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TMI Blog2011 (12) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... ut in the residential premises of the assessee. The assessee filed return of income for the year under consideration admitting total income of Rs. 2,51,253 and agricultural income of Rs. 3,500. In the course of assessment proceedings, the assessing officer examined the issue of capital gains on account of the land sold and also land given for development purposes. The assessee alongwith his wife and son had sold one acre of landed property situated at Survey No.163(OP), at Vettinagulapalli Village on 12.4.2006 for a consideration of Rs. 1,21,090,000. The assessee had claimed exemption on the said transactions stating that the land was agricultural in nature. The assessing officer examined the issue in detail and came to a conclusion that the land was not agricultural in nature and no agricultural operation was carried on the same. He accordingly treated the said land as a capital asset and computed the long term capital gain at Rs. 1,20,94,810. He also found that the assessee alongwith his wife and son had handed over 14 acres of land situated at Vattinagulapalli village to M/s. Dakshin Shelters Pvt. Ltd for development purpose. Since the possession of the land was already handed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain letters issued by Jai Sri Mata Rice Mill claiming that he had sold paddy to the above rice mill. The AO had examined the Managing Partner of the said rice mill who denied to have known the appellant. In fact he had submitted that on Sri A.Rami Reddy had approached him to issue such letters. Considering the detailed examination made by the Assessing officer I am of the view that the land sold by the appellant was non-agricultural in nature and the AO had rightly computed the long term capital gin on sale of the said land. To that extent I do not find any infirmity in the order of AO in making addition of long term capital gain of Rs. 1,20,984,810/- computed by him......" 5. Dealing with the addition by way of capital gains made in respect of the other piece of land given under development agreement, the CIT(A) noted that the main contention of the assessee was that the provision of S.53A does not apply to the development agreement and consequently there is no applicability of S.2(47) of the Act, so as to compute capital gains on development agreements. It was also contended that the so called possession of the land given was to enable the developer to undertake the work on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erties in the order to constitute a 'transfer'. He also submitted that the capital gains accrued to the assessee only when the developer has handed over the built up area to the assessee in accordance with the development argument and therefore, under the facts an circumstances of the case, the CIT(A) ought to have held that there was no transfer within the meaning of S.2(47) of the Act. It is also submitted that till date the developer has not done any development on the land belonging to the assessee and the entire project is in a standstill and therefore, to state that the transfer took place on the date of execution of the development agreement is beyond statutory comprehension and is therefore clearly not sustainable in law. It is also contended that by virtue of G.O.Ms No.111 of 1996, no development can take place on the land belonging to the assessee, which was the subject matter of the development agreement, on account of statutory restrictions and therefore, the CIT(A) ought to have clearly held that there was no transfer exigible to capital gains within the meaning of S.2(47) of the Act and therefore, he ought to have clearly held that no capital gains accrued for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. The conclusion of the assessing officer that the land was barren and surrounded by the rocky mountains and not amenable to agricultural operations is without any basis, and the land is amenable to cultivation and operations were carried out regularly. Referring to the sworn statement of the assessee recorded during search proceedings, dated 9.10.2007 and dated 5.11.2009, it was submitted that the Deputy Director of Income-tax (Investigation), having satisfied with the statement of the assessee that agricultural operations were carried on by the assessee, did not carry out any further investigation. Referring to the sworn statement of the assessee recorded during search assessment proceedings, dated 5.11.2009, it was submitted that it was confined to eliciting information on agricultural income of the assessee It is submitted that the sale bills for the agricultural produce sold were produced before the assessing officer and some of the bills for the purchase of pesticides and fertilizers, vegetable seeds were also produced by the assessee before the assessing officer. He also disputed the inferences drawn on the basis of statement dated 16.12.2009 of Shri Narasimha Reddy, Managi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the observations of the assessing officer based on the provisions of S.10 (37) of the Act are baseless as the land of the assessee is not situated in the municipal area or within 8 Kms from the municipal limits and in fact the assessing officer has got himself totally confused about the applicability of S.2(14) and 10(37) of the Act and he has wrongly focused his attention on S.10(37) with is not relevant for the assessee's case. 13. Placing reliance on the decision of the Gujarat High Court in the case of CIT v. Siddharth J. Desai (139 ITR 628), it is submitted that the Hon'ble High Court in that case has reviewed several decisions and evolved 13 factors for answering whether the land is agricultural or not. Dealing with those factors as fulfilled by the assessee, it is stated as follows- (a) The assessee had paid land revenue up to 19980-99. Thereafter Government has waived land revenue for dry agricultural lands. (b) Land has actually been used for agricultural purpose right form the ownership, and as stated in the sworn affidavit, paddy, vegetables, etc. were grown. (c) Land has been used for agricultural purposes from longer period, i.e. from almo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x(TDS), AP Hyderabad, on the liability to deduct TDS in respect of compensation payable and in response, it was clarified by the CIT(TDS) vide his letter dated 7.12.2005 that deduction at source would not be required in respect of agricultural lands which are falling outside the limit of GHMC income and consequently no TDS was effected on the amount of compensation paid to the assessee. 15. In support of the above contentions with regard to the nature of the land in question, reliance is placed on the following decisions- (a) CIT v. Siddhartha J. Desai (139 ITR 628) Guj. (b) CIT v. Minguel Chandra Pais & Anr (282 ITR 618) Bom. 16. Specifically with regard to the capital gains assessed in respect of the land covered by the development agreement, it is submitted hat provisions of S.53A of Transfer of property Act are not applicable to the transaction of the development agreement and consequently, provision of S.2(47)(v) are also not applicable to development agreement. Without prejudice to this contention, it is submitted that as per the terms and conditions of the development agreement, the assessee is entitled to 35% of plots alongwith construction thereon in lieu of 65% of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .T. Act and S.53A of the Transfer of Property Act, 1882, it is submitted that where the assessee has a right to revoke the agreement in certain eventualities, the transaction is not 'transfer' either under S.2(47)(v) of the IT Act or under S.53A of the Transfer of Property Act. Further, placing reliance on the decision of the Hon'ble Supreme Court in the case of Srimant Sham Rao Suryavanshi & Another v. Prahlad Bhairoba Suryavanshi (dead by LRS) and Others (AIR (2002) SC 960), wherein certain conditions were stipulated for being fulfilled by the transferee in order to protect or defend his possession under S.53A of the Transfer of Property Act, and the fulfillment of those conditions in the present case, it is submitted that the development agreement in the present case was not yet renewed and hence not in force, and as such the transaction is not covered by S.533A of the Transfer of Property Act and consequently, it does not amount to transfer under S.2(47) of the Income-tax Act, 1961. 19. Learned counsel for the assessee further submitted that the developer is not ready with his part of the contract as built up area and plots are not yet ready even on the paper and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain letters from Jai Sri Mata Rice Mill, to whom the assessee claimed to have sold the paddy, Learned Departmental Representative submitted, examination of the Managing Partner of the said mill by the assessee clearly established that the falsity of the assessee's claim and those letters were issued at the request of one A. Ram Reddy. He submitted that the affidavit of the said Shri Ram Reddy filed by the assessee, are only make believe and accommodative documents, which cannot be relied upon. As for the land covered by the development agreement, Learned Departmental Representative, submitted that the view taken by the lower authorities is based on the categorical and unambiguous statutory provisions contained in S.2(47)(v) of the Act, and the settled position of law, elaborately discussed by the CIT(A) in the impugned order, which clearly stipulate that it is the date of the development agreement, which is crucial, has the effect of 'transfer' in favour of the developer to whom possession of the property is handed over. He relied upon the following judgements: (a) Chaturbhuj Dwakada Kapadia v. CIT (260 ITRr 491) (b) Jasbir Singh Sarkaria (294 ITR 196) Advance Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of agriculture but for the purpose of development. On the date of the land was sold, the land was no longer agricultural land. There was no evidence regarding carrying out the agricultural operations in the impugned land. In the absence of evidence that it was put to agricultural use by the assessee and the land was actually cultivated till the sale of the land, we are not in a position to hold that the land is an agricultural land. In our opinion, the sale of the land for non agricultural purpose and the land was not subject to cultivation before sale, we have to draw conclusion that the sale of land cannot be considered as sale of agricultural land. In the circumstances, we have to hold that the sale of land is not sale of agricultural land and it is to be considered as capital asset and on that sale, capital gain is chargeable. 24. Now, coming to the ground relating to the chargeability of capital gain on account of development agreement, we may hold in the first place, for the reasons discussed in the preceding paras, that the contentions raised with regard to agricultural nature of the land, which is subject matter of the development agreement, have to be rejected, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iceable that by the presence of the deeming provision, the income on account of arisal of the capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place. Due to the presence of this statutory fiction, the actual year in which the entire sale consideration is received, is beside the point but what needs to be judged is the point of time at which the transfer took place either by handing over of the possession or by allowing the entry into the premises or by making the constructive presence of the vendee nevertheless duly supported by a legal document. 27. But the issue do not get settled only by the interpretation of s. 45 and s. 2(47)(v) because the definition of "transfer" not merely prescribes allowing of possession but to be retained in part performance of a contract of the nature referred in s. 53A of the Transfer of Property Act. Therefore, it is further requisite to deal with the relevant section contained in Transfer of Property Act. 28. Transfer of Property Act contains S.53A under the heading "Part performance" and, for deciding the case in hand, it is necessary to quote the impugned section verbatim a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke to identify the issue of capital gain with the term "transfer" as defined in s. 54 of Transfer of Property act. At the cost of elaboration, we may like to add that in the past there was a long line of pronouncements; while deciding income tax cases, that unless and until a sale deed is executed and that too it is registered, transfer cannot be said to have been effected. The consequence of said catena of decisions was that no capital gain tax was directed to be levied so long as "transfer" took place as per the generally accepted connotation of the term under Transfer of Property Act. The resultant position was that the levy of capital gain tax thus resulted in major amendments in the income-tax statute. The main objective of those amendments was to enact that for the purposes of capital gains, the transaction involving transfer of the nature referred are not required to be registered under Registration Act. Such arrangement does not include transfer of certain rights vesting to a purchaser; however such "transfer" does confer certain privileges of constructive ownership with connected bundle of rights. Indeed it is a departure from the commonly understood meaning of the definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so long as the transferee is enabled to exercise general control over the property and to make use of it for the intended purpose. The mere fact that the assessee owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of the agreement, did not restrict the rights of the developer or did not introduce any incompatibility. In a situation like this when there is a concurrent possession of both the parties, even then cl. (v) has its full role to play. There is no warrant to postpone the operation of cl. (v) to that point of time when the concurrent possession would become exclusive possession of the developer. Any other interpretation i.e., possession means exclusive possession, shall defeat the purpose of amendment. The possibility of staggering of payment linked with possession is ruled out by this amendment so that the taxability of gain may not be shifted to an uncertain distant date. We have no hesitation in saying that even if some part of consideration remains to be paid, the transaction shall not affect the liability of capital gains tax so as to postpone the same indefinitely. What is meant in clause (v) is the "tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government putting restriction on construction, then we have to hold that there is transfer u/s. 2(47)(v) of the Act. This is because the possession and control of the property is already vested with the transferee and the impugned development agreement has not been cancelled and it is still in operation. Entering into the property and handing over of the possession was instantaneous thus entire conspectus of the case has attracted the provision of S. 45 of the Act on fulfillment of conditions laid down in section 53A of the Transfer of Property Act. 32. Accordingly, we set aside the above issue relating to transfer of property u/s. 2(47)(v) of the IT Act to the file of the CIT(A) to decide the same afresh in light of the above observations and after considering the ratio laid down by the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT (supra) and also the order of the Tribunal in the case of Dr. Maya Shenoy v. ACIT (124 TTJ (Hyd) 692). This ground is partly allowed for statistical purposes. 33. In grounds of appeal No.9 to 11, it is pleaded that the entire search proceedings under S.132 of the Act were initiated in the name of Suresh Kumar D. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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