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TMI Blog2018 (5) TMI 1641X X X X Extracts X X X X X X X X Extracts X X X X ..... of Amiantit International Holding Ltd [2010 (2) TMI 123 - AUTHORITY FOR ADVANCE RULINGS] it was held that "capital gain" cannot arise on the basis of uncertain or indefinite future contingencies or hypothetical and imaginary estimations" Thus the incidence of capital gains does not accrue or arise in the year under consideration and so the orders of AO and Ld. CIT(A) are liable to be set aside. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... area for semi- finished flats was determined. He arrived at the total value of sale consideration at ₹ 2,58, 53,850/- in the case of M/s. Siri Balaji Constructions and ₹ 34,99,824/- in the case of M/s. Siri Lakshmi Balaji Constructions as assessee share. Accordingly, AO brought the above amounts to tax. In addition, since the assessee has received refundable deposit an amount of ₹ 55 Lakhs was also considered as sale consideration and that was also brought to tax. Thus, the total income was assessed at ₹ 3,48,92,654/-. 6. Assessee has preferred an appeal before the Ld.CIT(A) contesting that refundable deposit is not part of sale consideration and when sale consideration has taken up for computation of capital gains, deposit does not get taxed separately. Apart from the above taxation of the amounts, assessee mainly questioned that there is no transfer of property as per Section 2(47) of the Act, as those developers have not fulfilled the conditions and in the case of M/s. Siri Lakshmi Balaji Constructions, the agreement itself was cancelled without reaching the stage of handing over possession of the property and in the case of M/s. Siri Balaji Constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement itself was cancelled on 24-09-2012 before the Lok Adalat. 4. The learned CIT(A) erred in upholding taxation of capital gain by extending the amplitude of section 2(47)(v) overlooking the fact that section 2(47)(v) being a deeming provision has to be construed strictly. 5. Without prejudice to the above grounds, the learned CIT(A) erred in upholding the decision of the AO in regard to the taxation of capital gains disregarding the settled law that under the I.T. Act real income and not merely hypothetical income is taxable. 6. The learned CIT(A) erred in dismissing the ground of appeal relating to charging of interest u/s 234B overlooking the fact that the AO charged interest u/s 234B without applying the provisions of section 234B(3) of the I.T.Act". Ground Nos. 1 & 7 are general in nature. 9. Ld. Counsel submitted that the order of CIT(A) is not correct as per law and facts. Referring to the facts, it was submitted that even though assessee has entered into an agreement with M/s. Siri Balaji Constructions for construction of multi-storied buildings, the permission were obtained from Panchayat/HUDA only on 29-03-2008, the land would be physically delivered to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eix apartments by the developer M/S Siri Lakshmi Balaji Construction Company and the agreement was finally cancelled. In the second case, the property was under a Developement Agreement with M/S Siri Balaji Constuctions as per which, the developer was to construct and hand over 187863 sq feet of constructed space to the assessee and others in lieu of their parting within 5358 sq yards of land in an area of acres 2.06 guntas to the developer. It is clear from the totality of facts that there was an unwillingness to abide by the terms of the contract, especially when the time of 30 months to hand over the constructed portion to the assessee and others was the essence of the contract. As per the above time frame, the developer was to hand over the constructed portion by February 2009. Yet, even as late as 2012, the same did not take place. The assessee even submitted photographic evidence to the Lok Adalat, City Civil Court which finally gave its consent to a compromise settlement vide its order as No. 872/2011. Even this Court Order was not acted upon till a final compromise agreement was reached again under the auspices of the Court in an Execution Petition (EP) moved by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein, has wrongly confirmed the order and has not looked at the requirements of Section 2(47)(v) in order to rope in the transactions within its purview. Ld. Counsel relied on the principles laid down by the Co-ordinate Bench in the case of M/s. Binjusaria Pvt. Ltd., in ITA No. 157/Hyd/2011, dt. 04-04- 2014 to submit that 'willingness to perform for the purposes of Sec. 53A is something more than a statement of intent; it is the un-qualified and un-conditional willingness on the part of the vendee to perform its obligations under the contract. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of Section 53A of Transfer of Property Act will come into play'. Since in both the cases, there is no willingness to perform as one agreement was cancelled outright and other agreement was subjected to Lok Adalat proceedings and onus of completion fell on the assessees and co-owners and the Flat Owners Association, it cannot be stated that developer has fulfilled the conditions of agreement and therefore on the facts of the case, no capital gains can be l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apartments for the assessee and other co-owners have been cancelled subsequently and there was no development at all under that agreement. Even though an agreement was entered if it is not fulfilled and assessee has not derived any benefit, it is not understandable how the capital gains can be levied when there is no transfer of property at all. As stated earlier, there was no approval even for the plans with reference to the development agreement with M/s. Siri Lakshmi Balaji Constructions. Hence, the action of AO in brining to tax the so called capital gains of ₹ 34,99,824/- on an agreement which stands cancelled does not arise. 12.2. Coming to the development agreement with M/s. Siri Balaji Constructions, even though assessee has entered into development agreement with the said concern for construction of multi-storied buildings and assessee's share of constructed area is defined and some refundable deposit was taken, the fact was that permissions came only on 29-03-2008 for effective possession as per terms of agreement i.e, in the next assessment year and later, the builder failed to construct the flats and defaulted on the same. Assessee and other co- owners had to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to perform its obligations under the contract. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of Sec 53A of Transfer of Property Act will come into play." The ITAT further held "In my opinion the handing over of the possession of the property is only one of the conditions.. When the transferee by its conduct and by its deeds demonstrates that it is unwilling to perform its obligations under the agreement, the date of agreement, ceases to be relevant. In such a case it is the actual performance of the transferee's obligations which can give rise to the situations envisaged under Sec 53A of the TP Act.". From the above, it is clear that "Willingness to perform" has to be adjudged on the basis of the reality of facts in each case. 12.4. The Hon'ble Supreme Court in the case of CIT Vs. Balbir Singh Maini (supra) in the judgment dt. 04-10-2007 has clearly held that for the purpose of Section 45 and 48 of the Act, some real income must arise on the assumption that there is transfer of a capital asset. This income mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 45 read with section 48 of the Act. The assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained. This being the case, there 'was no debt owed to the assessees by the developers and therefore, the assessees had not acquired any right to receive income under the joint development agreement. This being so, no profits or gains "arose" from the transfer of a capital asset so as to attract sections 45 and 48 of the Act". In view of the above judgment, we are of the opinion that no capital gains arises in the case of development agreement which has not fulfilled. 12.5. The principles laid down by the jurisdictional High Court in the case of Potla Nageswara Rao Vs. DCIT (supra) does not apply as there was physical possession of the land which was handed over to the developer and the agreement has been fulfilled. Moreover, the issue was only with reference to non- receipt of sale consideration which the Hon'ble High Court has held that receipt of consideration is not material for bringing to tax the capital gains as per the definition of transfer u/s. 2(47)(v) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e there should be a right under the statute or under contract between the tax payer and others which entitles the former to make a demand for those profits...... Income becomes taxable in the footing of accrual only after the right of the tax payer to the income accrues or arises, and in the case of an agreement which makes profits receivable at or in the happening of a contingency, the fact that profits are the results of transactions spread over a period which covers a period preceding the happening of that contingency, would not make the receipt liable to be paid to those who are entitled to receive it . " (d) This view is further supported by the decision of the Hon'ble Rajasthan High Court in the case of Assam Roller flour mills vs. CIT (227 ITR 43) which advocated the doctrine of "Relating back". It held that subsequent events which have a bearing on the issue should be considered before coming to a conclusion on the same. The issue in this case was the maintainability of the claim of liability regarding a penalty of ₹ 4 lakhs imposed by the Collector of customs on April 16. 1978 on the assessee relevant for the assessment year 1979-80. This penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of exactly the problems relating to accrual, the lack of transparency in taxing the gains when agreements are cancelled genuinely etc. By deeming the Capital gains to be accruing in the year of completion of project rather than in the year of transfer of the asset under section 45 (1), this change in statute strengthens the argument that what is relevant is the 'Real Income' that has accrued to the assessee which can only be ascertained when the certificate of construction is obtained by the developer from the competent authority after the completion of the project and not some hypothetical income. We were informed that assessees' have filed capital gains returns in the respective years when the properties were sold. 12.8. Keeping in mind the legal propositions and the facts in this case as discussed above, we are of the considered opinion that the incidence of capital gains does not accrue or arise in the year under consideration and so the orders of AO and Ld. CIT(A) are liable to be set aside. We order accordingly. The grounds raised by assessee on this are allowed. 13. The sixth ground of appeal is that interest u/s 234B has been charged incorrectly. It was submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (A) is erroneous both on facts and in law. 2. The learned CIT(A) erred in upholding the addition of ₹ 3,46,32,114/- as long term capital gains despite a specific clause in the development agreements providing for handing over of possession of land to the developer subject to receipt of approvals from the concerned authorities" for development which were not received during the year under consideration. 3. The learned CIT(A) erred in holding that there was a transfer within the meaning of section 2(47)(v) in respect of the development agreements with M/s.Sri Lakshmi Balaji Constructions despite the fact that the possession of the land was not handed over to the developer since the panchayat denied approval of the construction plan and the agreement itself was cancelled on 24-09-2012 before the Lok Adalat. 4. The learned CIT(A) erred in upholding taxation of capital gain by extending the amplitude of section 2(47)(v) overlooking the fact that section 2(47)(v) being a deeming provision has to be construed strictly. 5. Without prejudice to the above grounds, the learned' CIT(A) erred in upholding the decision of the AO in regard to the taxation of capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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