Joint Development Agreement results in capital gain to the assessee?
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P.JAIN, ACCOUNTANT MEMBER
I.T.A. No.697(Asr)/2013
Assessment year:2007-08
PAN :ACYPJ9087J
Smt. Mohinder Kaur Josh, vs. Income Tax Officer,
Ward No.7, Piplanwala, Ward-2, Hoshiarpur.
Jalandhar Road, Hoshiarpur.
(Appellant) (Respondent)
Appellant by:Noe
Respondent by:Sh.Mahavir Singh, DR
Date of hearing: 27/02/2014
Date of pronouncement:28/02/2014
ORDER
PER BENCH ;
This appeal; of the assessee arises from the order of the CIT(A), Jalandhar dated 16.01.2012 for the assessment year 2007-08.The assessee has raised following grounds of appeal:
“1. That the Ld. CIT(A) has grossly misdirected himself in law and facts in upholding the order of the ITO confirming addition of RS.3,64,31,681/- made under the head ‘capital gains’ by misreading the Joint Development agreement as ‘sale deed’.
2. That the authorities has grossly erred in arbitrarily rejecting all the contentions made by the assessee, supported by material evidence to show that merely signing of a tripartiteJoint Development Agreement by the Society with M/s. Hash Builders and with M/s. Tata Housing Development Co. Ltd (THDC), did not result into accrual of the alleged capital gain to the assessee.
3. That the relevant provisions of section 2(47) as also the provisions of section 53A of the Transfer of property Act, 1882, qua the facts of this case, have been misconstrued by the ld. CIT(A) to confirm the ITO’s order
4. That the computation of capital gain, by assuming notional consideration of to non existent flats, not being consistent with the basic scheme of Income tax Act, deserves not to be upheld.
5. That by any reckoning and without prejudice to the outcome of aforesaid grounds, the income under the head capital gain could not have been computed beyond the amount of Rs.30 lakhs actually received during the year.
6. That exemption u/s 54F, ought to have been allowed, as claimed.
7. That the impugned capital gain, if any, ought to have been assessed in the hands of Punjabi Coop Housing Building Society Ltd. being the owner in possession of the property and not on assessee, being a member thereof.
8. That the orders of authorities below are highly unjust, arbitrary against equity and natural justice and hence liable to be set aside on this score also.”
2. The brief facts of the case are that the assessee being an MLA derives income from salary, pension and agriculture. She filed here original return of income on 30.07.2007 declaring an income of Rs.2,44,817/- plus agricultural income of Rs.88,000/-. The case of the assessee was selected for scrutiny and the AO issued notice u/s 143(2) of the Act. The assessee filed her revised return on 11.04.2008 declaring income at Rs.23,32,500/- plus agricultural income of Rs.88,000/-. The return was once again revised on 27.02.2009 in which a total income at Rs.2,50,817/- was declared apart from agricultural income of Rs.88,000/-. The return was once again processed by the AO u/s 143(1) of the Act. The AO completed the original assessment u/s 143(3) of the Act vide order dated 07.12.2009 at an assessed income of Rs.28,44,498/- plus agricultural income of Rs.88,000/-. The assessee had not declared any capital gain made on account of transfer and sale of plot measuring 1000 yards which was allotted to her by the cooperative society, namely, Punjabi Cooperative House Building Society Ltd. Mohali. This Society with the consent of its members entered into a tripartite agreement with Hash Builder Pvt. Ltd. and M/s. Tata Housing Development Company Ltd’ Mumbai and as per which each member against the plot size of 500 sq. yards was to receive a cash consideration of RS.82.50 lakhs along with a flat measuring 2250 sq. ft. to be built by HASH. The cash consideration, however, was not to be paid in one time but in parts from time to time. Till the end of the accounting period, the assessee had received Rs.30 lakh, which in the revised return dated 11.04.2008, was considered to work out Long Term Capital Gain at Rs.26,81,681/-. This working of the assessee was accepted by the AO at the time of framing original assessment. According to the CIT, Jalandhar-1, Jalandhar, this action of the AO results in committing a mistake of law since as per provisions of section 48 of the Act, Capital Gain is to be computed by taking into account the full value of the consideration received or accrued as a result of transfer which was Rs.3,67,50,000/-. This tripartite agreement was for transfer and development of the whole of the land belonging to the society. Thus, the whole of the consideration was required to be considered for computing the capital gain and which was Rs.1.65 crores in cash and two flats each measuring 2250 sq. ft. of the value of Rs.2,02,50,000/-. The total consideration, thus, accrued as a result of this transfer was RS.3,67,50,000/- and the same was required to be considered for the purpose of computing capital gains. According to Ld.
CIT-1, Jalandhar, the order of the AO was erroneous as the provisions of section 48 of the Act had been ignored or misapplied which was a mistake of law and this caused prejudice to the interest of the Revenue. Keeping this facts in view, a show cause notice dated 24.02.2011 was issued to the assessee. In response to the same, the assessee filed her written submission pleading that when two views are possible and the AO has taken one view but with which the Commissioner does not agree, then in such a case, the order cannot be treated as erroneous and prejudicial to the interest of the revenue. Secondly, the consideration was to be received in part as and when the sale deed for the part plot was to be executed. Since at that time only a part of the registry corresponding to the receipt of consideration of Rs.30 lacs had been executed, thus, only this consideration was liable to be considered for computing capital gain. Ld. CIT-1, Jalandhar considered the written submissions filed by the assessee but did not agree with the same and passed the impugned order on 25.03.2011 u/s 263 of the Act holding that the order passed by the AO is erroneous and prejudicial to the interest of the Revenue and set aside the order with a direction to the AO to make it denovo by recomputing capital gain taking into account the full value of the consideration accruing as a result of the transfer of plot but after giving due opportunity as per law to the assessee. The fresh assessment in this case was completed by the AO vide order u/s 143(3) read with section 263 of the Act vide order dated 13.12.2011 at an assessed income of Rs.3,64,93,498/- + Agriculture income of Rs.88,000/-. While framing the set aside assessment, the AO has computed long term capital gain accruing to the assessee at Rs.3,64,31,681/- and added it to the declared income of the assessee.
3. The Ld. CIT(A) confirmed the action of the Assessing Officer.
4. We have heard both the parties at length. We are of the view that on identical facts, in the bunch of appeals in ITA No.180(Asr)/2013 and others in the case of Sh. Satnam Singh Kainth and others we have decided the issue vide our order dated 19.08.2013, the relevant part of the same is reproduced for the sake of convenience as under:
“26. The Ld. Addl. CIT(DR), Mr. Mahavir Singh invited our attention that the issues in all the 24 appeals mentioned hereinabove are identical to the issues in the bunch of 30 appeals decided by the ITAT, Chandigarh Bench vide a consolidated order dated 29.07.2013 in the case of Charanjit Singh Atwal, Ludhiana vs. ITO Ward VI(1), Ludhiana in ITA No.448(Asr)/2011 and others for the assessment year 2007-08.
27. He further invited our attention that in the present appeals, the assessees are either present or Ex-MLAs of Punjab Legislative Assembly who are members of housing society. The said society consists of in total 95 present or Ex-MLAs of Punjab Legislative Assembly. The matter with respect to some MLAs and the matter with respect to the Society itself fall under the jursidction of Chandigarh ITAT and the rest under the Amritsar ITAT jurisdiction. All the 24 matters fixed today for hearing as mentioned hereinabove are part of 95 present or Ex-MLAs hereinabove. The issues in the present appeals are common and identical as in the bunch of 30 appeals decided by the ITAT, Chandigarh Bench (supra).
28. On the other hand, all the Ld. counsels appearing on behalf of different assessees before us in all the 24 present appeals, agreed to the argument made by the Ld. DR. Mr. Mahavir Singh. All the counsels prayed before the Bench to consider their written submissions and decide the issues in all the 24 appeals accordingly.
29. On perusing the facts in the present 24 appeals before us and the facts in the bunch of 30 appeals decided by a consolidated order dated 29.07.2013 by the ITAT Chandigarh Bench (supra) and on perusal of written submissions placed on record by different ARs, we are of the view that the issues decided by the ITAT Chandigarh Bench vide order dated 29.07.2013 (supra) are identical to the issues in the present 24 appeals before us. Therefore, we are proceeding to decide the present appeals by this consolidated order as under:
“30. We have heard both the parties and perused the written submissions placed on record by the representatives of the assessees. The main issue in the present appeals is whether the assessee is liable to capital gains tax in the impugned year or not. The said legal issue has been dealt with by the Chandigarh Bench of ITAT in its order dated 29.07.2013 (supra) in the case of Charanjit Singh Atwal, Ludhiana vs. ITO Ward VI(1), Ludhiana and in ITA No.448/CHD/2011 and others vide order dated 29.07.2013 (supra) vide para 27 to 44. The facts in the case of Charanjit Singh Atwal (supra) in the light of legal position in para 27 to 44 are discussed vide para 45 to 51. The Ld. counsel appearing for the assessee in the case of Charanjit Singh Atwal (supra) has raised mainly following contentions which have been dealt by Chandigarh Bench of ITAT in its order dated 29.07.2013 (supra) as under:
i) Vide para 52 to 58 of the order, first contention was that possession was not given by the Society because according to him as per clause 2.1 of the JDA, the possession of the property was to be handed over simultaneously to the execution and registration of JDA and since the JDA was not registered, therefore, the possession was not given. It was held by considering various contentions of Ld. Counsels and Ld. DR and cases of various Courts of law relied upon that by considering the purpose of insertion of clause (v) and clause
(vi) of section 2(47) and various clauses of Power of Attorney and JDA, it becomes absolutely clear that the Society has handed over the possession of the Society to THDC/HASH and accordingly first contention of the ld. DR was rejected.
ii) Vide para 59 to 61 of the order, second contention was that JDA was executed on 25.02.2007 and if possession was given then how the assessee was having possession in terms of later sale deeds executed on 2.3.2007 and 25.4.2007. It was held after considering and arguments of rival parties and facts on record that mere recitation in the sale deed to the effect that the Society was owner of land in possession measuring 21.2 acres, does not show that the society was having actual possession. What the Society was having is only ownership right and the possession was only concurrent as the possessory right. Accordingly the second contention was also rejected.
iii) Vide para 62 to 63 the third contention was that possession if at was given should be held to be only a license as defined in section 52 of Indian Easement Act. This third contention was also rejected for the reasons that rights given by the society are much larger than what is covered in the term ‘License’.
iv) Vide paras 64 to 68, the fourth contention was that the money received at the time of execution of JDA can be termed, as advance and whatever money has been received has already been shown as capital gain. It was held that it is not only the money, which is required to be taxed but the consideration which has accrued to the assessee is also required to be taxed. Accordingly, the fourth contention was also rejected.
v) Vide para 69 to 74, fifth contention was that since section 53A of the Transfer of Property Act itself has undergone amendment w.e.f. 24.9.2001 by which agreement referred to in that section is required to be registered and therefore, now in section 2(47)(v) only the amended provisions can be read. It was held that non-registration of agreement cannot lead to the conclusion that provision of section 2(47)(v)is not applicable. Accordingly, fifth contention was rejected.
vi) Vide paras 75 and 76, the sixth contention was with respect to decision of Hon’ble Bombay High Court in the case of Chaturbhuj dwarkadas Kapadia vs. CIT 260 ITR 491 is not applicable. It was held that the Bench has already discussed the implication of the decision in the case of Chaturbhuj dwarkadas Kapadia (supra) in para 33 to 38 of its order and accordingly this contention was also rejected.
via) Vide para 77 to 86, being the contention that it is necessary for invoking of section 2(47)(v) of the Act to comply with the provision of section 53A of the Transfer of Property Act to the extent that there should be willingness on the part of the transferee to perform his part of the contract. It was held that it cannot be said that the builders were not willing to perform their part of the contract in view of clauses 4.1(iv) read with clause 26(v) vii. Vide para 87 and 88, being the seventh contention that revenue wrongly held that even clause (vi) of section 2(47) is applicable. It was held that the developer i.e. THDC/HASH has purchased the membership of the members in the society which now lead to the enjoyment of the property and in that technical sense, clause (v) of the section 2(47) is applicable. viii. Vide paras 89 to 96, being the eightth contention that since the society has transferred the land through JDA on a pro-rata basis, therefore, only whatever money is received against which sale deeds have also been executed can be taxed and notional income i.e. the money to be received later, cannot be taxed. It was held that there is no dispute that no notional income can be taxed, but in the case of Capital Gain section 45 read with section 48 clearly provides that it is the profit arising from the transfer of capital asset, which would be subjected to change capital gain tax and section 48 clearly provides for taking the total consideration into account while computing the capital gains, which has already been discussed in paras 64 to 68 of the order. Therefore, the whole consideration whether received or accrued which has to be taxed under the capital gain, once the transfer of capital asset takes place. Accordingly, the contention was rejected.
Further, the Chandigarh ITAT Bench in the order dated 29.7.2013 (supra) vide paras 97 to 99 has dealt with issue of taxability of flat on the basis of above principles considering clause 4 of JDA, it was held that once this vested right arises out of the above contract, it can be easily said that this right has also accrued to the assessee. Therefore, capital gain tax has to be paid on the total consideration arising on the transfer which would include the consideration which has been received as well as the consideration which has arisen and become due and may be received later on. Accordingly, this contention of the assessee was also rejected.
ix Vide para 100 to 107, being the ninth contention that assessee has already terminated the agreement and has revoked the Power of Attorney. It was held in view of provision of section 45 read with section 48 of the Act that subsequent events, if at all any will not make any difference because total consideration received or accrued has to be assessed in the year of transfer. The word ‘irrevocable’ itself shows that in the eyes of law Special Power of Attorney could not have been revoked. In view of this analysis, either the JDA has not been cancelled or in any case the same cannot be considered for determining the taxation of Capital Gain. Accordingly this contention was also rejected.
x. Vide para 108 & 109, being the tenth contention that even if the whole consideration has to be taxed then value of the flats cannot be taken at Rs.4500/- per sq.feet. In view of agreement between HASH and THDC consideration has been shown at Rs.2000/- per sq. feet for 126 flats whereas it is Rs.4500/- per sq. feet for three flats. It was held that AO has estimated the value of flats on most reasonable basis.
Also vide para 110 there was contention with respect to deduction u/s 54F of the Act. It was held that no ground was raised in the appeal. Though reference was made in ground No.2.3 with reference to section 54F\ and 54EC which are on different facts and therefore deduction u/s 54F and 54 are not the same. Accordingly, the contention was rejected. Also the said issue has been dismissed in the case of Sh.Surinder Singh vs. DCIT in ITA No.1071/CHD/2011 vide para 166 to 169 for the reasons mentioned therein.
31. Vide para 111 to 113, it was contended that capital gain should have been taxed in the hands of Society which is legal owner of the land. It was held that the fact stands admitted by the assessee because assessee has filed a return declaring capital gain against part money received against the plot. Thus, it becomes clear that it is the individual member who are liable to tax in respect of transfer of plots and the Society being only a facilitator or post office. Accordingly, this contention was also rejected.
32 Vide paras 5 to 9 also the assessee has raised the additional evidence, which after considering the facts on record and arguments of Ld. Counsels allowed the admission of additional evidence.
33 Vide para 10 to 14, the revised return was treated as non-est and it was held that no disadvantage has occurred to the assessee because in the revised return, the assessee has included a sum of Rs.27,58,436/- on account of Capital Gain and the whole dispute in the assessment relates to Capital Gain arising out of sale of plot in the assessment relating to Capital Gain arising out of sale of plot in Punjabi Co-operative Housing Building Society Ltd. Mohali. In fact, the AO has ultimately assessed much higher amount of Capital Gain, which the assessee is disputing. Accordingly, this ground of the assessee was rejected. Accordingly all the issues, as discussed above in the case of Sh.Charanjit Singh Atwal (supra) were dismissed by the ITAT Chandigarh Bench in its order dated 29.07.2013.
34. As regards issue of notice u/s 148, the same was dealt with in ITA No.986/CHD/2011 in the case of Avtar Singh Brar vs. ITO. It was held that Ld. CIT(A) has done no wrong in rejecting the issue on reopening of assessment. Accordingly, the ground was rejected.
35. In the case of Smt. Surjit Kaur in ITA No.993/CHD/2011, the assessee was a member of ‘The Defence Services Co-operative Housing Building Society Ltd; which was the owner of 27.3 Acres of land. This land was transferred to THDC/HASH as in the case of Punjabi Co-operative Housing Building Society Ltd; either facts are identical to the case of Sh. Charanjit Singh Atwal (supra). Accordingly, being identical issue as in the case of Sh.Charanjit Singh Atwal (supra), the appeal of the assessee was dismissed.
36. Regarding interest u/s 234B and withdrawal u/s 244A, it was held in para 114 that the same is consequential in nature and AO was directed to charge or withdraw interest in accordance with law.
37. Accordingly, all the grounds and contentions raised in 30 appeals as mentioned hereinabove by the ITAT, Chandigarh Bench have been dismissed. For the sake of convenience, we reproduce the facts in the case of Sh. Charanjit Singh Atwal vs ITO in ITA No.448(CHD/2011 and the findings of the ITAT, Chandigarh Bench on the issues in the appeal vide paras 17 to 115 as under:
“1 7 Brief facts of the case are that while making discreet enquiries in the cases of housing societies, it was gathered that housing society consisting of 95 present and Ex-MLAs of Punjab Legislative Assembly is owner of the 21.2 acres of land in village Kansal, Distt. Mohali. The village Kansal shares its boundary with capital city of Chandigarh. On 25.2.2007 the Housing Society of MLAs entered into a tripartite Joint Development Agreement (herein after referred as “JDA”) with HASH Builders (P) Ltd (hereinafter referred to “HASH”) and M/s Tata Housing Development Company Ltd. (hereinafter referred as “THDC”). By virtue of this tripartite agreement it was agreed upon among these parties that the Society which is owner of 21.2 acres of land, shall transfer its land to THDC/HASH in lieu of monetary consideration and consideration in kind. As per the agreement each Member of the Society having a plot of 500 sqyd in the Society was to receive monetary consideration of Rs. 82,50,000/- and the Members holding plot of 1000 sqyd was to receive a sum of Rs. 1.65 crores. In addition to this Member holding a plot of 500 sqyd was to receive fully furnished flat measuring 2250 sqft to be constructed by THDC/HASH and Members having 1000 sqyd were to get two such flats. According to the Assessing Officer total consideration to be received by all the Members was Rs. 1,06,42,35,000/- and furnished flats as mentioned above. Before entering into the tripartite agreement the Society in its Executive Committee meeting held on 4.01.2007 which was approved in the General Body meeting held on 26.2.2007, passed a resolution to the effect that all the Members would surrender their all rights in the property to the Society and the Society would enter into an agreement on behalf of the Members with THDC/HASH. The Assessing Officer has referred to this resolution as well as various important clauses of the JDA and has placed lot of reliance on clause 2.1 of the JDA which is as under:
“The owner hereby irrevocaboy and unequivocally grants and assigns in perpetuity all its rights to develop, construct, mortage, lease, license sell and transfer the property along with any and all the constructions, premises, hereditaments, easements, trees thereon in favour of THDC for the purpose of development, construction, mortgage, sale, transfer, lease, license and/or exploitation for full utilization of the Property (Rights) and to execute all the documents necessary to carry out, facilitate and enforce the Rights in the Property including to execute Lease Agreement. License Agreements, Construction contracts, Supplier Contracts, Agreement for Sale. Conveyance, Mortgage Deeds, Finance documents and all documents and agreements necessary to create and register the mortgage, conveyance, lease deeds, license agreement, POA, affidavits, declarations, indemnities and all such other documents, letters as may be necessary to carry out, facilitate and enforce the Rights and to register the same with the revenue/Competent authorities and to appear on our behalf before all authorities, statutory or otherwise and before any court of Law (The “Development Rights’). The Owner hereby hands over the original title deeds of the Property as mentioned in the list Annexued hereto and marked as Annexure IV and physical, vacant possession of the Property has been handed over to THDC simultaneously to the execution and registration of this Agreement to develop the same as set out herein.”
18 It was further noticed that till date a Member having 500 sqyd plot in Society had received Rs. 33.00 lakhs each and a Member having 1000 sqyd plot had received Rs. 66.00 lakh. The assessee was also a Member and President of the Society and was owner of a plot measuring 1000 sqyd. Therefore, as per JDA, he was to receive Rs. 1.65 crores as monetary consideration and two furnished flats as consideration in kind and the cost of the same as per Assessing Officer was Rs.
2,02,50,000/- and total consideration would be Rs. 3,67,50,000/-.
19 According to the Assessing Officer since the Society has assigned all rights in 21.2 acres of land belonging to the Society in terms of JDA to THDC/HASH and also handed over the physical vacant possession of the property to THDC/HASH, therefore, the assessee became liable to capital gain tax on his share of consideration. Accordingly a letter dated 7.12.2008 was issued intimating the assessee that after consideration of the various clauses of JDA dated 25.2.2007 and the resolution passed by the Society on 26.2.2007, capital gain was to be charged in the hands of the assessee in Assessment year 2007-08 by taking full value of the construction at Rs. 3,67,50,000/-. The assessee filed various replies which have been extracted by the Assessing Officer as under:
“This has reference to your letter dated 7.12.2009, we submitted that under:
“1 The agreement under reference is only in the nature of an agreement to sell and not a sale deed and therefore no capital gain can arise under the said agreement.
The amounts received under the said agreement are actually the advances received and not the sale consideration and the land transferred in favour of THDC Ltd. is only on account of security. A letter from M/s Hash Builders to that effect is enclosed herewith.
There are many conditions envisaged in the agreement which need to be fulfilled before the full execution of the agreement and transfer of property to THDC Lid. and receipt of the consideration.
4 Under the partial execution, the part of property measuring approx, 72 sq yards was registered in favour of THDC and sum of Rs. 12 lacs was received As stated earlier, the amount was received as advance under the agreement and the property was transferred as security towards that advance. There were different legal opinions on the taxability of the amounts received. However in discharge of the duties as responsible citizens and avoid litigation, the members decided to pay capital gain tax on the amounts received voluntarily and such as the assessee has paid due amount of taxes voluntarily during the course of proceedings It may kindly be appreciated that tax liability will arise only to extent of completed transactions i.e. the capital gain arising on the land which has been transferred and for which consideration has been received. The assessee has fully discharged his liability to that extent There cannot be any tax liability on Incomplete transaction I.e. where the land has not been transferred and the Consideration has not been received, 5 In your letter under consideration, you have considered the national ‘value of the proposed flat measuring 2250 sq. feet as a part of the consideration Here the following points need to be considered.
1.) The flat shall be given only after the full land i.e. 500 sq. yard, has been transferred to the buyer.
2) There is no provision in the agreement to allot proportionate flat or make equivalent proportionate payment. So for the present transaction where only a part of the land has been transferred, no consideration on account of flat is available. So no question of any tax liability arise.
3) It may kindly be appreciated that the developer has not even ‘ acquired the land till date and has not even obtained permission to start development. So there is no question of any construction of fiats now or near future that is to say, there is no capita! asset in existence as on date for which the national value can be considered.
4) Clause No 14 is termination clause of the agreement under reference (copy enclosed), very clearly states the rights of THDC to terminate the agreement and in that situation, the land already transferred to THDC will be retained by them and no further land will be purchased by THDC and no further payment shall be made by them. In that event the amount received by assessee will be considered as full, and final consideration. So there is no question of considering the national value of proposed flat as the unrealized consideration for the purpose of capital gain of the assessee. The assessee is a Hon’ble citizen and regular Income Tax Payee and shall discharge his liability under Income Tax when the whole land will be transferred.
5.) While making the calculation of capital gain tax, the amount of consideration has been wrongly taken of Rs. 15 lacs Instead of Rs,12 lacs. As per the agreement, sum of Rs. 3 lacs is adjustable advance. You are requested to kindly recomputed tax liability,
6.) There are various judgments on this issue. The following cases are enclosed herewith for the reference.
a. CIT vs. Atam Prakash & Sons (2008) 219 CTR (Del) b. Smt. Raj Rani Devi Ramna vs. CIT (1993) 201 ITR 1032 (PAT) c. Zuari Estate Development & Investments Co. (P) Ltd. Vs. J.R.Kanekar, Deputy CIT. (2004) 191 CTR (Bom) In view of the above you are requested to kindly consideration the capita! gain as submitted by us.”
9. The case was further fixed for 24.12.2009, On the said date the counsel of the assessee fifed another reply which is reproduced as under:
1As per Para 6.1 of your letter, you have mentioned that there is a transfer of property upon the surrender of allotment rights. You may kindly refer to the agreement dated 25,02.2007 wherein it is clearly mentioned that allotment rights have been surrendered by the members in favour of the owner i.e. “Punjabi Co-operative House Building, Society Ltd” and not In favour of the buyers. So therefore, there is no transfer of property u/s 2(14) and 2(47).
2Regarding your observation of having accepted the position of transfer, please note that we understand that transfer of property is only to the extent of the land transferred by way of sale deed.
3 It is very clear from the agreement that no transfer of property have taken place only the development right has been transferred. Therefore, there is no transfer of property under section 53A of Transfer of property Act,
4. Clause 9.3 of the agreement is very clearly stating that the ownership has not been transferred.
in view of our submission you are requested to complete the Capita! Gains Tax in accordance with our return. The assessee wants to be personally heard and make further submission. You are requested to kindly adjourn the case till 29-12-2009.”
11. Vide the above said letter the assessee requested to be personally heard however on 29.12.2009 he did not appear. The counsel of the assessee filed written submission which is reproduced as under:
1 In para 6,1 of your letter dated 7.12.2009, you have written that there is grant and assignment of development rights in the property and there is transfer of property upon the surrender of allotment right. This is not a true factual position. The allotment rights have not been surrendered by the members in favour of THDC LTD or M/s Hash Builders Ltd. The factual position is that the society I.e.
M/s Punjabi Co-op House Bldg. Society Ltd. has entered into an agreement with M/s THDC Lid. M/s Hash Builders Ltd. As per clause 2.1 of the agreement it is very clearly mentioned that the possession of the property has been handed over to THDC Ltd. only to develop the same. A close examination of the agreement clearly reveals that the agreement is a Joint development agreement. The Society intended to develop the land owned by it. However since the requisite expertise were not available with the society, the other two developers were involved in the project. The cost of development was to be borne by the THDC. The payment to the society was to be made pro-rata on transfer of land in favour of THDC Ltd, It is very clear from the agreement that no consideration was payable to the assessee unless the land was transferred. So there is a clear cut relation between the land transfer and consideration. No consideration will be received if the land is not transferred. As far as the possession as mentioned in the agreement is concerned, the same is for development only and the termination clause very clearly states that if the agreement is terminated, THDC Ltd will retain only that much land which has been transferred to them and the remaining land will be retained by the society/members. The actual position is such that no development work has till date been undertaken by the THDC Lid because the various conditions stipulated in the agreement have not been fulfilled. The possession as mentioned in the agreement and which is being made the basis by you to consider the transaction as transfer u/s 53A of the Transfer of Property Act is actually not of any consequences and actually there is no transfer except to the extent of land transferred by way of registered sale-deed.
2 Clause 6.1 of the agreement clearly states that handing over the original title -deeds is as security for the adjustable advance.
3 As per clause 9.2 of the agreement, it is very clearly mentioned that the owner shall execute in favour of M/s THDC Ltd: the sale-deeds to complete the aforesaid transaction. So it is evident that the execution of sale-deeds is an integral part of the transaction and the transaction shall remain incomplete. if the sale deeds are not executed.
4 The clause 13 very clearly states that the rights transferred relate to Development/construction work and M/s THDC Ltd shall not do anything which adversely affect the right of the owner to receive the entire consideration.
5 Keeping in view the conditions in the agreement and to the fact that M/s THDC Ltd: M/s Hash Builder Ltd have not done any development work on the land under consideration till date in pursuance of the agreement dated 25.2.2007 or in furtherance of the said agreement, no transfer should be considered to have been taken place in respect of the land which is not yet transferred, if the views of the department are held to be correct for the sake of discussion, the following situation will arise:
1, Assesses will be deprived from availing the exemption u/s 54EC since no funds are available with the assessee for investment.
2, Assessee will be deprived from availing exemption u/s 54F as no residential house has yet been constructed.
This is an ironical situation where assessee is having to pay tax on the notional value of the flat to be given in the future to him as consideration but exemption under section 54F will be denied because the residential house did not exist,
3. Further as per the termination clause of the agreement various conditions have been prescribed under which the agreement can be terminated. It is very clearly mentioned in the agreement that in the event of termination of the agreement the land transferred by the members will be retained by THDC Ltd and consequently no further consideration shall be given to the members. It is evident from the facts in the case that inordinate delay has already taken place In this case. The agreement was originally envisaged to be fully executed In F.Y 2007-08. But now even FY 2009-10 is also going to expire. In that case the assessee will have no remedy available against the tax paid on consideration which will never be received by him. Under such circumstances it will be fully unlawful to charge tax.
4. The value of proposed flat is undeterminable and there is no way to determine the same. There is no provision to pay tax on the notional value. Clause 6.18 of the agreement entitled the assessee to surrender his proposed flat to THDC Ltd. and in that case only 75% of the future market-price will be received by him.
In the light of above discussion it is once again requested that tax may be calculated as per the return filed by the assessee.
However If the department choose to disagree with our submissions then It Is submitted that the capita! gain should be charged in the hands of the Punjabi Co-operative House Bldg. Society. It will be pertinent to note here that the proceedings in the case of the society have been reopened u/s 148 of the I.T Act 1961 by the learned D.C.I.T Mohali. In the reasons recorded by the learned D.C.I.T, it has clearly been mentioned that he proposes to tax the capital-gain in the hands of the Society. Copy of the reasons recorded is enclosed. It may be appreciated that the same amount can’t be taxed twice”.
On 29,12,2009 again the counsel of the assessee filed a letter and submitted as under:
“This being referred to the captioned proceedings Regarding your query about the cost of acquisition is Rs. 11 lacs which is paid as per following dates.
Receipt No, 307 09-11-01 5,04,000/-
Receipt No. 426 12-02-04 7,00,007/-
Out of above amount Rs. 1,00.000/- was refunded to the assessee and Rs, 4000/- was towards membership charges and other funds of the society.
In continuation to our earlier reply submitted, we once again reiterate that the possession given by the assessee is only to the extent of land sold by way of registered sale deed. There are certain addendums to the agreement which are not presently available with the assessee & cannot be submitted immediately.”
20 The Assessing Officer after considering the submissions did not find any force in the same and observed as under:
(i) There is no force in the argument that the JDA was only an agreement to sell and not a sale deed because JDA resulted in the transfer of assets. All the ingredients of transfer i.e. consideration from schedule of payments, rights and liabilities of the parties etc. were mentioned in the JDA, Capital gain arose because of the fact that it was a case of transfer of capital asset in view of Section 2(47)(ii), 2(47)(v) and 2(47)(
(ii) The owner had also handed over the original title deeds of the property and also handed over the physical, vacant possession of the property to THDC/HASH simultaneously to the execution and registration of this JDA and therefore, the case of the assessee was covered by the provisions of section 2(47)(v) of the Act r.w.s 53A of T.P. Act. as part consideration had also been received. According to the Assessing Officer the facts of the case were similar to the facts in case of CIT V. K. Jeelani Basha, 256 ITR 282 (Mad) wherein Hon’ble High Court after analyzing the provisions of section 2(47)(v) had held that once the possession even for a part of the property was handed over to the transferee, for the purpose of Section 2(47)(v) r.w.s 45, the transfer was complete.
(iii) The assessee’s case was also covered by the provisions of section 2(47)(vi) which deals with any transaction which had effect of transferring or enabling the enjoyment of any immovable property and assigning various rights in the property in favour of THDC and handing over the original title deeds as well as handing over of the physical vacant possession of land has the effect of transferring or enabling the enjoyment of the said property to THDC/HASH.
(iv) There was no force in the contention that the amounts received under the said agreement were advances received and not the sale consideration because total consideration was structured in the JDA and the consideration was to be received as per clause 4(iv) of the JDA. In fact the assessee has himself shown the receipt and returned the same as capital gain which contradicts these arguments of the assessee. As per Section 45 of IT Act, income-tax was to be charged under the head “capital gain” on transfer of a capital asset and shall be deemed to be the income of the previous year in which transfer took place. The year of transfer is the crucial year and not the time of the receipt.
(v) There was no force in the contention that the value of the flat should not be included because the assessee has not received such flat, because the flat was to be received by each Member of the Society was part of the entire consideration as per clause 4.2 of JDA. In any case as per Section 45 r.w.s. 48, its full value of consideration received or accrued which has to be considered.
(vi) It was also observed that surrender of allotment letter by the Members including assessee was processed in order to enable the Society to enter into tripartite JDA with HASH and THDC. By surrendering the allotment letter, the right of the assessee in immovable property owned by him got extinguished and this extinguishment was in lieu of entire consideration which was received by the Members including the assessee. thus this case was also covered u/s 2(47)(ii) of the Act.
(vii) It was observed that there is no merit in the contention that the assessee would not be covered u/s 54EC due to lack of funds or exemption u/s 54 was not relevant to the issue about taxability of long term capital gains which was dependent only on transfer.
(viii) It was observed that there was no force in the contention that the value of the flats was undeterminable because the value of the flat was very much determinable as per the market rate prevailing which could also be ascertained from the rate at which the flats were being offered to the general public.
(x) The Assessing Officer was of the view that the case laws relied on by the assessee were distinguishable for which the reasons have been given at page 23 and 24 of the assessment order.
21 In this background the assessee was charged to capital gain tax u/s 45 for the total consideration received and receivable by being a Member of the Society in view of JDA.
22 On appeal before the ld. CIT(A) detailed submissions were made (In the impugned order reference is made to written submissions without discussing the arguments). The ld. CIT(A) referred to the provisions of section 45 and 2(47) of the Act and observed that clauses
(v) to (vi) were inserted in section 2(47) w.e.f. 1.4.1988. He observed that before insertion of this provision, it was always possible to avoid or postpone capital gain by either not executing conveyance deed or postpone such execution because vendor of the property could give the privilege of ownership or enjoyment of the property by executing a Power of Attorney etc. To avoid such leakage of revenue clauses (v) and (vi) were inserted to section 2(47) of the Act. He then discussed the decision of Hon’ble Bombay High Court in case of Chaturbhuj Dwarkadas Kapadia V. CIT, 260 ITR 491 (Bom) and extracted the following conditions which were required to be satisfied to cover the case u/s 2(47)(v) r.w.s. 53A of T.P. Act.
(a) There should be contract for consideration (b) It should be in writing (c) It should be signed by the transferor or on his behalf (d) It should pertain to transfer of immoveable property
(e) Transferee has in part performance of contract has taken possession or part possession of the property.
(f) Lastly, transferee should be ready and willing to perform his part of contract.
23 If the above conditions were satisfied then the transfer can be said to have taken place for the purpose of Section 45. According to him as per the decision of C h a t u r b h u j D w a r k a d a s K a p a d i a V . C I T (supra) once the possession or part possession of the property was given by the transferor to the transferee then the transfer can be said to have taken place. He also referred to the decision of Authority for Advance Ruling in case of Jasbir Singh Sarkaria, 164 Taxman 108: 294 ITR 196. He referred to various observations of the Authority in this case and concluded that the receipt of entire consideration was not a factor to be seen for application of Section 2(47)(v). Once these two decisions were considered along with the provisions of section 45 r.w.s. 2(47)(v) then it would emerge as under:
“(a) The Joint development agreement has been entered into between the Punjab Coop Housing Building Society Ltd. Mohali, of which assessee is member, and. M/s Hash Builders (P) Ltd. and M/s Tata Housing development Company Ltd. Mumbai as on 25.2.2007.
b) The members of the society surrendered their allotment rights and the society on behalf of members entered into the joint development agreement in lieu of ‘entire consideration’ as described in the Joint Development agreement in the previous year 2006-07.
(c) The receipt of consideration was structured and the assessee received part of the ‘entire consideration’ during the financial year 2006-
07. This clearly shows that the transferee is ready and willing to perform his part of contract.
(d) In view of clause 2.1 of the Joint Development agreement, the owner has at the time of making the agreement irrevocably and unequivocally granted and-assigned in perpetuity all its rights to develop, construct, mortgage, lease, license, sell and transfer the property i.e (21.2 acres of land) alongwlth any and all constructions, trees etc. in favour of M/s Tata Housing development Company Ltd, for the purpose of development, construction, mortgage, sale , transfer, lease, license and/or exploitation for the full utilization of the property and to execute all the documents necessary to carry out, facilitate and enforce the rights in the property. Thus, in fact the owner has irrevocably and unequivocally granted and assigned in perpetuity all the rights which an owner can have in an immoveable property. All these rights have been given on date of agreement i.e. 25.02.2007 and even possession has been handed over in the financial year 2006-2007. The para 2.1 clearly states that ” the owner hereby hands over the original title deeds of the property as mentioned in the list Annexed hereto and marked as Annexure IV and physical, vacant possession of the property has been handed over to THDC simultaneously to the execution and registration of this agreement to develop the same as set out therein”. Thus possession in part performance of contract has been handed over to the transferee without any ambiguity in the previous year 2006-07 itself.
e) An irrevocable transfer has thus been made which is not dependent on any condition to be fulfilled.
f) Further coining to “consideration” part . As per Para 4,1 Rs,6,00,000 per holder of 1000 Sq,Yards has to be paid by transferee on account of earnest money , which has been paid to the assessee, Further as Per Para 4.1 (ii) clearly states that in lieu of. Rs, 12,00,000 per plot holder of 500 Sq. Yards and Rs.24,00,000 per plot holder of 1000 Sq. Yards is being paid on the execution of agreement against’ which the Society on behalf of members will transfer 3.08 Acres of the contiguous land out of property, It has been confirmed that against the above payment the land measuring,3.08 acres has been transferred in the •name of THDC and registered vide sale deed dated 02/03/2007 i.e. in the previous year 2006-
07.
g) Thus it is clear from above transactions that transferee, M/s Tata Housing development Company Ltd,, Mumabi, has performed and is willing to perform his part of contract and in this part performance of contract, the assessee and other members of the Punjab Coop Housing Building Society Ltd, Mohali have given possession of the whole of land of 21.2 acres to the THDC and have further irrevocably and unequivocally granted and assigned all rights in perpetuity to THDC in the said previous year i.e. 2006-07.
h) Hence it is established beyond doubt that transfer has taken place as envisaged as per Section 2(47)(v) of the-Income Tax Act and since it has taken place through Society of which assessee is also member so Sections 2(47) (vi) and 2(47)(ii) would also support Section 2(47)(v) of the income Tax Act.
(i) Now once it has been established that transfer has taken place, then the next important question is the year in which the transfer has taken place and it is the year in which the transfer has taken place, whole of the consideration , whether received or receivable in cash or kind, would be chargeable to capital gains u/s 45, whether the entire consideration has been received in the year of transfer or not.
j) From the discussion in above paras it is clear that not only agreement has been entered into in, the pervious year 2006-07 but the owner has at the time of making the agreement irrevocably and unequivocally granted and assigned in perpetuity all its rights to develop, construct, mortgage, lease, license, sell and transfer the property i.e (21.2 acres of land) alongwith any and all constructions, trees etc. in favour of M/s Tata Housing development Company Ltd.
k) Furthur M/s Tata Housing development Company Ltd has also in part performance of contract has made the payments to the owners and is willing to perform his part, of contract and the members of society in this part performance of contract have assigned full rights in the favour of transferee in the previous year 2006-07 itself and surrendered allotment letters to enable the Society to enter into tripartite agreement with HASH and THDC.
l) Most importantly physical and vacant possession of whole of the land of 21.2 acres has been handed to M/s Tata Housing development company Ltd. in the previous year 2006-07, Same is clear from Para 2.1 of the Joint Development Agreement and discussed in detail in preceeding paragraphs.
m) Thus the “transfer” would be deemed to happen in the previous year 2006-07 itself.
n) It has already been discussed in detail that registration of conveyance deed and receipt of entire consideration is not at all important in the year in which deemed transfer u/s 2(47)(v) of IT Act has taken place.
o) Further the Agreement is clear and there is no ambiguity regarding irrevocable rights being given to the transferee. As regards certain petty conditions and provisions relating to termination of the contract, it Is observed that these clauses are necessary part of such type of joint development agreement. At the same time such agreements including this agreement has the provisions of ‘disclaimer’ ‘partial invalidity’ ‘indemnity’ and ‘arbitration’. The disputes arising, if any, shall be resolved as per the provisions and awards shall be granted, in appropriate cases by the arbitrator. These provisions are there to safeguard the interest of all the parties to the joint development agreement and parties would be indemnified by each other and shall also receive award if the terms/conditions are not fulfilled.
p) As regards applicability of Section 54F, there are-certain conditions which are attached with Section 54F also which have to be fulfilled before which exemption under that section is available to the assessee. The assessee has not even tried to make any claim by showing that he has fulfilled the said conditions to be eligible for exemption under Section 54F, So exemption cannot be given in such a situation u/s 54F.
q) The judgment relied upon by the assessee are not applicable to the case of assessee as most of them pertain to the previous year before Section 2(47)(v) and 2(47)(vi) was inserted w.e.f. 1.4.1988. Other judgments referred by assessee are distinguishable as follows:
ACIT vs Puspa Devi: This ruling has been in fact in favour of revenue and completely ratifies the principles laid down in the judgment of Chaturbhuh Dwarkadas Kapadia vs CIT as it says that transfer of capital asset took place by virtue of agreement dated 07/09/1991 in the financial year 1991- 92 and as such, the AO was fully justified in levying capital gains in the same previous year.
ii) CIT vs K. Jeeiani Basha: This ruling supports the contention of revenue that entire consideration receivable for that part of property would ‘be’ taxable which has been parted with or transferred even when whole of the consideration lies not been received.
.
iii) Zuari Estate Development & Investment Co. (P) Ltd, vs DCIT: This case is also not relevant as it pertains to agreement entered into in 1984 much before Section 2(47(v) was inserted .
24. Before us, the ld. counsel of the assessee made detailed submissions. Further written submissions has also been filed. He carried us through the facts of the case by referring to various documents in paper book and also case laws as well as commentary by, “Mulla – Dinshaw Frederick Mulla” on the interpretation of Section 53A of Transfer of Property Act. The submissions can be summarized as under:
I First of all he referred to provisions of section 2(47)(v) of IT Act and Section 53A of T.P. Act and submitted that following conditions emerged for attracting these provisions-
a There must be contract of transfer for consideration for an immovable property;
b Contract must be in writing c Terms necessary to constitute transfer should be
ascertainable with reasonable certainty.
d The transferee must have in part performance taken the possession of the property or part thereof from the transferor and if already in possession, continues in the possession in part performance of the contract.
e Transferee must have done something in furtherance of the contract.
f The transferee must have performed or willing to perform his obligations in such contract.
In view of the above conditions in the present case, condition no. (d) and (f) have not been complied because the assessee and/or society has not handed over the possession to THDC/HASH. In this regard he particularly referred to clause 2(1) of the JDA and pointed out that the possession was to be handed over to THDC/HASH simultaneously with the execution and registration of the JDA. Since the JDA was not registered therefore, it is clear that the possession was not handed over. In any case the possession if at all was granted as permissive license with right to developers i.e. THDC/HASH only for the purpose of development of the land and not as part of performance of the contract of transfer of land. The fact that possession was not handed over to the THDC/HASH also becomes clear from the sale deed dated 2.3.2007 (Placed at page 119 to 136). He referred to clause A of recitation clauses at page 120 which clearly provides that vendor i.e. the Society was owner and in possession of total land measuring 160 kanal and 7 marlas equivalent to 21.2 acres in village Kansal Distt. Mohali. This deed was for sale of part of the property measuring about 3.08 acres out of total land contracted to be given to THDC/HASH measuring about 21.2 acres. He pointed out that sale deed has been executed on 2.3.2007 whereas JDA was executed on 25.2.2007. Thus it is clear that no possession was given on 25.2.2007 otherwise the Society would not be in possession on 2.3.2007. Similarly one more part of the land was sold by second deed executed on 25.4.2007 wherein similar clause ‘A’ as in the first deed is there (Refer page 138 of the paper book) shows that the Society was in possession of the land on later date. These two sale deeds clearly show that no possession was given on the date of execution of the JDA. In any case the JDA makes it clear that the possession was to be given simultaneously to the registration of JDA and since JDA was not registered, no possession was given.
II It was submitted that the possession, if at all, was given to the developers i.e THDC/HASH which was a permissive license to develop the project and not as performance of the contract. Reference was made to Section 52 of the Indian Easement Act, 1882 which reads as under:
“52. “Licence” defined “where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property all the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in which the property, the right is called a license.”
It was contended that Section 2(47)(v) r.w.s. 53A of T.P Act refers to legal possession whereby the transferee has a legal right to enter upon and exercise rights of possession i.e. control over the property. In this connection he referred to the observation of Authority for Advance Ruling in case of Jasvir Singh Sarkaria, 294 ITR
196. He particularly referred to para 26 to 28 of the judgment. He further referred to clause “F” (page 17 of the paper book) i.e., clause 2.1 of the JDA (page 24 of the paper book) and submitted that contents of these clauses will entirely show that possession was given and was envisaged in the shape of license to the developers for undertaking the development of property and legal possession was neither handed over or intended to be handed over.
III Money which is received at the time of execution of JDA can be termed as advance payment. In any case when these amounts were adjusted as part of sale consideration for sale of part of the property and the same have been retuned by the assessee as long term capital gains through revised return in the year of receipt.
IV It was emphasized that in any case Section 53A of T.P. Act has been amended by Amendment Act, 2001 whereby registration of agreement has been made mandatory for the same to be enforceable. Since JDA was never registered therefore, recourse could not be taken to Section 2(47)(v) of the Act because JDA was not registered. Pursuant to amendment in Section 53A of T.P. Act with effect from 24.9.2001 it was only the amended provision which can be read with Section 2(47)(v) of the Act. In this regard he referred to decision of Hon’ble Supreme Court in case of Surana Steels P Ltd. V. CIT, 237 ITR 777. In that case it was observed that when a section or an Act of Parliament is introduced into another Act, it must be read in the sense it bore in the original Act. In other words, the meaning attached to the original section which has been referred in another act, has to be understood as same. Therefore, once the original section 53A of T.P. Act undergoes amendment the same has to be read in Section 2(47)(v) as amended and therefore, as JDA is not registered Section 2(47)(v) will not be applicable.
V The ld. counsel of the assessee referred to the decision of Hon’ble Bomay High Court in case of Chaturbhuj Dwarkadas Kapadia V CIT (supra) and tried to distinguish the same. He submitted that this decision cannot be taken as an authority for the proposition that date of agreement should be reckoned as date of transfer. In any case, the decision has to be seen for what has been held in the decision and in this case ultimately the appeal of the assessee was allowed which means the transfer was held to have taken effect only after receipt of substantial payment of consideration.
VI The ld. counsel of the assessee further pointed out that there is another important condition in invoking Section 2(47)(v) of the Act r.w.s 53A of T.P. Act i.e. the transferee must have performed or willing to perform his part of the contract. It was argued that willingness of the transferee to perform his part of the contract is not an empty formality and it has to be absolute and unqualified. Thus willingness cannot be conditional or contingent on subsequent events. In the JDA following obligations were to be complied by the transferee –
(a) As per clause “J” of the JDA the Government approvals were to be obtained by the transferee i.e. THDC/HASH.
(b) As per clause 3.1 of JDA all building, plans and designs and drawings etc. for construction of the project were to be prepared by the transferee i.e. THDC/HASH.
(c) Clause 4.1 and 7.10 of JDA provided regarding timely payment of consideration.
(d) Clause 7.9 of the JDA provided that THDC/HASH shall obtain all approvals and commence construction within 6 months of hand over of final plans.
(e) Clause 8.4 provided obligation to take timely approval and clause 8.6 provided for payment of various statutory charges in respect of development charges, license fee and external default etc. Further to above obligation, time was of essence in the contract which becomes clear from clause 1.2(a), 4.1 and 7.10 regarding timely payment and clause 14(iv) regarding termination of contract.
In the case before us, there was no willingness on the part of developer i.e. THDC/HASH to perform the above obligation because of the following –
(i) THDC/HASH failed to obtain necessary approval and did not undertake any development work on land.
(ii) THDC/HASH i.e. developer has not paid timely payment in timely installments of agreed consideration.
(iii) HASH has not obtained approval from various authorities and had not commenced construction within six months of handing over all final plans. (Reference was made to page 34 of the paper book).
(iv) THDC/HASH vide letter dated 4.2.2001 (Page 23 to 24 of the additional evidence) refused to make further payment as stipulated in the agreement.
(v) The transferor has gone back on their representation to complete construction in the time bound manner and in handing over the flats to the Society /its Members.
In this regard he also referred to para 16 of the commentary by “MULLA – Dinshaw Frederick Mulla” (copy of which has been filed at page 102 and 103 of the paper book). He pointed out how the ld. authors have discussed the significance of the willingness of the transferee to perform their part of the contract. In this regard he also referred to various observations in the following case laws:
General Glass Co. Pvt Ltd. V DCIT, 14 SOT 132 (Mum) K Radhika V DCIT, 149 TTJ 736 (Hyd)DCIT V. Tej Singh, 138 ITD 489 (Agra) The facts of these case laws and the facts in the present case before us are identical and therefore, since as per these decisions there was no willingness on the part of the transferee to perform his/its obligation the provisions of Section 2(47) (v) r.w.s. 53A of T.P. Actcould not be applied.
VII It was contended that revenue has also held that clause (vi) of Section 2(47) is also applicable which is not correct because that provision is applicable where a person becomes owner of the immovable property pursuant to taking Membership of Cooperative Society etc. In the present case, the JDA was entered into between Society and two developers i.e. THDC/HASH and therefore, there was no transaction involving Membership of Cooperative Society/ company etc. Therefore, clearly clause (vi) of sec 2(47) is not applicable in the present case.
VIII The ld. counsel of the assessee also submitted that as per clause 4.1 of the JDA transfer/sale of 21.2 acres of land was to be made in favour of THDC/HASH on a pro- rata basis corresponding to pro-rata payments received by the Society and respective Members of the Society from THDC/HASH by executing the sale deed. This clearly shows that transfer was wholly dependent on timely receipt of the consideration. As pointed out earlier only two sale deeds could be executed and whatever payments have been received, have been offered for taxation under the head “Capital gain”. However, the Assessing Officer has subjected to tax whole of the consideration under the JDA as capital gain which is totally uncalled for particularly in view of the fact that an agreement has been subsequently terminated and this action of the Assessing Officer amounts to taxation of notional sum which is not permissible under the law. Under the various provisions of the Act, only real income can be taxed which has been earned by the assessee and no notional income can be subjected to tax. In this regard, reliance was placed on the following decisions of the Hon’ble Supreme Court:
Shoorji Vallabhdas & Co., 46 ITR 144 (S.C) CIT V. Raman and Co. 67 ITR 11 (S.C) Godhra Electricity Co. Ltd. V CIT, 225 ITR 746 (S.C) CIT V. Balrampur Commercial Enterprises Ltd., 262 ITR 439 (Cal) CIT V. K. Jeelani Basha, 256 ITR 282 FOBEOZ India (P) Ltd. V ITO, ITA No. 9231/Mum/2010 (copy filed) It was claimed that since the flats were never constructed and given to the assessee, therefore, if the value of the flat is added in the total consideration then it will be totally on notional basis and since notional income cannot be taxed, therefore, the value of these flats, in no case, should be considered in the total consideration. Further if notional receipts were taxed then the assessee would be deprived to take benefit available in the IT Act. For example if whole consideration was received the assessee could have easily taken benefit of Section 54EC and other provisions like Section 54 by investing in any specified asset or a house. Since full consideration has not been received and the assessment of the whole consideration will lead to unintended consequences like denial of deduction u/s 54 EC etc. IX It was contended that since JDA has already been terminated vide Society’s resolution dated 13.6.2011 and thereafter on 31.10.2011 even special Power Of Attorney executed earlier has been revoked, therefore, in view of the subsequent events, the balance of consideration receivable could not be taxed in the hands of the assessee. Subsequent events to the date of transactions have to be reckoned before taxing a particular transaction. He also submitted that in almost similar circumstances, subsequent events were reckoned by Mumbai Bench of the Tribunal in case of Chemosyn Ltd. V ACIT, 139 ITD 68. He referred to various paras and pointed out how the subsequent events were reckoned by the Tribunal.
X The ld. counsel of the assessee submitted that without prejudice to the above if it is considered a case of transfer then the value of flat to be allotted to each of the Member of the Society has not been valued correctly. The Assessing Officer has referred to clause 3.5 of inter-se agreement entered into between THDC and HASH. The ld. counsel of the assessee submitted that the assessee was not party to such agreement and price at which THDC was selling flats to HASH could not be adopted in the case of the assessee. It was submitted that if clause (5) was referred to it can be seen that reference has been made to two prices ie. Rs. 2000/sqft for 126 flats and Rs. 4500 per sqft for three flats. This price is notionally fixed by two developers and did not reflect the price of the flats. In any case the Developers have not been able to obtain necessary approval from the concerned authorities, therefore, construction of such flats has not commenced and no flats have been constructed and allotted to the assessee, therefore, notional value of the same could not be adopted and taxed in the hands of the assessee. At best the Assessing Officer could have taken the price of Rs. 2000 per sqft.
XI It was contended that if the value of the flat was to be recognized for the purpose of computing the capital gain, the corresponding deduction u/s54F of the Act should have been allowed particularly in view of Circular No. 472 dated 15.10.1986. In this regard he relied on the following decisions:
CIT V. Sardarmal Kothari and another, 302 ITR 286 (Mad) CIT V. R.L. Sood, 245 ITR 727 (Delhi) CIT V. Mrs. Hilla J.B. W adia, 216 ITR 376 (Bom) Mrs. Seetha Subramanian V ACIT, 59 ITD 94 (Mad Bench) Usha Vaid v ITO, 53 SOT 385 Smt. Ranjit Sandhu v DCIT, 133 TTJ 46 (Chd) 25 On the other hand, the ld. CIT DR for the revenue made detailed submissions and have also filed written submissions. It was pointed out by the CIT-DR for the revenue that though copy of the special power of attorney has been filed at pages 153 to 165 but two of the most important crucial pages containing clause “u” to “z” and last page No. 9 are missing. He made an allegation that this has been done deliberately which was controverted by the ld. counsel of the assessee and he submitted that this is a simple mistake and he would file those papers. The ld. DR for the revenue in view of these submissions submitted that these pages can be referred in case of Punjabi Coop House Building Society Ltd. in ITA No. 310& 556/Chd/2012 at page 40 to 52 of the paper book in that case. The submissions of the revenue can be summarized as under:
(I) The Society passed a resolution in its executive commi
