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2014 (1) TMI 344 - AT - Income TaxWhether the agricultural land given for development is a capital asset u/s 2(14) - Held that - The objects of the assessee company in the Memorandum of Association clearly spelt out the activities to be carried out by the assessee company for which the company has been incorporated - This shows that the assessee would be doing real estate business and the land owned and purchased by it before the Development Agreement was entered into was clearly for the purpose of commercial transaction - The developer was aiming to build an integrated township and for this purpose the company also acquired the adjoining land for giving the same for development to the MAK Projects Limited - No prudent person would invest substantial amounts for acquiring dry agricultural lands while the output on account of agricultural activity is meagre compared to the investment, it sought for the conversion of land for non agricultural purposes from the appropriate authorities, and the land shed its character of agricultural land once it has entered into development agreement for an integrated township with MAK Projects Pvt. Ltd. - The asset in question is not an agricultural land. The impugned land was converted from agricultural purposes to non-agricultural purposes by permission from competent authority - The registration of supplementary Development Agreement cum GPA was executed on 4.1.2007 though it was presented for registration on 15.12.2006 - The registration was delayed awaiting approval from RDO for land conversion and only after the approval was received on 27.12.2006 the document was registered on 4.1.2007 and at the time of registration of Development Agreement, the land was no more remained as agricultural land and it was non-agricultural land by valid conversion on approval from the competent authority - Decided against assessee. Whether there is transfer on account of development agreement cum GPA u/s 2(47)(v) - Held that - As per the provisions of Transfer of Property Act - Following Chaturbhuj Dwarkadas Kapadia v. CIT 2003 (2) TMI 62 - BOMBAY High Court - willingness to perform for the purposes of Section 53A is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of Section 53A of the Transfer of Property Act will come into play on the facts of that case - Unless provisions of Section 53A of the Transfer of Property Act are satisfied on the facts of a case, the transaction in question cannot fall within the scope of deemed transfer under Section 2(47)(v) of the IT Act. The transferee was not willing to perform its obligations in the financial year in which the capital gains are sought to be taxed by the Revenue - The condition laid down under Section 53A of the Transfer of Property Act was not satisfied in this assessment year - The transferee s willing to perform the contract is ascertainable in the assessment year, as stipulated expression under Section 53A of the Transfer of Property Act, its contractual obligations in this previous year relevant to the present assessment year - The Development Agreement based on which the impugned taxability of capital gain is imposed by the AO and upheld by the CIT(A), cannot be said to be a contract of the nature referred to in Section 53A of the Transfer of Property Act and, accordingly, provisions of Section 2(47)(v) cannot be invoked. The assessee has not received any consideration, and there is no evidence brought on record by the Revenue authorities to show that there was actual construction taken place at the impugned property in the previous year relevant to the assessment year under consideration - 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 30 months to complete construction with additional grace period of 6 months, 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, be said to be in the nature of a contract referred to in Section 53A of the Transfer of Property Act - The provisions of Section 2(47)(v) will not apply in the situation. The assessee has not carried on the adventure in the nature of trade so as to bring the income under the head income from business . This is so, because the assessee has not sold any undivided share in the landed property to the developer in the year under consideration. The assessee remains to be the owner of the said property and the land was put for development for the mutual benefit Decided in favour of assessee.
Issues Involved:
1. Whether the land in question is an agricultural land under Section 2(14)(iii) of the Income-tax Act, 1961. 2. Whether the transaction under the Development Agreement-cum-GPA constitutes a transfer under Section 2(47)(v) of the Income-tax Act, 1961. 3. Whether the full value of consideration for computing capital gains can be estimated based on the penal clause in the Development Agreement. 4. Whether the income is assessable under an adventure in the nature of trade. 5. Whether the interest under Sections 234A and 234B of the Income-tax Act, 1961 is applicable. Detailed Analysis: 1. Agricultural Land Classification: The assessee argued that the land was agricultural, located 8 km away from the municipal limits of Hyderabad, and used for agricultural purposes till the date of sale. The AR cited several judgments to support that the land should be classified as agricultural based on its usage and revenue records. However, the Tribunal found that the land had been converted to non-agricultural use by the competent authority on 27.12.2006, before the registration of the Development Agreement on 04.01.2007. Therefore, the land was not considered agricultural at the time of the transaction. 2. Transfer under Section 2(47)(v): The Tribunal examined whether the Development Agreement-cum-GPA constituted a transfer under Section 2(47)(v). The AR argued that there was no sale, relinquishment, or extinguishment of rights, and the consideration was not ascertainable at the time of the agreement. The Tribunal noted that the possession of the property was handed over to the developer, but the developer had not performed or shown willingness to perform its obligations under the agreement during the assessment year. The Tribunal concluded that the conditions under Section 53A of the Transfer of Property Act were not satisfied, and hence, the transaction did not constitute a transfer under Section 2(47)(v). 3. Estimation of Full Value of Consideration: The AO had estimated the full value of consideration based on the penal clause in the Development Agreement, which the assessee contested. The Tribunal agreed with the assessee that the consideration was uncertain and not ascertainable at the time of the agreement. The Tribunal emphasized that the consideration should be based on actual receipt or accrual, not on penal clauses or future projections. 4. Adventure in the Nature of Trade: The AO alternatively assessed the income under the head 'profits & gains from business and profession,' considering the Development Agreement as an adventure in the nature of trade. The Tribunal disagreed, stating that the assessee had not sold any undivided share in the land during the assessment year and remained the owner of the property. The Tribunal held that the transaction could not be treated as an adventure in the nature of trade. 5. Interest under Sections 234A and 234B: The Tribunal did not specifically address the issue of interest under Sections 234A and 234B, as the primary grounds of appeal were decided in favor of the assessee. Conclusion: The Tribunal concluded that the land was not agricultural at the time of the transaction, but the Development Agreement-cum-GPA did not constitute a transfer under Section 2(47)(v) for the assessment year in question. The full value of consideration could not be estimated based on the penal clause, and the transaction was not an adventure in the nature of trade. The appeal was partly allowed in favor of the assessee.
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