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TMI Blog2015 (4) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... s it is very clear that the agreement has not been implemented by constructing flats on the land. Further it is clear that the Developer was not willing to fulfil his part of contract till date. Till date no construction has come up in the property and even the conversion of the land from agricultural land to housing plot has not been done. Provisions of deemed transfer u/s 2(47)(v) cannot be invoked on the facts of the present case and for the A.Y in dispute before us. The assessee has not received any consideration except for refundable deposit of ₹ 3.00 crores and there is no evidence brought on record by the Revenue to show that actually some construction has taken place at the impugned property in the previous year relevant to the A.Y under consideration and the right to receive the sale consideration has actually accrued to the assessee. The assessee is not exigible to capital gains on the entire sale consideration without the accrual of the consideration to the assessee We are also fortified by the decision of the Coordinate Bench in the case of Bhavya Construction Ltd & Others (2015 (4) TMI 295 - ITAT HYDERABAD). The ratio of the decision is that unless there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nths. The Developer paid an amount of ₹ 3.00 crores as a Refundable Security Deposit which shall be refunded by the assessee at the time of completion of the construction and the allocation of the snares of the assessee and the Developer. The assessee has also given a Power of Attorney to the Developer for the purpose of carrying out the construction and to deal with his share in the constructed area. 3. Assessing Officer opined that the Development Agreement entered into by the appellant with the Developer resulted in taxable capital gains in the year in which the Development Agreement is entered into, and is liable to capital gains tax. The assessee has contended that there is no liability to capital gains tax as no progress has taken place even till the date of the assessment proceedings in the direction of the development of the property. The attention of the Assessing Officer was invited to Clauses 1,5 and 6 of the Development Agreement, which the assessee contended that the property in question was given on development to the Developer and only a license was given to the Developer so as to enable the Developer to develop the Schedule Property without any interference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learly indicate this. This possession cannot be taken as one contemplated In Section 53A of the Transfer of Property Act. The Developer did not obtain permission from 2006 to 2014 and therefore, it is very clear that the Developer did not cross the first step in the furtherance of development contemplated in the agreement as no permission was obtained and no expenditure was incurred in the development not only in the year relevant to the Assessment Year 2006-07 but also up to the year 2014. Taking into account the judicial pronouncement referred to above, the Developers willingness to carry out his part of the contract in the year under consideration was non-existent Therefore, no consideration accrued to the appellant and therefore, the computation of capital gain contemplated in Section 48 of the Income Tax Act falls. 6. The CIT (A) elaborately discussed about the liability to capital gains tax in the case of the assessee. The CIT (A) concluded at paras 8.1 which read as under: 8.1 With these principles in the background, when sanction for construction of commercial complex, in the present case, was not obtained till 2014, it is not fair to hold that any consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer of Property Act, 1882 have been fulfilled in the case. 7. The ld CIT (A) erred in observing that it is not fair to hold that no consideration has accrued to the assessee pursuant to development agreement for the reason that the AO has himself computed the capital gains only on the basis of the fair market value of land given for development and not on the basis of any area constructed by the developer. 8. The CIT (A) ought to have appreciated that the AO computed the consideration value on the basis built up area to the share of the assessee entitled to and by applying rates as per value adopted by S.R.O 8. The assessee referred to the decision of the Hyderabad Bench of the Tribunal in the case of M/s. Fibars Infratech (P) Ltd., (ITA No. 477/Hyd/2013), which is also relevant to the facts of the present case and reproduced below are Paras-45 to 60 of the said order: 45. The next argument of the assessee's counsel is that there is no transfer on account of development agreement cum GPA in terms of section 2(47)(v) of the Act on entering agreement with MAK Projects Pvt. Ltd., as there is no quantification of consideration to be received by the assessee from M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onveyance. It was also noted by their Lordships that, in this scenario, assessee used to enter into agreements for developing properties with the builders and under 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. 50. There was no dispute on whether or not the conditions of Section 53A of the Transfer of Property Act were satisfied on the facts of the case before the Hon'ble Bombay High Court. It was in this context, and after elaborate analysis of the facts of the case before their Lordships, their Lordships also observed as follows: If on a bare reading of a contract in its entirety, an AO comes to the conclusion that in the guise of agreement for sale, a development agreement is contemplated, under which the developer applies for permission from various authorities, either under power of attorney or otherwise and in the name of the assessee, the AO is entitled to take the date of contract as the date of the transfer under Section 2(47)(v). 51. It is important to bear in mind that Section 2(47)(v) refers to possession to be taken or ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof. (Emphasis, italicized in print, supplied by us now) 53. A plain reading of the Section 53A of the Transfer of Property Act shows that in order that a contract can be termed to be of the nature referred to in Section 53A of the Transfer of Property Act it is one of the necessary preconditions that transferee should have or is willing to perform his part of the contract. This aspect has been duly taken note of by the Hon'ble Bombay High when their Lordships observed as follows: That, in order to attract Section 53A, the following conditions need to be fulfilled. (a) There should be contract for consideration; (b) It should be in writing; (c) It should be signed by the transferor; (d) It should pertain to the transfer of immovable property; (e) The transferee should have taken possession of property; (f) Lastly, transferee should be ready and willing to perform the contract . 54. Elaborating upon the scope of expression has performed or is willing to perform , the oft quoted commentary Mulla-The Transfer of Proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference to the land measuring 79 acres 2.5 guntas situated at Sy. Nos. 260 and 262 at Tummaloor village, Ranga Reddy District. At the time of entering into development agreement on 15th December, 2006, the land was in the promoter's name. The assessee was under incorporation. The same agreement was presented for registration on 29th December, 2006. Later the assessee-company was incorporated on 4th January, 2007. On the basis of this agreement, the AO taxed the capital gain on the transaction treating that there was a transfer in terms of section 2(47)(v) of the Act. Through this is a Development Agreement cum GPA the assessee has not received any monetary benefit. Being so, there is no receipt of any part of the sale consideration. Further, we cannot say that there is any sale in terms of section 2(47)(i), (ii) or (iii) of the Act so as to say that there is sale, relinquishment, extinguishment or compulsory acquisition. 57. Now we will proceed with reference to the exchange as mentioned in section 2(47)(i) of the IT Act, 1961. To say that there is an exchange u/s. 2(47)(i) of the Act, both the properties which are subject matter of the exchange in the transaction are to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an, the very genesis of the agreement fails. To enable the execution of the agreement, firstly, plan is to be approved by the competent authority. Since there was no amount of investment by the developer in the construction activity during the previous year relevant to the assessment year in this project, it would amount to non-incurring of required cost of acquisition by the developer. Hence no consideration can be attributed to the AY 07-08. Nothing is brought on record by authorities to show that there was development activity in the project during the assessment year under consideration and cost of ITA No.1604 of 2014 Sham Kumar Hyderabad construction was incurred by the builder/developer. Hence, it is to be inferred that there was no amount of investment by the developer in the construction activity during the assessment year in this project and it would amount to non- incurring of required cost of acquisition by the developer. In the assessment year under consideration, it is not possible to say whether the developer prepared to carry out those parts of the agreement to their logical end. The developer in this assessment year had not shown its readiness or having made prepara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the assessment year, as stipulated by and within the meanings assigned to this expression under Section 53A of the Transfer of Property Act, its contractual obligations in this previous year relevant to the present assessment year, it is only a corollary to this finding that the Development Agreement dt. 15.12.2006, based on which the impugned taxability of capital gain is imposed by the AO and upheld by the CIT(A), cannot be said to be a contract of the nature referred to in Section 53A of the Transfer of Property Act and, accordingly, provisions of Section 2(47)(v) cannot be invoked on the facts of this case. The judgement in the case of Chaturbhuj Dwarkadas Kapadia v. CIT (supra) undoubtedly lays down a proposition which, more often that not, favours the Revenue, but, on the facts of this case, the said judgment supports the case of the assessee inasmuch as 'willingness to perform' has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of Section 53A of the Transfer of Property Act. The Revenue does not get any assistance from this judicial precedent. The very foundation of Revenue's case is thus devoid of lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er consideration and also there is no evidence to show that the right to receive the sale consideration was actually accrued to the assessee. Without accrual of the consideration to the assessee, the assessee is not expected to pay capital gains on the entire agreed sales consideration. When time is essence of the contract, and the time schedule is not adhered to, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in Section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of Section 2(47) (v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on reason that the capital gains could not have been taxed in this assessment year in appeal before us. The other grounds raised the assessees in their appeals have become irrelevant at this point of time as we have held that provisions of Section 2(47)(v) will not apply to the assessees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t matter of development agreement. The process of construction has not been even initiated and no approval for the construction of the building is obtained. Thus, the sale consideration in the form of developed area has not been received. Mere receipt of refundable deposit cannot be termed as receipt of consideration. Further, as submitted , the Assessing Officer calculated the capital gain on the entire land, even though the assessee has retained 38% share to itself. The valuation was also disputed. There is, therefore, no accrual of income in favour of the assessee as per S.48 of the Act. Due to lapse on the part of the transferee, the construction has not taken place in the year under consideration, and it has not commenced even now. In the facts and circumstances of the present case, wherein while the assessee has fulfilled its part of the obligation under the development agreement, the developer has not done anything to discharge the obligations cast on it under the develop agreement, the capital gains cannot be brought to tax in the year under appeal, merely on the basis of signing of the development agreement during this year. We are supported in this behalf by the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration was actually accrued to the assessee. Without accrual of the consideration to the assessee, the assessee is not expected to pay capital gains on the entire agreed sales consideration. When time is essence of the contract, and the time schedule is 30 months to complete construction with additional grace period of 6 months, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in Section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of Section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on the reason that the capital gains could not have been taxed in the in this assessment year in appeal before us. 13. In the light of the foregoing discussion, we set aside the impugned orders of the Revenue authorities and hold that the capital gains on the property in question cannot be brought to tax in the year u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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