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TMI Blog2017 (3) TMI 1168X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement nowhere falls under ambit the transaction of allowing possession of immovable property to be taken or part performance of contract of the nature referred to in section 53A of the TPA, 1882 because the development agreement is not an agreement for sale because the assessee executed a contract with the developer and not with the intended purchaser. The development agreement is some sort of business agreement and it basically postulates coming together of two parties only i.e.the developer and the owner of the land. The developer does not have land to develop the land and the assessee did not have sufficient finance to develop the land and therefore they come together i.e. land and finance for the development of project is necessarily business agreement whereby the owner of land allows the developer to enter and exploit the land for the limited purposes of developing the said land. Looking into the provisions of TPA,1882 which clearly shows that allowing the possession to be taken and retained in part performance of the contract could be considered as transfer and not permissible possession or any other kind of possession. We are of the considered view that the order of FAA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or on title of the land which is owned by the Appellant Firm. Thus, the share of 35% given to the other part is equivalent to the cost of construction in the hands of the Appellant Firm. 2.3. The Learned CIT (Appeals), failed to consider the fact that the Appellant Firm is liable to pay any tax only when they sell any portion of property out of retained 65% of the constructed building, when completed. 2.4. The Learned CIT (Appeals), failed to note that the agreement was registered only for the authenticity of the contract and the stamp duty paid was just 1 % and not as applicable to conveyance or sale of the property which is as much as 6%" 3. The additional grounds of appeal taken by the assessee are as under : "1. The Learned CIT(A) erred in confirming that the estimated full value of consideration for the purpose of computation of Capital gains which was in the womb of the future ignoring the position of law that full value of consideration cannot be estimated under Sec. 48 of the Income tax Act, 1961. 2. The Learned CIT(A) erred in confirming that the transaction under Development agreement with Mls. Nanavati Constructions as a transfer u/s. 2(47)(v) as on the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for the purposes of development of the property. The developer was not authorized to either sell or entered into an agreement for sale on behalf of the of assessee's shares of constructed area. During the course of assessment proceedings, the AO observed that the assessee has not returned capital gains upon the execution of development agreement. The AO ascertained the market value of the said piece of land at ₹ 5,32,98,000/- being market value as per the stamp duty valuation authority. The capital gain was calculated after allowing the deduction in respect of cost of acquisition and assessed the total income at ₹ 5,00,38,800/- vide order passed under section 143 read with section 147 of the Income Tax Act, 1961. Aggrieved by the order of the AO, the assessee has preferred an appeal before the first appellate authority, who vide para 5.2.7 to 5.2.10 dismissed the appeal of the assessee as under : "5.2.7 From the submissions made in appeal, it is gathered that the construction work was delayed and a suit was filed before the High Court by some of the partners of the appellant firm. A perusal of the contents of the said suit reveal that pursuant to the Development Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property. The lower authorities have misconceived the date of agreement as the date of sale and thereby made the addition on account of Long Term Capital Gains of ₹ 500,38,800/-, which was reduced by the FAA to ₹ 3,25,25,220/- being 65% of the total long term capital of ₹ 500,38,800/- by holding that only 65% of the said LTCG belonged to the assessee as against the entire amount taken by the AO. The ld. AR further argued that the various modes of transfers are envisaged under section 2(47) of the Income Tax Act, 1961 and the relevant clause is 2(47) (v) reads as under : "Section 2(47) in The Income- Tax Act, 1995 (47) transfer", in relation to a capital asset, includes,- (i) ….. (ii) … (iii) …. (iv) …… (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance ofa contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 1 (4 of 1882 ); or Clause (v) of the said section provides that transfer would include any transaction wherein the possession of immovable property is taken or retained in part perform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .6.2009, date of plan approval 11.6.2009, permission from District Collector on 29.6.2009, date of Commencement Certificate from Brihan Mumbai Municipal Corporation 1.8.2009, prayed before the bench in view of the these facts of the case the FAA has grossly erred in upholding the order of the AO which should be reversed in view of the ratio laid down in the above judicial pronouncements. 9. On the other hand, the ld. DR relied heavily on the order of FAA by submitting that the assessee has actually transferred the right of ownership rights in the land with the execution of agreement with the Developer and therefore the same was covered within the definition of section 2(47) of the Income Tax Act, 1961 read with Section 53A of the TPA, 1882. Accordingly the AO has rightly brought to tax LTCG arising on transfer of interest in the land. The ld. DR further defended the order of the adoption of value as per stamp authorities for the calculation of capital gain in terms of provisions of section 50C of the Act and requested the Bench that the order passed by the AO should be upheld. 10. We have carefully considered the rival submissions and perused the material placed before us inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rformance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation 1.-For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA. Explanation 2.-For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion or any other kind of possession delivered by the seller to the purchaser." In the case of Smt Najoo Dara Beboo, the Hon'ble Allahabad High Court held that "Capital gains would be charged only on receipt of sale consideration and not otherwise." "How can a person pay the capital gain if he has not received any amount. In the instant case, the assessee has honestly disclosed the capital gain for the assessment years 1998-99 to 2000-01, when the flats/areas were sold and consideration was received. During the year under consideration, only an agreement was signed. No money was received. So, there is no question to pay the capital gain. When it is so, then we find no reason to interfere with impugned order passed by the Tribunal. The same are hereby sustained along with reasons mentioned therein." We also find that that the identical issue has been decided by the Co-ordinate Bench of Hyderabad Tribunal in the case of the Fibars Infratech P. Ltd (supra) as under : "The primary contention of the assessee is that the land given for development is an agricultural land in terms of section 2(14)(iii) as on the date of Development Agreement and the land was converted on 27-6-2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed transfer under section 2(47)(v). [Para 55]; Coming to the facts of the present case, the assessee entered into Development Agreement with MAK with reference to a land. At the time of entering into development agreement on 15-12-2006, the land was in the promoter's name. The assessee was under incorporation. The same agreement was presented for registration on 29-12-2006. Later the assessee-company was incorporated on 4-1-2007. On the basis of this agreement, the Assessing Officer taxed the capital gain on the transaction treating that there was a transfer in terms of section 2(47)(v). 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, it cannot be said that there is any sale in terms of section 2(47)(i), (ii) or (iii) so as to say that there is sale, relinquishment, extinguishment or compulsory acquisition. [Para 56]; To say that there is an exchange under section 2(47)(i), both the properties which are subject matter of the exchange in the transaction are to be in existence at the time of entering into the transaction. It is to be noted that at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was development activity in the project during the assessment year under consideration and cost of 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 preparation for the compliance of the agreement. The developer had not taken steps to make it eligible to undertake the performance of the agreement which are the primary ingredients that make a person eligible and entitled to make the construction. The act and conduct of the developer in this assessment year has to be seen to decide the taxability on transfer. Being so, it was clear that in the year under consideration, there was no transfer of not only the villas as superstructure but also the proportionate land by the assessee under the joint Devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Property Act. It cannot, therefore, be said that the provisions of section 2(47)(v) will apply in the situation. Considering the facts and circumstances of the present case as discussed above, the assessee deserves to succeed on the reason that the capital gains could not have been taxed in this assessment year. [Para 59]" In the case of M/s Chemosyn Ltd (supra), the Hon'ble Bombay High Court has held as under: "4. So far as the 1st issue is concerned, briefly the facts are that the respondent company owned two plots of land namely plot nos.256 and 257. On 16.6.2006 the respondentassessee entered into a development agreement with one M/s Dipti Builders to develop plot no.257 for a consideration of ₹ 16.11 crores and construction of 18,000 sq.ft of built up area free of cost on plot No.256. Thereafter on 5.7.2007 a tripartite agreement was entered into between M/s Dipti Builders, a new buyer and respondents under which both the plots were transferred to the new buyer at a total consideration of ₹ 29.11 crores. Thus, in the return of income filed on 31.10.2006 for subject Assessment year, the petitioner offered only an amount of ₹ 16.11 crores for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration to be received originally was ₹ 1.25 crores but, finally settled at ₹ 1 crores then such a subsequent settling of the consideration of at ₹ 1 crores although arrived at a subsequent year it would relate back to an earlier assessment year. Further, the Tribunal also placed reliance upon the decision of this Court in Commissioner of Income Tax vs Shivsagar Estates 204 ITR 1 to conclude that on the basis of real income theory in the facts of the present case no income on account of 18,000 sq.feet of constructed area has either been accrued or received for it to be brought to tax. 7. Grievance of the revenue is that the decision of this Court in Chaturbhuj Dwarkadas Kapadia (supra) should apply to the present facts. As pointed out by the Tribunal, the issue before the Court in the above case was to determine the year in which the property was transferred for the purpose of capital gains. In this case the issue is what is the consideration received for the transfer of an asset. Thus, reliance upon Chaturbhuj Dwarkadas Kapadia (supra) does not assist the revenue. We specifically asked the revenue whether the decision of the Tribunal in Kalpataru Constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .AR that the provisions of section 50C of the Act are not applicable in the case of Development Agreement. We find that the Co-ordinate Bench of the Tribunal in the case of Voltas Ltd (supra) has held as under : "3.8. We have gone through the submissions of the assessee. We shall first deal with the last argument of the assessee which is directly on the scope of section 50C. The perusal of section 50C shows that the section 50C shall be applicable where the consideration received as a result of transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of State Government………. Thus, it is noted that the term 'capital asset' mentioned in the section specifically refers and confines its meaning to 'land or building or both'. Thus, scope of section 50C is restricted by the legislature itself to these two types of capital assets only. 3.9. Turning back to the facts of the case before us, the capital asset transferred by the assessee was 'Development Rights in the land' and not the 'Land' itself. If we go through few other similar provisions of the Act, we find that the legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, in our opinion provisions of section 50C have been wrongly applied upon the impugned transaction. Thus, we reverse the action of lower authorities in applying the provisions of section 50C and in substituting any value other than the amount of actual sales consideration received by the assessee. It is also noted by us that for the assessment year under consideration there is no other provisions on the statute which permit the AO to substitute any other value with the full amount of consideration actually received by the assessee, while computing income under the head of capital gains. Under these circumstances, ground No.1.2 of the main grounds of the assessee is allowed. Since we have allowed the grounds of the assessee on the preliminary objection itself and therefore we are not dealing with other arguments at this stage as these have been become academic in nature. Thus, supplementary ground nos. 1.5 to 1.10 and original ground nos.1.1 to 1.4 are partly allowed with our directions as given above." After considering the facts of the case in the light of the ratio laid down by the Hon'ble Jurisdictional High Court and others including the decisions of the Co-ordinate Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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