The assessee is not eligible to capital gains without the accrual of the consideration to the assessee (Development Agreement)
ITA No.1604 of 2014 Sham Kumar Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad 'A' Bench, Hyderabad
Before Shri B. Ramakotaiah, Accountant Member
& Smt.Asha Vijayaraghavan, Judicial Member
ITA No.1604/Hyd/2014
(Assessment year: 2006-07)
Income Tax Officer Shri Sham Kumar,
Ward 5(3) Vs. 5-8-4 Station Road,
Hyderabad Nampally Hyderabad
PAN-ADFPK 1684 A
(Appellant) (Respondent)
For Revenue: Shri Ramakrishna Bandi, DR
For assessee : Shri B. Satyanarayana Murthy
Date of Hearing : 19/02/2015
Date of Pronouncement : 20/03/2015
ORDER
Per Smt. Asha Vijayaraghavan, J.M.
This is an appeal filed by the Revenue directed against the order of the CIT (A)-V Hyderabad dated 30.05.2014 passed for A.Y 2006-07 u/s 143(3) r.w.s. 153C of the I.T. Act.
2. Brief facts of the case are that the assessee is an individual, deriving income from business and other sources. The assessee filed his return of income for A.Y 2006-07 on 28.06.2006 declaring a total income of Rs.2,39,024. AO completed the assessment by determining the total income at Rs.11,90,14,938 by making an addition of Rs.11.87 crores towards long term capital gains. The assessee owned a piece of land admeasuring 1 acre 14 guntas 83 Sq.Yds., forming part of Sy.No.126 of Hydernagar Village, Kukatpally ITA No.1604 of 2014 Sham Kumar Hyderabad Municipality, R.R.District. He entered into a Development Agreement on 12.08.2005, with M/s. Bhavya Construction (P) Ltd (hereinafter called the Developer), represented by Sri V. Anand Prasad. According to the Development Agreement, the assessee has given licence to the Developer to enter into the property to make construction thereon on agreed terms. He has also given licence for this purpose to demolish any structures on the existing property. In consideration of the licence for development, the assessee has agreed with the Developer to share the constructed area in the ratio of 55% to the owner and 45% to the Developer. As per the Agreement, the Developer shall get the Plans prepared from his architects and at its cost shall construct the building and complete the same within 24 months from the date of municipal sanction with a grace period of 6 months. The Developer paid an amount of RS.3.00 crores as a Refundable Security Deposit which shall be refunded by the assessee at the time of completion of the construction and the allocation of the snares of the assessee and the Developer. The assessee has also given a Power of Attorney to the Developer for the purpose of carrying out the construction and to deal with his share in the constructed area.
3. Assessing Officer opined that the Development Agreement entered into by the appellant with the Developer resulted in taxable capital gains in the year in which the Development Agreement is entered into, and is liable to capital gains tax. The assessee has contended that there is no liability to capital gains tax as no progress has taken place even till the date of the assessment proceedings in the ITA No.1604 of 2014 Sham Kumar Hyderabad direction of the development of the property. The attention of the Assessing Officer was invited to Clauses 1,5 and 6 of the Development Agreement, which the assessee contended that the property in question was given on development to the Developer and only a license was given to the Developer so as to enable the Developer to develop the Schedule Property without any interference by the Owner. Thus, the appellant contended that the possession contemplated in the Development Agreement is only for the purpose of development and not for the enjoyment of the Developer with any interest therein except the development. As the Developer neither started the development nor obtained sanction for development, the assessee did not given possession of the property and retained the possession till date. All these three clauses according to the assessee operate simultaneously and parallel to each other and one cannot draw inferences from either of them in isolation. The appellant contended that the Developer, though entered into the Development Agreement on 12.08.2005, did not obtain any sanction for construction till the date of assessment for developing the property into commercial complex and did not spend any money in the development except a refundable security deposit of Rs.3.00 crores. Therefore, the assessee contended that no consideration accrued to the assessee either in the shape of constructed area or in the shape of any construction to the extent of the share of the assessee. Therefore, according to the assessee, no consideration has accrued to the assessee resulting in any liability to capital gains tax. The assessee relied on the decision of the Income Tax Appellate Tribunal, ‘A’ Bench, Hyderabad, in the case of K. Radhika & Others vs. DCIT.
ITA No.1604 of 2014 Sham Kumar Hyderabad
4. A.O. did not agree with these contentions and went on to tax the alleged capital gains as computed by him at Rs.11,87,05,246/- after relying on the decision of the Income Tax Appellate Tribunal, Hyderabad, in the cases of Smt. Shanta Vidya Sagar Annam Vs. Income Tax Officer Dr.T.Achyut Rao Vs ACIT, the case of the Bombay High Court in Chaturbhuj Das Dwarakadas Kapadia vs. CIT (260 ITR 491) and the advance ruling in the case of Jasbir Singh Sarkaria.
5. Aggrieved, the assessee filed appeal before the CIT (A) and relied on the decision of the ITAT Hyderabad Bench in the case of M/s Fibars Infratech (P) Ltd vs. ITO (ITA No. 477/Hyd/2013). The assessee also summarised his written submissions as follows:
“13. To sum up our arguments, we wish to say that the possession was given by the appellant for the development of the land into a residential complex consisting of villas and thus, is a licence for the sole purpose of development A reading of Clauses-1, 5 and 6 would clearly indicate this.
This possession cannot be taken as one contemplated In Section 53A of the Transfer of Property Act.
The Developer did not obtain permission from 2006 to 2014 and therefore, it is very clear that the Developer did not cross the first step in the furtherance of development contemplated in the agreement as no permission was obtained and no expenditure was incurred in the development not only in the year relevant to the Assessment Year 2006-07 but also up to the year 2014. Taking into account the judicial pronouncement referred to above, the Developers willingness to carry out his part of the contract in the year under consideration was non-existent Therefore, no consideration accrued to the appellant ITA No.1604 of 2014 Sham Kumar Hyderabad and therefore, the computation of capital gain contemplated in Section 48 of the Income Tax Act falls. “
6. The CIT (A) elaborately discussed about the liability to capital gains tax in the case of the assessee. The CIT (A) concluded at paras 8.1 which read as under:
“8.1 With these principles in the background, when sanction for construction of commercial complex, in the present case, was not obtained till 2014, it is not fair to hold that any consideration has accrued to the appellant in the year relevant to the Assessment Year 2006-07, pursuant to the Development Agreement dated 12.08.2005. I am fortified with this view also because the Assessing Officer himself has computed the capital gains only on the basis of the fair market value of the land given by the appellant for development and not on the basis of any area constructed by the Developer pursuant to the Development Agreement. The possession given on the combined reading of Clauses-I, 5 and 6, will only indicate that it is only a license for development and not one contemplated in the Section 53A of the Transfer of Property Act. The reliance of the AO on the decision of the Tribunal in the earlier cases before the Hyderabad Bench loses its relevance in the face of a subsequent decision of the same Tribunal in the case of M/s. Fibars Infratech (P) Ltd. Vs. ITO, on which the appellant placed his reliance. The case before the Bombay High Court in Chaturbhuj Das Dwarakadas Kapadia and that before the Advance Ruling Authority in Jasbir Singh Sarkari relate more to an agreement to sell converted Into Development Agreement, and therefore do not apply to the present case.
7. Aggrieved by the order of the CIT (A), the Department preferred appeal before us and has filed the following grounds:
ITA No.1604 of 2014 Sham Kumar Hyderabad “1. The ld CIT (A) erred both on facts and in law.
2. The ld CIT (A) erred in deleting the addition of Rs.11,87,75,914 made by AO on account of the development agreement entered by the assessee on 12.08.2005 with a developer under the head Long term capital gain.
3. The ld CIT (A) ought to have followed the jurisdictional High Court recent decision in ITTA No.245/2014 dated 09.04.2014 in the case of Shri Potla Nageswara Rao vs. DCIT.
4. The ld CIT (A) ought to have appreciated the Hon’ble ITAT decision in the case of Sri Brij Gopal D Shah in ITA No.1166/Hyd/2010 dated 12.07.2012 which is similar on facts of the present case.
5. The ld CIT (A) ought to appreciated that substantial payment of Rs.3,00,00,000/- as interest free refundable deposit was made to the assessee in part performance of the agreement and the payment received was utilised for purchase of another immovable property.
6. The ld CIT (A) erred in not appreciating that all that ingredients of transfer within the meaning of the section 2(47) of the IT Act and Section 53 of the Transfer of Property Act, 1882 have been fulfilled in the case.
7. The ld CIT (A) erred in observing that it is not fair to hold that no consideration has accrued to the assessee pursuant to development agreement for the reason that the AO has himself computed the capital gains only on the basis of the fair market value of land given for development and not on the basis of any area constructed by the developer.
8. The CIT (A) ought to have appreciated that the AO computed the consideration value on the basis built up area to the share of the assessee entitled to and by applying rates as per value adopted by S.R.O”
ITA No.1604 of 2014 Sham Kumar Hyderabad
8. The assessee referred to the decision of the Hyderabad Bench of the Tribunal in the case of M/s. Fibars Infratech (P) Ltd., (ITA No. 477/Hyd/2013), which is also relevant to the facts of the present case and reproduced below are Paras-45 to 60 of the said order:
“45. The next argument of the assessee’s counsel is that there is no transfer on account of development agreement cum GPA in terms of section 2(47)(v) of the Act on entering agreement with MAK Projects Pvt. Ltd., as there is no quantification of consideration to be received by the assessee from M/s. MAK Properties Pvt. Ltd.
46. We have heard the rival contentions at considerable length. We have also perused the material on record and duly considered factual matrix of the case as also the applicable legal position. The learned representatives have addressed us on different aspects of the matter and also filed written submissions along with the judicial precedents which are placed on record”.
47. As the Revenue has placed heavy reliance on the judgment of Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT (supra), and it is based on this judgment that the impugned addition has been made by the AO, and sustained by the CIT(A), it is necessary to first appreciate what this judgment lays down.
48. Their Lordships of Hon’ble Bombay High Court were examining the scope and import of Section 2(47)(v) which was introduced w.e.f. 1st April, 1988.
This provision, which covers one of. the modes of deemed ‘transfer’, lays down that the scope of expression ‘transfer’ includes “any transaction involving the allowing of, the possession of any immovable property (as defined) to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of ITA No.1604 of 2014 Sham Kumar Hyderabad Property Act’. Elaborating upon the scope of Section 2(47)(v), their Lordships observed as follows:
“Under section 2(47)(v), any transaction involving allowing of possession to be taken or retained in part performance of the contract of the nature referred to in Section 53A of the Transfer of Property Act would come within the ambit of Section 2(47)(v). That, in order to attract Section 53A, the following conditions need to be fulfilled. There should be contract for consideration; it should be in writing; it should be signed by the transferor; it should pertain to the transfer of immovable property; the transferee should have taken possession of property; lastly, transferee should be ready and willing to perform the contract. That even arrangements confirming privileges of ownership, without transfer of title, could fall under Section 2(47)(v)”.
49. Their Lordships, having made the above observations, took note of the fact that Section 2(47)(v)was introduced in the Act w.e.f. asst. yr. 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of conveyance. It was also noted by their Lordships that, in this scenario, assessee used to enter into agreements for developing properties with the builders and under arrangement with the builders, they used to confer privileges of ownership without executing conveyance, and to plug that loophole, Section 2(47)(v) came to be introduced in the Act.
50. There was no dispute on whether or not the conditions of Section 53A of the Transfer of Property Act were satisfied on the facts of the case before the Hon’ble Bombay High Court. It was in this context, and after elaborate analysis of the facts of the case before their Lordships, their Lordships also observed as follows:
“If on a bare reading of a contract in its entirety, an AO comes to the conclusion that in the guise of agreement for sale, a development agreement is contemplated, under which the ITA No.1604 of 2014 Sham Kumar Hyderabad developer applies for permission from various authorities, either under power of attorney or otherwise and in the name of the assessee, the AO is entitled to take the date of contract as the date of the transfer under Section 2(47)(v).”
51. It is important to bear in mind that Section 2(47)(v) refers to possession to be taken or retained in part performance of the contract of the nature referred to in Section 53A of the Transfer of Property Act and in the case before Hon’ble Bombay High Court, there was no dispute that the conditions of Section 53A were satisfied. In other words, the proposition laid down by their Lordships can at best be inferred as that when conditions under Section 53A are satisfied, and when the assessee enters into a contract which is a Development Agreement, in the garb of agreement of sale, it is the date of this Development Agreement which is material date to decide the date of transfer. However, by no stretch of logic, this legal precedent can support the proposition that all Development Agreements, in all situations, satisfy the conditions of Section 53A which is a sine qua non for invoking Section 2(47)(v).
52. In order to invoke the principles laid down by the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia (supra), it is, therefore, necessary to demonstrate that the conditions under Section 53A of the Transfer of Property Act are satisfied. This section is reproduced below for ready reference:
Section 53A : Part performance-Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or. any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract then, ITA No.1604 of 2014 Sham Kumar Hyderabad notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed thereof 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 the right specifically 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. (Emphasis, italicized in print, supplied by us now)
53. A plain reading of the Section 53A of the Transfer of Property Act shows that in order that a contract can be termed to be “of the nature referred to in Section 53A of the Transfer of Property Act” it is one of the necessary preconditions that transferee should have or is willing to perform his part of the contract. This aspect has been duly taken note of by the Hon’ble Bombay High when their Lordships observed as follows:
“That, in order to attract Section 53A, the following conditions need to be fulfilled.
(a) There should be contract for consideration;
(b) It should be in writing;
(c) It should be signed by the transferor;
(d) It should pertain to the transfer of immovable property;
(e) The transferee should have taken possession of property;
(f) Lastly, transferee should be ready and willing to perform the contract”.
54. Elaborating upon the scope of expression “has performed or is willing to perform”, the oft quoted commentary “Mulla-The Transfer of Property Act” (9th Edn. : Published by Butterworths India), at p. 448, observes that:
ITA No.1604 of 2014 Sham Kumar Hyderabad “The doctrine of readiness and willingness is an emphatic way of expression to establish that the transferee always abides by the terms of the agreement and is willing to perform his part of the contract. Part performance, as a statutory right, is conditioned upon the transferee’s willingness to perform his part of the contract in terms covenanted there under.” Willingness to perform the roles ascribed to a party, in a contract is primarily a mental disposition. However, such willingness in the context of Section 53A of the Act has to be absolute and unconditional. If willingness is studded with a condition, it is in fact no more than an offer and cannot be termed as willingness. When the vendee company expresses its willingness to pay the amount, provided the (vendor) clears his income tax arrears, there is no complete willingness but a conditional willingness or partial willingness which is not sufficient…….
In judging the willingness to perform, the Court must consider the obligations of the parties and the sequence in which these are to be performed……..”
55. We are in considered agreement with the views so expressed in this commentary on the provisions of the Transfer of Property Act. It is thus clear that ‘willingness to perform’ for the purposes of Section 53A is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of Section 53A of the Transfer of Property Act will come into play on the facts of that case. It is only elementary that, unless provisions of Section 53A of the Transfer of Property Act are satisfied on the facts of a case, the transaction in question cannot fall within the scope of deemed transfer under Section 2(47)(v) of the IT Act. Let us, therefore, consider whether the transferee, on the facts of the present case, can be said to have ‘performed or is willing to perform’ its obligations under the agreement.
ITA No.1604 of 2014 Sham Kumar Hyderabad
56. Coming to the facts of the present case, the assessee entered into Development Agreement with MAK Projects Pvt. Ltd. with reference to the land measuring 79 acres 2.5 guntas situated at Sy. Nos. 260 and 262 at Tummaloor village, Ranga Reddy District. At the time of entering into development agreement on 15th December, 2006, the land was in the promoter’s name. The assessee was under incorporation. The same agreement was presented for registration on 29th December, 2006. Later the assessee-company was incorporated on 4th January, 2007. On the basis of this agreement, the AO taxed the capital gain on the transaction treating that there was a transfer in terms of section 2(47)(v) of the Act. Through this is a Development Agreement cum GPA the assessee has not received any monetary benefit. Being so, there is no receipt of any part of the sale consideration. Further, we cannot say that there is any sale in terms of section 2(47)(i), (ii) or (iii) of the Act so as to say that there is sale, relinquishment, extinguishment or compulsory acquisition.
57. Now we will proceed with reference to the exchange as mentioned in section 2(47)(i) of the IT Act, 1961. To say that there is an exchange u/s. 2(47)(i) of the Act, both the properties which are subject matter of the exchange in the transaction are to be in existence at the time of entering into the transaction. It is to be noted that at the time of entering into development agreement as on 15.12.2006, only the property i.e., land pertaining to the assessee is in existence. There is no quantification of consideration or other property in exchange of which the assessee has to get for handing over the assessee’s property for development. The contention of the DR is that the consideration accrued to the assessee in the form of 16 villas comprising of developed land of 9602 sq. yards and built up area of 58606 sft which the assessee has to get on completion of the project. In our opinion, there was no progress in the development work in the assessment year under consideration as the project is only in conception stage and it is not appropriate to tax the assessee on imaginary reasons.
ITA No.1604 of 2014 Sham Kumar Hyderabad Admittedly, there is no progress in the development of the project.
58. Even a cursory look at the admitted facts of the case would show that the transferee had neither performed nor was it willing to perform its obligation under the agreement in the previous year relevant to assessment year under consideration. The agreement based on which capital gains are sought to be taxed in the present case is agreement dated 15.12.2006 but no consideration was passed between the parties. As such, the assessee has received no consideration. Admittedly, there is no progress in the Development Agreement in the assessment year under consideration. It is submitted that the Director of Town and Country Planning approved the plan submitted by the assessee company only on 06.03.2007. The assessee submitted that there is no development activity until the end of the previous year relevant to the assessment year 2007-08. Commencement of building construction had not been initiated as the building approval was granted only on 06.03.2007. Therefore, no income be said to have accrued, as laid down in section 48, in A.Y. 2007-08. More so, building/villas has to be constructed as per the approved plan within 36 months from the date of agreement. The construction was not taken place in the assessment year under consideration. The sanction of the building plan is utmost important for the implementation of the agreement entered between the parties which was granted only in the last month of the year i.e., on 6.3.2007. Without sanction of the building plan, the very genesis of the agreement fails. To enable the execution of the agreement, firstly, plan is to be approved by the competent authority. Since there was no amount of investment by the developer in the construction activity during the previous year relevant to the assessment year in this project, it would amount to non-incurring of required cost of acquisition by the developer. Hence no consideration can be attributed to the AY 07-08. Nothing is brought on record by authorities to show that there was development activity in the project during the assessment year under consideration and cost of ITA No.1604 of 2014 Sham Kumar Hyderabad construction was incurred by the builder/developer. Hence, it is to be inferred that there was no amount of investment by the developer in the construction activity during the assessment year in this project and it would amount to non- incurring of required cost of acquisition by the developer. In the assessment year under consideration, it is not possible to say whether the developer prepared to carry out those parts of the agreement to their logical end. The developer in this assessment year had not shown its readiness or having made preparation for the compliance of the agreement. The developer has not taken steps to make it eligible to undertake the performance of the agreement which are the primary ingredient that make a person eligible and entitled to make the construction. The act and conduct of the developer in this assessment year has to be seen to decide the taxability on transfer. Being so, it was clear that in the year under consideration, there was no transfer of not only the villas as superstructure but also the proportionate land by the assessee under the joint Development Agreement. But the fact remains that the transferee has not performed its obligations under the agreement, in the assessment year under consideration. Even otherwise, the assessing authority has not brought on record the actual position of the project even as on the date of assessment or he has not recorded the findings whether the developer started the construction work at any time during the assessment year under consideration or any development has taken place in the project in the relevant period. He went on to proceed on the sole issue with regard to handing over the possession of the property to the developer in part performance of the Development Agreement-cum-General power of Attorney. In our opinion, the handing over of the possession of the property is only one of the condition u/s 53A of the Transfer of Property Act, but it is not the sole and isolated condition. It is necessary to go into whether or not the transferee was ‘willing to perform’ its obligation under these consent terms. When transferee, by its conduct and by its deeds, demonstrates that it is unwilling to perform its obligations under the agreement in this assessment ITA No.1604 of 2014 Sham Kumar Hyderabad year, the date of agreement ceases to be relevant. In such a situation, it is only the actual performance of transferee’s obligations which can give rise to the situation envisaged in Section 53A of the Transfer of Property Act.
59. On these facts, it is not possible to hold that the transferee was willing to perform its obligations in the financial year in which the capital gains are sought to be taxed by the Revenue. We hold that this condition laid down under Section 53A of the Transfer of Property Act was not satisfied in this assessment year. Once we come to the conclusion that the transferee’s ‘willing to perform’ the contract is ascertainable in the assessment year, as stipulated by and within the meanings assigned to this expression under Section 53A of the Transfer of Property Act, its contractual obligations in this previous year relevant to the present assessment year, it is only a corollary to this finding that the Development Agreement dt. 15.12.2006, based on which the impugned taxability of capital gain is imposed by the AO and upheld by the CIT(A), cannot be said to be a “contract of the nature referred to in Section 53A of the Transfer of Property Act” and, accordingly, provisions of Section 2(47)(v) cannot be invoked on the facts of this case. The judgement in the case of Chaturbhuj Dwarkadas Kapadia v. CIT (supra) undoubtedly lays down a proposition which, more often that not, favours the Revenue, but, on the facts of this case, the said judgment supports the case of the assessee inasmuch as ‘willingness to perform’ has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of Section 53A of the Transfer of Property Act. The Revenue does not get any assistance from this judicial precedent. The very foundation of Revenue’s case is thus devoid of legally sustainable basis.
60. That is clearly an erroneous assumption, as the provisions of deemed transfer under Section 2(47)(v) could not have been invoked on the facts of the present case and for the assessment year in dispute before us. In the present case, the situation is that the assessee has not received any consideration, andITA No.1604 of 2014 Sham Kumar Hyderabad there is no evidence brought on record by the Revenue authorities to show that there was actual construction taken place at the impugned property in the previous year relevant to the assessment year under consideration and also there is no evidence to show that the right to receive the sale consideration was actually accrued to the assessee. Without accrual of the consideration to the assessee, the assessee is not expected to pay capital gains on the entire agreed sales consideration. When time is essence of the contract, and the time schedule is 30 months to complete construction with additional grace period of 6 months, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in Section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of Section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on the reason that the capital gains could not have been taxed in the in this assessment year in appeal before us”.
9. The ld Counsel for the assessee also relied on the decision of the ITAT in the case of K. Radhika & Others vs. DCIT, Central Circle 2 Hyderabad and we reproduce Para 50 of the said order, as under:
“That is clearly an erroneous assumption and the provisions deemed transfer under Section 2(47)(v) could not have been invoked on the facts of the present case and for the assessee year in dispute before us. In the present case, the situation is that the assessee has received only a meagre amount’ out of to consideration, the transferee is avoiding adhering to the agreement and there is no evidence brought on record by the revenue authorities to show that there was actual construction has been taken place at the impugned property in the assessment year under consideration and also there is no evidence to show ITA No.1604 of 2014 Sham Kumar Hyderabad that the right to receive the sale consideration was actually accrued to the assessee. Without accrual of the consideration to the assessee, the assessee is not expected to pay capital gains on the entire agreed sales consideration. When time is essence of the contract, and the time schedule is not adhered to, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in Section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of Section 2(47) (v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on reason that the capital gains could not have been taxed in this assessment year in appeal before us. The other grounds raised the assessees in their appeals have become irrelevant at this point of time as we have held that provisions of Section 2(47)(v) will not apply to the assessees in the assessment year under consideration. Consequently, the appeal filed by the revenue in ITA No.328 to 331/Hyd/2011 have become infructuous and dismissed accordingly”.
10. It was submitted by the ld Counsel that no progress has taken place in the execution of the project and the developer was not willing to carry out his part of the contract during the period from 2006 to 2014. Further it remains as agricultural land till today and there has been no willingness on the part of the developer to carry out the contract. Hence it was submitted that no consideration accrued to the assessee and receipt of a refundable deposit of Rs.3.00 crores does not mean that consideration is accrued to the assessee and therefore the computation of capital contemplated in section 48 of the Act fails.
ITA No.1604 of 2014 Sham Kumar Hyderabad
11. The ld DR on the other hand relied on the decision in the case of Potla Nageswara Rao vs. Dy. CIT(365 ITR 249 (A.P. H.C).
12. We heard both the parties. The reading of Clauses 1,5 and 6 of the Development Agreement clearly indicate that the assessee had given only the licence to enter into the land for development of the same in terms of the Development Agreement. The Developer neither started the construction nor took permission for construction till the date of the assessment. The property was inspected by the Inspector and it was noticed that there was no development in the land and it remained the same as it existed at the time of the Development Agreement. The possession of the land was not taken by the Developer as he did not initiate any development.
13. The land in question continues to be agricultural land and the assessee has been carrying out cultivation on this land consisting of 1 acre 14 guntas 83 sq. yards. Thus it is very clear that the agreement has not been implemented by constructing flats on the land. Further it is clear that the Developer was not willing to fulfil his part of contract till date. Till date no construction has come up in the property and even the conversion of the land from agricultural land to housing plot has not been done.
14. In this context the decision of the Coordinate Bench in the case of M/s. Binjusaria Properties vs. ACIT (ITA No. 157/Hyd/2011) is very relevant, wherein it has been held as follows:
ITA No.1604 of 2014 Sham Kumar Hyderabad
12. It is an undisputed fact that as on date, there was no developmental activity on the land which is subject matter of development agreement. The process of construction has not been even initiated and no approval for the construction of the building is obtained. Thus, the sale consideration in the form of developed area has not been received. Mere receipt of refundable deposit cannot be termed as receipt of consideration. Further, as submitted , the Assessing Officer calculated the capital gain on the entire land, even though the assessee has retained 38% share to itself. The valuation was also disputed. There is, therefore, no accrual of income in favour of the assessee as per S.48 of the Act. Due to lapse on the part of the transferee, the construction has not taken place in the year under consideration, and it has not commenced even now. In the facts and circumstances of the present case, wherein while the assessee has fulfilled its part of the obligation under the development agreement, the developer has not done anything to discharge the obligations cast on it under the develop agreement, the capital gains cannot be brought to tax in the year under appeal, merely on the basis of signing of the development agreement during this year. We are supported in this behalf by the decision of the Tribunal dated 3rd January, 2014 in the case of Fibars Infratech Pvt. Ltd. (supra), wherein it was held as follows-
59. On these facts, it is not possible to hold that the transferee was willing to perform its obligations in the financial year in which the capital gains are sought to be taxed by the Revenue. We hold that this condition laid down under Section 53A of the Transfer of Property Act was not satisfied in this assessment year. Once we come to the conclusion that the transferee’s ‘willing to perform’ the contract is ascertainable in the assessment year, as stipulated by and within the meanings assigned to this expression under Section 53A of the Transfer of Property Act, its contractual obligations in this previous year relevant to the ITA No.1604 of 2014 Sham Kumar Hyderabad present assessment year, it is only a corollary to this finding that the Development Agreement dt. 15.12.2006, based on which the impugned taxability of capital gain is imposed by the AO and upheld by the CIT(A), cannot be said to be a “contract of the nature referred to in Section 53A of the Transfer of Property Act” and, accordingly, provisions of Section 2(47)(v) cannot be invoked on the facts of this case. The judgement in the case of Chaturbhuj Dwarkadas Kapadia v. CIT (supra) undoubtedly lays down a proposition which, more often than not, favours the Revenue, but, on the facts of this case, the said judgment supports the case of the assessee inasmuch as ‘willingness to perform’ has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of Section 53A of the Transfer of Property Act. The Revenue does not get any assistance from this judicial precedent. The very foundation of Revenue’s case is thus devoid of legally sustainable basis.
60. That is clearly an erroneous assumption, as the provisions of deemed transfer under Section 2(47)(v) could not have been invoked on the facts of the present case and for the assessment year in dispute before us. In the present case, the situation is that the assessee has not received any consideration, and there is no evidence brought on record by the Revenue authorities to show that there was actual construction taken place at the impugned property in the previous year relevant to the assessment year under consideration and also there is no evidence to show that the right to receive the sale consideration was actually accrued to the assessee. Without accrual of the consideration to the assessee, the assessee is not expected to pay capital gains on the entire agreed sales consideration. When time is essence of the contract, and the time schedule is 30 months to complete construction with additional grace period of 6 months, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in Section 53A of ITA No.1604 of 2014 Sham Kumar Hyderabad the Transfer of Property Act. It cannot, therefore, be said that the provisions of Section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on the reason that the capital gains could not have been taxed in the in this assessment year in appeal before us.”
13. In the light of the foregoing discussion, we set aside the impugned orders of the Revenue authorities and hold that the capital gains on the property in question cannot be brought to tax in the year under appeal, and consequently delete the addition made by the Assessing Officer and sustained by the CIT(A). Assessee’s grounds on this issue are allowed.”
15. Taking into the totality of the facts into consideration, we are of the opinion that the provisions of deemed transfer u/s 2(47)(v) cannot be invoked on the facts of the present case and for the A.Y in dispute before us. The assessee has not received any consideration except for refundable deposit of Rs.3.00 crores and there is no evidence brought on record by the Revenue to show that actually some construction has taken place at the impugned property in the previous year relevant to the A.Y under consideration and the right to receive the sale consideration has actually accrued to the assessee. The assessee is not exigible to capital gains on the entire sale consideration without the accrual of the consideration to the assessee
16. We are also fortified by the decision of the Coordinate Bench in the case of Bhavya Construction Ltd & Others (ITA No.1788/Hyd/2012). The ratio of the decision is that unless there is willingness on the part of the Developer to perform his part of the Contract, there cannot be a transfer of capital assetsITA No.1604 of 2014 Sham Kumar Hyderabad as envisaged u/s 2(47)(v) r.w.s. 53A of the Transfer of the Property Act. The ratio laid down as above squarely applies to the facts of the present case as the Department has failed to controvert the findings of the ld CIT (A) by bringing material on record to show that the developer has taken steps towards developmental activities. Hence, the capital gain cannot be brought to tax in the year under appeal.
17. In the result appeal filed by the Revenue is dismissed.
Order pronounced in the Open Court on 20th March, 2015.
Sd/- Sd/-
(B. Ramakotaiah) (Asha Vijayaraghavan)
Accountant Member Judicial Member
Hyderabad, dated 20th March, 2015.
Vnodan/sps
Copy to:
1. Income Tax Officer Ward 5(3) 6th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad
2. Shri Sham Kumar 5-8-4 Station Road, Nampally, Hyderabad
3. The CIT(A)-V Hyderabad
4. The CIT – IV Hyderabad
5. The DR, ITAT, Hyderabad
6. Guard File By Order
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