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TMI Blog2023 (7) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... ake of convenience, the facts pertaining to M/s. Triad Resorts & Hotels Pvt.Ltd. for AY 2004-05 are narrated. The assessee is a Private Limited company, it is engaged in the business of running Hotels and service Apartments. The assessee had not filed any return of wealth for the AY 2004-05. The AO noticed that assessee was owner of 3.39 acres of land and having not filed return of wealth, he issued notice u/s. 17 of the W.T. Act 1957. The AO during the course of reassessment proceedings noticed that land was shown as investment, i.e. capital asset in the books of accounts regularly maintained by assessee. The AO further noticed when this property was sold in the year 2008 and profit arising out of sale of property was offered to income tax under the head "long term capital gains" for AY 2008-09. Before the AO, it was contended that assessee had entered into a Master Development agreement (MDA) with M/s. Classing Infrastructure Development (CIDL) on 05.12.2000 for development of property and therefore, the property ceased to be a capital asset and was stock in trade, which was not liable to Wealth Tax Act. The above contention of the assessee was rejected by the AO relying on the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. As mentioned earlier the Hon'ble High Court remanded the cases to the Tribunal. Subsequent to the remand by the Hon'ble High Court the appeals were heard on various dates and it was finally concluded on 09.03.2023. The assessee has filed revised additional grounds. The main grounds raised in the memorandum of appeals were not pressed during the course of hearing by the learned A.R. (the main grounds pertain to the claim of the assessee that impugned land is deemed to be stock in trade as on the valuation date in terms of sub-clause (ii) of clause (b) of Explanation (1) to Section 2(ea) of the WT Act, 1957 and hence not liable to WT Act.) The revised additional grounds raised read as follows. "(a) The learned AO grossly erred in assuming jurisdiction u/s 17 of WT Act, 1957 despite the fact that he lacked pecuniary jurisdiction, since no urban land was belonging to the appellant on the valuation dates as all the urban land stood transferred to the developer by virtue of the master development agreement dt: 05-12-2000, r/w section 2(47)(v) of the IT Act, 1961 as held by the Hon'ble Karnataka High Court in the cases of CIT vs. D.T.K.Dayalu and CIT vs. Vemanna Reddy an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dominion over the impugned urban land w.e.f. 26-03-2001, the date on which possession was handed over to the developer in part performance of the JDA in terms of section 53A T.P. Act. Thus, on all the valuation dates from 31-03-2001 to 31-03-2007, the appellants had only a right to receive 15.3% of the constructed property in terms of the JDA, which is not a chargeable wealth under WT Act, 1957. (case law pp: 21, 22, 24) (i) There is no conflict in the stands taken between Income Tax and Wealth Tax Act. Further, there is no estoppel against law. The doctrine of "Approbate and Reprobate" is a species of estoppel and it operates only on facts and not against law. Reliance on: 56 ITR 67(SC) at page 74 and 57 ITR 185(SC) at page 189. (j) Entries in the books of account do not make or unmake income or expenditure. Similarly, one cannot claim ownership based on entries in books of accounts. Reliance on: 1971) 82 ITR 363 (SC) at page 367. 7. The ld. DR has also filed written submissions. The relevant portion of the same reads as follows: II. FAILURE OF THE APPELLANT IN SUBMITTIN6 SALE DEED DATED 29/08/2007 WITH ITC LTD. BEFORE HONTBLE HIGH COURT OF KARNATAKA 1. The appellants ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the following A.Ys, PROVES THAT THE RESPECTIVE SHARE OF LAND WAS HELD BY THE 3 APPELLANTS UPTO A.Y.2008-09: - by M/s Triad Resorts <& Hotels (P) Ltd, from A.Y. 1997-98 to 2007-08 (except 1999-00 and 2005-06); - by M/s Noorani Properties (P) Ltd, from A.Y. 1995-96 to 2007- 08; - by M/s Verde Developers (P) Ltd, from A.Y. 1998-99 to 2007- 08 (except 2004-05 and 2005-06) (b) As per the statement recorded u/s 131 of the Act of Shri Ravipuri, Director of CIDL by the AO of the M/s Triad Resorts & Hotels (P) Ltd., during the course of assessment proceedings, neither CIDL nor Shri Dhingra had constructed any wall after signing JDA (3 JDAs WERE ENTERED INTO WITH CIDL i.e. JDA on 18/04/1996. amended JDA in August, 1997 and MDA on 05/12/2000) - Therefore, NO CONSTRUCTION ACTIVITY TOOK PLACE ON THE LAND FROM 1996 ONWARDS as contended by the appellant before the Hon'ble High Court; (c) The 3 appellant's failed to substantiate their respective claims of deduction towards "Cost of Improvement" on the respective share holding of land before lower authorities while declaring capital gains in their ROIs filed for A.Y. 2008-09 WHICH PROVES THE RESPECTIVE SHARE OF LAND WAS HELD B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to submit sale deed dt. 29.08.2007 with ITC Ltd. before the Hon'ble High Court of Karnataka. This allegation of non filing of sale deed before the Hon'ble High Court is made on the ground that no reference was made to the sale deed with ITC by the Hon'ble High Court in para 22 of its order. This is begging the question. It is respectfully submitted that the discussion and observations in the order of the Hon'ble High Court starts from Para 11 there off which reads : " 11. We have carefully considered rival contentions and perused the records." While listing out all the documents and the facts, specific reference has been made by the Hon'ble High Court, vide para 14 of its order, to the settlement agreement with CIDL and to the sale deed in favour of M/s ITC Ltd. as under; By its letter dated August 29, 2007, CIDL has determined the MDA dated December 5f 2000, by mutual consent, without any further obligation on any of the parties. It is stated In that letter that appellants had refunded the Security deposit placed by CIDL Appellants have also entered into a Settlement Agreement with CIDL and M/s, ITC Ltd. They have also executed a Safe Deed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproduced below for ready reference: A. Regarding period of construction of compound wall by developer- * Kind reference drawn to letter dt: 11-01-2000 from Ravi Puri of CIDL (at pp.21 and 22 of paper book), wherein he says, "This is to confirm our discussion of 07-01-2000 wherein you have conveyed to us that work on the construction of Boundary Wall, which is nearing completion (except for, the stretch next to the village road)' should be immediately stopped in view of the Temporary Injunction." (emphasis supplied). * At page 23 of paper book letter from Noorani Properties, dt: 17.01.2000 to CIDL which says- " In your letter you have said that the work of construction of boundary wall on one side, namely the village road stretch was required to be stopped in view of the Temporary Injunction granted by the Court. We wish to clarify that no Temporary Injunction was granted by the Court as presumed by you. In fact the Court had called upon the parties to maintain status quo till pronouncement of Judgment on 24th January, 2000." * This submission of the appellants was approved and upheld by the Hon'ble High Court in its judgment (vide paras 21 and 22) * The above contempor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he acts of the parties. Therefore, in our view, the impugned order passed by the ITAT is not sustainable and in facts and circumstances of this case, it is just and appropriate for the ITAT to have a re-look into the matter in the light of the contents of MDA, NOC issued under Chapter XX-C and the letter written by Shri. Dhingra" 11. The Hon'ble High Court has thus directed us to decide the matter considering: a) the contents of MDA (Master Development Agreement); b) the NOC issued under Chapter XX-C; and c) the letter written by Shri Dingra. The Hon'ble High Court held that on a combined reading of the above, would prima facie demonstrate that the Developer had power to alienate their portion of the property and that they had entered the property. After holding so, the High Court has directed us to consider the matter afresh in the light of the aforesaid observations. We shall accordingly proceed to analyze the case along the aforesaid parameters. A. Master Development Agreement. 12. The assessee entered into a final Master Development (MDA) agreement with M/s Classic Infrastructure and Developers Ltd (CIDL) on 05.12.2000 for the purpose of commercial development of property, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the development of the Noorani Complex Land, Verde Complex Land and/or the Triad Hotel Land as the case may be, including without limitation, the following:- g. to convey or cause to be conveyed a portion or a proportionate undivided interest in their respective Properties in favour of the proposed/prospective purchaser/s/nominee/s as may be required by the Developer. i. soon after execution hereof execute in favour of and deliver to the Developer or its nominee/s an irrevocable Power of Attorney concerning their respective Properties so as to enable the Developer to apply for and obtain various developmental permissions and carry out and complete development', sale and marketing in respect thereof. 13. Approval under IT Act 13.1 The arrangement under these presents shall if applicable, be subject to issue of a no ' objection certificate from the Appropriate Authority under Chapter XXC of the Income Tax Act, 1961. Immediately upon, the execution hereof, the parties shall sign and submit relevant forms for this purpose. 13.2 Immediately upon the issue of such No Objection Certificate, each of the Owners shall grant an irrevocable license to the Developer to ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted a license to enter the land for the limited purpose of carrying out development. 15. The Hon'ble Punjab & Haryana High Court in C.S Atwal v. CIT [2015] 378 ITR 244 (P&H) had held that a license to enter the land for the limited purpose of development cannot be treated as transfer of possession. The judgment of the Hon'ble High Court was affirmed by the Supreme Court in CIT v Balbir Singh Maini (2017) 398 ITR 531 (SC). The Hon'ble Supreme Court, while analyzing the applicability of section 2(47)(vi) of the Income-tax Act, 1961, observed as follows: "23. A reading of the JDA in the present case would show that the owner continues to be the owner throughout the agreement, and has at no stage purported to transfer rights akin to ownership to the developer. At the highest, possession alone is given under the agreement, and that too for a specific purposethe purpose being to develop the property, as envisaged by all the parties. We are, therefore, of the view that this clause will also not rope in the present transaction." 16. The Hon'ble Supreme Court in Seshasayee Steels (P) Ltd v ACIT (2020) 421 ITR 46 (SC) considered a question as to whether the provisions of section 2(4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the owners shall convey or cause to be conveyed a portion or a proportionate undivided interest in their respective properties in favour of prospective purchasers. The Developer definitely had no power to alienate any portion of undivided interest (emphasis supplied). 18. The Hon'ble Karnataka High Court in case of CIT vs. Dr. T.K.Dayalu [2011] 14 taxmann.com 120 had held that date on which possession was handed over to the developer is relevant to decide the date of transfer. However, in view of subsequent judgments of the Hon'ble Apex Court in the case of Balbir Singh Maini (supra) and Seshasayee Steel (P) Ltd. (supra), the ratio laid down in case of Dr. T.K. Dayalu is no more applicable. Moreover, in the present cases, we are concerned with interpretation of the term 'belonging to' as employed by the provisions of Section 4 of the W.T. Act, 1957. The term 'belonging to' is much wider import than the term 'owner'. In this context we rely on the judgement of Hon'ble Jurisdictional High Court in the case of CIT v Smt. Meenakshi Devi Avaru (decd.) reported in 410 ITR 306 (Kar.) 19. The learned A.R. had contended that the developer was having domain over the impugned propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract, though required to be registered, has not been registered, or"] there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any 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 shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof" 22. The bracketed/highlighted portion was omitted consequent to incorporation of section 17(1A) of the Indian Registration Act, 1908 vide Section 3 of the Registration and Other Related Laws (Amendment) Act 2001. The development agreement dated 05.12.2000 in the present case was not registered as such registration was not mandatory being drawn prior to the commencement of the Amendment Act of 2001. 23. Section 53 A of the Transfer of Property Act, 1882 comes into operation only when the following essen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purports to transfer of immovable property exceeding the value prescribed under Section 269UC of the Act, unless 'no objection certificate' is issued by Appropriate Authority for the transfer. The certificate states that the Appropriate Authority has no objection to the transfer of the property for an apparent consideration of Rs. 65.38,00,000 as per the terms of the agreement dated 05.12.2000 (i.e. MDA). The issue of 'no objection' certificate by appropriate authority was not the determinative factor to decide whether there is an actual transfer when possession of the land is handed over to the developer for development purposes. The certificate is only stating that 'no objection' for a transfer if any which is going to be registered (the development agreement in the instant case was not registered). 26. The Revenue right from the start of the controversy surrounding development agreements was always of the view that when the possession of land was handed over to the developer for development purposes, the transfer was effected. The Legislature through the Memorandum to Finance Bill 2017, in the context of insertion of new section 45(5A) to the Income-tax Act, 1961, clarified th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other relevant considerations, specify in this behalf by notification in the Official Gazette, [but does not include land classified as agricultural land in the records of the Government and used for agricultural purposes or land on which construction of a building ] is not permissible under any law for the time being in force in the area in which such land is situated or the land occupied by any building which has been constructed with the approval of the appropriate authority or any unused land held by the. assessee for industrial purposes for a period of two years from the date of its acquisition by him [or any land held by the assessee as stock-in-trade for a period of [ten] years from the date of its acquisition by him.] 30. The above definition excludes certain categories of lands. The two which are relevant for the present case are: - i) land occupied by any building which has been constructed with the approval of the appropriate authority ii) land held by the assessee as stock-in-trade for a period of ten years from the date of its acquisition by him 31. It is thus to be seen whether the impugned urban land falls in any of the above clauses and thereby exempt from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment construction starts the urban land is put to 'productive use ' and that entitles the land from exemption of wealth-tax. This argument of giving so called purposive interpretation has to be rejected for more than one reasons." 33. Therefore, in the absence of any building on the impugned urban land, this clause will not apply to the present case. Clause ii) - Land held by the assessee as stock-in-trade 34. The above contention was raised by the assessee during the first round of proceedings. The Tribunal held the following in respect of such contention: "8.1 We shall now first deal with first limb of the arguments, viz., whether the lands are stock-in-trade, as claimed by the assessee-company? Undisputedly, assessee-company has been showing these lands as investment in the books of account regularly maintained by it. Even in income-tax proceedings, lands were shown as capital asset and profit arising in subsequent sale of land to M/s.ITC Ltd. was shown under the head 'capital gains ' and benefit of indexation was obtained. No doubt, it is settled principle of law that the finding in income-tax proceedings is not relevant for the purpose of wealth-tax procee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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