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TMI Blog2012 (7) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... performance of a contract of the nature referred in s. 53A of the Transfer of Property Act. Thus, if the possession and control of the property is already vested with the transferee and the impugned development agreement has not been duly cancelled and it is still in operation, it has to be decided that there is a transfer u/s. 2(47)(v). In our opinion, the real intention of the parties herein to be seen, accordingly, issue is set aside to file of the CIT(A) to decide the same afresh in light of the above observations and decision in case of Chaturbhuj Dwarkadas Kapadia v. CIT (2003 (2) TMI 62 (HC)) and Dr. Maya Shenoy v. ACIT (2008 (10) TMI 262 (Tri)) - Appeal allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... of income admitting an amount of ₹ 2,04,000/-as income under the head Other Sources. The assessing officer vide his order under section 143(3) r.w.s. 147 dated December 31, 2009 determined Long Term Capital gains on the transaction of Development Agreement and arrived at an assessed income of ₹ 9,00,09,850/- of which the capital gain part constitutes ₹ 8,98,05,850/-. (Balance ₹ 2,04,000/- admitted by the assessee). 3.2 The Capital Gain of ₹ 8,98,05,850/- was arrived at by the assessing officer as under: SI. No. Particulars Details 1. Total area to be received by the assessee including car parking 71,478 S.Ft 2. Sale price per S.Ft. Obtained from a statement of the Managing Director of Janapriya Engineers Syndicate recorded by the DDIT in the course of search operations ₹ 1450 3. Gross Profit rate estimated by the MD of the company and stated in the statement before DDIT mentioned above 25% 4. Net Profit rate estimated by the MD of the company and stated in the statement before DDIT mentioned above 12% 5. Value adopted by the Assessing Officer for determining full value of consideration (Rs. 1450 Less: ₹ 174 i.e., 12% ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the transaction relating to the said land. A copy of the said agreement is submitted at pages 10 to 16 of the material paper book. This being a development as per the agreed terms, that has taken place subsequent to the completion of the assessment the assessee has brought the fresh agreement dated 05-04-2010 to the record of the Hon'ble Commissioner of Income Tax (Appeals)-I, Hyderabad. The assessee prayed before the first appellate authority that the transaction of development agreement entered into by the assessee does not result in "Transfer" within the meaning of the term under section 2(47) of the Income Tax Act, 1961 so as to attract Capital Gains tax. 3.7 The assessee having brought the event occurring subsequent to the completion of the assessment viz., the cancellation of the development agreement and entering into fresh agreement between the parties, on record before the Hon'ble First Appellate Authority prayed that the original agreement having been cancelled, an assessment based on such cancelled agreement is invalid and not tenable in law. The first appellate authority, while taking the cancellation and fresh agreement on record, upheld the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een cancelled what remains between the parties is the compensatory rights for the damages in respect of the said cancellation and the transfer stands cancelled and this is what exactly happened in the case of the assessee. He submitted that this can be very clearly observed from the agreement dated 05-04-2010 exhibited at pages 10 to 16 of the material paper book. Accordingly, the AR submitted that the assessment be cancelled and that no transfer has taken place and consequently no capital gain arises. 4.3 The AR, on applicability of section 2(47)(v) of the income tax Act, 1961, submitted that the provisions of section 2(47)(v) of the Income Tax Act, 1961, do not apply to the case of the assessee's case or to any development agreement for that matter of fact. For this proposition, the AR relied on the following cases and also in other cases relied on by the assessing officer as well as the learned first appellate authority it has been held that the case of development agreement falls under the ambit of section 2(47)(v) of the Income Tax Act, 1961; a. Chaturbhuj Dwarakadas Kapadia [[2003] 129 Taxmann 497 (Bom.)] b. Jasbir Singh Sarkaria [[2007] 164 Taxmann 108 (AAR - New Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e regarded as the 'transaction involving the allowing of the possession' of land to be taken in part performance of the contract and, therefore, the transfer within the meaning of section 2(47)(v) must be deemed to have taken place on the date of execution of such GPA. The irrevocable GPA was executed on 8-5-2006, i.e., during the previous year, relevant to the assessment year 2007-08 and the capital gains must be held to have arisen during that year. Incidentally, it may be mentioned that during the said year, i.e., financial year 2006-07, a final licence was granted and the applicant/owners received nearly two-third of the consideration. 4. Once it is held that the transaction of the nature referred to in sub-clause (v) of section 2(47) had taken place on a particular date, the actual date of taking physical possession need not be probed into. It is enough if the transferee, has by virtue of that transaction, a right to enter upon and exercise the acts of possession effectively. [Para 20] 4.7 The AR further submitted that the fact that the subject matter of taxation being the consideration for transfer does not exist on the date concluded by the department to be the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officer as well as the learned CIT (Appeals) erred in law in holding that the transaction is within the meaning of transfer under section 2(47)(v) of the Act. As stated earlier the case and the course of arguments before the Hon'ble Bombay High Court and the Authority for Advance Ruling is that the amendment to the section 2(47) which defines "Transfer" has been made with a view to plug the loop hole of the assesses entering into development with builders and evading taxes. Accordingly, the AR submitted that this is not the actual legal position nor is it the intention of the legislature. 4.11 Further he submitted that section 2(47) as originally introduced was substituted by the Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1985. The section with effect from 1-4-1985 had four sub clauses as under; ["transfer", in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese provisions. Under the Transfer of Property Act, the transfer of ownership can be effected only by means of a registered instrument. However, in the recent times various other devices are sought to be employed to transfer one's ownership in property. As a result, there are situations in which the actual owner, say, of an apartment in a multi-storeyed building, or a holder of a power of attorney is not the legal owner of a property. In some cases, pending resolution of disputes, the legal owners as well as the beneficial owners are assessed to tax in respect of the same income. As a measure of rationalization, the Bill seeks to enlarge further the meaning of the expression "owner of house property", given in clause (iii) of section 27 by providing that a person who come to have control over the property by virtue of such transaction as are referred in clause (f) of section 269UA will also be deemed to be the owner of the property. The amendment also seeks to enlarge the applicability of this clause to a member of a company or other association of persons. Corresponding amendments have also been proposed in regard to the definition of "transfer" in sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (47)(v) of the Income Tax Act. 4.17 The AR further submits that the provisions of section 2(47)(v) of the Income Tax Act do not apply to the case of the assessee nor is it the intention of the legislature that they be so intended. Therefore, he prayed that the determination of capital gains in his case be quashed. 4.18 Without prejudice to the above, regarding computation of capital gains, the AR submitted that the assessing officer acted arbitrarily in taking the sale price as ₹ 1450 purely based on a statement given by the Managing Director of the developer company in a statement before Dy. Director of Income-tax. The assessing officer himself having accepted that the cost to the builder is to be taken as the full value of consideration in respect of the transaction, the assessing officer should have taken the actual cost to the builder who is also an assessee on the records of the same assessing officer instead of relying on a statement made before the Dy. Director of Income-tax. 4.19 The AR submitted that whatever the sale price may be, a standard measure of profit is not a criteria to determine cost. On this count both the assessing officer as well as the learned firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the present assessee. While deciding the appeal in the case of B. Narasimha Reddy it was held that the Assessing Officer was justified in bringing to tax the transaction relating to the development agreement in view of the provision of sec. 2(47) of the I.T. Act. While doing so, the CIT(A) relied on the decision of ITAT Pune Bench in the case of Taher Alimohammed Poonawala v. Addl. CIT [2009] 124 TTJ (Pune) 387 wherein the Tribunal observed as under: "Where owners (assessees) had entered into an agreement for development of property and certain rights were assigned to developer who in turn had made substantial payment and, consequently, entered upon property and constructed flats, fact that legal ownership continued with owners to be transferred to developer at a future distant date really would not affect applicability of section 2(47)(v) and capital gain would arise in year in which agreement for development of property was entered into .... " 6. The learned DR relied on the decision in the case of Dr. Maya Shenoy v. Asstt. CIT [2009] 124 TTJ (Hyd.) 692 wherein the Hon'ble ITAT Hyderabad observed as under: "Development agreement under which develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract of the nature referred to in s. 53A of the Transfer of Property Act, 1882 (4 of 1982)" 9. The importance of the word "transfer" is due to the reason that under the charging section, viz. S. 45, and the capital gain is taxable on "transfer of a capital asset". Precisely, this section prescribes that "any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head capital gains and shall be deemed to be the income of the previous year in which the transfer took place". (Emphasis supplied by italicized print) 10. Thus the fundamental features which determine the taxability of capital gain, are that the gain ought to be from the transfer of a capital asset. This section has a large scope of its operation due to the presence of deeming provision which says that the gain shall be the deemed income of that previous year in which the transfer took place. This phrase can be interpreted in the manner that the total profits may actually be received in any other year, but for the purposes of S. 45, the gain shall be the deemed income of the year of transfer of the capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, And the transferee has performed or is willing to perform his part of the contract, Then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transfer or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall effect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof." 13. The doctrine of "part performance" is undoubtedly based upon the doctrine of equity. If one party has performed his part of duty then equity demands that the other party shall also perform his part of the obligation. If one party stood by his words then it is expected from the other party to also stand by his promise. Naturally an inequitable conduct of any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uot; has definitely taken place. (c) The existence of the "consideration" is the essence of the contract. In this case the amount of consideration has to be paid to the assessee in the form of cash as well as in kind i.e., the flats to be constructed by the developers to be handed over to the owners. (d) Next is the important phrase i.e., "terms necessary to constitute the transfer can be ascertained with reasonable certainty". According to us, in this case, the terms and conditions of the contract were unambiguous thus clearly spoken about the rights and duties with certainty of both the signing parties. We are concerned mainly with two certainties; one is passing of substantial consideration and second is passing over of possession. As far as the payment of consideration is concerned, we have already noticed that it is in the form of both cash as well as kind and payment made to the assessee has not been brought on record by the lower authorities and the same to be examined and considered by the CIT(A). (e) The other factor which governs the happening of transfer is the handing over of possession. This section says "and the transferee has, in part perf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a right to enter upon and exercise the act of possession effectively then such an act amounts to legal possession over the property. (f) The last noticeable ingredient is, "the transferee has performed or is willing to perform his part of the contract". To ascertain the existence of willingness on the part of the transferee one must not put stop at one event but willingness is to be judged by the series of action of the transferee. The transferees survey the land and to attract purchases put up hoardings plus sales-office and carry out site development work. Landscaping, sales promotion, execution of construction and completion of project are all incidental to demonstrate the willingness of the transferee. On one hand, the power of attorney grants bundle of possessor rights to the developer simultaneously and on the other hand transferee's gesture of payment of consideration coupled with development work can be said to be a positive step towards willingness to fulfil the commitment. Facts of this case thus suggest that the developer had never intended to walk-out of the project. However, whether the developer has performed its part of the contract by taking steps ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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). He is also directed to consider the order of the Tribunal Pune Bench in the case of Dyaneshwar N. Mulik v. ACIT, 98 TTJ 179 wherein held that Clause (47) of s. 2 was amended by the Finance Act, 1987 w.e.f. 1st April, 1988 by inserting new sub-cls. (v) and (vi). These two new sub-clauses provide that 'transfer' includes (i) any transaction which allows possession to be retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act; and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property. Therefore, under these two sub-clauses, the capital gain would be taxable in the year in which such transactions are entered into even if the transfer of the imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion, at this stage this issue does not require adjudication as the main issue gone back to CIT(A)to be decided afresh. 18. Now we will take up Revenue appeals in ITA Nos. 407 and 409/Hyd/2011 wherein the issues are common in nature. The common grounds as in ITA No. 407/Hyd/2011 are as under: a. The CIT(A) erred on facts and in law in allowing deduction of 25% from the sale realisation value of constructed area/space as the sale consideration of the land transacted. b. The CIT(A) failed to appreciate the fact that the rate of 12% reduction from the total sale realisation value at the rate of ₹ 1450/- per sq. yard is the consideration received by the assessee in pursuance of the development agreement. 19. Brief facts of the case are that a search and seizure operation u/s. 132 of the I.T. Act was conducted at the business premises of Janapriya Group. During the year under consideration, the assessee had given his land for development to Janapriya Engineering Syndicate Ltd. The Assessing Officer was of the view that the assessee was liable for capital gains on the basis of development agreement. Since the assessee had not filed any return of income for the year under consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that the assessee was entitled to 62,482 sft of built up area and 15,962 sft car parking area as per the Agreement dated 4.3.2008. The Assessing Officer referred to the statement of Sri K. Ravinder Reddy, Managing Director of Janapriya Engineers Syndicate Ltd. which was recorded on 14-5-2008 wherein he has submitted that the sale realisation is ₹ 1450 per sft and the profit is 12%. Considering the same, the Assessing Officer arrived at a figure of 1276 per sft (Rs. 1450-12% profit of the builder i.e. ₹ 174) towards cost of construction including indirect expenses to the builder. Adopting this rate, the Assessing Officer computed the long term capital gains on 78,445 sft of area to be received by the assessee including car parking. The long term capital gain was computed at ₹ 9,87,51,123/-. The total income was assessed at ₹ 9,93,03,713/- and a tax demand of ₹ 3,06,94,257/- was raised. 21. We have heard the rival submissions and perused the material available on record. Since the main issue regarding chargeability of capital gain has been set aside to CIT(A), in assessees' appeals in earlier para of this order, this ground does not required a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long with original returns of income or along with returns filed in response to notice u/s. 153C. The receipts and payments account is submitted only during the course of scrutiny proceedings. The assessee has not filed any satisfactory evidence for the source of huge opening cash balance of ₹ 16,00,000. Accordingly, the learned DR supported the order of the Assessing Officer. 25. The learned AR submitted the Assessing Officer had issued common notice dated 7-9-2009 and 23-9-2009 u/s. 143(2). From the letter dated 7-9-2009, the Assessing Officer had called for some general information for the assessment years 2002-03 to 2008-09 regarding computation of income sheet, Profit and Loss A/c., Receipts and Payments A/c, etc. In response to the same, the assessee filed the Receipts and Payments A/c in the form of cash flow statement for all the years wherein the opening balance for the A.Y. 2002-03 was shown at ₹ 16 lakhs. Below the cash flow statement, the assessee had left a note that he was working as a Personnel Officer in Electronics Corporation of India Ltd (ECIL) and voluntarily retired from the service in the year 1996. The past salary and the other income of himself ..... X X X X Extracts X X X X X X X X Extracts X X X X
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