TMI Blog2021 (12) TMI 1472X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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. 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 assessee is vested with the joint developer as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the developer, the Ld.AO opined that as per Section 2(47)(v) r.w.s.53A of the Transfer of Property Act the transaction has culminated into transfer of the immovable property as per the provisions of the Act thereby attracting long term capital gain. In response, the assessee had furnished the following submissions before the Ld.AO: Para 4.1 page 3 The following are the salient features of the Development Agreement: 1. The development is for construction of project as per approval to be granted by the competent statutory authorities, as per the specifications as agreed under the development agreement. 2. The owners would be entitled to 32.30% out of total saleable area in the project towards their share and Developer is entitled to 67.70% out of the total saleable area in the project towards its share. 3. As per the terms the Developer has agreed to pay an amount of Rs.7 crores as interest free refundable security deposit to the owners. Out of this Developer had already deposited an amount of Rs.4 crores starting from January 2012. The balance amount of Rs.3 crores was supposed to be paid on the date of obtaining construction approval but before the commencement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of consideration. In my case there is neither receipt of consideration, nor giving of possession resulting in a transfer. What is received is only refundable deposit and not even advance. Therefore, we firmly believe that there is no income which could be admitted in respect of the Development Agreement. In view of the above, we submit that, there is no income chargeable to tax as a result of Development Agreement with M/s.Ramky Estates Farms Limited in the Assessment Year 2013-14 . 4.1. However, Ld.AO treated the amount of Rs.6,69,92,266/- as Long-Term Capital Gains in the hands of the assessee by observing as under: 4.1. page 4. The above submissions of the assessee's authorized representative have been carefully considered and the same are not acceptable. In the present case, neither the assessee has taken any legal action against the Developer nor the Agreement has been terminated on the grounds of non-performance. The Agreement is in force during the previous year relevant to the assessment year 2013- 14 and the Developer has also not expressed his unwillingness. There is no progress in the development as stated by the assessee cannot be a ground to nega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovals, with a further grace period of 6 months. However, as per the information brought on record, the development agreement was not implemented, with no municipal sanctions obtained, during the year under references. Whereas, the AO had gone by the interpretation of certain clauses of Joint Development Agreement (JDA) dtd.07.04.2012 and concluded that the assessee had granted license to the developer for entering the land arid develop the same for the purpose of construction and as per the said agreement the developer in turn is entitled to enter in to a agreement with prospective buyers of built up area, namely villas/flats, made on such land, as such the AO interpreted the said handing over of the property as handing over the possession of property for purpose of construction and treated it as 'transfer' within the definition/meaning as provided in section 2(47) of I.T.Act, 1961 vis-a-vis the provisions of Section 53A of T.P.Act, 1882 and fastened the liability of capital gains arising out of the JDA, to the assessee, for the year under reference, being the year of 1 said agreement. In this connection, the AO had heavily relied on the decision of Jurisdictional High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssession of land/asset is not complete where either there is no willingness on part of developer or where permissions for construction are not being granted during the year of Agreement. Distinction between the application of provisions of section 53A of TP Act to the Agreement for sale vis-a-vis the Joint Development Agreement was made by the assessee and it was contended that the word 'transfer' is not complete in Joint Development Agreements, where the permission granted was only to construct, but not in absolute terms. This contention of the assessee was also seems to have been over ruled by the AO, based the application of ratio of High Court order in case of Potla Nagesara Rao(supra). 6.3.2 The further contention of the assessee was that the facts of case law relied upon by the AO for fastening the capital gains in the year or agreement, as in the case of Potla Nageswara Rao (supra), ar.: distinguishable on two or three of the following issues/facts, as submitted during the course of appellate proceedings: 1. In the case of Potla Nageswara Rao, the consideration ascertainable and the developer was wiling to perform the contract during the year, as such dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to get the promised constructed are or the equivalent consideration. 6.3.5 Further, as could be made out from the facts of the case, the Developer neither started construction nor was granted with required permissions from the Municipal Authorities, during the year under reference. The specific clauses of Agreement indicate the facts of the case little more clearly. The Developer shall construct and complete the Project in accordance with and in conformity with the sanctions, approvals, etc and the responsibility therefore shall be that of the Developer alone , (Clause IV(f) o JDA). It is also observed that the actual possession of land was not handed over in the case as such the provisions of Section 53A of TP Act/2(47) of I.T.Act were not attracted, with possession in this case was only considered as license granted to builder to enter the land and construct and whereas the possession being an essential component of section 53A of TP Act and without possession Section 53A fails, as held in case of N.Karuna vs Appropriate Authority 118 Taxman 401 (AP) and Mrs.Sadia Shaik vs CIT (Bombay) and in this case the construction had not started during the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee . We are also fortified by the decision of the Coordinate Bench in the case of Bhavya Construction Ltd Others (ITA No. 1788/Hyd/2012). The ratio of the decision is that unless there is willingness on the part of the Developer to perform his part of the Contract, there cannot be a transfer of capital assets as envisaged u/s.2(47)(v) r.w.s. 53A of the Transfer of the Property Act. The ratio laid- down as above squarely applies to the facts to the present case as the Department has failed to controvert the findings of the ld CIT(A) by bringing material on record to show that the developer has taken steps toward developmental activities. Hence, the capital gains cannot be brought to tax in the year under appeal. 6.3.7.1 It may also be relevant to mention here that without computation the charging section may fail as held in case of CIT Vs. BC Srinivasa Setty 128 ITR 294 (SC) and in this case, the consideration held to be not determined without there being any permissions from the Authorities concerned and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under reference, by taking these important factors, into consideration. The fact of the case is that there was no activity on part of the developer to execute the JDA, during the year with no steps were taken for development, as such no consideration held to have been received, with no municipal sanction approved during the year, but only obtained in the subsequent year, Hence, it is reasonable to hold that the computation of capital gains of Rs.6,69,92,266/-, based on the signing of Development Agreement, in the year 2012-13 related to A.Y.2013-14, held to be not justified. However, the AO is free to proceed to assess the capital gains in the years of approval by the Municipal Authorities as had taken place in the case of the assessee for A.Y.2009-10, on the basis of JDA dtd.11- 12-2006. On similar lines, the relevant years in this regard, to the Development Agreement dtd.07-04-2012, happen to be A.Y-2014-15 and 2015-16. Accordingly, the grounds related to this issue are treated as Partly Allowed . ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
