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TMI Blog2013 (8) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... it is a fact on record that the developer was handed over the possession of the property after obtaining permission from GHMC on 05/08/2008 and further the second development agreement executed on 11/02/2011 with RBD Legend, though, is an unregistered document, however, clearly reveals that the earlier developer i.e. Legend Estates Pt. Ltd. had not only taken possession of the property but has also started construction of the project. Furthermore, the registered development agreement with the developer M/s Legend Estates P. Ltd. has not been cancelled. Therefore, it cannot be said that the developer M/s Legend Estates P. Ltd. has backed out or expressed its unwillingness in carrying out the development activity. The development agreement executed on 11.02/2011 being an unregistered document it cannot have much relevance. In the aforesaid circumstances, therefore, the conclusion arrived at by the CIT(A) to the effect that there is a transfer within the meaning of section 53A read with section 2(47)(v) of the Act, cannot be held to be without any substance. - ITA No. 140/Hyd/2012 & ITA No. 28/Hyd/2012 - - - Dated:- 30-8-2013 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f land was not handed over to the developer/builder and as such provision of Sec.53A of the Transfer of Property Act cannot be invoked. He also contended that permitting the builder to enter upon the property and construct the building shall not be construed as delivery of possession in part performance of the contract as understood under the provisions of sec.53A of the Transfer of Property Act or under the provisions of Income-tax Act. The Assessing Officer for the detailed reasoning given in the assessment order held that the development agreement entered into by the assessee gave rise to incidence of capital gain. He also held that the decisions relied on by the assessee are factually distinguishable. In support of his conclusion, the AO relied upon the following judicial authorities. 1. Chaturbhuj Dwarakadas Kapadia Vs. CIT 260 ITR 491 (Mumbai) 2. T.Achyuth Rao Vs. ACIT 4. While computing capital gain, the AO had arrived at the cost of the land transferred and the cost of constructed area that comes to the share of the assessee by referring to the information obtained from the office of the Sub-Registrar and the Departmental Valuation Officer. The cost per sq. y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the development agreement, the capital gain should have been assessed in the asst. year 2007-08 but not in AY 2008-09 as assessed and therefore, the order is required to be set aside. 02. The order of the AO is not correct in the light of the recent principles evolved by the jurisdictional ITAT in the case of K.Radhika Vs. DCIT (47 SOT 180) inasmuch as the first developer was not willing to perform his part of the contract as envisaged in sec.53A of T.P. Act as he did not execute the project as per initial development agreement and the work was taken over by a new developer (M/s. RBD Legend Infrastructure Pvt Ltd) in the year 2010-11 changing the sharing ratio. 8. After considering the submissions of the assessee as well as findings of the the AO, the CIT(A) gave elaborate findings, which are as under: 9. There is a development agreement between the assessee Shri K.Gopal Raj along with his two sons with M/s. Legend Estates Pvt Ltd executed on 3-2-2007 wherein the assessee and his two sons have decided to develop the property in consideration of obtaining 50% of the constructed area on the land admeasuring 6 acres 39 guntas situated at Serilingampalli Mandal in Ranga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the newly created RDB Legend Infrastructure Pvt Ltd, Shri B.Nageswara Rao is holding the position as Director along with one Shri D.Rajasekhara Reddy. This newly formed company is not a new entity altogether to consider that it is different from original developer. In fact, the supplementary agreement dated 11-2-2011 was signed by Shri B. Nageswara Rao in both the capacities as Managing Director of Legend Estates Pvt Ltd and Managing Director of RDB Legend Infrastructure Pvt Ltd. This new company has been brought into the picture only to claim before the Department that the developer has shelved the project thereby there is no transfer within the meaning of sec.2(47) r.w.s. 53A of T.P. Act. The CIT(A) was of the view that this arrangement made subsequent to the assessment framed by the AO is only an afterthought to get away from the taxation rather than on need base because funds have been given by the same persons to both the concerns. It is only a different account in which the funds are credited. There is no difference between these two entities to say the least. Even if one assumes that a new company has taken over the project it does not change the character and content of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n M/s. RBD Legend Infrastructure Pvt Ltd. Hence, it is not a case that the developer has shelved the project and has no intention to carry on the project. On the contrary, the developer is very serious to carry on the project. With regard to the contention of the assessee that part of the security deposit of ₹ 3 crores was refunded to the developer hence the agreement between the owner and the developer does not stand any more, the CIT(A) held that examining the details of such refund revealed that this amount of ₹ 3 crores represents loan given to the Managing Director of developer company which carries interest. It has nothing to do with the security deposit received by the assessee. Hence no amount of security deposit has been refunded as contended by the assessee. 12. While dealing with the assessee s contention with regard to the estimation made by the AO in respect of built up area for the purpose of computing capital gains in his hands on the ground that there is no income in the hands of assessee as no constructed property was handed over to him, the CIT(A) rejected such contention by holding that capital gains need not be taxed on receipt basis alone but can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 868/- per square foot for residential/commercial built up area which is very much within the reasonable limits of type of construction undertaken on the assessee's property. With the nature of specifications mentioned' in the agreement the estimation made by the AO is reasonable enough to cover the cost of construction of the developer. The CIT(A), thus, held that there is no arbitrariness on the part of the AO to arrive at such figure. However, the CIT(A) felt that the AO adopted arbitrary figure of Rs,450/- per square foot in respect of car parking which is definitely on higher range and needed to be moderated basing on true factors for such estimation. He observed that it is to be examined whether separate structure is constructed for car parking or the same is provided within the underground or cellar areas. If the parking is provided in the cellar and underground areas, the cost of construction should not be at such high rate. In such case, the cost of construction of car parking may not exceed ₹ 150j- per sq. foot. Whereas if the car parking is provided separately by building altogether separate structure then the rate adopted by him is reasonable. 13. The CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session was given to the developer. He, therefore, held that the addition made in the instant year is required to be deleted and accordingly directed the Assessing Officer to delete the capital gains of ₹ 61,SO,2S,3S0/- from the total income of the assessee. At the same time, he is directed to examine the taxability of the capital gains by virtue of above transfer in the AY 2009-10 as per law. The CIT(A) further directed the Assessing Officer to examine the taxability of capital gains in the hands of the assessee as well as his two sons 17. Aggrieved by the order of the CIT(A) the revenue as well as the assessee are in appeal before us. 18. Firstly, we take up the appeal of the revenue being ITA No. 140/H/12 wherein the revenue has raised the following grounds of appeal: 1. The learned CIT(A) ought to have given basis for his decision that the cost of construction of parking space adopted by the Assessing Officer @ ₹ 450/-, need to be moderated if the parking space is built in the cellar. The decision of the CIT(A) without any basis or evidence, is not acceptable. 2. The learned CIT(A) ought to have appreciated that cost of construction for the parking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial year 2006-07 relevant to asst. year 2007-08, transfer of property took place only in the financial year 2008-09 relevant to the asst. year 2009-10. Transfer as per sec.2(47) is complete only when all the three factors are executed. Since in this case, the physical possession of the property was handed over in the asst. year 2009-10, the capital gains is to be taxed in that year only. The transaction of transfer is complete only if the possession of the property given and consideration received. 11. In view of the above facts and position of the law, it is held that the capital gain to be assessed in the hands of the assessee by virtue of the transfer of the landed property for development is assessable in the asst. year 2009-10 the year in which physical possession was given to the developer. Consequently, the addition made in the instant year is required to be deleted and accordingly the AO is directed to delete the capital gains of ₹ 61,SO,2S,3S0/- from the total income of the assessee. At the same time, he is directed to examine the taxability of the capital gains by virtue of above transfer in the AY 2009-10 as per law. 20. Thus, as can be seen from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that though the CIT(A( was correct to the extent of holding that no capital gain arises during the impugned assessment year but the CIT(A) was not correct in holding that there is a transfer within the meaning of section 53 of the Transfer of Property Act read with section 2(47)(v) of the Act for the purpose of capital gain in the assessment year 2009-10. It was contended by the learned AR that the CIT(A) while deciding the appeal for a particular assessment year has to confine to that assessment year only and cannot direct the Assessing Officer to assess the income in another assessment year, which is beyond his jurisdiction. In support of such contention, the learned AR has relied upon the following decisions: 1. Malabar Fisheries Co. Vs. CIT [1979] 120 ITR 49 (SC) 2. Vijaya Productions (P) Ltd. Vs. Addl. CIT [2012] 134 ITD 19 (TM) 3. P.C. Puri Vs. CIT [1985], 151 ITR 584(Del.) 24. The learned DR, on the other hand, supported the order of the CIT(A) on this aspect. 25. We have heard the submissions of the parties and perused the material on record. We have also carefully examined the decisions relied upon by the learned AR. Before going into the merit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record that the developer was handed over the possession of the property after obtaining permission from GHMC on 05/08/2008 and further the second development agreement executed on 11/02/2011 with RBD Legend, though, is an unregistered document, however, clearly reveals that the earlier developer i.e. Legend Estates Pt. Ltd. had not only taken possession of the property but has also started construction of the project. Furthermore, the registered development agreement with the developer M/s Legend Estates P. Ltd. has not been cancelled. Therefore, it cannot be said that the developer M/s Legend Estates P. Ltd. has backed out or expressed its unwillingness in carrying out the development activity. The development agreement executed on 11.02/2011 being an unregistered document it cannot have much relevance. In the aforesaid circumstances, therefore, the conclusion arrived at by the CIT(A) to the effect that there is a transfer within the meaning of section 53A read with section 2(47)(v) of the Act, cannot be held to be without any substance. The aforesaid conclusion of the CIT(A) certainly is capable of being examined in the light of the ratio laid down by the Hon ble Bombay High ..... X X X X Extracts X X X X X X X X Extracts X X X X
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