also supports the proposition that a refundable deposit does not constitute consideration for transfer of land by the land owners in case of a development agreement. 3.41 The learned AR submitted that one may in this connection also refer to Circular No 718 dated 22-08-1995. The CBDT in this Circular held in conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e set aside. Refundable security deposit does not constitute income in the hands of the land owner TDS provisions are not applicable: 3.46 The learned AR submitted that the conclusion of the A.O. that the refundable security deposit is in the nature of consideration for transfer of immovable property is also liable for rejection on the ground that the same does not constitute income of the recipients viz., land owners. The question of deducting tax at source under the Act does not arise if the amount received by the payee does not constitute income in his hands. Existence of income is a sine qua non for attracting TDS provisions. This is the mandate of section 4(2) read with section 190 of the Act. 3.47 It is the submission of the learned AR that Section 4 is the charging provision under the Income Tax Act, 1961. The charge is defined vis- -vis a person who is the recipient of income. The charge is in respect of the total income of a person for any year. Sub-section (2) of section 4 establishes a basis for the discharge of this tax. Sub-section (2), provides that in respect of income chargeable under sub-section (1), income-tax shall be deducted at source where it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gains and income from other sources. The scheme of the TDS provisions applies not only to the amount paid, which bears the character of income such as salaries, dividends, interest on securities etc. but the said provisions also apply to gross sums, the whole of which may not be income or profits in the hands of the recipient, such as payment to contractors and sub-contractors. 3.51 The decision of Supreme Court in Vijay Ship Breaking Corp. v CIT [2009] 314 ITR 309 is an authority for the proposition that income exempt from tax is not liable for deduction of tax at source under section 195. Following are some of the decisions wherein it has been held that income exempt from tax is not liable for deduction of tax at source. Jagannath Temple Managing Committee vs. CIT [2008] 299 ITR 56 (Ori) SLP dismissed [2009] 310 ITR (St.) 0007; CIT vs. HCL Info System Ltd [2006] 282 ITR 263 (Del); Hyderabad Industries Ltd. vs. ITO [1991] 188 ITR 749 (Kar) 3.52 The CBDT Circular No. 3 of 2002 dated 28.06.2002 and Circular No. 4 of 2002 dated July 16 2002 ([2002] 256 ITR (St.) 22) states that no tax is required to be deducted in respect of any amounts payable to anybody or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved It is trite to say that to constitute income the recipient must have control over it. The amount received must be at the disposal of the assessee (land owner / seller in the present case). Only on satisfaction of this essential requirement, a receipt could be regarded as income chargeable to tax. In the instant case, the assessee has paid refundable security deposit to the land owners. A security deposit is not covered under any of the limbs of section 2(24). It is also not understood as income in its natural import. The land owners are contractually bound to repay the deposits to the assessee. The lnad owners are thus have no control over the security deposit. 3.57 In view of the above, the learned AR submitted that the conclusion drawn by the A.O. in the impugned order that the amount of security deposit constitutes consideration for transfer of immovable property (and thus income) is bad in law. The assessee under such circumstances and law applicable is not obliged to withhold taxes from refundable security deposit under section 194IA. 3.58 The learned AR further submitted that the A.O. has stated that the condition of year of deductibility under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be imported in section 194IA in the absence of a specific mandate. 3.62 The learned AR submitted that inview of the above, it can be stated that the aspect of transfer in context of section 194IA should be understood in the same manner as it is understood in common parlance. Normally, transfer of an immovable property is effected when the sale deed is registered with the stamp authorities. The title in the immovable property passes on to the buyer on the execution of the registered conveyance deed [Refer among others Alapati Venkataramiah v. CIT 57 ITR 185 (SC), CIT v. Periera Sons Pvt Ltd 184 ITR 461 (Ker)]. However the event of transfer should not be constructed to mean a completed event in context of section 194IA. If the term transfer is inferred as a completed event then one cannot give effect to the deduction from payments made prior to completion of transfer. Furthermore, there would generally be no consideration after the completion of transfer to invite or warrant a deduction. The purpose of section 194IA under such an interpretation would easily be frustrated. 3.63 Thus, the learned AR submits that in view of the above it could be stated that the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated in section 2(47)(v) cannot be imported to section 194IA so as to deem that the event of transfer therein is completed on the date of execution of the development agreement. It is a settled principle of law that a deeming fiction cannot be stretched beyond the purpose for which it was created. To quote the Supreme Court in CIT v Mother India Refrigeration Industries 155 ITR 711: the legal fictions are created only for some definite purpose and these must be limited to that purpose and should not be extended beyond that legitimate field. 3.67 The learned AR submits that as already discussed, the assessee in the instant case has not made any payment during the relevant previous year which could be regarded as payment of sum towards consideration for transfer. The impugned payment (refundable security deposit) cannot be characterized as sum paid as consideration for transfer. The occasion to deduct tax under section 194IA had therefore not arisen in case of the assessee. 3.68 Without prejudice, the learned AR submits that a development agreement entered by the assessee cannot be characterized as an agreement to sell in the absence of a legal fiction similar to one under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) the Hon ble Supreme Court held as under: Section(s): Income-tax Act, 1961, ss. 005(2),009(1)(i), Expln. (a),009(1)(vii),115A(1)(b)(B) WORDS AND PHRASES PERMANENT ESTABLISHMENT MEANINGS OF The appellant, a non-resident company incorporated in Japan, along with five other enterprises formed a consortium. The consortium was awarded by Petronet a turnkey project for setting up a liquefied natural gas (LNG) receiving, storage and regasification facility in Gujarat. The contract specified the role and responsibility of each member of the consortium and the consideration to be paid separately for the respective work of each member. The appellant was to develop, design, engineer, procure equipment, materials and supplies to erect and construct storage tanks including marine facility (jetty and island breakwater) for transmission and supply of LNG to purchasers, to test and commission the facilities, etc. The contract involved : (i) offshore supply, (ii) offshore services, (iii) onshore supply, (iv) onshore services and (v) construction and erection. The price for offshore supply and offshore services was payable in US dollars, that for onshore supply and onsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and from which income accrued to the appellant. Therefore, income accrued to the appellant from the offshore supply through business connection in India and some operations of the business were carried out in India. Profits were deemed to accrue/arise to the applicant in India from offshore supply of equipment/machinery but the profits deemed to accrue/arise in India would be only such part of the profits as was reasonably attributable to the operations carried out in India. (ii) That having regard to article 7(1) of the Convention for Avoidance of Double Taxation and Fiscal Evasion with respect to Taxes on Income between India and Japan read with paragraph 6 of the Protocol [1] supply of equipment or machinery (sale of which was completed abroad, the order having been placed directly by the overseas office of the enterprise) would be within the meaning of the phrase directly or indirectly attributable to that permanent establishment and, therefore, so much of the amount received or receivable by the appellant as was directly or indirectly attributable to the permanent establishment as postulated in paragraph 6 of the Protocol would be taxable in India. The price of the of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was allowed to tax only those profits which were economically attributable to the permanent establishment, i.e., those which resulted from the permanent establishment s activities, which were economically from the business carried on by the permanent establishment. In this case, the permanent establishment s non-involvement in the transaction of offshore supply, excluded it from being a part of the cause of the income itself and thus there was no business connection. (iv) That for attracting the tax there had to be some activities through the permanent establishment. If income arose without any activity of the permanent establishment, even under the Convention the taxation liability in respect of overseas services would not arise in India. Section 9 spelled out the extent to which the income of a non-resident would be liable to tax in India. Section 9 had a direct territorial nexus. Relief under a Double Taxation Avoidance Treaty, having regard to the provisions contained in section 90(2), would arise only in the event taxable income of the assessee arose in one Contracting State on the basis of accrual of income in another Contracting State on the basis of residence. So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of a business or profession carried on by such person in India. The appellants had provided services to persons resident in India, and though they had been used here, they had not been rendered in India. (ix) That whatever was payable by a resident to a non-resident by way of technical fees would not always come within the purview of section 9(1)(vii). It must have sufficient territorial nexus with India so as to furnish a basis for imposition of tax. (x) That even in relation to such income, viz., income from offshore services, the provisions of article 7 of the Convention would be applicable, as services rendered outside India would have nothing to do with the permanent establishment in India. Thus, if any services had been rendered by the head office of the appellant outside India, only because they were connected with the permanent establishment, even in relation thereto the principle of apportionment would apply. (xi) There exists a distinction between a business connection and a permanent establishment. The permanent establishment cannot be equated to a business connection, since the former is for the purpose of assessment of income of a non-resident und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be the consideration for the transfer. The expression full consideration in the main part of section 12B(2) cannot be construed as having a reference to the market value of the asset transferred but the expression only means the full value of the thing received by the transferor in exchange for the capital asset transferred by him. The main part of section 12B(2) provides that the amount of capital gain shall be computed after making certain deductions from the full value of the consideration for which the sale, exchange or transfer of the capital asset is made. In the case of a sale, the full value of the consideration is the full sale price actually paid. The legislature had to use the words full value of the consideration because it was dealing not merely with sale but with other types of transfers, such as exchange, where the consideration would be other than money. The expression full value means the whole price without any deduction whatsoever and it cannot refer to the adequacy or inadequacy of the price bargained for. Nor has it any necessary reference to the market value of the capital asset which is the subject-matter of the transfer. If the conditions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of a loan starts from the date of the loan, while it starts from the date of repayment in the case of deposit. Since the monies given by the assessee to SWC did not fulfil these criteria the question of applicability of section 2(7) of the Interest-tax Act, 1974, would not arise. The expression advance occurring in section 2(7) along with the expression loan should take its colour from loan and could not be given wider interpretation to include deposit as well. Otherwise, money deposits given in the form of investments, etc., would also qualify as advances and interest thereon would become exigible to interest-tax. Such a situation was never contemplated by the Legislature. Wherever the Legislature intended that a deposit be treated as loan it made a specific statutory provision in this behalf. The intercorporate deposit given by the assessee to SWC was not in the nature of loan or advance within the meaning of section 2(7) of the Act and, therefore, was not chargeable under section 5 of the Act. (d) In respect of the contention that refundable deposit cannot be regarded as consideration: (i) K.Radhika v. DCIT [(2011) 47 SOT 180 (ITAT Hyderabad)] (ii) Binjusa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly, transferee should be ready and willing to perform the contract. That even arrangements confirming privileges of ownership, without transfer of title, could fall under section 2(47)(v) . 42. Their Lordships, having made the above observations, took note of the fact that section 2(47)(v) was introduced in the Act with effect from assessment year 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of conveyance. It was also noted by their Lordships that, in this scenario, assessee used to enter into agreements for developing properties with the builders and under arrangement with the builders, they used to confer privileges of ownership without executing conveyance, and to plug that loophole, section 2(47)(v ) came to be introduced in the Act. 43. There was no dispute on whether or not the conditions of section 53A of the Transfer of Property Act were satisfied on the facts of the case before the Hon'ble Bombay High Court. It was in this context, and after elaborate analysis of the facts of the case before their Lordships, their Lordships also observed as follows: If on a bare reading of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed thereof by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than the right specifically provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof. 46. A plain reading of section 53A of the Transfer of Property Act shows that in order that a contract can be termed to be of the nature referred to in section 53A of the Transfer of Property Act it is one of the necessary preconditions that transferee should have or is willing to perform his part of the contract. This aspect has been duly taken note of by the Hon'ble Bombay High Court when their Lordships observed as follows: That, in order to attract section 53A, the following conditions need to be fulfilled. (a)There should be contract fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the transaction in question cannot fall within the scope of deemed transfer under section 2(47)(v) of the IT Act. Let us therefore consider whether the transferee, on the facts of the present case, can be said to have 'performed or is willing to perform' its obligations under the agreement. 49. Even a cursory look at the admitted facts of the case would show that the transferee had neither performed nor was it willing to perform its obligation under the agreement in the assessment year under consideration. The agreement based on which capital gains are sought to be taxed in the present case is agreement dated 11-5-2005 but this agreement was not adhered to by the transferee. The transferee originally made a payment of ₹ 10 lakhs on 11-5-2005 and another payment of ₹ 90 lakhs on the same day as refundable security deposit. However, out of this a sum of ₹ 50 lakhs was said to be refunded by the landlord to the developer on 5-3-2009. As such, the assessee has received only a meagre amount as refundable security deposit which cannot be construed as receipt of part of sale consideration. Admittedly, there is no progress in the development agreement in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per clause No. 12.11 the said property is to be developed and hand over the possession of the owners' allocation to the owners' and or their nominees within 24 months from the date of receiving the sanction of the plan from HUDA and Municipality/Gram Panchayat with a further grace period of 3 months. But the fact remains that the transferee was not only failed to perform its obligations under the agreement, but also unwilling to perform its obligations in the assessment year under consideration. Even otherwise, the assessing authorities has not brought on record the actual position of the project even as on the date of assessment or he has not recorded the findings whether the developer started the construction work at any time during the assessment year under consideration or any development has taken place in the project in the relevant period. He went on to proceed on the sole issue with regard to handing over the possession of the property to the developer in part performance of the Development Agreement-cum-General power of Attorney. In our opinion, the handing over of the possession of the property is only one of the condition under section 53A of the Transfer of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the situation is that the assessee has received only a 'meagre amount' out of total consideration, the transferee is avoiding adhering to the agreement and there is no evidence brought on record by the revenue authorities to show that there was actual construction has been taken place at the impugned property in the assessment year under consideration and also there is no evidence to show that the right to receive the sale consideration was actually accrued to the assessee. Without accrual of the consideration to the assessee, the assessee is not expected to pay capital gains on the entire agreed sales consideration. When time is essence of the contract, and the time schedule is not adhered to, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h increased rent, the quantum of security deposit was not to be varied. The quantum of security deposit was decided at the start of the lease and only for the purpose of quantification, rent was taken as the basis. Merely because rent was taken as the basis, the deposit did not lose its character as a deposit. Moreover, the deposit was to be adjusted at the fag end of the lease. Reading the entire deed as a whole, the intention of the parties appears to be that the deposit will be adjusted only when the lessee finally decides to vacate the premises forever. Simply because the lease was on year-to-year basis, renewable every year, it did not imply that every year the lessor should refund the deposit and the lessee should again place the deposit with the lessor. In other words, if the lease period was renewed from year-to-year, the parties had thought it to be impracticable to refund and place back the deposit every year. To simplify it further, on renewal of lease, the deposit was deemed to have been refunded and placed again with the lessor. Therefore, in our considered view, the deposit placed by the lessee was not rent paid in advance but, in fact, was a security deposit as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from the pocket of the assessee. Profits and gains of the previous year are required to be computed in accordance with the relevant accounting standard. On general principles of commercial accounting, the value of the stock-in-trade at the beginning and at the end of the accounting year should be entered in the profit and loss account at cost or market price, whichever is lower the market value being ascertained on the last date of the accounting year, not at any intermediate date. No gain or profit can arise until a balance is struck between the cost of acquisition and the proceeds of sale. The word profits implies a comparison between the state of business at two specific dates, usually separated by an interval of twelve months. Stock-in-trade is an asset : it is a trading asset. Therefore, the concept of profits and gains made by a business during the year can only materialize where a comparison of the assets of the business at two different dates are taken into account. Under the mercantile system of accounting, what is due is brought into credit before it is actually received : it brings into debit an expenditure for which a legal liability has been incurred befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contention that extract of case laws on when assessee cannot be regarded as Assessee in default . (i) IDBI v. ITO [(2007) 293 ITR (AT) 267. (ii) Satellite Television Asian Region Ltd. v. DCIT (IT) [(2006) 99 ITD 91] (iii) Jagran Prakash Ltd. v. DCIT [(2012) 345 ITR 288 (Allahabad HC). (iv) CIT Anr. v. Intel Tech India Pvt. Ltd. [(2011) 55 DTR (Kar.) 173. In the case of Jagran Prakash Ltd. (supra), the Hon ble Allahabad High Court held as under:- NATURAL JUSTICE - PROCEEDINGS COMMENCED TEN DAYS BEFORE END OF YEAR AND COMPLETED IN TEN DAYS - FAILURE OF NATURAL JUSTICE. Unless the pre-conditions for exercise of jurisdiction exist in an authority assumption of jurisdiction on assuming wrong facts can be questioned in a writ court and the mere fact that the Income-tax authorities have assumed jurisdiction and proceeded to pass an order does not preclude scrutiny as to whether or not jurisdictional facts to assume jurisdiction were present. The fact that the parties have called their relationship an agency is not conclusive, if the incidents of this relationship, as disclosed by evidence do not justify a finding of agency, and the court must exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responsibility of advertiser to make payment to the newspaper agency and no privity of contract between the newspaper agency and the advertiser and had the advertising agency being agent of newspaper agency, the advertiser was to be liable for payment to the newspaper agency. The major source of revenue of the petitioner, the publisher of a Hindi daily newspaper, was generated from advertisements published in its newspapers. The petitioner was a member of the Indian Newspaper Society whose rules provide that advertising agencies are free from control or interference from any business or person who owns or controls a newspaper, that newspaper agencies cannot be treated as principals and advertising agencies agents and prohibit members of the Society from appointing advertising agency as their representa-tives, that it is the advertising agency which is responsible for payment even if the advertiser has not paid to the advertising agency, that the accreditation of advertising agency is for the object of providing better service to the advertiser and that advertising agencies work in the interest of consumers and advertisers. The petitioner gave a 15 per cent. trade discoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gated to the remedy of appeal. Further-more, huge liability running into several crores of rupees had been fastened on the petitioner and on the basis of the assessment order, reassessment notices had been issued by the Department for assessment years 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10, which would be nothing but multiplicity of proceedings to be faced by the petitioner whereas under law section 194H of the Act was not applicable in the facts. The petitioner had rightly invoked the jurisdiction of the court under article 226 and the petition could not be dismissed on the ground of alternative remedy. (v) That notice was issued on March 19, 2012, and within ten days opportunity, hearing and proceedings were concluded and completed whereas, the petitioner was required to give details pertaining to more than 1,80,000 payments made to advertising agencies during the relevant period. Suddenly in the second quarter of March, the proceedings were started and concluded within ten days. The Department had rushed through the proceedings to complete them before March 31, 2012, which evidenced infraction of rules of natural justice. Thus, adequate opportunity to which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a development agreement therefore cannot be regarded as payment of consideration for transfer of immovable property. 3.71 In view of the above, the conclusion of the A.O. that the assessee was liable to withhold taxes at the time of execution of development agreement under section 194IA is bad in law and deserves to be rejected. Assessee can be regarded as an assessee-in-default only if the impugned amount constitute income in the hands of the landowners and tax remained unpaid by such landowners. 3.72 Without prejudice to the above, the learned AR submits that the A.O. has erred in treating the assessee as an assessee in default without recording a finding that the refundable security deposit constitutes income in the hands of the land owners and such land owners have not paid the amount of tax directly on such income. 3.73 To reiterate, section 4 is the charging provision under the Act. The charge is defined vis- -vis a person who is the recipient of income. The charge is in respect of the total income of a person for a year. Sub-section (2) of section 4 establishes a basis for the discharge of this tax. Sub-section (2), provides that in respect of income chargeable u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r tax such liability. Therefore, this tax deduction at source liability is, as we begun by taking note of, a sort of substitutionary liability. Section 191 further makes this position clear when it lays down that in a situation TDS mechanism is not provided for a particular type of income or when the taxes have not been deducted at source in accordance with the provisions of Chapter XVII, income-tax shall be payable by the assessee directly. This provision thus shows that tax deduction liability is a vicarious liability and the principal liability is of the person who is taxable in respect of such income. Section 202 lays down that tax deduction at source provisions are without any prejudice to any other mode of recovery from the assessee, which again points out to the tax deduction liability being vicarious liability in nature. 3.78 The learned AR further submitted that it may happen that the person responsible to deduct tax at source fails to deduct tax at source. In such situations, as already stated, the liability to discharge tax shifts back to the assessee. The recipient is thus never absolved of the primary charge. In other words, the charge is never transferred to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id off then the AO shall not proceed under Section 201(1). 3.82 The Allahabad High Court in Jagran Prakashan Ltd. v. DCIT [2012] 345 ITR 288 explaining the scope of section 191 held as under: A deductor who fails to deduct income-tax at source shall be deemed to be an assessee in default only when the assessee has also failed to pay such tax directly. There is no occasion to treat the deductor as an assessee in default unless the assessee has not paid the tax directly. The fact that the assessee has failed to pay tax directly is thus, a foundational and jurisdictional fact and only after finding that the assessee has failed to pay tax directly, can the deductor be deemed to be an assessee in default in respect of such tax. In a case where tax has not been deducted at source, the short deducted tax cannot be realised from the deductor and the liability to pay such tax shall continue to be with the assessee direct, whose income is to be charged and a person who fails to deduct the tax at source, at best is liable for interest and penalty only. Nothing under section 201 can be read to mean that when the tax has not been deducted by the deductor, the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed: 3.86 The learned AR submitted that evidently the first proviso gives a statutory recognition to the proposition that a payer cannot be regarded as assessee in default in respect of the sum paid to a resident from which he fails to withhold tax if the tax has been paid directly by the said resident. The legislature has also cast an onus on the payer to furnish a certificate to this effect from an accountant in such form as may be prescribed. The format of the certificate has been prescribed in Annexure A to Form 26A. The question of furnishing a certificate in Form 26A (and thus discharging the onus) by the payer however arises only if the sum paid constitutes income chargeable to tax in the hands of the recipient and the payer has failed in deducting tax from the same. The expressions has taken into account such sum for computing income and has paid the tax due on the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned sum constitute income in the hands of the recipients (land owners) and they have not discharged the tax liability directly. 4. On the other hand, the learned Departmental Representative submitted that the payment of refundable deposit can't be seen as a single transaction. It is to be read with the terms and conditions of the joint development agreement. The relevant conditions as per the JDA (Page No. 126 - 128 of the Paper Book filed by the AR) are mentioned below. 4.1 The First Party hereby permits the Second Party, by way of license, to enter upon the Schedule Property and further authorizes and empowers the Second Party to develop the Schedule Property by constructing Residential Apartments Building/s as aforesaid in term so this agreement and agrees not to revoke the said power until completion of development and sale of the 'DEVELOPERS' CONSTRUCTED AREA' so long as there are no default or breaches by the Second Party of this Agreement. The Second Party has accordingly entered the Schedule Property and will develop the Schedule Property in terms of this Agreement (Clause 1.1 of Page 13 of JDA). 4.2 In the event as a condition for approval of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 1,00,00,000/- (Rupees One Crore Only) per acre of the Schedule Property. The said amount shall be paid to the members of the First Party as detailed in Annexure 4 to this Agreement. (Clause 15.1 of Page 28 of JDA). 4.5 The learned DR submitted that from the above conditions it is clear that irrevocable power of attorney was given by the land owners to the assessee and original title deeds were handed over to the assessee and the assessee has the right to mortgage even the owner's construction area to raise loans. Further, the assessee has paid ₹ 21,85,00,000 to the land owners which is to be adjusted against the sale proceeds of the constructed area. So, as seen from the conditions of the JDA, there is a transfer of the property and both the parties are willing to part perform the contract entered between them and the provisions section 2(47)(v) are applicable here. Section 2(47) (v) reads as under any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 Further Explanation 2 says, ...tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. 3.3 The facts are different from the case law quoted by the Ld. AR in the case of ACIT vs R. Srinivasa Rao (ITAT, Hyderabad are different. Though the issue was held in assessee's favour, in para 11 of the order, the Hon'ble ITAT has made the following observations .. however the handing over of possession by the assessee towards part performance of the contract will not amount to transfer unless the transferee is also willing and ready to perform his part of the contract under the development agreement. As can be seen from the facts and materials on record, the developer apart from making payment of the refundable security deposit of ₹ 13 lakhs per acre has not taken any steps towards development of the property In view of this fact, it was decided in favour of the assessee which is not the case of the assessee. Here both the parties were willing to perform the contract and so not applicable. 4.7 She further submitted that it is not the case of the assessee that it had deducted TDS at the time of adjusting the sale proceeds against the refundable deposit and so not the case of double deduction of TDS. 5. We have heard rival contentions and car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equal to one percent of such sum as income-tax thereon. (2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees. (3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section. 5.2 As per the provisions of Section 194-IA of the Act, the above conditions are to be fulfilled. Now the issue before us is with regard to whether the amount paid by the assessee towards interest free security deposit to various land owners whether it constitutes as Consideration in terms of Transfer of Immovable Property. In the present case, as per JDA cum General Power of Attorney, land owners have agreed to transfer a portion of land (68.34%) belonged to them in lieu of share in the super-structure (31.66%) which should be constructed by the assessee. The value of 31.66% of the constructed area promised to be transferred by the assessee has been accepted as Consideration for transfer of 68.34% of land by the land owners. The assessee has paid refundable security to the land owners amounting to ₹ 21.85 Crores. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y contract as defined under section 53 A of the Transfer of Property Act, 1882 read with section 2 (47) (V) (''l) of Income Tax Act, 1961. 1.3 The First Party hereby agrees not to interfere or interrupt in arty manner whatsoever the development of Schedule Property and construction of the Residential Apartment Buildings as stated above and/ or stopping the work that has to be done under this agreement. However the First Party and/or their authorized representatives are entitled to inspection as provided in this agreement. 1A) CONVERSION. Immediately on execution of this Agreement the members of the First Party shall apply to the Concerned Revenue Authority for conversion of the Schedule Property from the existing agricultural to non-agricultural residential purposes under the Andhra Pradesh Agricultural Land (Conversion for Non Agricultural Purposes) Land Act, 2DD6. The members of First Party undertake to secure the same within 2 (two) months from date of this agreement. The Second Party has agreed to bear/pay. conversion fee/charges payable for getting the conversion order. 18) The members of the First party also agree to secure at their cost and furnish, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led property as residential apartment buildings and also mentioned that it cannot be construed as delivery or possession in terms of Section 53 of the T.P. Act r.w.s. 2(47)(v) of the Act. Legal possession of scheduled property are continue to remain with the possession of the land owner. 5.5 Now commencement of the Project, clause 8 to 8.3 are reproduced below:- 8. Commencement and completion of construction: 8.1 Within 60 (Sixty) days from the date of securing sanctioned plan for construction and executing Allocation / Sharing / Supplemental Agreement, the Second Party shall commence construction in the Schedule Property. 8.2 The Second Party shall develop the entire Schedule Property and under normal conditions and in the absence of any Force Majeure event, complete the overall development and construction of the Residential Apartment Buildings in accordance with the Specifications set out in Annexure 2 hereto and the Sanctioned Plans within Sixty (60) months from the date of receipt of sanctioned plans. However, the Second Party shall not incur any liability for any delay in delivery of possession of the `OWNERS CONSTRUCTED AREA by reason of non-availabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d apart from the agreed damages the First Party shall not be entitled to claim any other compensation / damages from the Second Party. 5.6 As seen from the above Clause 8.2, there is a time limit to commence construction i.e. 60 days from the date of securing the sanction plan for construction and construction shall complete within 60 months from the date of receipt of the sanction plan. Further if any delay in completing the construction, the assessee shall be entitled for six months grace period to complete the development and construction of owners constructed area. If there is any delay beyond the grace period, there is a penalty clause i.e. damage clause as mentioned in Clause No.8.3. 5.7 There is a time limit to get the permission from the competent authority which is 12 months from the date of Agreement, thereafter 60 months time to complete the construction of residential apartment buildings form the receipt of the sanction plan, thereafter grace period has been given which show that the time is the essence of the contract. In the Assessment Year under consideration, nothing is brought on record to show that the assessee got approval of the sanctioned plan vis- -vis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her or not such building is owned by the payee, ( ii ) where any income is credited to any account, whether called Suspense Account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. The Board has received a number of queries from various persons regarding the application of the aforesaid provision. These queries have been carefully considered by the Board and the following clarifications are issued for information and guidance of all concerned : Query No. 1 : Whether tax is required to be deducted at source where rent has been paid in advance before 1-6-1994? Answer : Where an advance of rent has been paid before 1-6-1994, there is no requirement for deduction of tax at source. Query No. 2 : Whether tax is required to be deducted at source where a non-refundable deposit has been made by the tenant? Answer : In cases where the tenant makes a non-refundable deposit tax would have to be deducted at source as such deposit represents the consideration for the use of the land or th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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