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TMI Blog2015 (8) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... 014 but physical possession of the property was handed over on 07-12-2004, invoking the provisions u/s. 147, issued a notice u/s. 148. Assessee contended that no capital gain accrued during the year, as assessee was not having complete possession of the property. It was submitted that the assessee was not liable to pay capital gains on the transaction arising out of the development agreement since the transaction did not fall within the scope of transfer u/s 2(47), that no rights were given to the developer' under the development agreement dated 11-02-2004 till the municipal permission was granted, that in any event, the developer did not adhere to the terms of the agreement, that neither the details of the built up area falling to the share of the assessee was identified and determined under the development agreement dated 11-02-2004 nor was any consideration received by the assessee, that delivery of the existing structures to the developer was to be made after municipal sanction which was obtained on 30-06-2006 and that the developer had not been given any exclusive rights of execution of agreements of sale which had been retained by the assessee. Municipal approvals for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30-06-2006. Hence, possession of the property would be deemed to have been handed over to the developer only after obtaining the permission from GHMC i.e., after 30-06-2006 (AY. 2007-08). It was also submitted that the developer had not undertaken any construction activity during the AY. 2005-06 in part-performance of the development agreement nor had any consideration being paid. It was contended that only actual performance of the transfer is obligation which would give rise to a situation envisaged in Section 53A of the TP Act. Assessee relied on the following decisions: i. Sri K. Gopal Raj Vs. DCIT (ITA No. 140/Hyd/2012); and ii. Binjusaria Properties P. Ltd., Vs. ACIT (ITA No.157/Hyd/2011) It was further submitted before the CIT(A) that in development agreement dt. 11-02-2004 (referred as first agreement), there was no handing over of possession to the developer but only permission to demolish the existing building thereon. Referring to the development agreement dt. 03-11-2007 (second agreement), it was submitted that possession if any, can only be considered after the second agreement but not before. It was contended that as per Clause-5 of the first agreement, assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did undertake activities for the development of the property and specifically for the exclusion of part of the land from the purview of the UCLA during the FY 2004-05 which culminated in the issue of GO Ms No. 103 dated 17.1.2005. Indeed, the clause as quoted above, acknowledges the 'full cooperation' of the developer, contrary to the claim, made during the appellate proceedings, of the unwillingness of the developer to perform his part of the contract". 5. Ultimately, Ld.CIT(A) concluded against assessee by holding as under in para 6.9, 6.10 and 6.11: "6.9 It is possible that there were time-overruns during the construction of the project. This can hardly be construed as evidence of the unwillingness of the developer to perform as per the agreement. Clause 8 of the First Agreement and Clause 7 of the Second Agreement provide that in case of delay on the part of the developer to complete the project within the specified period, the assessee had the right to entrust the completion of the project to any other builder. Thus, the Agreements themselves envisaged time-delays since it is not an unusual problem in this line of business and cannot be interpreted as an unwillingnes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the valuation of the super structure as given by the builder without considering the information submitted by the assessee. 8. The Ld. CIT(A) ought to have allowed claim of assessee made u/s. 54 of the Act. 9. The assessee may add, alter or modify or substitute any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal". 7. Before us, Ld. Counsel did not press the grounds from 2 to 4, as the same did not arise out of the order of the CIT(A), in fact assessee did not challenge the reopening of assessment before the Ld.CIT(A). No arguments were placed before us with reference to above additional grounds. Therefore, we deem them as not pressed and are treated as 'withdrawn'. 8. Ground Nos. 5 & 6 are with reference to year of taxability of capital gains based on the definition of transfer as defined in Section 2(47) and Ground No. 7 is without prejudice to the above grounds, it was the contention that AO erred in taking the valuation of the super structure at market value, as against the information given by the builder. Further, Ground No.8 pertains to deduction u/s. 54 of the Act, in case the capital gains are leviable in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is subject to urban land ceiling clearance which admittedly came in a later year. Assessee also stated in clause 3B that after the Municipal Corporation of Hyderabad sanctions the plans and before the developer start construction, the details of the built up area falling to the share of the owner and the developer shall be identified and reduced into writing and marked in a working plan duly singed by them, which shall be deemed as part of this instrument. Thus, terms are very clear that assessee's share is to be identified only after Municipal Corporation of Hyderabad sanctions the plans. Not only that, clause-5 which mainly was relied upon by the Revenue is as under: "05. The owner shall deliver the existing structures on the Schedule-I property to the developer for demolition, after the removal of all identified re-usable materials by the owner at the developer's cost and after the sanction of plans by the Municipal Corporation of Hyderabad". 13. This above clause indicate that the owner shall deliver the existing structure on the schedule-I property to the developer for demolition, after the removal of all identified reasonable materials by the owner and after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly complied with immediately (to a limited extent of handing over the existing building but not the land in possession). If one were to go by the second agreement, the second agreement comes into effect in AY. 2008-09 and not in AY. 2005-06. In either way, just because some of the terms indicate that building for demolition was handed over on 07- 12-2004, the capital gains cannot be brought into tax in the year under consideration. Therefore, both AO and CIT(A) are not correct in contending that year of possession or the deemed possession is the year of capital gains, ignoring the year of agreements entered by assessee and the terms of agreement. If this logic of Revenue is accepted, then a situation may arise that parties try to incorporate a clause that possession was handed over much earlier to defeat the levy of capital gains. It also does not answer sale to existing tenant who is in possession of property from a longer period. Therefore taking possession alone in to consideration for levy of capital gains ignoring the date of agreement and terms of agreement is not according to law. 14. As can be seen from para 6.10 of the CIT(A)'s order, assessee seems to have offered c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onditions of the development agreement and no development has taken place even after so many years. Therefore, on the facts of the case it was held that there is no deemed transfer so as to levy capital gains tax. 18. Similarly, in the case of ACIT Vs. Sri R. Srinivasa Rao and others in ITA No. 1786/Hyd/2012 dt. 28-08-2014 held as under: "13. On going through the aforesaid decisions of the coordinate bench, the ratio which emerges is unless there is willingness on the part of the developer to perform his part of the contract, there cannot be a 'transfer' of capital asset as envisaged u/s 2(47)(v) read with section 53A of the TP Act. The ratio laid down as above squarely applies to the facts of the present case as the department has failed to controvert the finding of the learned CIT(A) by bringing material on record to show that the developer has taken any steps towards development activity. Further, we may observe, though the AO referring to the development agreement has inferred that possession of the property was handed over to the developer, however, on going through the pleadings and prayer of the plaintiffs in the plaint filed in Civil Court, a copy of which is at page 51 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst agreement, there is no specification that property would be handed over to the developer, except for demolition of the existing building that too after getting municipal permissions. If it is to be construed that development agreement has been fulfilled, then the capital gains would arise in AY. 2004-05 and not in AY 2005-06. If one goes by the second agreement, where assessee's share has been crystalised and further assessee was in a position to handover the land subsequent to clearance from ULC authorities and also permission from Municipal Corporation, the capital gains can be considered in the year relevant for AY. 2008-09. Looking at either way, the capital gains cannot be brought to tax in AY. 2005-06. For these reasons, we are not in a position to uphold the orders of the authorities in bringing to tax in AY. 2005-06. 21. AO is free to consider the capital gains in the relevant assessment year or to examine the year(s) in which assessee offered the capital gains. As far as this assessment year is concerned, assessee's contentions are accepted and accordingly, grounds are considered allowed to that extent. 22. Since we have held that no capital gains can be brou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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