9911796707
TMI Blog2022 (7) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 - SUPREME COURT] considered a development agreement granting permission to start advertising, selling and construction and permitted to execute sale agreements to developer. The Hon ble court held that such permission is not possession under section 53A of the transfer of property Act - held that possession within meaning of section 53A, which is a legal concept and which denotes control over the land and not actual physical occupation of the land. This being the case, the section 53 of the Transfer of Property Act cannot possibly be attracted. Respectfully following the finding of the Hon ble Supreme Court and other High Court, we hold that the capital asset of the assessee cannot be treated as transferred u/s 2(47)(4) of the Act read with section 53A of the Transfer of Property Act in assessment year 2009-10. We do not find any error in the finding of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same as far as the year of taxability of capital gain is concerned. The ground no. 1 of the appeal of the Revenue is accordingly dismissed. Non-applicability of section 50C on the development right - We do not find any infirmity in the finding of the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was required to explain source of the said expenditure. CIT(A) has noted that assessee failed to substantiate the actual expenditure incurred out of the explained sources. Before us, the assessee has not filed any capital account or withdrawal by the assessee and his family members to substantiate the source of expenditure. In the circumstances, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the same. X X X X Extracts X X X X X X X X Extracts X X X X ..... tamp Duty paid which is a clear indication of the value attributed by the Land Revenue Department of the State Government at of Rs.18,74,74,699/- on transfer of the land and therefore the question of TR does not arise. 3. The sole ground raised in cross-objection by the assessee in CO No. 312/Mum/2018 in respect of the appeal of the Revenue has been withdrawn vide letter dated 15/06/22, therefore, same is dismissed as infructuous. 3.1 The assessee has also filed appeal separately for assessment year 2012-13 which has been registered as ITA No. 3773/Mum/2017 and the grounds raised in which are reproduced as under: 1. Ld. CIT(A) erred in holding that cost of construction of 42% of the area exchanged for transfer of appellant's right under Development Agreement, being computed at 42% of Rs.18,74,74,699/- i.e. Rs.7,87,73,911/-, without properly considering the components of cost of construction as determined by District Valuation Officer in its valuation report. Such cost of construction is consisting of: i Cost of construction : ₹8,81,46,948/- ii Incidental charges 10% of above : ₹88,14,695/- iii Cost of TDR : ₹8,89,43,240/- iv Cost of 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 81 55,166 The Fair Market Value as on 01/04/1981 24,82,493/- Land (FSI) available for out of the above areas) and its FMV as on 01.04.1981 13,966 6,28,476/- TDR available (as per DCR 1991) 51,067 NIL Total Area available for development 65,033 Out of Land FSI of 13966 13,966 A. Parted to Developers (58%) 8,100 B. FMV as on 01/04/1981 3,64,516 Indexed Cost (3,64,516/100*551) 20,08,467 Land FSI to Assessee - (42%) 5,866 Out of TDR (FSI) of 51067 51,067 Parted to Developer - (58%) 29,619 TDR FSI to Assessee - (42%) 21,448 Consideration amount received/receivable by assessee being cost of areas received/receivable by the assessee on account of land cost of construction @ 2,000/- 5,866 1,17,31,440 On account of TDR cost of construction @ ₹2,000/- per sq ft 4,28,96,000 ₹2,000/- per sq ft 5,46,27,440 Less : Consideration on account of TDR FSI 4,28,96,000 Less : Indexed cost of land developer 20,08,467 Less : Cost of Basement Demolition 8460 sq ft @ 900/- per sq ft 76,14,000/- 5,25,18,467 Long Term Capital Gain liable for taxation 21,08,973 4.1 However, in the scrutiny assessment completed under section 143(3) of the Act on 26/03/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required in AY 2009-10. 6. Aggrieved, both the assessee and Revenue are in appeal before us. During the course of the hearing both sides have filed paperbook and written submissions and made oral arguments. 7. The ground No. 1 of the appeal of the Revenue relates to the year of the taxability of the capital gain. In support of the grounds Revenue has submitted that the developer was given complete access to the property in the previous year corresponding to assessment year 2009-10 and therefore the capital gain was liable to be taxed in the assessment year 2009-10. 7.1 The facts in relation to the issue in dispute have been mentioned elaborately by the Assessing Officer. For understanding the issue, brief as how the property came into existence and then transferred to the developer, are summarized as under: (i) Mr. Jethabhai G Shah was carrying business in the name and style of M/s Pankaj enterprise. He was absolute owner of plot No. one of industrial subdivision of survey No. one and two admeasuring 5127.36 m². M/s Pankaj enterprise was granted exemption in the year 1979 for industrial use of the said property. (ii) In the year 1980, Mr. Jethabhai entered into an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted property in the ratio of 42:58 i.e. the owners will get 42% share of the constructed property free of cost. This agreement was entered into in the financial year 2007-08, but was registered in the financial year 2008-09. (viii) the assessee obtained possession of its share of constructed property in the previous year corresponding to assessment year 2012-13. According to the assessee in view of the possession of the property received in assessment year 2012-13, the long-term capital gain arose in the case of the assessee in assessment year 201213 and offered accordingly. 8. In background of the above facts, the Assessing Officer held that long-term capital gain on transfer of development rights should be charged on the basis of the registered development agreement entered into between the assessee i.e. the owner and M/s Vidhi enterprise i.e. developer, in the financial year 2008-09 i.e. the assessment year 2009-10. The relevant finding of the Ld. Assessing Officer is reproduced as under: "Year of Chargeability The assessee in the course of hearing has stated that agreement was executed in the FY 2007-08 and hence the chargeability year should be FY 2007-08 relevant to A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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(as defined)." The above two clauses were introduced with effect from April 1, 1988. They provide that "transfer" includes ()any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, and(in)any transaction entered into any manner which has the effect of transferring or enabling the enjoyment of any immovable property. Therefore, in these two cases, capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of immovable property is not effective or complete under the general law. The assessee in its submission has stated that no rights are being transferred to developers till such time entire building is constructed as per the terms of the Development Agreement. The department would like to state that transfer of developmental rights had taken place and Sec 2(47) would be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived 42% of the total constructed area in assessment year 2012-13 i.e. in which the exchange took place, therefore capital gain has to be taxed in the assessment year 2012-13. The relevant finding of the Ld. CIT(A) is reproduced as under: "5.16 I have gone through the development agreement and find that Clauses 14, 16, 24(c), 24(A), the provision of these clauses are reproduced here below:- (i.) CI. 14 of the agreement provides "developer shall be deemed to have been allowed to enter upon the said property as developers for the purpose of construction of said new building thereon in accordance with plan to be sanction with amendment thereto if any, by the Municipal Corporation of Greater Mumbai". The developer is allowed 10 construct a temporary site-office (CI. 14(in). The developer is also permitted to put hoarding/sign boards (CH 14(iii). (ii) Cl. 16 provides for execution of power of authority infavour of developer. Clause 16 "'immediately upon execution of presents persons the owners have granted in favour of developer or their nominees, an irrevocable power of attorney to do all acts deeds, matters and things as necessary for development of said pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction area, subject to conditions under the development agreement. 5.18 It is clear from above facts and judicial decisions that in case of development agreement, if the developer is merely allowed to enter the property for the construction of the building, it cannot be deemed to be a possession for the purposes of Section 2(47) r.w.s. 53A of Transfer of Property Act. The terms and conditions of the development agreement between the appellant and M/s. Vidhi Enterprises clearly indicate that only a permissive possession for the construction work was handed over to the developer, the developer was never enjoying rights of ownership over the land as is evident from the fact that the developer is not entitled to transfer/sale his portion of developed area. It can be safely held that possession of land was not handed over to the builder in F.Y. 2008-09. The construction was completed in terms of development agreement only in F.Y.2011-12 and the exchange of property between the appellant and the developer took place in that financial year 201112. The sum and substance can be summarized in following words:- (a) That the capital assets was converted into stock-in-trade on 01/04/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue that while part performance of the agreement, possession was handed over to the developer and therefore it amounted to transfer in terms of section 2(47)(4) of the Act. Before us, it is the contention of the Ld. Counsel of the assessee that only permissible ingress was provided for carrying out construction and no ownership rights were transferred under the development agreement dated 02/04/2006, which was registered on 26/06/2008. The assessee relied on the clauses quoted by the Ld. CIT(A) in para 5.16 of the impugned order. It was further submitted that in terms of development agreement, a general power of attorney was executed which was also registered on 26/06/2008 and relevant clauses which have been referred by the Ld. CIT(A) in para 5.17 of the impugned order, which we have extracted above. 10.1 The Ld. counsel in support of the proposition that mere ingress being allowed for carrying development on plot of land is not handing over possession within the meaning of section 2(47) of the Act, and hence, no transfer, relied on following decisions: 1. CS Atwal Vs CIT 378 ITR 244 ( P &H) 2. Binjusari Properties P Ltd. Vs ACIT 164 TTJ 417 (Hyedearbad) 3. Dilip Anand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33%, by virtue of a supplementary agreement executed on 18.10.2007). That being so, it is only upon receipt of such consideration in the form of developed area by the assessee in terms of the development agreement, the capital gains becomes assessable in the hands of the assessee. We are supported in this behalf by the decision of the Third Member Bench of the Tribunal in the case of Vijaya Productions Pvt. Ltd. V/s. Addl. CIT (134 ITD 19)." 10.4 In the case of Dilip Anand Vazirani (supra), the Tribunal held as under: "Thus, ITAT had noticed that the Assessee had received advance amounts much earlier to the execution of development agreement, probably on the strength of the MOU. The property was encumbered with tenancy rights of many persons and the release of tenancy right was completed only in January, 2005. Further, the approval from municipal corporation was also got delayed and the plans were revised subsequent to AY 2000-01. The surrounding circumstances show that the developer does not started the work of development in the year relevant to AY 2001-02. As per the terms of development agreement, the Assessee had given only license to enter into the property, meaning t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock in trade has taken place. 10.7 Thus the dispute precipitated before us is to whether possession of plot of land was handed over to the developer within the meaning of section 53A of the Transfer of Property Act, at the time of entering the DA or possession was handed over at the time of completion of construction of the property. 10.8 The clause 2 of the development agreement provided that subject to retention of FSI retained by the owner, the owner appoint developer for construction and development of the said plot. The clause 5 provides for consideration which will be 42% constructed area, including loading of TDR, in lieu of constructed area retained by the developer, which will be 58% along with 58% land area. Further, clause 14(1) has provided that "developer shall be deemed to have been allowed to enter upon the said property developer for the purpose of the construction of the said new building thereon". The developer was specifically allowed to construct a temporary site office only. Further, clause 24C provided that developer shall not give possession to any of the party to whom he allotted any areas out of the developer shares, without first giving possession of ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is true that the developer could have retained possession of the land and declined to return possession thereof to the assessee since the developer was in physical control thereof. But such resistance of the developer would not have been protected under Section 53A of the Act of 1882. It was only after the apportionment of the areas upon the construction on the land being completed that the developer could have rightfully retained possession of the developer's 61% share and resisted dispossession by discharging his obligation under the agreement and seeking refuge in terms of Section 53A of the Act of 1882 despite the formal conveyance pertaining to the developer's entitlement not having being executed. In any view of the matter, the right of the developer to retain possession and protect such possession under Section 53A of the Act of 1882 could never have arisen prior to the construction being completed and the apportionment effected." 10.11 Further we find that Hon'ble Supreme Court in the case of Seshasayee Steel (P) Ltd. 115 Taxman.com 5 (SC) considered a development agreement granting permission to start advertising, selling and construction and permitted to execute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; have been cleariy understood and treated as independent of "land and building". The Tribunal finally held that "rights in land or building" will not be covered u/s.50C." 12.1 Further in para, Para 6.9 of the impugned order, the Ld. CIT(A) has held the consideration corresponding to allowing loading of TDR as not taxable. The relevant finding of the Ld. CIT(A) is reproduced as under: "6.9 After considering the totality of facts, rival submissions, the applicable law and on the basis of discussion mentioned above, I find force in the argument of the appellant and draw strength from the various decision given by the judicial High Court especially Bombay High Court decision in the case of Sambhaji Co-operative Housing Ltd and decision of Mumbai Tribunal ir the caseof Voltas Ltd. ITA No.5330/Mum/2009 ITA No.5331 of 2009 on identical facts. The provisions of section 50C are deeming provisions. It is settled law and well accepted rule of interpretation that deeming provisions are to be construed strictly. Thus, while interpreting deemirg provisions neither any words can be added nor deleted from language used expressly. In view of the above referred decision of ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to transfer 44 per cent of land, it must have kept in mind the value of construction of 56 per cent of built up area. Therefore, we are of the considered opinion that consideration for the transfer of 44 per cent land was the cost of construction of 56 per cent built up area which was to be incurred by the builder. This very sum would also amount to investment by assessee in the construction of flats and, therefore, the cost of construction of the flats by the builder would also amount to the cost of acquisition of the flats by assessees. 7.2 In case of CIT vs. Jai Trikanand Rao - 60 SOT 0189(Mumbai). The Bombay ITAT also considered a similar issue. In this case, assessee was owning a plot of land and entered into a development agreement as per which the developer was to bear the cost of demolition of old structure and construction of the building and in view thereof the developer agreed to give 50% of the constructed area in the form of flats in the building. Under development agreement, a interest free security deposit was given of Rs.1 crore to the assessee which was refundable after giving possession of the constructed area to the assessee on completion of the building, tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der development agreement is R 7,87,73,911/-. Further, in view of the discussion mentioned in paras 6 the consideration relatable to loading of TDR is not taxable. The assessing officer is directed to calculate the capital gain accordingly. The ground is partly allowed." 14. Before us, the Ld. counsel of the assessee submitted that the assessee always retained and owned the plot of land and exchanged 58% of interest in 1828.80 m² plot with 42% constructed area, which was developed by the developer at its cost, as per terms of DA. The assessee further submitted that it has permitted the developer to load TDR on its pre-constructed building on 2785 m² plot and got 42% constructed area therefore receipt of 42% constructed area is exchanged against 58% area of the plot and 42% plot always belonged and continue to belong to the assessee. According to the assessee for evaluating full value of the consideration taxable for transfer under DA will be value of the 42% of the constructed area without any value of the land as land always belongs to the assessee. The Ld. counsel of the assessee relied on the decision of the Tribunal, which have already been considered by the Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. SS(2) as having cost of acquisition at Rs. nil, where such assets have not been purchased by the assessee for consideration. The effect of this sub-section is that when the assets so specified in sub-s. (2) of s. 55 are transferred, then the cost of acquisition has been taken at Rs. Nil except where the assessee had acquired such assets by means of purchasing from the previous owner, and the computation of the capital gain would be done accordingly. There is a difference in the situation when cost of acquisition is Rs. nil and where the cost of acquisition cannot be ascertained or no cost of acquisition has been incurred. The items of capital assets specified in s. 55(2) are those for which the cost of acquisition shall be taken at Rs. nil for computing capital gains. However if the assessee had not incurred any cost of acquisition on a capital asset and such capital asset does not fall in the category of the capital assets specified in s. S5(2) then no capital gain would be charged. it is abundantly clear that the assessee had not incurred any cost of acquisition in respect of the right which emanated from the 1991 Rules making the assessee eligible to additional FSI. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from house property, whereas disallowed the amount of ₹3,11,920/- which was used for improvement of the house property to make it fit for earning rent in future. The Ld. CIT(A) has summarised the facts related to issue in dispute is under: 8. In ground no.9, appellant has challenged disallowance of interest of Rs.15,06,920/- claimed by the appellant while computing the property income. The AO had dealt with the issue in para-7 of the order. It is stated that appellant has claimed interest as being paid to (i) ECL Finance Ltd. : ₹3,11,920/- (ii) Shobha M. Desai : ₹6,00,000/- (iii) Suresh I. Patel (HUF) : 5,95,000/- Total ₹15,06.920/- The A.O. stated that such loans on which interest is claimed are not used for the purpose of business; therefore the same are disallowable. The appellant, during the course of appellate proceedings, stated that appellant has claimed deduction against house property. It is also stated that such interest paid is being allowed in all the past years from AY 06-07 to 11-12. In AY 06-07, interest claimed was Rs.12.29 lakhs, in AY 07-08 Rs.13.76 lakhs, and in AY 08-09 Rs.7.68 lakhs, and in 09-10 at Rs.6.05 lakhs. All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;50,000/- 9.1 A.O. made addition relying on the provisions of Sec.69C of the Act. During the course of appellate proceedings, Ld.AR has relied upon the statement as recorded of Shri Suresh Patel U/s.133A dtd. 21.11.12. Shri Suresh Patel has described that various notings in the diary are scribbling, not connected to the business. During the course of assessment proceedings, appellant explained the above referred expense of Rs.1.30 lakhs as personal expenditure, household expenses of Sures7 Patel were claimed to be reflected in the personal books of account of Shri Suresh Patel. A copy of impounded paper pg.149 is filed in compilation at pg.114. It is stated that RSP stand for the wife of Shri Suresh Patel and all these expenses of Rs. 1.30 lakhs are not claimed as business expenses in the books of account of appellant and are the personal expenses of Shri Suresh Patel, which are duly explainable as aimed to be recorded in the books of account of Shri Suresh Patel." 21. The Ld. CIT(A) rejected the contention of the assessee observing as under: "9.2 I have duly considered the submissions made by the appellant and the facts found by AO in the assessment order. Shri Suresh Patel c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
