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TMI Blog2021 (12) TMI 1472X X X X Extracts X X X X X X X X Extracts X X X X ..... .AO under the head 'capital gains' amounting to Rs.6,69,92,266/-. 3. Brief facts of the case are that the assessee is an individual, filed her return of income for the AY.2013-14 on 25-03-2014 admitting income of Rs.12,54,950/-. Thereafter the case was taken up for scrutiny pursuant to search and seizure operation held in the case of M/s.Ramky Estates & Farms (P) Limited, and the assessment was completed u/s.143(3) of the Income Tax Act [Act], wherein the Ld.AO computed un-disclosed Long Term Capital Gains in the hands of the assessee at Rs.6,69,92,266/-. 4. During the course of scrutiny assessment proceedings, it was observed by the Ld.AO that the assessee had entered into a development agreement cum General Power of Attorney (GPA) dt.07-04-2012 with M/s.Ramky Estates & Farms (P) Limited. As per the agreement, the assessee along with three others had agreed to extend 11.26 Guntas of land for joint development with M/s.Ramky Estates & Farms (P) Limited. Since the development agreement stated an amount of Rs.7 crores to be paid to the assessee and the possession of the property was to be handed over to the developer, the Ld.AO opined that as per Section 2(47)(v) r.w.s.53A of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13-14 the developer is unable to obtain approval which was supposed to have been secured long back in the month of August 2012 for construction over the schedule property as required under the State Laws. The possession of the land is to be given only after obtaining of approvals by the developer and hence possession is no: handed over till date. Having regard to the admitted facts narrated above, it is apparent that we have not earned any income by way of Capital Gains in respect of Development Agreement. The Developer had completely failed in securing required permissions/ approvals statutorily required for commencement of the Development Agreement. You would agree with us that the first step for commencement of Development Agreement is to secured permission for conversion of nature of land use which is done in the present case. To attract income by way of capital gains there should be a transfer. For valid transfer there should be giving possession of property and receipt of consideration. Even as per Sec.53A of TP. Act, there should be handing over of possession and payment of consideration. In my case there is neither receipt of consideration, nor giving of possession resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s entered into and possession was given. Since the element of factual possession and agreement exist in the present case, the transaction results in transfer within the meaning of Section 2(47) of Income Tax Act read with Section 53A of Transfer of Property Act. Hence, the Capital Gains of Rs.6,69, 92,266/-, worked out as per the working sheet enclosed, is brought to tax". 5. On appeal, Ld.CIT(A) remitted back the matter by observing as under: 6.3 page 17. "Perused the submissions of the appellant and the observations made by the AO in the assessment order. As to the facts of the case, the appellant, an individual entered in to a Joint Development Agreement with M/s.REFL on 07.04.2012, for development of his land admeasuring Ac 3.15 guntas, which was forming part of total land of Ac.11. 26 guntas, belonging to the family/group of persons, located at Nallagandla Village, as per which the assessee is entitled for certain percentage (32.30%), of the total constructed area and the project was envisaged for completion within 54 months from the date of construction approvals, with a further grace period of 6 months. However, as per the information brought on record, the development a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains related to the said transaction of Development Agreement, were computed for AY 2014-15 and 2015-16 and offered for taxes, by the assessee. 6.3.1 As per the AO, the decision of High court of A.P. in the case of Potla Nageshwara Rao is squarely applicable to the facts of the case, as per which the language of section 2(47) of I.T.Act, 1961 is clear and there is no requirement of receipt of sale consideration as on date of agreement and Since element of factual possession and agreement exist in present case, the 'transfer' within the meaning of section 2(47) has been concluded to have been complete in this case. In the process, the AO shown to have rejected the contentions and submission of the appellant, on the ground of applying tile ratio of decision of A.P. High Court. Whereas, conditions shown to have been not fulfilled in a development agreement, as per the assessee, except handing over the possession. The assessee relied upon the judicial decisions that have distinguished the application of clauses of JDA in the respective cases, where the possession of land/asset is not complete where either there is no willingness on part of developer or where permissions for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the other conditions such as the lack of willingness on part of the developer or lack of approval/sanction by local authorities, were also held to be failing the meaning of 'transfer' u/s.2(47) of I.T.Act vis-a-vis the Sec.53A of TP Act, 1882. 6.3.4 The other observation of the AO, on the issue that the Development Agreement was entered but stated to be not executed by the developer during the year, was that the agreement was in force during the year and the assessee has not taken any action to terminate the agreement, based on which the capital gains are fastened to the year of JDA. In this context, it may be relevant to refer to the fact, that the contract/development period runs for 54 months as in case of the assessee and if such action is to be taken, it can only happen after the expiry of period of contract and sometimes after the expiry of the grace period well, and even in case of taking legal action against the developer, in such instances, it may confine to the specific act of claiming damages, alone but may not entitle the assessee to get the promised constructed are or the equivalent consideration. 6.3.5 Further, as could be made out from the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e examined case by case." (Para 20 (part) of the order). 6.3.7 It may also be relevant to refer to the decision of ITAT in the case of ITO vs Sham Kumar (ITA No.1604/Hyd/2.014) dtd.20-03- 2015, which was also referring to the decision of High Court of AP in Potla Nageswar Rao Vs DCIT, though distinction was not made as to the facts of the said cases, while allowing the appeal of tile said assessee: on facts. The relevant part of the order run as under: "Taking into the totality of the facts into consideration we are of the opinion that the provisions of deemed transfer u/s.2(47)(v) cannot be invoked on the facts of the present case and for the A.Y. in dispute before us. The assessee has not received any consideration except for refundable deposit of Rs.3.00 crores and there is no evidence brought on record by the Revenue to show that actually some construction has taken place at the impugned property in the previous year relevant to the A.Y. under consideration and the right to receive the sale consideration has actually accrued to the assessee. The assessee is not eligible to capital gains on the entire sale consideration without the accrual of the consideration to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swara Rao, to hold that once the possession is given the transfer is complete and capital gains accrued, regardless of receipt of consideration. The AO did not get in to the details of fulfillment of conditions stipulated u/s.53A of TP Act, in the case of the assessee, as averred by Hon'ble High Court of Potla Nageswara Rao (supra), where in a specific observation regarding the governing facts/clauses of agreement was made, which run as under: "We are of the view that each and every individual case stands on its own footing". 6.3.9 As to the further facts of the case, there was no resumption of contract, with no sanction obtained by the developer, till the end of the year. Further, the transaction of Development Agreement had shown to have resulted in computation of capital gains in the years of Municipal Approvals as happened on assessee's own case in earlier years, as indicated. Hence, on facts, the 'transfer' of property by virtue of the JDA was stated to be not complete during the year under reference, being the year of Agreement, to give rise to the capital gains. Hence, on facts of the case, no capital gains are held to have been arisen during the year u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen her share in the developed property is sold, she will be benefited by gain or loss as the case may be unless the assessee opts to retain the developed property. If the assessee opts for sale of her developed property, provisions of Section 45(2) of the Act may apply and Long-Term Capital Gain for the sale of the land as well as profit from the sale of the developed property would be computed in accordance with the provisions of Section 45(2) r.w.s.48 of the Act and under the head "Income from business" respectively. And if the assessee opts to retain her share in the developed property, then long term capital gain shall accrue to the assessee when the transfer of the immovable property pertaining to the share of land assigned to developer takes place. At this juncture it is pertinent to mention that the amount received by the assessee of Rs.7 crores is only an interest-free refundable security deposit for ensuring the project to be completed as per the terms of the agreement. Further, it is also obvious that the assessee has only permitted the developer to develop the project in her land. Therefore, it cannot be construed that the possession of the immoveable property of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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