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TMI Blog2015 (3) TMI 400X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Mr. Fardeen Khan and his late father, Mr. Feroz Khan in the ratio of 75% and 25% respectively. The A.O. further observed that as per the said development agreement, an amount of Rs. 13.75 crores has been paid by the GPL to the land owners as non-refundable advance/deposit by the developer. In turn, an irrevocable power of attorney dated 19.04.2007 was given by the assessee to GPL giving all the powers of obtaining various permissions, commencement of construction, and construction of all infrastructures, leveling of property to construct villas and to sell the villas. The AO stated that the assessee has not offered any capital gains on the above transfer of land to GPL. Therefore, the assessee was asked to explain as to why the above transaction should not be considered as a transfer as per section 2(47) (v)/(vi) of the Act and why the principles laid down in the decision in the case of Chaturbhaj Dwarkadas Kapadia Vs. CIT 260 ITR 491 (Bom) should not be made applicable to the facts of the present case. The assessee made written submissions which are reproduced by the AO at para 3.2 of the assessment order. In sum up, it was stated that late Feroz Khan and Mr. Fardeen Khan ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision in the case of Chaturbhaj Dwarkadas Kapadia 260 ITR 491 (Bom) is not applicable, because this is a case of sale of stock-in-trade while the said decision was in the context of transfer of capital assets. Further, the provisions of section 2(47)(v) cannot be applied as the conditions enumerated therein are not satisfied. However, the A.O. did not agree with the assessee's contention and held that this alleged conversion of land into stockin- trade is an afterthought to escape chargeability of capital gains. Thus assessee's contention that the land has been converted into stock-in-trade was not accepted. The A.O. also held that the transaction is covered by provisions of section 2(47)(v) of the Act and accordingly the assessee was liable for capital gains. While completing the assessment, the major addition made by Assessing Officer is on account of capital gain earned by FK pursuant to DA entered with GPL. In the opinion of the Assessing Officer, pursuant to the DA and power of attorney, FK transferred land to GPL and hence, provisions of section 2(47)(v) and section 2(47)(vi) were attracted. The Assessing Officer considered Rs. 55 crores stated in DA as full value of consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ["GPL"] enters into specific agreements with prospective buyers. 4. a. Without prejudice the Ld Commissioner of Income-Tax (Appeals) erred in holding that by virtue of signing a development agreement with GPL in respect of Bangalore property, there has been a 'transfer' of property u/s. 2(47)(v)j(vi) of the I. Tax Act, 1961, although there was no concluded agreement, there was no contract for transfer of property and further that the said agreement has been annulled. b. Without prejudice all the conditions specified in Sec. 53A of Transfer of Property Act, have not been satisfied and therefore no 'transfer ix] s. 2(47) (more specifically conditions of "Transferee not being read and willing to perform his part of contract and the contract has not been registered). 5. Without prejudice the Ld Commissioner of Income Tax (Appeals) erred in computing the capital gains, by adopting Rs. 41.25 crores (i.e. 75% of Rs. 55 crores) as the full value of consideration. He erred in presuming that the value of the property at Rs. 55 crores as full value of consideration although i.. the Appellant , as self and legal heir, has only received a Deposit of 13.75 crores, arising from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Letter addressed to Hong Kong & Shangai Banking Corporation for credit facility for the housing project dtd. 18-4-2006. (j) Relevant extract of project report forming part of letter to HSBC dtd.18.4.2006 (k) Contract documents by Siraj & Renu. (l) Details of tender negotiation meeting with Siraj & Renu (Architects and Interior Designers) dated 10.05.2006. (m) Tender Form issued by Manjunatha Enterprises to Siraj & Renu for civil works for the project (n) Letter from Siraj & Renu dated 15-5-06 defining scope of services for architectural consultancy for the project. (o) Invoice issued by Siraj & Renu and acknowledged receipt of payment of' 3,50,000/- dated 17-7-2006 for professional consultancy. (p) Letter of Anup S. Shah, Senior Advocate dtd. 20.7.2006 confirming the land in Survey No. 52 to 68 presently vests with Mr. Feroz Khan and Mr. Fardeen Khan. (q) Letter addressed to Hong Kong & Shanghai Banking Corporation for credit facility for the housing project dtd. 8-8-2006. (r) Letter dated 10-09-2006 addressed to Bangalore Development Authority informing that all charges in respect of the approval have been made. (s) Letter dated 16-2-2007 addressed to Banga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Agreement was entered into on 26-3-2011 with revised plans and with a new Power of Attorney. Thus the construction activity as per second Development Agreement was started by GPL in the year 2012. 8. In view of all these documentary evidences, ld. A.R. contended that A.O. was not justified in treating the Development Agreement as sale of land and thereby taxing the capital gains in financial year 2007-08 relevant to A.Y. 2008-09 under consideration. Reliance was placed by the ld. A.R. on the decision of Hyderabad Bench of ITAT in the case of Fibars Infratech (P.) Ltd. vs. ITO, [2014] 46 Taxmann.com 313 (Hyderabad - Trib). Further reliance was placed in the decision of Mumbai Bench of ITAT in the case of Ramesh Abaji Walavalkar vs. Addl. CIT, [2012] 150 TTJ (Mum) 725 in which it was held that there was a conversion of land by the assessee into stock-in-trade on 15th May, 2002 within the meaning of section 45(2) and hence the profits or gains arising from the transfer by way of such conversion were chargeable to tax as the income of the assessee under the head "capital gains" in the year when such stock-in-trade was sold by the assessee. In this case also, on the basis of various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f right within the meaning of section 2(47)(vi) of the Act. He accordingly argued that vide development agreement dated 20-4- 2007 there was transfer of property within the meaning of section 2(47)(v)/(vi) of the Act. The ld. D.R. also relied on the observations made by the lower authorities and contended that assessee has transferred land to GPL and earned capital gain in the year of entering into agreement for development of property. 12. We have considered the rival contentions and carefully gone through the orders of authorities below and deliberated on the judicial pronouncements referred by lower authorities in their respective order as well as cited by ld. A.R. and ld. D.R. during the course of hearing before us. The main issue for consideration is whether the land owned by FK is a 'capital asset' or was converted into stock-in-trade, whether there was transfer of land within the meaning of provisions of section 2(47)(v) and section 2(47)(vi) of the Act and whether any income can be said to have accrued to FK when the amount of sale consideration could not be determined as per the terms of DA. Before reaching to the conclusion that capital asset was converted into "stock-in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le the project, tender documents for contractor was also prepared. The assessee had paid architects' fees in July 2006. To confirm the correctness of assessee's claim of Title of the property for the purpose of creating equitable mortgage in favour of financial institution, the assessee obtained Title Certificate from Anup S Shah Law firm in July 2006.The assessee has also made payments to BDA for execution of layout plans to the tune of Rs. 20.60 lakhs in September 2006. After detailed discussion with BDA, lay out plan was also approved in March, 2007. All these steps taken by assessee to convert its agricultural land into stock-in-trade were brushed aside by lower authorities and by ignoring other documentary evidences mostly issued by Government Agencies like Bangalore Development Authority, Karnataka State Pollution Control Board, Bangalore Electricity Supply Co., Bangalore Water Supply and Sewerage Board, Hong Kong and Sanghai Banking Corporation etc. etc., the A.O. jumped into the conclusion that assessee had sold its land to Godrej Properties Ltd. by entering into DA with GPL 13. The above voluminous documents evidencing various acts undertaken by the assessee clearly s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontemporary evidences from several Government offices such as BDA, Karnataka Revenue Department, etc. support the claim of the assessee as discussed above. 14. The observation of the A.O. to the effect that assessee was prominent cine celebrities therefore cannot undertake such project. Merely because assessee was a celebrity do not lead to conclude that he will not undertaken any construction activity on the land converted by him to 'non-agriculture'. Similarly not reflecting the amount as opening WIP and closing WIP is not fatal. The assessee had carried out series of activities narrated hereinabove but had not shown the land as opening WIP and closing WIP. Had the Assessing Officer have believed and accepted such conversion of land from capital asset to 'stock in trade' merely on the basis of its reflection in financial statements. As per our considered view the land ceased to be a capital asset from the date when the assessee filed application before BDA for conversion of land from 'agriculture' to 'non-agricultural'. We found that the intent of the assessee to hold the land as 'stock in trade' is further fortified by the fact that in the record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Development Agreement. 17. The Mumbai Tribunal in the case of Ramesh Abaji Walavalkar vs. ACIT [150 TTJ 725] wherein under similar circumstances the Assessing Officer held that the assessee was not able to prove the conversion of land given for development and by placing reliance on judgment in the case of Chaturbhuj Dwarkadas Kapadia [260 ITR 461 (Born)] taxed capital gains in the hands of the assessee in the year in which Development Agreement was entered into i.e. previous year relevant to A.Y.2003-04. The CIT(A) agreed with the Assessing Officer. However, on further appeal, the Tribunal held that the assessee had converted land into stock in trade in the year 2002 when the assessee had taken several steps like entering into correspondence with CIDCO to get approval for proposed development of property, procuring commencement certificate, etc. and gains arising on conversion of land was liable to be taxed as 'capital gains' in accordance with the provisions of section 45(2) of the Act. However the instant case is on much matter footing which is evident from various permissions/approval taken by the assessee. 18. Now we deal with the contention of A.O. that there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lative conditions to be satisfied for application of doctrine of 'part performance':- a) there should be a written contract for consideration; b) the contract should be signed by the transferor; c) the contract should pertain to transfer of immoveable property; d) the transferee should have taken possession of the property; - as per clause no 14(b) possession continued with Appellant e) the transferee should be ready and willing to perform his part of contract and f) the contract should be registered as per the provisions of The Registration Act, 1908 (this condition has been introduced with effect from September 2001). This part has been elaborated below. Section 17(lA) of the Registration Act, provides as under: "The documents containing contracts to transfer for consideration, any immovable property for the purposes of Section 53A of Transfer of Property Act, 1882 (hereinafter referred to as "TOPA") shall be registered if they have been executed on or after the commencement of the Registration and Other Related Laws (Amendment) Act, 2001 and if such documents are not registered they shall have no effect for the purposes of said Section 53A." 21. Amendment made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will not be applicable to the facts of instant case. We can therefore safely conclude that the conditions stipulated in section 53A of TOPA are not satisfied n the case of assessee as discussed above, there is no transfer as per the provisions of section 2(47) of the Act. 24. In the instant case the Assessing Officer has invoked provisions of section 2(47) (vi) of the Act merely because DA is silent about its application. Impliedly, the Assessing Officer has accepted that if there is specific mention in DA on issue of applicability of provisions of the Act, then such provision of DA is acceptable. Accordingly, the Assessing Officer has accepted that section 2(47)(vi) of the Act is not applicable as it finds such specific mention in DA. 25. It is clear from the above that the Assessing Officer has overlooked the fact that DA specifically excludes application of provisions of section 2(47)(vi) of the Act in Clause 6(b) of the agreement. 26. With regard to the A.O.'s contention regarding applicability of clause (vi) of section 2(47) of the Act, we found that clause (vi) is applicable to the members of co-operative society, company or other AOP and as such, are not applicable to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported by the proposition laid down by of Hyderabad Bench of ITAT in the case of Binjusaria Properties P. Ltd. vs. ACIT, 164 TTJ 417. 30. Thus in the absence of any consideration flown from Godrej Properties Ltd. towards the land owned by the assessee as well as towards project to be executed, no income has accrued to assessee. Furthermore, keeping in view the fact that there is no certainty of quantum of sales, no income has accrued to the assessee. Our this inference is supported by the proposition laid down by Mumbai Bench of ITAT in the case of DCIT vs. Mrs. Hemal Raju Shete in ITA No. 2198/Mum/2010. 31. The contention of the ld. D.R. that assessee has accepted Rs. 13.75 crores from Godrej Properties Ltd. pursuant to the Development Agreement, therefore, it amounts to transfer of the land to Godrej Properties Ltd. does not find any merit. There was no transfer of land as per amended provisions of section 53A of TOPA applicable for the relevant A.Y. 2008-09 under consideration accompanied by fact that there was no transfer of possession to GPL and the possession of land was with assessee only and the same has been expressly statd in clause 6 of Development Agreement. Furthermo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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