TMI Blog2022 (7) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 53A of the transfer of property Act - held that possession within meaning of section 53A, which is a legal concept and which denotes control over the land and not actual physical occupation of the land. This being the case, the section 53 of the Transfer of Property Act cannot possibly be attracted. Respectfully following the finding of the Hon ble Supreme Court and other High Court, we hold that the capital asset of the assessee cannot be treated as transferred u/s 2(47)(4) of the Act read with section 53A of the Transfer of Property Act in assessment year 2009-10. We do not find any error in the finding of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same as far as the year of taxability of capital gain is concerned. The ground no. 1 of the appeal of the Revenue is accordingly dismissed. Non-applicability of section 50C on the development right - We do not find any infirmity in the finding of the Ld. CIT(A) in holding that consideration received in the form of constructed area to the extent relatable to loading of the TDR is not taxable. As far as value of the 42% of constructed area is considered, the Ld. DVO has determined the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has not filed any capital account or withdrawal by the assessee and his family members to substantiate the source of expenditure. In the circumstances, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the same. - ITA No. 3773/MUM/2017, ITA No. 4875/MUM/2017 And ITA No. 4876/MUM/2017, CO No. 313/MUM/2018 (ITA No. 4875/MUM/2017) And CO No. 312/MUM/2018 (ITA No. 4876/MUM/2017) - - - Dated:- 6-7-2022 - Shri Om Prakash Kant (Accountant Member) And Shri Pavan Kumar Gadale (Judicial Member) For the Assessee : Mr. Shankarlal L. Jain, AR For the Revenue : Mr. Jasdeep Singh, CIT-DR ORDER These appeals by the Revenue and the assessee and the crossobjection by the assessee are directed against two separate orders passed by the Ld. CIT(Appeals)-37, Mumbai [in short the Ld. CIT(A) ] for assessment year 2012-13 and 2009-10 respectively. Since the issue in dispute involved is common in both the assessment years, therefore these appeals and cross objections have been heard together and disposed off by way of this consolidated order for convenience. 2. In these appeals, year of taxability on transfer of develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of DA was based on the Stamp Duty paid which is a clear indication of the value attributed by the Land Revenue Department of the State Government at of Rs.18,74,74,699/- on transfer of the land and therefore the question of TR does not arise. 3. The sole ground raised in cross-objection by the assessee in CO No. 312/Mum/2018 in respect of the appeal of the Revenue has been withdrawn vide letter dated 15/06/22, therefore, same is dismissed as infructuous. 3.1 The assessee has also filed appeal separately for assessment year 2012-13 which has been registered as ITA No. 3773/Mum/2017 and the grounds raised in which are reproduced as under: 1. Ld. CIT(A) erred in holding that cost of construction of 42% of the area exchanged for transfer of appellant's right under Development Agreement, being computed at 42% of Rs.18,74,74,699/- i.e. Rs.7,87,73,911/-, without properly considering the components of cost of construction as determined by District Valuation Officer in its valuation report. Such cost of construction is consisting of: i Cost of construction : ₹8,81,46,948/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land. The assessee treated total sale consideration on transfer of interest in Development Agreement (DA) based on cost of constructed area at 42% of ₹5,46,27,440/- including ₹4,28,96,000/- for allowing loading of TDR, which was claimed as exempt. The computation of capital gain of the assessee is reproduced as under: Particulars Area (sq ft) Amount (₹) Total Land Areas held by the as on 01/04/1981 55,166 The Fair Market Value as on 01/04/1981 24,82,493/- Land (FSI) available for out of the above areas) and its FMV as on 01.04.1981 13,966 6,28,476/- TDR available (as per DCR 1991) 51,067 NIL Total Area available for development 65,033 Out of Land FSI of 13966 13,966 A. Parted to Developers (58%) 8,100 B. FMV as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments found during the course of the survey carried on 21/11/2012 at the premises of the assessee firm. The ld. Assessing Officer also made disallowance of interest paid on loan amounting to ₹15,06,920/-as loans not used for the purpose of the business and interest was paid to family members. 4.3 The assessment for AY 2009-10 was reopened. As the valuation of stamp value authorities was objected by the assessee, matter of valuation was referred by the AO to District Valuation Officer (DVO), who valued the interest of the assessee in DA at ₹10,01,28,000/-. The AO accordingly, assessed the capital gain at ₹9,37,03,413/- on substantive basis. The computation of capital gain by the AO in para 8.6 of the assessment order for AY 2009-10, is reproduced as under: Registered Agreement Value on 26.06.2008 ₹18,38,53,000 Value of Development agreement in view of valuation report dated 29.01.2016 10,01,28,000 Indexed cost of land to Developer Cost of basement demolished (58%) ₹20,08,467 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the Constitution of the firm from time to time. Accordingly in terms of the last such deed of reconstitution of the partnership dated 03/04/2007, the present partners of the partnership firm are the Master clock, Mr. Suresh Ishwarlal Patel and Mr. Nirmal Suresh Patel. (iv) Out of the total plot area of 5127.05 m , the land area of 381.14 m was under encroachment by illegal occupants and 10% of the area (512.70 m ) was to be left open i.e. amenity space, and thus the net plot area available for construction of the said property was 4233.21 m . (v) The assessee firm desired to construct an industrial estate on the said property and after obtaining approval in the year 1995 from the competent authorities, commenced construction of industrial building on the said property divided into Wing A and Wing B . The Wing A was built partially comprising of a basement having net floor area of 8460.80 ft . This portion of Wing A which was under construction and not occupied, was assessed as land under construction under Municipal Ward. The Wing B was complete with ground and two upper floors and occupation certificate was issued in 1999. (vi) The partnership firm desired to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered in the FY 2008-09 and therefore, the chargeability should be FY 2008-09 relevant to AY 2009-10. Long-term Capital Gain on transfer of development rights should be charged on the basis of registered agreement entered into between Pankaj Enterprises i.e. the Owner and M/s Vidhi Enterprises in the FY 2008-09 i.e. AY 2009-10 as the year of chargeability of income. Under Section 2(47) (v),any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act would core within the ambit of Section 2(47)(v). That, in order to attract Section 53A,the following conditions needs to be fulfilled There should be a contract for consideration; it should be in writing; it should be signed by the transferor; it should pertain to transfer of immovable property; the transferee should have taken the possession of the property lastly, the transferee should be ready and willing to perform his part of the contract. That even arrangements confirming privileges of ownership without transfer of title could fall under Section 2(47) (v).Section 2(47) (v) was introduced in the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived from any person lawfully claiming from the owners at any time till the entire development project is completed within a period of 30 days of it becoming known. Point No. 22 (b) of the agreement states: The Developers shall be fully responsible for any contravention, violation, non-compliance of any laws, rules, regulations, terms of sanction/approvals and for all aspects of the development of the said new building and the Owners will in no way or manner be concerned or be made a party to any such contravention, violation/non-compliance or default even if the Developers commits any irregularities and/or defaults/violation in respect thereof. The Developers shall in this respect keep the owners full and effectually indemnified. Point No. 26 of the agreement states: The aforesaid consideration being Owners Area is all inclusive consideration for grant of development rights to the Developers in the manner envisaged herein in respect of the said property and nothing further shall be due and payable by the Developers towards the Developers Area and/or the conveyance of the said property in favour of the common organization to be formed of all the premises purchasers. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d when occupation certificate in respect of the said new building is obtained by developers, provided however, the developer shall not handover possession of developer's area to anybody or allow or use the premises in the developers area on any basis whatsoever, unless and until the developers shall have offered to the owner, the owner's area duly completed in all respect and contemplated herein in writing and IS days have elapsed. (iv) C1. 24(A) run as Immediately upon the owners being offered possession of the owner's area, owner shall execute an irrevocable power of authority in favour of developers and/or their nominees to execute the vesting documents/declaration under Maharashtra Apartment Ownership act . 5.17 I have also gone through the details of the power of attorney executed by the appellant in favour of the builder and the same was registered on 26/06/08. Broadly speaking, it turns out that power of attorney authorizes the builder to do the following:- (a) To carry out development work on the said property including construction and completion of building (C1.2) (b) To represent the appellant before all government/semigovernment revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developer. The builder is only entitled to enter and do all the necessary construction. (d) The right to enter for necessary construction only amount to permissive possession. (e) The appellant's interest in plot of land is exchanged for constructed area in the AY 2012-13. 5.19 After considering the totality of facts, rival submissions, the applicable law and on the basis of discussion mentioned above, I find force in the argument of the appellant. I am of the clear opinion that no income accrues in A.Y. 2009-10 as there is no transfer within the meaning of Section 2(47) of I.T Act as no possession has been given in terms of Section 53A of Transfer of Property Act. The appellant received 42% of the total area constructed by builder in financial year relevant to AY. 2012-13 i.e. the year in which exchange took place. Therefore, capital gains cannot be taxed in A.Y. 2009-10 and has to be taxed in A.Y. 2012-13. In terms of these findings, Ground Nos. 1 to 3 are hereby allowed. 10. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The assessee has by way of registered deed of conveyance, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CS Atwal (supra), Hon ble High Court observed legislative intent behind incorporating clause (v) to section 2(47) of the Act. The relevant part of the observation of the Hon ble High Court is reproduced as under: The legislative intent behind incorporating clause (v) to Section 2(47) of the Act from assessment year 1988-89 as discernible from CBDT circular is to embrace within its ambit those transactions of sale of property where assessee enters into agreements for developing properties with builders and the seller confers the rights and privileges of ownership to the buyer without executing/registering a formal conveyance deed in order to avoid capital gains tax. In order to thwart such tendencies, transactions where the possession is given or allowed to be retained in part performance of contract of the nature referred to in Section 53A of 1882 Act is held to be transfer by fiction of law though under general law it would not be considered to be transfer . In other words, by deeming fiction, transfer is assigned extended meaning for taxation purposes by incorporating and including that where possession of any immovable property is taken or GURBAX SINGH 2015.07.23 15:3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year relevant to AY 2001-02. The various case laws discussed above also support the view taken by the Assessee. Hence, TAT agreed with the contentions of the Assessee in this regard. Accordingly, ITAT hold that the transfer of property does not took place on the date of executionof development agreement . 10.5 In the case of Saida Shaikh (supra), the Hon ble High court observed as under: 'It can thus be seen that Commissioner of Income Tax (Appeals) as well as the learned Tribunal upon basis of the factual material placed before it and upon interpretation of the agreement entered between the assessee and the developer has found that the assessee was liable to pay capital gain in the year 2008-09, in as much as there was no possession handed over to the developer under Section 53A of the Transfer of Property Act in the assessment year 2003-04. 10.6 In the case of Fardin Khan (supra), where the Hon ble High Court has also considered Balveer Singh Maini (supra), the assessee entered into development agreement with Godrej properties Ltd. on 20th April, 2007 and paid ₹13.75 crore as deposit, and further to receive ₹550,000,030 percent of the sale procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to exercise rights as owner of the land. 10.9 In view of the various clauses of the development agreement, it transpires that possession was given merely for carrying out construction work on the plot of land i.e. the permissible possession and the developer was not authorised to exercise the right as owner thereof and enjoy such plot of land without interference on the part of the owner. In such circumstances, provisions of section 2(47)(4) are not attracted in the case of the assessee. 10.10 Further we find that in the case of Infinity Infotech Parks Ltd 407 ITR 137(Cal), also possession of the land was given to the developer for construction, wherein the agreement envisaged that developer would construct upon the land and in lieu of such work undertaken by the developer, the developer would be entitled to retain 61% of the land and the proportionate constructed area while the balance 39% of the land together with construction thereon would belong to the assessee i.e. owner of land. In the facts of the above case, Hon ble High Court held as under: There could be rare situations where the transfer may be simultaneous with the execution of the agreement, but where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is a legal concept and which denotes control over the land and not actual physical occupation of the land. This being the case, the section 53 of the Transfer of Property Act cannot possibly be attracted. 10.12 Respectfully following the finding of the Hon ble Supreme Court and other High Court, we hold that the capital asset of the assessee cannot be treated as transferred under section 2(47)(4) of the Act read with section 53A of the Transfer of Property Act in assessment year 2009-10. We do not find any error in the finding of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same as far as the year of taxability of capital gain is concerned. The ground no. 1 of the appeal of the Revenue is accordingly dismissed. 11. Now we come to the second issue of quantum of the capital gain to be taxed in the hand of the assessee, which has been raised by the revenue in ground No. 2 and 3 of the appeal as well as raised by the assessee in ground No. 1 of its appeal. 12. The assessee in its computation of long-term capital gain has treated the consideration received in the form of constructed area to the extent relatable to loading of TDR as not taxable. The L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration, at registered agreement value by stamp value authorities at ₹18,38,53,000/-. Subsequently, the Assessing Officer in assessment year 2009-10 referred the matter to the Ld. DVO and on the basis of his valuation report full value of consideration has been taken at ₹10,01,28,000/- as per valuation report dated 29/01/2016, on substantive basis. 13. Before the Ld. CIT(A), the assessee contested for taking 42% of the value of the constructed area for determination of cost of consideration. The assessee relied on various decisions. After considering the decisions, the Ld. CIT(A) determined full value of consideration as 42% of the cost of construction of the area exchanged. The Ld. CIT(A) observed that cost of construction on the basis of the valuation report of the DVO is ₹18,74,74,699/-and therefore 42% of said amount works out to ₹7,87,73,911/-. The Ld. CIT(A) accordingly directed the assessee to compute the capital gain after excluding the consideration relatable to loading of the TDR. The relevant finding of the Ld. CIT(A) is reproduced as under: 7.1 The Delhi ITAT in the case of Vasavi Pratapchand vs. DCIT 90 TTJ has discussed the identical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment agreement. The Bench held. in para 11. Now coming to the matter in controversy before us, as observed above, the 50% of the market value of the total land in question together with value of additional FSI, if any, on the date of agreement would be deemed to be the cost of construction of the constructed area which falls in the share of the assessee as per the development agreement. Assessee thus is entitled 10 proportionately claim deduction for cost of construction while faxing capital gains arrived from the sale of two fats. 7.3 In case of CIT vs. Khivraj Motors 380 ITF. 215(Karnataka). In this case assessee was occupying the premises as tenant, taken on lease for a long period and agreed to vacate in consideration of undivided interest in property and constructed area for 65 years of lease under agreement, the cost of construction was specified at Rs.800 Per Square Feet and hence consideration for Rs.22100 Square Feet constructed area received by assessee was taken at Rs.17,68,800. The Assessing Officer, in principle, accepted the cost of construction as consideration, but on receiving information from the developer who informed to have incurred the constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a stamp duty purposes. 16. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that as far as non-applicability of section 50C on the development right is concerned, the Ld. CIT(A) has followed the binding precedent of the Tribunal Mumbai Bench and therefore we do not find any error in the said finding of the Ld. CIT(A). Further regarding holding no capital gain arise on transfer of right to permit loading of TDR , also the Ld. CIT(A) has followed decision of the jurisdictional High Court in the case of Shailja cooperative Housing Society Ltd (supra) in para 6.7 of the impugned order. For ready reference said Para is extracted as under: 6.7 The Jurisdictional High Court approved the decision of Shailaja Co-op. Housing Society Ltd (supra). In the said decision, the Hon'ble Bench held: The assessee was the owner of the land and building and continued to remain the same even after transfer of the said capital asset. Thus, the cost of the land and building of the existing structure could not be attributed to the additional FSI received by means of 1991 Rules. It is true that such right is a cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which would include the right to additional FSI. No capital gains conid be charged on tie transfer of the additional FSI by the assessee for sale consideration of Rs. 48-96 lakhs for the reason that it has no cost of acquisition. 16.1 Since the Ld. CIT(A) has followed a binding precedent, therefore we do not find any infirmity in the finding of the Ld. CIT(A) in holding that consideration received in the form of constructed area to the extent relatable to loading of the TDR is not taxable. 16.2 As far as value of the 42% of constructed area is considered, the Ld. DVO has determined the cost of construction at ₹8,81,46,948/-. The said report of the DVO has been reproduced by the Assessing Officer in assessment order for AY 2009-10 on page 8. In clause 13 of said report, cost of construction has been reported at ₹8,81,46,948/-. We respectfully following the decisions cited above, direct the Ld. Assessing Officer to restrict the full value of consideration received by the assessee at 42% of the cost of construction, which works out to ₹3,70,21,718/-. The ground No. one of the appeal of the assessee is accordingly allowed. As far as the argument of Ld. DR th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All these assessments has been completed U/s.143(3) of the Act. In AY 10-11, interest claimed is Rs.10.50 lakhs and in AY 11-12 Rs.10.95 lakhs. These Returns are accepted u/s.143(1). It is stated that interest paid to Smt. Shobha Desai of Rs.6 lakhs and Rs.5.95 lakhs to Suresh Patel, HUF is on the borrowings made in the earlier years and utilized for acquisition of house property. In AY 12-13, fresh borrowings has been made of Rs.2 cr. approx. from M/s.ECL Finance Ltd, on which interest of Rs.3,11,9200/- is being claimed. Funds were borrowed at the faq-end of the year and has been spent for carrying out improvement and finishing of house property acquired by the appellant under Development Agreement, to make it fit for earning house property income in subsequent years. It is submitted that no part of the interest is disallowable. 18.1 Ld. CIT(A), out of the interest payment of ₹15,06,920/- disallowed the amount of ₹3,11,920/-. 19. Before us, the assessee is not able to substantiate as how the interest paid to ECL finance Ltd is deductible under the income from house property. The assessee has failed to establish that said borrowing from ECL finance Ltd is incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected the contention of the assessee observing as under: 9.2 I have duly considered the submissions made by the appellant and the facts found by AO in the assessment order. Shri Suresh Patel claimed these expenses to be personal and also claimed that these expenses are re orded in is personal books of account and has no connection with the appellant. /However, Shri Suresh Patel, who is also a partner of the firm, failed to produce any evidence to substantiate the claim that such expenditure is incurred by him out of explained sources. In view of lack of any such proof being produced even in appellate proceeding, no fault can be found on this ground in the assessment order. Ground no.10 stands rejected. 22. We have heard rival submission of the parties on the issue in dispute and perused relevant material on record. The assessee has clearly admitted that the expenditure of ₹ 1.3 lakh was incurred, therefore, the assessee was required to explain source of the said expenditure. The Ld. CIT(A) has noted that assessee failed to substantiate the actual expenditure incurred out of the explained sources. Before us, the assessee has not filed any capital account or withdr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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