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TMI Blog2021 (2) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... improvement does not specify any time frame for making such payments, as mentioned. Sale Consideration - Commercial Space 5. The Learned CIT (Appeals) erred in confirming the action of the A.O in adopting the Guidance Value for computing capital Gains for commercial area; 6. The Learned CIT (Appeals) erred in confirming the action of the A.0 in adopting the Guidance Value, without appreciating that the transaction in a Joint Development Agreement is one of exchange of asset and hence the value as incurred by the developer will be the cost of construction and not the market value 7. The Learned CIT (Appeals) erred in confirming the action of the A.O in adopting the Guidance Value, without appreciating that 21.94% transfer of land was against 78.06% construction of building and as such cost of construction should have been considered; 8. The Learned CIT (Appeals) erred in confirming the action of the A.O in adopting the Guidance Value, without appreciating that the cost of construction of flat by the builder is equivalent to the cost of acquisition of flat by the appellant. 9. The Learned CIT (Appeals) erred in not adjudicating on the above issues, raised before him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed over the possession of commercial and residential built-up area in lieu of land transferred as per the scheme of JDA dated 08-01-2004 and it cannot, ipso facto, be construed as transfer as per provisions of section 2(47) of the Act. c) The Learned CIT(Appeals) as well as the Authorities below erred in not following the instructions contained in CBDT Circular No. 14 dated 11.04.1955, wherein the subordinate authorities are bound to assess the correct income as per Law despite the fact that the appellant had inadvertently offered to tax the capital gains on receiving the possession of super built up area in lieu of land transferred as per the scheme of JDA, as the transaction per se cannot be construed as transfer within the meaning of section 2(47) of the Act." 4. The ld. AR stated that these are legal grounds arising out of the orders of lower authorities which were inadvertently not raised before the lower authorities and the same may be admitted since there is no involvement of examination or investigation of any facts otherwise on the record of the department and the issues involved goes to the very root of the validity of assessment. Therefore, the ld. AR prayed for adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(1) of the Act were issued and served. The AO after considering the submissions by the assessee, completed the assessment u/s 143(3) of the Act by making the following additions/disallowances: a) Disallowance of Commission paid to M/s Bentely Investment amounting to Rs. 1 Crore. The Appellant had claimed the commission amount as part of cost of acquisition of the property. b) The assessee during the FY 2011-2012 received 235063.5 Sq.ft of commercial space as his share of built-up area in the project and determined the sale consideration at Rs. 1,500/- per Sq. ft, being the builder's cost of construction. To confirm the cost of construction at Rs. 1,500/- per Sq ft, the developer issued a certificate dated 20.09.2014. However, the AO disregarded the submissions of the assessee and adopted Rs. 2,200/- per sq.ft as deemed consideration. The value adopted by the AO is based on the guideline value issued by Government of Karnataka in Notification No. CVC/BUD/5/200607 dated 17-04-2007. c) During the FY 2006-2007 and 2007-2008, the assessee and M/s Brigade Enterprises Pvt Ltd had taken booking advances from the prospective buyers and in certain cases had entered into an agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s during the FY 2011-2012 taken over the possession of super built-up area of commercial space i.e., Summit A, Summit B and Shopping Arcade measuring 235063.5 Sq.ft. Though the assessee only received capital asset (by way of taking over the possession of the commercial area) in lieu of land transferred, the transactions cannot, ipso facto, be construed as transfer as there is no sale, exchange or relinquishment of rights. 13. As held by the Hon'ble Madras High Court in the case of Cadd Centre 383 ITR 258, in order to bring a transaction under the ambit of capital gains, the receipt or accrual must have originated in a "transfer" within the meaning of section 45(1) read with section 2(47) of the Act. In the assessee's case though there is receipt in the form of super built-up area of commercial space, the receipt is originated out of the transfer which has taken place during the FY 2004-2005 via JDA dated 08-01-2004 and as such the receipt ought to have been considered in the FY 2004-2005 and not in the FY 2011-2012. 14. The Hon'ble Supreme Court of India in the case of Alapati Venkataramiah vs. CIT (1965) 57 ITR 185 (SC) held as under:- "that before section 12B of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he taxing statute or it is not. If it is not, the Income-tax Officer has no power to impose tax on the said income." 18. It was submitted that the transaction of the asse is not taxable under the Income Tax Act, 1961, as the assessee's transaction of taking over the possession of super built-up area cannot be considered as transfer as per provisions of section 2(47) of the Act and hence, it is not exigible to tax under the taxing statute. 19. The ld. AR further submitted that Article 265 of the Constitution of India provides that no tax shall be levied or collected except by the authority of law. The Income Tax Authority does not have an unbridled power to tax the income which is not chargeable to tax. As a corollary, if the income is not chargeable to tax, then the retention of tax paid on such income shall be breach of provisions of Article 265 of the Constitution of India. The transaction of the assessee cannot be given the color of income as it is only a subsequent event on transfer of property via JDA. The Hon'ble High Court of Bombay in the case of Nirmala L. Mehta vs. A. Balasubramaniam, C.I.T. (2004) 269 ITR 1 (Bom) held that there cannot be any estoppel against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of facts. 23. Also, the Finance Act, 2017 introduced sub-section (5A) to section 45, wherein it is explicitly stated that the year of chargeability in the case of JDA is the year in which certificate of completion for the whole or part of the project is issued by the competent authority. Unlike section 45(5A), which is an exception to section 45(1) of the Act, in the AY 2012-2013 there was no akin provision to tax the income on capital gains vis-a-vis handing over possession of super built-up area of commercial space by the developer or on issuance of completion certificate by the competent authority. Section 45(5A) cannot be read retrospectively as the legislature intends to tax the capital gains from the specified agreement entered into on or after 01.04.2017. 24. The ld. AR submitted that the facts of the case in the latest decision of the Hon'ble Supreme Court in the case of Seshasayee Steels P Ltd Vs ACIT reported in 421 ITR 46 is distinguishable from the assessee's case as it was held therein that mere giving of licence to the developer could not be said to be "possession" within the meaning of section 53A of the Transfer of Property Act, 1882, and the developer ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ablished since the structure of the building/s got completed and there were no encumbrances to disrupt the terms and condition of JDA so as to draw a compromise deed to ratify the terms of JDA. For the aforementioned reasons, the judgment of Sehasayee Steels (supra) is distinguishable from the facts of the present case. 27. Under the above facts and circumstances of the case, it was prayed that the consideration declared by the assessee and subsequently enhanced by the AO and confirmed by the CIT(Appeals) amounting to 40,09,49,500/- be deleted in the interest of justice. 28. On the other hand, the ld. DR submitted that the assessee has already taken possession of his share of construction area and also entered into sale agreement or sale deed with various parties in respect of commercial as well as residential space, as such there is no difference between the registration and non-registration of the JDA. Further in the FY 2004-05 relevant to AY 2005-06, it cannot be as a transfer as the condition laid down in section 2(47)(v) of the Income-tax Act, 1961 [the Act] is not complied. However, in the FY 2011-12 relevant to AY 2012-13 all the conditions laid down in section 2(47)(v) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll within the scope of deemed transfer u/s 2(47)(v) of the I.T.Act. Thus, let us consider whether the transferee, on the facts of the present case, can be said to have `performed or is willing to perform' its obligations under the agreement. 30. We have carefully gone through the JDA dated 08.01.2004 entered into between the assessee and M/s. Brigade Metropolis Project. As per this agreement, it was specifically mentioned in clause No.(1) and (2) as follows:- 1) PERMISSION TO DEVELOP : 1.1 The First Party hereby permits the Second Party to enter upon the Schedule Property for development of the Schedule Property in terms of this Agreement. 1.2 The Second Party is hereby authorized and empowered by the First Party to develop the Schedule Property and to construct Buildings therein and the First Party shall not revoke the rights so granted till completion of the development and sale except as provided in this agreement. Such permission to enter Schedule Property shall however not be construed as delivery of possession under Section 53A of the Transfer of Property Act read with Section 2(47)(v) of the Income Tax Act, 1961. The legal possession of Schedule Property by way of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability whatsoever in this behalf. 2.3 The Second Party shall make available to the First Party one set of sanctioned plans and photo copies of other permissions / clearances / orders received and agree to make available photo copies of other permissions / clearances / orders received hereafter from time to time. 2.4 The First Party has executed a Power of Attorney to enable the Second Party to secure plans, licences and other permissions and for purposes connected with the development and sale of the Schedule Property which shall be in force until Joint development and transfer of Second Party's share of land and building are completed in all respects unless otherwise revoke for reasons set out in this Agreement. In addition thereto the First Party shall sign and execute such other documents, papers and other agreements, applications that may be required by the Second Party for securing permission and licence and effectively developing the Schedule Property. However, the cost thereof shall be met and borne by Second Party. The parties shall co-operate with each other for completion and mutual success of the joint development of the Schedule Property. 2.5 The Second Party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- 7. COMMENCEMENT AND COMPLETION OF CONSTRUCTION : 7.1 The Second Party shall commence construction of the buildings in the schedule property within Ninety days from the date of sanction of licence and plan and all other permissions. The second party shall under normal conditions and in the absence of any restrictions, shall complete the construction of OWNER'S CONSTRUCTED AREA within five years from the date of commencement of construction and issue of commencement certificate by Bangalore Development Authority and / or other sanctioning authorities which period does not include the time taken for obtaining of the Occupancy certificate / completion certificate from the Bangalore Development Authority or other authorities and Electrical water and sanitary connections from the respective departments. However the second party shall not incur any liability for any delay in delivery of possession of the OWNER'S CONSTRUCTED AREA" by reason of non-availability of Government Controlled Materials, and / or by reason of Governmental restrictions and / or civil commotio, transporters strike, Act of God or due to any injunction or prohibitory order (not attributable to any action o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponding extension of time for delivery of the said OWNER'S CONSTRUCTED AREA. In the event of any such occurrence the Second Party shall give written notice of such occurrence to the First Party within Fifteen days thereof and in the absence of such intimation the same will not affect this Agreement. If the delay is more than Twelve months from the date of expiry of the period, the First Party shall be entitled to deal with the incomplete construction of OWNER'S CONSTRUCTED AREA and provide all access and facilities and recover the entire cost incurred from Second Party. The Second Party will be liable and responsible for all the claims and demands arising out of default by second party and also the claims of persons with whom the first party would have contracted for sale of lease or transfer or otherwise pursuant to this Agreement in schedule property and second party agree to settle all such and other claims and demands and protect the first party and the schedule property therefrom and accordingly offer indemnity. In addition thereto the second party is also liable and answerable to the persons who would have dealt with them. 7.4 In the event of first party completing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the construction activity during the assessment year 2005-2006. Hence, we are of the opinion that transferee was not willing to perform his part of obligations as stipulated in the JDA, in the assessment year 2005-2006 within the meaning as expressed in section 53A of the Transfer of Property Act. As such, the contractual obligation of the developer was not met with in the assessment year 2005- 2006. Being so, the conditions laid down in section 2(47)(v) of the I.T. Act cannot be invoked so as to bring the capital gains into tax in the assessment year 2005-2006 and thus the very foundation of the assessee's case is devoid of merits and not tenable and more so there is a specific clause in the JDA as enumerated earlier that the assessee is only permitted to give licence to the vendee to develop the Schedule Property and the legal ownership remains with the assessee and there cannot be any transfer in the assessment year 2005-2006 and it has rightly brought into taxation by the A.O. in the assessment year 2012-2013 as in the assessment year 2012-2013, the assessee received duly developed and constructed area into his possession coming into his share. Accordingly, we are not in agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment for having acknowledged the commission amount. However, the CIT(A) rejected the contentions of assessee. 38. The ld. AR relying on the decision of Tribunal in the case of Pradeep Kar, Bangalore vs ACIT, Bangalore in ITA No.596/Bang/2014 dated 11.05.2016 submitted that the provisions of section 48 or 55(1)(b) do not stipulate time frame within which the payment has to be made. The assessee has paid the commission amount exclusively for the purchase of property and cost of acquisition includes all the expenses incurred by way of commission or brokerage towards purchase of a capital asset. The finding of the AO that tax must be deducted at source on payment of commission amount is absurd as the profits are chargeable under the head income from capital gains. The provisions contained under the head capital gains doesn't stipulate the assessee to deduct tax at source to claim commission amount as part of cost of acquisition. 39. It was submitted that the AO has irrationally held that the commission paid to M/s Bentley Investment is only afterthought and devise to reduce the taxable capital gains. It was submitted that the AO has misguided himself and has travelled beyon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its acquisition by the assessee. (b) On one hand, the assessee claims that he is not engaged in any business activity in real-estate but has only transferred his property to the Developer for the purpose development and hence receipts arising out the transaction can not be treated as business receipts, but only as capital receipts; and on the other hand claims to have agreed to make certain payment as commission not at the time of he acquiring the property, but only after he starts receiving the fruits of his subsequent transfer to the Developer. Obviously, the latter claim indicates that the intention of the assessee purchasing the said property was to transfer it to a Developer for the purpose of development and earning higher returns. In such case, the transaction of the assessee amounts adventure in the nature of trade, necessitating accounting such returns as business receipts. Thus, the claims of the assessee are contradictory. (c) The assessee's contention that no time limit is prescribed by the provisions of section 48(1) and 55(1)(b) of the Income Tax Act, 1961 is far-fetched for the simple reason that cost of acquisition is consideration paid for and till the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed before the acquisition of the property by the assessee, is only an afterthought and device to reduce the taxable capital gains, with indexed cost of improvement. Thus, it appears that after the agreement with Mr. Abubakar related to transfer of property to the Developer, the assessee attempted to reduce the taxable capital gains with similar claim that can be related to the acquisition of the property also. in this context, it needs to be noted that the assessee did not have much time left from the date of acquisition of the property to the date of transfer of the same to the Developer to car out/claim any improvement to the property, during the period of its possession by him. Hence, the only option left for reducing tax liability is to claim expenditure in relation to the acquisition itself but not to later period/events." 44. In our opinion, the above reasons given by the AO for not considering the payment of commission as cost of acquisition is not justified. The party who has received the commission payment confirmed that they have received the commission and payment has been made by cheque. The AO cannot doubt the genuineness of these payments. These payments are inextri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hence confirmed the additions made. The ld. AR submitted that the provisions of section 50C applies where the consideration received or accruing as a result of "transfer" of capital assets, being land or building or both is less than the value adopted for the purpose of payment of stamp duty. Therefore, applying the provisions of section 50C is irrational as the assessee has received the constructed area in lieu of JDA and the same cannot be considered as "transfer" for the purpose of invoking provisions of section 50C of the Act. 49. It was further submitted that the authorities below have grossly erred in adopting the guideline value for the purpose of determining consideration with regard to the taking over of possession of commercial space. In the scheme of JDA the assessee is receiving the super built-up area of the commercial space and the full value of consideration as per section 48 of the Act is the cost incurred by the developer and not the guideline value as per section 50C of the Act. Section 50D which was introduced in statute book in the Finance Act, 2012 enumerates that when consideration received or accruing is not ascertainable, then the fair market value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilder on the assessee's share of constructed area because the assessee would receive constructed area in lieu of transfer of land belonged to developers share. Whatever is the expenditure incurred by the developer for constructing the area earmarked for assessee / land owners share, as the consideration received by the assessee. The Assessing Officer estimated this consideration at Rs. 2,200 per sq.ft. being the guideline value adopted for registration by State Registration Authority. The assessee adopted at Rs. 1,500 per sq.ft. being the cost of construction incurred by the developer. First of all, section 50C of the I.T.Act have no application of this point. Section 50C of the Act is applicable only when there is actual registration of property on transfer. In this case, the assessee's share of constructed area is not the subject matter of any registration in the name of the assessee in the assessment year under consideration. The assessee is getting his share of constructed area in the developed property vide JDA dated 08.01.2004. The Assessing Officer cannot apply the guideline value by invoking the provisions of section 50C of the Act when the subject matter of developed prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n page 12 and 13 of the assessment order has tabulated the details of flat sold where the consideration is less than the guideline value and has worked out the difference between guideline value and the sale consideration at Rs. 2,22,52,725/-. The assessee's share in the sale consideration is 21.94% and accordingly, a sum of Rs. 48,82,428 (Rs. 2,22,52,725 x 21.94%) was added to the agreed consideration. 56. The CIT(Appeals) confirming the additions of the AO held that booking of flats cannot be construed as transfer of flats because in many cases the buyers are susceptible to cancel the booking and more so the flats are not in existence and are not in saleable condition. 57. The ld. AR submitted that all the booking advances are received by developer M/s Brigade Enterprises through banking channel. The confirmation of booking on receiving amount through cheques, itself, is an agreement of purchase of the flat. The booking of flat coupled with the payment made by buyers in pursuant to the booking of the flat constitute an agreement. Reliance was placed upon the decision of the ITAT, Jaipur in the case of Radha Kishan Kungwani vs ITO in ITA No.1106/JP/2018 dated 19/08/2020, held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e when the proviso exists" (b) Smt Kausalya Madanagopal and Ors. Vs ITO in ITA No.322/Bang/2019 dtd: 29-02-2020, wherein it was held as under:- "We have considered the rival submission. We find that there is no dispute on these facts that Agreement of sale was entered on 12.08.1995 because this fact is noted by CIT (A) also in Para 5.3 of his order dated 05.01.2016 in the case of Shri V. M Harikrishna. In the same para of his order, this is also noted by CIT (A) that against the agreed sale consideration of Rs. 15 lacs for 1/3rd share, total value Rs. 45 lacs, an amount of Rs. 7.03. Lacs was received as advance and the details of this amount of Rs. 7.03 lacs is available in the said Agreement of sale as noted above. In the light of these facts, when we examine the applicability of these two tribunal orders cited by the learned AR of the assessee having been rendered in the case of Bharathi Dev Anandani vs. ACIT (Supra) and in the case of M/s Universal Power Transformer Pvt. Ltd. Vs. DCIT (Supra), we find that these are squarely applicable and since the evidence about receipt of part sales consideration by way of Account Payee Cheques before the date of sale deed is also avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd cannot be applied to the assessment year 2012-2013. As discussed earlier, the sale agreement actually entered in the financial years 2006-2007 and 2007-2008. In such circumstances, the guideline value prevailing in the financial year 2011-2012 could not be applied to the agreement entered into earlier assessment years. In all fairness, the guideline value prevailed in the relevant assessment year to be considered as a consideration so as to bring the capital gains into taxation. Since there is no dispute regarding the fact that the agreement for sale of flats were entered into the financial years 2006-2007 and 2007- 2008, right over such flat has been transferred from the assessee to the respective purchasers. The only pending was the actual registration of sale deed. In other words, by way of sale agreement, the right in persona is created in favour of the purchaser. When such a right is created in favour of the purchaser and the assessee is refrained from selling such flats to someone else because the purchaser of the flat in whose favour right in persona is created, has legitimate right to enforce such specific performance on the agreement if the assessee-vendor have some rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.1993 and total payment of Rs. 9,79,455 was made to the Vendor by the Purchaser out of total consideration of Rs. 9,80,500 and pending balance was only Rs. 1,005 and the entire payment was made by cheque and the same was mentioned in the Sale Deed dated 9.3.2007. Further, the possession of property was also handed over to the Purchaser mentioning Sale Agreement as on 8.3.1993. It is also brought on record that this property has been mentioned as address of R.K. Sipani as evident from Form 32 filed by Sipani Automobiles Ltd. before ROC on 17.12.1996. Further Katha of said property has been transferred on 9.2.2000 in the name of M/s. KPCBPPL. Thus, the major payment of Rs. 9,79,455 was received by the assessee vide Sale Agreement dated 8.3.1993 which was much before the Sale Deed executed on 9.3.2007. As observed earlier, section 50C provides that where the consideration received or accruing as a result of transfer by an assessee of a capital asset, being land or building or both, if less than value adopted or assed by any authority for the purpose of stamp duty in respect of such transfer, the value adopted or assessed shall for the purpose of section 48 be deemed to be the full va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment mentioned in the Sale Deed towards sale consideration clearly demonstrated that these payments have been passed between the parties vide Sale Agreement dated 8.3.1993 and possession of property has already been handed over on 24.10.1989. Therefore, transfer has taken place vide Sale Agreement dated 8.3.1993 and full value of consideration for the purpose of computing long term capital gain in the hands of the assessee has to be adopted on the basis of guidance value of this property as on the date of Sale Agreement only, not on the date of Sale Deed dated 9.3.2007. Accordingly we allow the grounds taken by the assessee as there was no applicability of section 50C in the year 2007-08." 62. Accordingly, we direct the A.O. to consider the guideline value of the impugned residential flats as in the financial years 2006-2007 and 2007- 2008 as the sale agreement are entered in the earlier assessment years and not in the assessment year 2012-2013. Taking the consistent view, we allow the ground of appeal of the assessee. 63. The last ground is that the CIT(Appeals) erred in confirming the action of the AO with regard to treatment of interest on fixed deposits which was premature ..... 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