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TMI Blog2010 (5) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... ty with builder, on the assumption that the said development agreement resulted in transfer of the house property under Sec 2(47) IT Act. 3. The CIT (A) is manifestly wrong in holding that the memorandum of agreement dt. 05/08/1997 entered into between the appellant as life-estate holder ad her three children as vested reminder holder of the house property in question and which was received under the will dt.26/05/1998 as null and void or illegal or abinitio void and as a consequence of it the entire capital gains are assessable in the hands of the appellant alone. 4. The CIT (A) ought to have held in favour of the appellant that there is no transfer as contemplated u/s 2(47)(v) and that the ingredients of Sec 53(A) of the transfer of property act are not satisfied in the case on hand. 5. The CIT (A) is not justified in estimating the value of the constructed area to the share of the appellant at ₹ 34,68,270/-. On the other hand he ought to have accepted the estimate of the value of constructed area at ₹ 22,16,130/- as suggested by the appellant. In the alternative the CIT (A) ought to have accepted the appellants claim that the SRO value of the land agreed to be giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er return of income for the assessment year 1998-99 on 30-11-1998 disclosing an income of ₹ 2,28,020/-. During the course of assessment proceedings relating to the assessment year 2002-03, the AO noticed that the assessee had offered 25% of total rental income received from a property located at Dwaraka Nagar, Visakhapatnam. On enquiry, it was noticed that the assessee had acquired the said property through a will dated 26.5.1988 of her Father, who had bequeathed the said property to the appellant for life without rights of alienation and on her demise the property was to devolve on her three children with absolute rights. After the demise of the father of the assessee on 29.1.1997, the assessee entered into a Memorandum of Agreement on 05-8-1997 with her three children, by virtue of which the assessee and three children agreed to share the impugned property equally with absolute rights. Thus the assessee has claimed to have acquired 25% share in that property. There after, all the four persons entered into a Development Agreement on 05.11.1997 with a builder named M/s Eswar Nirman, Visakhapatnam for conversion of the house property existing at the relevant point of time into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment agreement is covered by the provisions of Section 2(47(v) of the Act, which defines the term "Transfer" for the purposes of Income tax Act. The said section reads as under:- 2(47) "Transfer" in relation to a capital asset, includes, (i) the sale, exchange or relinquishment or the asset or (ii)…(iv) ……. or (v) 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 (4 of 1882) or (vi)…… The AO also held that the assessee has received the constructed area described above in exchange of land. 5.2 The argument of the assessee is that the provisions of section 53A of the Transfer of Property of Act shall apply only if (a) the possession of the property is handed over to the transferee and (b) the consideration agreed for the transfer was paid to the transferor by the transferee performing his part of contract. According to the assessee, neither the possession was handed over to the transferee on the date of entering of Development Agreement nor did the assessee receive any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... months from the date of handing over of the vacant possession of the property. In case of failure, the builder shall pay damages at ₹ 50,000/- per month for the period of delay. Thus the Development Agreement is an absolute one with out any right of cancellation thereof. There was no transfer of money in the form of cash between the parties. The owner of the property shall relinquish the right over the property and in return, the owner shall receive undivided share of land and a portion of the total constructed area. The builder shall invest his own money for construction of the multi storeyed complex and in return, he is entitled to receive a portion of the constructed area, which he is entitled to deal with in his own right. 5.6 Now the question is whether the impugned development agreement will fall under the mischief of section 2(47(v) of the Act. The legal position of development agreement vis-à-vis section 2(47(v) of the Act was considered by the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia, cited supra. The relevant observations of the High Court, in that case, are extracted below: "It was argued on behalf of the assessee that there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is the year in which the transaction was entered into. We have taken this view for the reason that the development agreement does not transfer the interest in the property to the developer in general law and, therefore, section 2(47)(v) has been enacted and in such cases, even entering into such a contract could amount to transfer from the date of agreement itself. …. Therefore, if on a bare reading of a contract in its entirety an assessing officer comes to the conclusion that in the guise of agreement for sale, a development agreement is contemplated, under which the developer applies for permissions from various authorities, either under power of attorney or otherwise and in the name of the assessee, then the assessing officer is entitled to take the date of contract as the date of transfer in view of section 2(47(v)….. We do not find merit in the argument of the assessee that the court should go only by the date of actual possession and that in this particular case, the court should go by the date on which irrevocable license was given." 5.7 We feel it necessary to discuss about the facts of the case of Charubhuj Dwarkadas Kapadia, referred supra in order to u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... troduction of section 2(47(v) of the Act, the Hon'ble High Court has finally held that the year of chargeability in the case of Development Agreements is the year in which the contract was executed. 5.9. Now, coming to the facts of the case, there is no dispute with regard to the fact that the impugned agreement entered into between the assessee and the builder is a "Development Agreement". As stated earlier, the said agreement is an absolute one with no right to revoke the agreement. As per the propositions laid down by the Hon'ble Bombay High court, the issues such as handing over the possession of land, substantial compliance of terms of agreement etc. are not relevant in the case of development agreements. Hence the development agreements result in "transfer of capital asset" and the year of chargeability is the year in which the said contract was executed. In the instant case, the development agreement was entered on 05.11.1997 and hence the year of chargeability of capital gain is the assessment year 1998-99. In view of the foregoing discussions, we are of the view that the tax authorities are right in law in holding that the capital gain is assessable in assessment year 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e next question relates to the determination of the consideration for the transfer. While the AO determined the consideration at ₹ 68.87 lakhs, the Ld CIT(A) determined the consideration at ₹ 34.68 lakhs. The cost of construction relating to the area to which the assessee is entitled to was taken as the consideration for the transfer by both the tax authorities. However, there was difference between the tax authorities both with regard to the area of construction and also the per Square foot rate of construction. While the AO took the area of construction to which the assessee is entitled to at 23,110 Sq. ft., the Ld CIT(A) arrived at the constructed area at 19,860 Sq.ft., after considering the agreement between the parties, affidavits given by the builder etc. Since both the parties have not challenged the decision of Ld CIT(A) with regard to the area of construction, the extent determined by the Ld CIT(A), i.e. 19,860 Sq.ft. has reached finality. 7.1 With regard to the cost of construction, the AO has adopted the CPWD rates. The assessee contended that only Sub Registrar Rates (SRO) relating to the land should be taken into account for arriving at the cost of constru ..... 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