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TMI Blog2015 (2) TMI 893X X X X Extracts X X X X X X X X Extracts X X X X ..... s and holding that the said amount is part consideration arising from transfer of development rights in land near PARVATI, Pune. The learned CIT(A)-II, Pune ought to have appreciated that the said development agreement dated 1/4/2008 is automatically cancelled/frustrated considering the specific terms of the said agreement. 2. The learned CIT(A)-II, Pune erred in law and on facts in observing that the possession of the land at PARVATI, Pune was extended by the appellant to the intending developer and hence the said development agreement dated 1/4/2008 gives rise to taxable capital gains in the hands of the appellant u/s 2(47)(v) of the ITA, 1961. 3. The learned CIT(A)-II, Pune further erred in law and on facts in enhancing the alleged taxable capital gain by ₹ 12,00,00,000/- (thus taxing the total agreed consideration of ₹ 22,90,00,000/-) without appreciating that the transaction proposing transfer of development agreement did not fructify in reality. 4. Alternatively and without prejudice, the learned CIT(A)-II, Pune erred in not granting deduction of cost of acquisition while deciding the matter of taxability of alleged capital gain in the hands of the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the consideration in case the same was not paid up to 10-02-2010. If the terms are not complied with by the developer i.e. in event of nonpayment and non-realization of cheques fully or partly, the Development Agreement and Power of Attorney executed with the developer would stand revoked and cancelled automatically without any further notice or prior intimation to the Developer. It was also provided in the Development Agreement that in case there is a failure on the part of the developer to pay the amount to the assessee in terms of Development Agreement, the developer shall not be entitled to claim any compensatory amount, damages, costs, etc. made by them for any development or otherwise. The assessee contended that the payment of full consideration was the essence of the agreement. The assessee stated before the Assessing Officer that as per the terms of Development Agreement, it was contractual obligation on the developer to get the building plans sanctioned from Pune Municipal Corporation (PMC) prior to 18-10-2008 but the plans were never got sanctioned and the developer did not even submit the plans to the PMC. 3. In sum and substance it was a contention of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- was taxable as a Capital Gain. The Assessing Officer did not give the benefit of deduction of the cost of acquisition but allowed the deduction of ₹ 50,00,000/- u/s. 54EC in respect of notified bonds. The assessee challenged the assessment made by the Assessing Officer before the Ld. CIT(A) but without successes. The Ld. CIT(A) enhanced the amount of Capital Gain instead of giving the relief to the assessee. The operative part of the finding of the Ld. CIT(A) is as under: 4.3 The appellant has raised various contentions during the appellate proceedings and the major issue raised is that the transfer of the impugned property did not take place and, therefore, no capital gains arose. It has been contended that because of the nonfulfillment of the basic conditions of payment of entire consideration and getting plans sanctioned was not fulfilled by the developer and thus he was not entitled to get any rights to land including possession. The appellant has also submitted that the issue regarding amount received by the appellant falls u/s 51 of the Act, as advance money received and hence is not taxable. The appellant has also stated that the Assessing Officer has erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 01.04.2008, it is clear that in its guise transfer u/s 2(47) has been contemplated. For this purpose it is necessary to refer to some of the clauses of the development agreement dated 01.04.2008 so as to appreciate the nature of transaction entered into by the appellant with the developer M/s SKA. Some of the relevant clauses has also been referred to by the Assessing Officer in the assessment order. The fact as brought out from the aforesaid agreement makes it clear that the developer has undertaken to apply to the various authorities of the government seeking permission for the development of the said property either in the name of self or the appellant. Some of the relevant clauses of the agreement which indicates the transfer of the property u/s 2(47) during the year are as under: AND WHEREAS the VENDORS are in urgent need of moneys and due to time consuming litigations etc. have therefore decided to sell their development rights on 'AS IS WHERE IS BASIS'. AND WHEREAS the DEVELOPERS after verifying all document as demanded and furnished by the VENDORS and after carefully verifying the title of the VENDORS with due legal consultations with their advocates and lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bout bearing Survey No. 32A, 33A, 33B and 34A/2+1 P.P. No. 490 T.P.S. Ill, and more particularly described in the Schedule hereunder written and delineated on the plan thereof hereto annexed and thereon shown surrounded by red coloured boundary line (hereinafter called the said property )as per the plans that may be sanctioned by the P.M.C. Pune and as the terms and conditions that may be imposed by the concerned authorities while sanctioning the said plans. 2. In consideration of the VENDORS permitting the Developers to develop the said property, the Developers shall pay to the VENDORS a Sum of ₹ 34,35,00,0007- (Rs Thirty Four Crores Thirty Five Lacks Only) on lump-sum basis without any regard to the area of the property that may be developable or sanctioned by the concerned authorities. 3. Out of the above mentioned total consideration amount, the Developers have paid ₹ 76,35,00,0007- (Rs. Sixteen Crores thirty Five Lacks Only) as NON-REFUNDABLE amount by Demand Draft. 4. .............. 5. .............. 6. .............. 7. The Developers shall for and on behalf of the VENDORS submit to the Pune Municipal Corporation plans for getting the said prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r papers containing true facts and correct particulars as may from time to time be required in this behalf. It is agreed that the letters, applications, agreements, documents court proceedings, affidavits and other papers that may be signed by the Developers under this Agreement shall contain only true facts and correct particulars. The Developers hereby have executed and caused the persons in whose favour the VENDORS executed a Power of Attorney as aforesaid, a deed of indemnity in such form as required by the VENDORS thereby indemnifying the VENDORS and all persons claiming under them and their respective estates and effects, of from and against all actions suits, proceedings, claims demands costs, charges and expenses that may be taken or made by any one claiming under them or his or her may be liable to pay suffer or incur on account of anything done or caused or committed or omitted to be done by the Developers or the person in whose favour a Power of Attorney hereby contemplated is executed by the VENDORS and that the said Indemnify shall continue to remain in full force and effect throughout for anything done or caused or committed to be done by the Developers or such person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip than real ownership, since it is not unusual for a beneficial owner as in the case of a trust or those properties of the deceased persons, to be the real owner without being the nominal title holder. In Chaturbhuj Dwarkadas Kapadia Vs CIT cited supra, where the asessee had taken possession in pursuance of a written agreement, it was held that the transfer was on the date of possession in this case on 01.04.1996, so that capital gains became assessable only in the A.Y. 1997-98, though the assessee had paid tax in A.Y. 1999-2000 with reference to the date of registration. There is also observation that development agreement do not constitute transfer in general law, but effective transfer may be inferred on grant of irrevocable license to the developers on the basis of wider definition of transfer u/s 2(47)(v) of the Act. The date on which developer is allowed to enter upon the land and start developing, the land stands transferred. The same could constitute a transfer in relation to developer's share in that capital asset which is also in terms of section 2(47). It is by now settled that capital gains would accrue on the date on which possession of land was given to the deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower of attorney executed by the owners in favor of the developers has to be regarded as a transaction in the eyes of law which allowed possession to be taken in part performance of the contract of transfer. The AAR also observed that 'possession' as contemplated by clause (v) of sec 2(47) need not necessarily be sole and exclusive possession and made the following observations: ' Possession contemplated by clause (v) of section 2(47) need not necessarily be sole and exclusive possession. So long as the transferee is, by virtue of the possession given, enabled to exercise general control over the property so as to make use of it for the intended purpose, the mere fact that the owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of the agreement does not introduce incompatibility. The concurrent purpose of the owner who can exercise possessory rights to a limited extent and for a limited purpose and that of the buyer/developer who has a general control and custody of the land can very well be reconciled. Clause (v) will have its full play even in such a situation. There is no warrant to postpone le operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire consideration was paid nor the possession of the property was handed over to the vendor. But, in the present case, under the development agreement, the transferee had obtained irrevocable power of attorney for the development of the property. The clauses in the present agreement clearly indicate that the transaction has the effect of enabling the enjoyment of the property by the developer for the purpose of development. In other words, the development rights over the property were parted with as on the date of agreement itself and therefore, the transfer as defined in sec. 2(47) had taken place as on the date of the development agreement i.e. on 13.09.2007. Therefore, the facts in the above decision of ITAT, Pune are materially different from the facts of the present case and the same cannot be applied to the case of the appellant. 4.7.1 In the case of General Glass Co. (P) Ltd. (108 TTJ 854), the assessee had received only a meager amount out of total sales consideration and the transferee was avoiding adhering to the payment schedule on one ground or the other and there was no certainty that the sales consideration would actually be realized by the assessee. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possession of the said property from unauthorized occupants. Thus in the above cited case the property was already under adverse possession which is not the fact in the present case and hence on facts the reliance placed by the appellant is not applicable and is clearly distinguishable. The ITAT in these circumstances held the transaction to have not been completed in terms of section 2(47)(v). 4.8 The various clauses of the agreement prima facie indicate that IWs SKA had taken over possession of the property including its right and interest of the appellant. Under the aforesaid agreement dated 01.04.2008, the owners have granted development rights as is evident from the aforesaid clauses of the agreement and also the irrevocable power of attorney to develop, commence and complete the development. The Bombay High Court in 260 ITR 491 has observed that as per the contract if a power of attorney is intended to be given to the developers to deal with the property, the date of agreement would be the relevant date to decide the date of transfer u/s 2(47) and in the present case the' date is 01.04.2008. Moreover, the clauses of the agreement indicate that from the date of agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d developer has undertaken the development work thereon signifying transfer of the property. The Pune ITAT in the case of Mahesh Nemichandra Ganeshwade Vs ITO (2012) 147 TTJ 488 (Pune) has held that when the assessee entered into a joint venture agreement with a builder on July 2005 for development of said land and accordingly possession of land was handed over to builder, same fulfilled the requirement of section 2(47) and capital gain arising therefrom was taxable in A.Y. 2006-07 as against 2007-08 claimed. The bench also held that as per the provisions of section 2(47) any transaction involving allowing of possession to be taken or retained in part performance of a contract of nature referred to in section 53A of Transfer of Property Act 1882, would come within the ambit of expression 'transfer' and as the development agreement entered into on 12.07.2005 which contemplated taking over of possession of property for development fulfilled requirements of section 2(47)(v) and/therefore, the order passed by the Assessing Officer was to be upheld. 4.10 The appellant's view that under the Indian Registration Act, the unregistered documents does not give right to the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an arrangement having the effect of enabling the enjoyment of the immovable property. Hence, the instrument in question was clearly a transfer of capital asset and, therefore, any profit or gain arising out of such transfer will definitely generate capital gains and, therefore, there was transfer of interest in the immovable property attracting capital gains tax. 4.11 The appellant has also submitted that the possession of the property is with the PMC and, therefore, the question of either the appellant or her brother handing over possession did not arise. The aforesaid contention of the appellant is also misplaced as it is evident from the Development Agreement dated 01.04.2008 and the power of attorney that the possession was not with the PMC but a litigation was on-going and the buyer M/s SKA after going through and verifying the entire documents and title of the Vendors i.e. the appellant, they expressed their satisfaction with the title of Vendors and, therefore, entered into the Development Agreement on 'AS IS WHERE IS BASIS'. It is also mentioned in the agreement on page 5 that the Vendors are in urgent need of money and due to time consuming litigation etc. h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er' and the liability of capital gains tax so as to postpone the same indefinitely. What is meant in clause (v) is the 'transfer', which enables the developer to undertake development work on the land. It is a general control over the property in part performance of the contract. Thus, when the appellant entered into an agreement for development of his property and certain rights were assigned to the developer who in turn had taken steps in relation to development of the property, the date of transaction is to be considered as date of transfer u/s. 2(47). The point which deserves attention is that the amount or the consideration agreed upon may not be fully received as on the date of the agreement but if it arises from the agreement in question, then the deeming provisions of transfer under sec. 2(47) shall come into operation. The actual year in which the entire sale consideration is received is beside the point and what needs to be seen 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 by virtue of development agreement. The clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the assessment year 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of the conveyance. Assessees used to enter into agreements for developing properties with builders and under the arrangement with the builders, they used to confer privileges of ownership without executing conveyance and to plug that loophole, section 2(47) (v) came to be introduced in the Act. In the appeal under consideration, all the conditions mentioned by the Bombay High Court in above decision, in order to attract section 53A of the Transfer of Property Act, are fulfilled which is apparent from the following:- a. There is an agreement for consideration signed on 1st April 2008 between the appellant and SKA. A power of attorney has also been executed. b. The agreement dated 01.04.2008 and the power of attorney are in writing. c. The agreement dated 01.04.2008 and the power of attorney are signed by the transferor i.e. the Appellant along with co-owner. d. The agreement dated 01.04.2008 and the power of attorney are for transferring the right, title and interest of whatsoever nature in or upon the aforesaid property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have been effected, such transfer should have been 'effected', in the previous year' relevant to particular assessment year and profits or gains should have arisen from such transfer. If these conditions are satisfied, then profits and gains in question are chargeable to income tax under the head 'capital gains' and would be deemed to be the income of the year in which transfer took place. Capital gains arise on transfer of capital asset. Hence, it is the date of transfer, which is relevant so that the assessment year is the accounting year during which the taxable event falls. In the present case, however, the consideration is determinate as per the clauses of the agreement, the entire consideration has been fixed for the land and the buyer or the developer M/s SKA has paid ₹ 16.35 crores out of the total sum of ₹ 34.35 crores. Thus the fact on record as brought out, clearly indicate the transfer u/s 2(47) of the property or asset u/s 2(14) liable for capital gains on the full consideration and not in part as contended by the appellant. The Calcutta High court in the case of CIT Vs Bhupinder Singh Atwal (1983) 140 ITR 928 (Cal) held that since thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain was held to be taxable during that year even though dispute on sale price is still pending. In T.V. Sundaram lyengar Sons Ltd Vs CIT (1959) 37 ITR 26 (Mad), capital gain is attracted the moment the assessee has acquired the right to receive the profits and it is not necessary that the assessee should have actually received the profits. If subsequently the money is not actually received, that would be a capital loss arising in the year when the money became irrecoverable. According to section 48, the income chargeable under the head 'capital gains' is to be computed by deducting from the full value of consideration received or accruing as a result of transfer of capital asset, the expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset and the cost of any improvement thereto. It is, therefore, necessary to appreciate the significance and scope of the words 'full value of consideration' so as to identify amounts which constitute a part of the full value of consideration and the amounts which do not. In the case of CIT Vs George Henderson Co Ltd. (1967), 66 ITR 622 (SC), the apex court was of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the entire consideration is required to be considered for the purpose of computing the capital gains in the hands of the assessee. Similar view was also taken in the case of Smt. P.S. Vasantha Vs CIT (2004) 186 CTR 288 (Mad), following the decision in the case of Venkatesh ors Vs CIT (cited supra). 4.16 On the basis of the above legal position, it is evident that there is transfer executed by the appellant in favour of SKA on 01.04.2008 falling in A.Y. 2009-10. In the light of above fact, I intend to agree with the Assessing Officer s contention that the Development agreement' or the agreement dated 01.04.2008 is the agreement which transferred the titles, interest and rights of the appellant to SKA. In view of the above, I hold that the transfer has taken place on 01.04.2008 in F.Y. 2008-09 relevant to A.Y. 2009-10 and the capital gain arising therefrom is taxable in the same assessment year. Thus, it is apparent that under section 48, the starting point for computation of capital gains is the amount of full value of consideration received or accruing as a result of a transfer of the capital asset. Thus the principle to be followed for the purpose of computing capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made in the aforesaid paras no. 4.15 to 4.16 of this order ₹ 12 crores has been enhanced under the provisions of section 251 of the I.T. Act. Accordingly, the Assessing Officer is directed to modify the assessment order for A.Y. 2009-10 by substituting the capital gains of ₹ 22.90 crores as detailed above in place of ₹ 10.90 crores computed in the order. 5. The Ld. CIT(A) also declined to allow the claim of cost of acquisition by giving the reason that the assessee s application for rectification is pending before the Assessing Officer. Now, the assessee is in appeal before us. 6. We have heard the rival submissions of the parties also perused the record and considered all the decisions relied on by both the parties. The main contention of the assessee is that to tax the Capital Gain there must be transfer of any capital asset within the meaning of Sec. 45 of the Income-tax Act r.w.s. 2(47) of the Act. The main plank of argument of Ld. AR is that there is no transfer within the meaning of Sec. 45 r.w.s. 2(47) of the Income-tax Act in the F.Y. 2008-09 relevant to the A.Y. 2009-10. He argues that the possession was never given to the developer even thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: The Developers further assure that if the building plans from Pune Municipal Corporation gets sanctioned prior to the aforesaid postdated cheques, then they shall amend the dates of the said cheques for earlier dates and cause the cheques to be encashed and honoured earlier i.e. as soon as the building plans are sanctioned. Only after the building plans are sanctioned, the possession as Licensee shall be handed over and only after having received the balance and outstanding consideration amounts thereby making full and final payment of consideration amount, payment and realisation of the aforesaid Postdated dated cheques is the essence of this agreement. If this balance and outstanding amount remains unpaid or partly paid causing default in payment, then the same shall attract and carry enhancement of said amount which is then balance and outstanding @ 11% (eleven per cent )to be calculated on monthly basis or part thereof as and by way of damages/enhanced value till 10/02/2010 and beyond this date i.e. 10/02/2010, and in such event of non-payment, non realisation of cheques fully or partly, this Development Agreement and Power of Attorney executed hereto, shall stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer of Property Act is concerned, in our opinion transferee must also agree to comply with all the conditions and then only his possession is protected, provided the possession is given as per terms of contract between the transferor and transferee. So far as Development rights are concerned the assessee never gave the possession of the property to the Developer (transferee) and the matter of possession was only after compliance with specific conditions. 11. The Ld. DR is placed his reliance on the decision in the case of Chaturbhuj Dwarkadas Kapadia Vs CIT 260 ITR 491 (Bom). In our humble understanding the said decision is not helpful to the Revenue. As in the said case the irrevocable Power of Attorney was given in favour of the transferee, in such a way whereby the developer was put into the entire custody of the property. In the present case, even though the Power of Attorney is executed in favour of the developer but there is a capping by specifically mentioning that developer will be like care taker of the property only and there is no indication that he was given the exclusive right to deal with the property. 12. In the case of Dr. Arvind S. Phadke (supra) the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital gains in assessment year 1994-95. The said decision of the Tribunal has also been affirmed by the Hon ble Bombay High Court in the case of CIT vs. Geetadevi Pasar reported at 17 DTR 280, after duly considering the earlier judgement of the Hon ble Delhi High Court in the case of Chaturbhuj Dwarkadas Kapadia (supra), which has been relied by the Revenue before us. The following short discussion in the judgement of the Hon ble High Court is worthy of notice:- 2. By the above appeal, the appellant Revenue is seeking to raise the following three substantial questions of law : (a) Whether on the facts and the circumstances of the case and in law, the Hon'ble Tribunal was justified in concluding that the capital gains is not chargeable to tax in the asst. yr. 1994-95 even though the agreement was entered into on 29th March, 1994 ? (b) Whether on the facts and the circumstances of the case and in law, the Hon'ble Tribunal was justified in concluding that the said property was not transferred by the assessee to the purchaser within the meaning of s. 2(47)(v) of the IT Act in the asst. yr. 1994-95 in spite of there being glaring evidence to rebut the claim of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, 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 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 affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof. 19. The aforesaid provision of the Transfer of Property Act has been incorporated in the Act in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration. In any case, the fact that the possession envisaged in the agreement dated 13.09.2007 was a conditional possession is not disputed. Therefore, in such a situation, it could not be said that the development agreement of such type would be an agreement which is envisaged to trigger the operation of section 53A of the Transfer of Property Act. On this count itself we find that there is no justification for the Revenue to establish the date of transfer on the strength of section 2(47)(v) of the Act. Hence, we are unable to uphold the stand of the Revenue on this count also. 13. We may relying here on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Sun Engineering Works Pvt. Limited 198 ITR 297. On the binding force of the precedent, their Lordships have observed as under: It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete law declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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