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TMI Blog2012 (9) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income-tax(Appeals) ought to have noted that on a proper appreciation of the terms of the Joint development agreement or the Supplementary agreement, no event resulting in transfer of property took place in the previous year relevant to Asst. Year 2007-08 and consequently he ought to have deleted the Capital gains assessed in the impugned order. 5. he learned Commissioner of Income tax(Appeals) grossly erred in sustaining the assessment of capital gains income on unsustainable findings of fact and law which are also diagonally opposite with the AO's findings - the AO holding that the first stage of capital gains arose because the builder handed over possession of seven flats and the CIT(A) holding that possession of flats was not taken by assessee and yet sustaining assessment holding that possession of land was given by the assessee. 6. Without prejudice to the grounds raised above, having held that capital gains is assessable in AY 2007-08, the commissioner of Income Tax (Appeals) erred in upholding the cost of construction at Rs. 925/- per sq. ft determined arbitrarily by the Assessing Officer. 7. Without prejudice to the grounds raised above, the learned CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of trees, shrubs, bushes and levelling of land. Further, the assessee's grievance is that the CIT(A) erred in holding the cost of construction at Rs. 925 per sft on the basis of cost of construction to the builder. 5. The learned AR submitted that the assessee filed return for A.Y. 2007-08 declaring Nil income. The assessee's contention that the development agreement itself did not result in a transfer was not accepted by the Assessing Officer. The Assessing Officer did not also accept the contention of the assessee that if at all capital gain were to be assessed on the premise that the development agreement resulted in transfer, the assessment should be for A.Y. 2006-07 and not 2007-08. Apart from pleading that the development agreement did not result in transfer of any capital asset nor even "deemed transfer" envisaged in Sec. 2(47) of the I.T Act, the assessee also invited attention of the Assessing Officer to the fact that it was specifically agreed between the assessee and the developer, in clause 11 of the joint development agreement that making the property available to the developer for construction of the residential apartments shall not be construed as delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r did not allow the claim of the assessee that an amount of Rs. 1,61,300 spent on cutting trees, clearing bushes and levelling of land stating that there was no sufficient evidence. He ignored the claim of the assessee that even as per the builder's letter dated 4-11-2009 filed before the Assessing Officer the cost of construction was Rs. 650/- per sft. Total income was determined at Rs. 63,26,293 adopting the cost of construction at Rs. 925 per sft. Aggrieved, the assessee filed appeal before Commissioner of Income tax (Appeals). The learned CIT(Appeals) relied on several cases decided by various Courts and the ITAT. On the basis of these decisions, he held that the consideration to be received by the assessee was finally determined only in the subsequent supplementary agreement dated 3-4-2006. The CIT (Appeals) failed to appreciate that clause 3 of the JDA already fixed the ratio of built-up area falling to the share of the assessee at 43% of the total built-up area. The supplementary agreement merely facilitated demarcation of the individual flats failing to the share of owner and developer by identifying the flats by the flat numbers which became available by then. The CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be considered a part performance of the contract as contemplated under Sec. 53A of the Transfer of Property Act. The ITAT held in that case that the year of transfer, on the facts and circumstances of the case is to be held as the previous year 1991-92 relevant to the A.Y. 1992-93 i.e., the year in which the builder hands over possession of flats to the owner. 11. The learned AR submitted that in the other case relied on by the Assessing Officer, viz., Smt. Vasavi Pratap Chand v. DCIT (89 ITD 73) (Del), the ITAT rejected the contention of the assessee that land was transferred on the date of collaboration agreement. The Assessing Officer having noticed the decision in the case of S. Raghuram Reddy and Smt. Vasavi Pratap Chand (supra) and having admitted that the facts of the assessee's case are in pari materia with the facts of the said cases, the Assessing Officer ought to have followed the ratio of the said decisions of the ITAT. The CIT(A) ought to have held that the assessment as made by the Assessing Officer is unsustainable. 12. The AR further submitted that in the case of Dr. Usha Mohandas v. ITO (ITA No. 595/Hyd/2010 dated 12.11.2010) the assessee entered into an ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of possession. It is also submitted that the assessee has not received any advance or part payment consequent to the entering of joint development agreement. It is submitted that on the facts of the assessee's case, the ratio of the decision of the ITAT in the case of Dr, Usha Mohandas (supra) applies to the assessee's case. Consequently the order of the CIT(A) upholding the assessment of capital gain in the A.Y. 2007-08 is erroneous and the assessment may be directed to be quashed. 14. The AR further submitted that in the case of DCIT v. G. Raghuram (39 SOT 406) (Hyd), the Tribunal took support from the decision of Delhi bench of ITAT in the case of Smt. Vasavi Pratap Chand (Supra) in coming to a conclusion about the full value of consideration. The ITAT also rejected the submission of the assessee that the decision of the Tribunal, Hyderabad Bench in the case of Smt. Shanta Vidya Sagar Annan in ITA No. 885/Hyd/2003 dated 9-6-2006 favours him. The said decision relates to exigibility of capital gain on handing over of possession in the case of development agreement. The aforesaid decision also supports the assessee case. 15. The AR submitted that in the light of the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to transfer of immovable property. ♦ That the transferee should take the possession of the property and the transferee should be ready and willing to perform his part of contract. 18. The DR submitted that it was in the light of the above provisions that the Authority for Advance Ruling in the case of JS Sarkaria (294 ITR 196) had opined in respect of an Irrevocable Power of attorney also that a transfer is to be deemed as taken place in consequence of a transaction which has direct and immediate bearing on allowing the possession to be taken in part performance of the contract. Hon'ble Delhi High Court in the case of Ashok Kapoor HUF (213 CTR 241) opined that transfer takes place when the assessee enters into development agreement. It has further been held by the Hon'ble Supreme Court in the case of Ajay Jagati (215 CTR 316) that possession is the crux of the matter in deciding whether there is a transfer or not. Even the Pune bench of the ITAT in the case of Mulik (98 TTJ 179) have opined that transfer takes place once a GPA is given to the developer. Further, the Hon'ble Chennai Bench of the ITAT in the case of R. Kalanidhi v. ITO (122 TTJ 405) have opined t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to capital gains in view of the agreement dated 3.4.2006. He submitted that there is no infirmity in the view of the assessing officer that transfer in this case has to be considered as having taken place in the financial year 2006-07 relevant to asst year 2007-08. 21. The DR further submitted that the Bangalore Bench of the ITAT in the case of Vemanna Reddy (114 TTJ 246) have opined that transfer u/s. 2 (47)(v) takes place when possession of vacant land is given and not well constructed flats are given. A similar view has been taken by the jurisdictional ITAT, Hyderabad in the case of Dr. T. Achyut Rao v. ACIT (106 ITD 388). The jurisdictional ITAT in the said case were concerned with a sale cum development agreement dt 22.8.1997. The said agreement however, was modified by a supplementary agreement on 15.10.1997, wherein the earlier agreed consideration was reduced. Since in the said case the possession of the land had been handed over in the relevant asst year, the ITAT opined that there was no right left to the transferor other than the right to receive the consideration in the manner laid down in the agreement, the transaction entered into by the parties through the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty Act are fulfilled only in A.Y. 2007-08 and it has to be taxed accordingly. For clarity, we will reproduce the section 53A of the Transfer of Property Act. "53A. 1[ Part performance.- Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, 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 transferor 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the willingness to perform, the Court must consider the obligations of the parties and the sequence in which these are to be performed........" 26. We are in considered agreement with the views so expressed in this commentary on the provisions of the Transfer of Property Act. It is thus clear that '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. It is only elementary that, 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. Let us therefore consider whether the transferee, on the facts of the present case, can be said to have 'performed or is willing to perform' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 2006-07 though the JDA was entered on 21.12.2005. In our opinion, as the conditions laid down in section 53A of Transfer of Property Act were satisfied in A.Y. 2007-08, capital gain has to be taxed in A.Y. 2007-08 only. As the willingness to perform the contract has been specifically recognised vide Supplementary Agreement dated 3.4.2006. In our opinion, only on fulfilment of the conditions laid down u/s. 53A of the Transfer of Property Act the capital gain has to be charged. In our opinion the Revenue authority justified in bringing the transaction into capital gain in A.Y. 2007-08 and the same is confirmed. 28. The next ground is with regard to determination of cost of construction at Rs. 925 per sft while determining the consideration with regard to transfer of long term capital asset. The lower authorities considered the cost of construction incurred by the builder at Rs. 925 per sft for determining the value of consideration of 850 sft relating to assessee's share in residential flats. This is based on the cost of construction admitted by the builder in his return of income. 29. We have heard both the parties and perused the material on record. Similar issue came b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction at Rs. 5,28,87,503 adopted by the Assessing Officer, the cost per sft works out to Rs. 912 per sft. Considering the fact that the book results in the case of the developer are rejected and also considering the fact that there may have been certain overheads debited to the said cost which may not have a bearing on the portion received by the assessee, it would be fair to adopt the cost at Rs. 850 per sft for the purpose of sales consideration in the case of the assessee. We direct accordingly." 12. Accordingly, we direct the Assessing Officer to consider the above order and also price inflation for each assessment year from 2001-02 to 2008-09 and determine the cost of construction per flat to be received by the assessee. In other words, the Assessing Officer is directed to consider the base index as per the order of the Tribunal (cited supra) and thereafter he has to work out the price inflation index and determine the value of the flats to be received by the assessee as consideration and decide thereupon after giving reasonable opportunity of hearing to the assessee. Assessee's appeals as well as Revenue appeal are allowed for statistical purposes." 30. In view o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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