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TMI Blog2018 (7) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... he case law from the Hon'ble Bombay High Court in the case of Lokholdings (2008 (1) TMI 365 - BOMBAY HIGH COURT) is of particular emphasis. - Decided in favour of assessee Income from assignment of Development Rights of Chaudhary Plot at Thane - Value of constructed area to be acquired pursuant to the development agreement - Held that:- The assessee entered into an agreement for the receipt of ₹ 300 lacs on 28.11.2011 in lieu of the carpet area it was entitled as per the agreement for sale. The assessee offered the same for taxation in assessment year 2012-13. The above was not accepted by the authorities below. The Revenue is of the view that the assessee should have accounted for the value of constructed area to be acquired pursuant to the development agreement. However, the assessee’s plea is that no construction work had commenced and even the plan of the project was not approved. Hence, it has been claimed that there is no question of accrual of income during the year. For this proposition, reliance has been placed by the tribunal decisions. Further, the claim of the assessee is that the agreement to sale the development right in the said property is related to assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable to tax under the head of income from house property. 2. Income from assignment of Development Rights of Chaudhary Plot at Thane: 2.1 The learned CIT (A) erred in considering the monetary consideration of ₹ 25,00,000 and non-monetary consideration of 10,500 saleable built up area ( Valued at ₹ 2,62,50,000) from assignment of Development Rights of Chaudhary Plot net of expenses incurred in relation to the same as income for the financial year 2009-10. 2.2. Without prejudice to the above, the learned CIT (A) also erred in considering the total consideration from assignment of Development Rights of Chaudhary Plot at ₹ 2,87,50,000 (monetary consideration of ₹ 25,00,000 and non-monetary consideration of 10,500 saleable built up area at ₹ 2500 per feet of ₹ 2,2,50,000), as against stamp duty valuation of ₹ 1,64,09,000. 3.General 3.1. The appellant craves leave to add, delete, withdraw and or modify any one/more or all the above grounds of appeal. 2. Apropos ground no 1: Brief facts of the case are that the AO observed that the assessee had received rent income from Datar Block aggregating to &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rented out structures should be of any particular standards, or that the same should have been constructed by the assessee himself. The Section 22 stipulates the Annual Value of property to be charged under that section, and the Annual Value is determined as per Section 23 of the Act. As per Section 23, even if any particular owned property is not rented out, still it may be considered as deemed rented out in certain cases, and the Annual Value of such property is charged to tax u/s 22, Hence there is no question of not charging the Annual value of owned actually rented property to tax u/s 22. The exclusion of property which the assessee may occupy for the purpose of any business or profession carried on by him is only to exclude such property from the deeming provisions of Section 23 for the purpose of determining its Annual Value. H cannot be construed to mean that any owned business property even if out for a temporary period would not be taxable u/s 22. Relying upon the decision of Hon ble Supreme Court in the case of Shambhu Investment (P.) Ltd. vs. CIT (2003) 263ITR 143 (SC,. I observe that the prime object of rent agreement was to let out the property,and hence it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts of sum of ₹ 59.70 lacs during the year for surrender of tenancy rights of 7 tenants in Datar Block properties: Sr. No Date of payment Name of tenant Kholi /room no Amount Rs (1) 22-4-2009 Meghasyam Pandey 46 3,66,000 (2) 6-8-2009 PandurangS Burve 50 7,50,000 (3) 16-5-2009 Jayesh Makwana 34 7,50,000 (4) 24-9-2009 Chintamani Raje 39 9,04,000 (5) 30-11-2009 Sushila D Gore 35 9,50,000 (6) 15-9-2009 MadhavV.Datar 49 10,00,000 (7) 7-8-200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttached to immovable property cannot be sole criterion for assessment of such income as income from house property. It is necessary further to find out the primary object of the assessee while exploiting the property. If the main intention is simply letting the property or any portion thereof the resultant income must be assessed as income from house property. If on the other hand, the main Intention is of exploiting immovable property by way of commercial activities, and then the resultant income must be held to be business Income In case of CIT vs Neha Builders P Ltd. (2007) 164 Taxman 342 Gu] it is held that If property is given on rent and property is held as stock in trade then property income represents business income. In case of CIT vs Lokholdings (2010) 189 Taxman 452 (Bombay), it was held as under :- Assessee-flrm was Involved In business of development of properties - In course of Its business, it received money in advance from its customers intending to purchase flats in properties developed by it - As said moneys could not be utilized immediately for purpose of business, assessee temporarily invested surplus amounts from such moneys in banks and other con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, i.e., development of the property. Hence, in our considered opinion, the rent received cannot be treated as income from house property and the assessee s treatment of crediting the same towards work-in-progress is justified. For this proposition, the case laws relied upon by the ld. Counsel of the assessee referred in the submissions hereinabove are germane and support the case of the assessee, particular the case law from the Hon'ble Bombay High Court in the case of Lokholdings (supra) is of particular emphasis. Accordingly, in the background of the aforesaid discussion and precedent we set aside the orders of the authorities below and decide the issue in favour of the assessee. 6. Apropos ground No. 2: Brief facts of the case are that the AO observed that during the year under consideration as per agreement dated 19.06.2009, assessee had entered into an agreement with M/s Shree Sachidanand Developers for the development of Choudhary Plot at Thane for a monetary consideration of ₹ 25 lakhs and constructed area with all amenities equivalent to 7,395 sq.ft. carpet area (equivalent to 10.500 sq.ft.) saleable residential constructed area on pro-rata basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d specifications to be sanctioned by the Thane Municipal Corporation and other Competent Authorities. In consideration of the Owners granting development rights of said property to the Developers, the Developers would pay to the Owners (A) Monetary Consideration of ₹ 25 lakhs simultaneously with the execution of said agreement, (B) 7395 Sq. Ft. of carpet area, equivalent to 10500 Sq. Ft. of Built up area on pro-rata basis in the building constructed on sale property. The parties in joint consultation shall decide the said area to be allotted to the Owners after issuance of Commencement Certificate but before commencement of work on the site. Simultaneously with the execution of the agreement, Owners have handed over to the Developers the physical possession of the said property as Licensee, and henceforth, the Developers would be irrevocably and unconditionally entitled to approach the Planning Authority and to obtain the legal possession of the said property. Simultaneously with the execution of the agreement, the Owners had executed a Power of Attorney constituting the Developers as their true and lawful Attorney to do various work relating to the property including the san ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof. In the present case, the possession of immovable has been given in part performance of the contract; Contract (registered has been entered into, consideration is ascertained i.e. ₹ 25,00,000/- plus 10500 sq.ft. of built-up area; Transferee (the appellant) has performed his part of contract by giving possession of property and also by executing irrevocable power of attorney in favour of the developers; and the rights of parties are expressly provided by the terms of the contract, Moreover, the appellant itself has captioned the said agreement as Agreement for Development Sale . Therefore, the appellant can safely be construed as having transferred the said property in the year under consideration. Merely because part of the sale consideration was receivable by the appellant in the form of certain built-up area in the proposed building did not change th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground, the appellant has also prayed to cancel the penalty proceedings u/s 271(1)(c ). However, since no penalty has actually been levied in the assessment order, it being premature at this stage need not be adjudicated. 8. Against the above order assessee is in appeal before us. 9. We have heard both the counsel and perused the records. The submission of the ld. Counsel for the assessee is summarized below:- The appellant has shown Choudhary plot of Thane as stock in trade ie business asset which subsequently appellant has given to M/s Shree Sachidanand Developers for development, as appellant Is not able to redevelop the plot because of preoccupation in other work. The appellant as stated earlier Is entitled 10500 sq ft constructed area of project which appellant will get in future. The Plan of project is not approved during the year, no construction work has admittedly started during the year. So there is no question of accrual of income during the year under consideration. On Identical facts in case of ITO vs Ffnian Estate Developers Pvt. Ltd. [2012] 23 taxmann.com 360 (Delhi Trib) It was held that as there is no approval of plan of project no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived part of sale consideration i.e. 25 Lacs during the year. The said right in the property is stock in trade or business asset. Appellant is following mercantile method of accounting. In such case sale consideration for transfer of right shall be taxable as per revenue reorganisation method regularly employed and followed by appellant. In case of CIT vs Motilal Patel Co. (1988) 40 Taxrnan 336 (Guj) it Is held that unless and until sale transaction of immovable property is completed by means of registered sale deed there cannot be earning of profit. The fact that the sale consideration Is received prior to such registration, in pursuance of an agreement to sale would not make any difference. The appellant reduced ₹ 25,00,000/- from work In progress as appellant being developer and Is following booking of profit on percentage completion method. During the year under consideration there is no construction activity of the said project even the plan of project is not approved by competent authority during the year. Thus as per accounting standard the appellant has correctly reduced the work in progress by ₹ 25 lacs as same is part of sale proceeds only when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea is that no construction work had commenced and even the plan of the project was not approved. Hence, it has been claimed that there is no question of accrual of income during the year. For this proposition, reliance has been placed by the tribunal decisions. Further, the claim of the assessee is that the agreement to sale the development right in the said property is related to assessee s stock-in-trade and, hence, since the stock-in-trade is to be valued at cost or net realizable value, no profit can be attributed by the assessee in this regard. 12. We find that the case law from the Tribunal referred by the ld. Counsel of the assessee support the proposition that if the plan of the project is not approved and no construction work has been done during the year, there cannot be any accrual of income during the said year. Principally, we find ourselves in agreement with this proposition in light of the tribunal decision referred by the ld. Counsel of the assessee. However, this factual aspect needs verification at the level of the Assessing Officer. The Assessing Officer shall examine as to whether the assessee s claim that during the year neither the plan of the project was a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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