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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 ..... e project as envisaged by the assessee was not viable and hence, DA was annulled. The treatment given in the books of account is not a sole factor to determine the year in which land was converted into ‘stock-in-trade’ but series of events undertaken, facts and circumstances of the case which are very much relevant while considering the year in which “capital asset” is converted into “stock-in-trade”. Thus Development Agreement has to be harmoniously construed with reference to the related facts and circumstances of the case. Before reaching to the conclusion, we cannot forget the fact that the ownership and possession of land were always retained with the assessee and the same has been expressly stated so in clause 6 of the Development Agreement. The assessee has not received any consideration from Godrej Properties Ltd. nor was there any assurance about profit given by the Godrej Properties Ltd. in the project, the project had not materialized and ultimately Development Agreement was annulled in 2011. If we analyse all these facts, we can safely conclude that there was neither any transfer of land to Godrej Properties Ltd. nor any gains arisen to the assessee during the releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (collectively referred to as FK hereinafter) owned certain parcels of land at Bangalore which was agricultural land till about 31.03.2005, and thereafter the said land was converted into non-agricultural land for which FK has executed an agreement with GPL for construction of villas on the land in April, 2007. As per the agreement, FK has received deposit of ₹ 13.75 crores on the signing of agreement in April, 2007. Further, 30% of the proceeds was to be received by the developer from sale of villas till total amount received including deposit of ₹ 13.75 crores reached the figure of ₹ 55 crores. The GPL has not assured that FK shall definitely be entitled to ₹ 55 crores or definite timing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7)(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 ₹ 55 crores stated in DA as full value of consideration for transfer of the land to GPL. The Assessing Officer noted that date of conversion of land into stock in trade was 01.04.2007 as claimed by FK and held that if the conversion and sale or transfer is in the same financial year, the tax liability will arise in that year. By the impugned order, the ld. CIT(A) upheld the addition made by Assessing Officer on account of capital gains arising from alleged transfer of the said land. However, the Ld. CIT(A) allowed deduction on account of cost of acquisition and cost of improvement from the alleged sale consideration of ₹ 55 crores. The ld. CIT(A) observed that FK had shown the land in Wealth Tax returns u/s.2(ea) (v) of Wealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 41.25 crores (i.e. 75% of ₹ 55 crores) as the full value of consideration. He erred in presuming that the value of the property at ₹ 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 non-stamped, non-registered and annulled agreement; ii. for the purposes of computing the Sale Consideration, the Fair market value of the property proposed to be developed, should not exceed either of the following :- 75% of ₹ 4,86,37,508/- (FMV as per the valuation report) or 75% of 13.75 crores (total Deposit received) 6. Without prejudice the Learned Commissioner of Income Tax (Appeals) erred in holding that no reference was required to be made to the DVO u/s 55 when although the Appellant had taken an alternative ground of adopting the sale consideration at a value which is lower than the alleged fair market value of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aj 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 Bangalore Development Authority for approval of additional residential layout.(t) Letter addressed by Bangalore Development Authority in respect of approval of residential layout plan dtd. 8-3-2007. 7. Our attention was also invited to various clauses of Development Agreement entered into between the assessee and Godrej Properties Limited, Development Agreement between Fardeen Khan and Laila Khan and Godrej Properties Limited, general Power of Attorney, supplemental agreement between Fardeen Khan and Laila Khan and Godrej Properties Ltd. to demonstrate that there was no transfer of land within the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 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 steps taken by the assessee prior to entering into Development Agreement, in the matter of development of the said land which were sufficient to show that the business of real estate development had not only been commenced by the assessee but the same was prior to the date of development agreement. 9. Reliance was also placed on the decision of the Mumbai Bench of the Tribunal in the case of DCIT vs. Crest Hotels Ltd. [2001] 78 ITD 213 wherein the capital asset comprising the hotel business was converted by the assessee into stock-in-trade of the construction business. The said stock-i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouncements 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-trade or not several steps taken by the assessee for conversion of land is to be taken into account. After perusal of various documents placed on record as narrated at para 5 hereinabove, we found that land was initially acquired in 1981 by late Firoz Khan jointly with Ms. Sonia Sahani. Subsequently the land owned by Ms. Sonia Sahani was transferred to Mr. Fardeen Khan in 1991 and consequently the assessee Mr. Fardeen Khan became owner of the agricultural land. As per the documents placed on record we found that in order to exploit the land commercially, the assessee filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 shows that the assessee had taken various definitive steps for exploitation of land by preparing project for construction of various villas for which land was converted into stock-in-trade in April 2005 by converting the same into non-agricultural land . Thus, the act of the assessee like actual conversion of land to non-agricultural use i.e. residential purpose, appointment of architect, incurring related expenditure, appointment of contractor, submission of plan to Bangalore Development Authority and seeking its approval etc. all collectively establish that asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries 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 records of Revenue Department land was registered as 'N.A. Land' without which no residential project could be carried thereon. The approval of plans to construct residential villas by BDA further proves the intention of the assessee to treat the land as commercial asset. Thus various steps taken by the assessee are very much part of business activities involved in real estate development. Series of activities had been undertaken by the assessee which establishes the fact that assessee has converted the agricultural land to non-agricultural for undertaking d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, 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 was transfer of land within the provisions of section 2(47)(v) and section 2(47)(vi) of the Act. We find that the Assessing Officer had held that land was 'capital asset' and therefore, there is transfer within the meaning of Section 2(47)(v) of the Income-tax Act, 1961 ('Act') which provides that 'any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882. The Assessing Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 section 53A in 2001 is also relevant wherein an additional condition for registration of the written agreement was introduced as a result of which if the agreement between transferor and transferee is not registered, the transferor can dispossess the transferee from the property. Simultaneously, a consequential amendment was also been made in The Registration Act, 1908 to provide that unless the documents containing contracts to transfer any immoveable property for the purpose of section 53A of the TOPA is registered, it shall not have ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility 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 the assessee, being individuals. 27. In view of above discussion we hold that the A.O. s action for computing capital gain on the basis of Development Agreement is not well founded and as such there was no transfer within the meaning of section 2(47)(v) and 2(47)(vi) of the Act. With regard to A.O. s objection that Godrej Properties Ltd. had acted upon the Development Agreement by constructing its site office and also entered into contract agreement with the contractor, we found that GPL had merely constructed site office b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ₹ 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. Furthermore the assessee has not received any consideration from Godrej Properties Ltd. but had received only deposit which was to be adjusted against the sale of villas on completion of the project. It is also a matter of record that Godrej Properties Ltd. has not carried out any construction/development activity as per the project envisaged in Development agreement relied on by A.O. What was mentioned in the Development Agreement was only the value of land to provide benchmark for the purpose of sharing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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