IN THE ITAT, BANGALORE BENCH

A.K. GARODIA, A.M. & PAVAN KUMAR GADALE, J.M.

A.R. Prasad v. ITO

ITA Nos. 956, 957/Bang/2016

A.Y. 2009-10

28 August, 2019

Assessee by: Nitish Ranjan, C.A.

Revenue by: Ujjwal Kumar, JCIT DR

A.K. Garodia, A.M.

These two appeals are filed by two different but connected assesses being husband and wife and these are directed against two separate orders of learned Commissioner (Appeals)-6, Bangalore both dated 18-3-2016 for assessment year 2009-10. Both these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.

2. The grounds raised by the assessee in ITA No. 956/Bang/2016 are as under :–

“1. The Order of the learned Commissioner (Appeals) is opposed to law, facts and circumstances of the case.

2. The Order is passed in haste, without providing sufficient and reasonable opportunity of being heard.

3. The Order is passed against the principle of natural justice and thus liable to be quashed.

4. Chargeability

4.1 The learned Commissioner (Appeals) erred in confirming the Order of learned assessing officer who brought to tax a sum of Rs. 2,03,53,228 as long-term capital gain for the assessment year 2009-10.

4.2 The learned assessing officer erred in holding that there was a “transfer” within the meaning of section 2(47) of the Income Tax Act, 1961 on the date of execution of impugned Agreement so as to attract the chargeability of capital gain under section 45 of the Act. The learned assessing officer failed to note that ‘permission to develop’ a land cannot be construed as ‘delivery of possession’ under the aforesaid provisions.

4.3 The learned assessing officer failed to appreciate the fact that the legal possession of the land continued to vest with the Appellant at all times during the course of development and at no time the Developer was entitled to claim exclusive possession of the land for the purpose of section 53A of the Transfer of Property Act until the issue of Certificate of Completion of the Project from the regulatory Authority.

4.4 The learned assessing officer ought to have noted that as per the said Agreement the Developer was mere a representative of the Appellant.

4.5 The learned Commissioner (Appeals) erred in confirming the order of assessment passed by the learned assessing officer determining capital gains at Rs. 2,03,53,228 without appreciating the fact that the Developer did not perform any obligation in pursuance of the Development Agreement during the previous year relevant to assessment year 2009-10.The willingness to perform the Contract which is one of the significant conditions under section 53A of the Transfer of Property Act is absent during the previous year 2008-09.

4.6 The learned assessing officer erred in adopting market value of the land as on 1-4-1981 at a very low rate.

4.7 The learned Commissioner (Appeals) failed to appreciate that if the tax is levied in the year of entering into Development Agreement, it would militate against the theory of real income.

4.8 The learned Commissioner (Appeals) erred in relying on the decision of Hon’ble Karnataka High Court in the case of Dr. T.K. Dayalu wherein the facts were different to that of the instant case.

5. Failure of computation Mechanism

5.1 Without prejudice to any of the aforesaid grounds, the learned Commissioner (Appeals) failed to note that if the date of execution of the Development agreement is adopted as the date of transfer, the machinery provisions for computation of capital gains fails.

5.2 The learned assessing officer while computing capital gains, erred in holding that the full value of consideration accruing or arising on the date of execution of the document, i.e., 10-9-2008 was Rs. 2,04,03,000 since the built up area to be allotted to the Appellant was non-existing on the aforesaid date.

6. Exemption under section 54F of the Act

6.1 Without prejudice to the above grounds, the learned assessing officer based on the facts of the case, erred in concluding that the Appellant is not eligible to claim the exemption under section 54F of the Act.

6.2 The learned assessing officer erred in interpreting the provision of section 54F of the Act by holding that the said benefit is available only in case of one residential flat for the relevant assessment year.

6.3 The assessing officer erred in not allowing the said exemption under section 54F of the Act even to the extent of flats acquired by the Appellant, situated in the same building.

7. The learned Commissioner (Appeals) erred in upholding the order of learned assessing officer levying interest under section 234A and 234B of the Act.

The Appellant seeks your leave to add, alter, amend or delete any of the grounds urged at the time of hearing.”

3. Similarly, the grounds raised by the assessee in ITA No. 957/Bang/2016 are as under :–

“1. The Order of the learned Commissioner (Appeals) is opposed to law, facts and circumstances of the case.

2. The Order is passed in haste, without providing sufficient and reasonable opportunity of being heard.

3. The Order is passed against the principle of natural justice and thus liable to be quashed.

4. Chargeability

4.1 The learned Commissioner (Appeals) erred in confirming the Order of learned assessing officer who brought to tax a sum of Rs. 2,03,53,228 as long-term capital gain for the assessment year 2009-10.

4.2 The learned assessing officer erred in holding that there was a “transfer” within the meaning of section 2(47) of the Income Tax Act, 1961 on the date of execution of impugned Agreement so as to attract the chargeability of capital gain under section 45 of the Act. The learned assessing officer failed to note that ‘permission to develop’ a land cannot be construed as ‘delivery of possession’ under the aforesaid provisions.

4.3 The learned assessing officer failed to appreciate the fact that the legal possession of the land continued to vest with the Appellant at all times during the course of development and at no time the Developer was entitled to claim exclusive possession of the land for the purpose of section 53A of the Transfer of Property Act until the issue of Certificate of Completion of the Project from the regulatory Authority.

4.4 The learned assessing officer ought to have noted that as per the said Agreement the Developer was mere a representative of the Appellant.

4.5 The learned Commissioner (Appeals) erred in confirming the order of assessment passed by the learned assessing officer determining capital gains at Rs. 2,03,53,228 without appreciating the fact that the Developer did not perform any obligation in pursuance of the Development Agreement during the previous year relevant to assessment year 2009-10. The willingness to perform the Contract which is one of the significant conditions under section 53A of the Transfer of Property Act is absent during the previous year 2008-09.

4.6 The learned assessing officer erred in adopting market value of the land as on 1-4-1981 at a very low rate.

4.7 The learned Commissioner (Appeals) failed to appreciate that if the tax is levied in the year of entering into Development Agreement, it would militate against the theory of real income.

4.8 The learned Commissioner (Appeals) erred in relying on the decision of Hon’ble Karnataka High Court in the case of Dr. T K Dayalu wherein the facts were different to that of the instant case.

5. Failure of computation Mechanism

5.1 Without prejudice to any of the aforesaid grounds, the learned Commissioner (Appeals) failed to note that if the date of execution of the Development agreement is adopted as the date of transfer, the machinery provisions for computation of capital gains fails.

5.2 The learned assessing officer while computing capital gains, erred in holding that the full value of consideration accruing or arising on the date of execution of the document, i.e., 10-9-2008 was Rs. 2,04,03,000 since the built up area to be allotted to the Appellant was non-existing on the aforesaid date.

6. Exemption under section 54F of the Act

6.1 Without prejudice to the above grounds, the learned assessing officer based on the facts of the case, erred in concluding that the Appellant is not eligible to claim the exemption under section 54F of the Act.

6.2 The learned assessing officer erred in interpreting the provision of section 54F of the Act by holding that the said benefit is available only in case of one residential flat for the relevant assessment year.

6.3 The assessing officer erred in not allowing the said exemption under section 54F of the Act even to the extent of flats acquired by the Appellant, situated in the same building.

7. The learned Commissioner (Appeals) erred in upholding the order of learned assessing officer levying interest under section 234A and 234B of the Act.

The Appellant seeks your leave to add, alter, amend or delete any of the grounds urged at the time of hearing.”

4. As per the facts noted by the assessing officer in both these cases, these two assesses alongwith other co-owners entered into an agreement dated 10-9-2008 with M/s. Vaishnavi Infrastructures, Bangalore for development of residential apartments in their land measuring 4 Acres 26 Guntas and each of these two assesses who are husband and wife had share in the property of 10% each. This is also noted by the assessing officer that share of each of these two assesses was determined at 21 Flats, 29800 sq. feet and the assessing officer also noted that each of these two assesses had transferred 70% of undivided interest in the said property for a consideration of 30% of developed area. Before the assessing officer, it was submitted by both these assesses that the judgment of Hon’ble Karnataka High Court rendered in the case of CIT v. Dr. T.K. Dayalu (2011) 202 Taxman 531 (Karn) : 2011 TaxPub(DT) 1642 (Karn-HC) is not applicable in the present case because facts are different. Regarding differences in facts, it was submitted that in the case of CIT v. Dr. T.K. Dayalu (supra), a non refundable advance of Rs. 45 lacs was received in addition to built up area of 5500 sq. feet but in the present case, only a refundable deposit is received in addition to built up area to be received later. It was also submitted that effective possession is also not handed over. The assessing officer followed the judgment of Hon’ble Karnataka High Court rendered in the case of CIT v. Dr. T. K. Dayalu (supra) and held that capital gain is taxable in the present year. He computed the capital Gain by applying Guidance Value on the date of JDA @ Rs. 1320 per square feet of the built-up area of flats and Rs. 70,000 for each Car Parking Space to be received by these two assesses and in this manner, the assessing officer brought to tax an amount of Rs. 203,53,228 in each case after allowing deduction of Rs. 49,772 as Indexed cost of acquisition. Both these assesses carried the matter in appeal before Commissioner (Appeals) but without success and now these two assesses are in further appeal before the tribunal.

5. Learned A.R. of the assessee submitted that Ground No. 1 is general and Ground No. 2 and three are not pressed. Regarding remaining grounds, he filed written submissions as reproduced hereinbelow :–

“Brief Facts of the case

The Appellants Sri A.R. Prasad & Smt. A.P. Lakshmi Gowri, are individuals, who, for the subject assessment year (AY), were in receipt of income from house property, income from partnership firms in which they were partners and also income from other sources. They filed their return of income for the subject assessment year declaring a total income of Nil and Rs. 2,68,920 respectively vide their returns of income filed on 9-3-2010. The said returns of income were processed under section 143(1) of the Income Tax Act, 1961 (“Act”).

During the previous year 2008-09, the Appellants (holding a share of 10% each) and along with other co-owners entered into a Joint Development Agreement (“JDA”) on 10-9-2008 with M/s. Vaishnavi Infrastructures, Bangalore for development of residential apartment, on the land measuring 4 acres 26 guntas in Survey No. 11/3 of Dasarahalli Village, Yeshwanthpura Hobli, Bangalore North Taluk, whereby, the Appellants with the other co-owners agreed to transfer 70% undivided interest in the property for a consideration of 30% of the developed area. Based on this information, the learned assessing officer, relying on the decision of the Karnataka High Court in the case of Dr T.K. Dayalu v. CIT [ITA No. 3209 of 2005, dated 20-6-2011] : 2011 TaxPub(DT) 1642 (Karn-HC) concluded that the Appellants were liable to tax on Capital Gains in the year in which the JDA was entered, i.e., subject AY which had in fact not been offered to tax by the Appellants in their returns of income. Therefore, the learned assessing officer concluded that income from capital gains had escaped assessment and consequently issued notice under section 148 of the Act dated 6-2-2014 asking the Appellants to file their return of income for the subject assessment year. In response to such notice, the Appellants, vide their letters submitted on 29-4-2014 & 7-5-2014, have requested the learned assessing officer to consider the return filed on 9-3-2010 as return in response to notice under section 148 of the Act. Further, the Appellants had also sought from the learned assessing officer, reasons for reopening of their assessments. Accordingly, reasons recorded for reopening of assessment were provided to the Appellants.

The learned assessing officer after hearing the representation of the Appellants, concluded the reassessment proceedings pursuant to which order under section 143(3) read with section 147 of the Act dated 1-10-2014 were passed making an addition of Rs. 2,03,53,228 for each of the Appellants as income from capital gains thereby determining total income at Rs. 2,03,53,230 & Rs. 2,06,22,148.

Aggrieved with the order of learned assessing officer, the Appellants filed an appeal before the Hon’ble Commissioner (Appeals)-6 (“CIT(A)”), Bengaluru. However, the Hon’ble Commissioner (Appeals)-6, vide her Order, dated 18-3-2016 upheld the addition made by the learned assessing officer.

Aggrieved with the order of the Hon’ble Commissioner (Appeals), the Appellants have preferred an appeal before the Hon’ble Tribunal. In this regard, the Appellants wish to submit as under :–

Appellants’ submissions:

A. Grounds on chargeability

In connection with the above, the Appellants wish to submit as follows:

1. The Appellants had received a share of 10% each in the land measuring 4 acres 26guntas in Survey No. 11/3 of Dasarahalli Village, Yeshwanthpura Hobli, Bangalore North Taluk from Smt. Jayalakshmamma along with other co-members. Smt. Jayalakshmamma had in fact received this land by way of a gift deed dated 26-5-2003 from Sri A Ramiah Shetty. Further. Sri A Ramiah Shetty has purchased this land vide Sale deed dated 28-1-1967.

2. During the Previous Year (PY) 2008-09, i.e., assessment year 2009-10, the Appellants, along with the other co-owners of the land, entered into a JDA vide agreement dated 10-9-2008 with M/s. Vaishnavi Infrastructures wherein the latter has agreed to develop the land into multi storeyed residential apartment building. (Refer Pg. 9 of the JDA) (Pg. 29 of the revised Paperbook filed on 2-7-2019).

3. Certain key features of the JDA have been enumerated herebelow:

3.1. M/s. Vaishnavi Infrastructure would develop and deliver 30% of the development in the form of apartments with proportionate car parking spaces, share in common area etc. which would be considered as the “Owners’ Area” (Refer Pg. 11 of the JDA) (Pg. 31 of the revised Paperbook filed on 2-7- 2019);

3.2. The permission granted by the Appellants & other co-owners to develop the property shall not be construed as delivery of possession under section 53A of Transfer of Property Act (“TOPA”) read with section 2(47)(v) of the Act and that the legal possession of the property, i.e., the land in this case, would vest with the Appellant and the co-owners at all times, including during the course of development and at no time M/s. Vaishanvi Infrastructure would be entitled to claim exclusive possession of the said land. Further, the JDA also states that M/s. Vaishnavi Infrastructure shall not be entitled to possession of the proportionate share in the land in part performance as contemplated under section 53A of TOPA until upon issue of Certificate of completion of the respective buildings and completion and delivery to the Appellants and other co-owners of the land of the Owners’ Area (Refer Pg. 13 of the JDA, para 1.3 & Pg. 27 of the JDA, para 7.7) (Pg. 33 and 47 of the revised Paperbook filed on 2-7-2019);

3.3. M/s. Vaishnavi Infrastructure would prepare plans and all required drawings as per building bye laws, rules and regulations in force for development of the land for construction of residential apartment buildings and also the necessary drawings, designs etc. for each of the buildings therein and get the same approved from the Appellants and the other co-owners. The latter, vide the JDA, has been vested with the rights to approve such plans as also suggest changes/modifications/alterations if any. (Refer Pg. 13 of the JDA, Para 2.1) (Pg. 33 of the revised Paperbook filed on 2-7-2019);

3.4. M/s. Vaishnavi Infrastructure agrees to pay an interest free refundable security deposit of Rs. 1,25,00,000 to the Appellants and co-owners which stands paid as on date of entering into the JDA (Refer Pg. 12 & Pg. 17 of the JDA, point (c)); (Pg. 32 & 37 of the revised Paperbook filed on 2-7-2019)

3.5. Further, it has also been agreed that such deposit would be refunded by the Appellants and other co-owners upon receiving the Owners’ Area. (refer Pg. 20 of the JDA, para 6.4);

3.6. It has further been agreed that upon M/s. Vaishnavi Infrastructure delivering the Owners’ Area and paying the interest free refundable deposit to the Appellants & co-owners, the Appellants and the co-owners would convey the ownership of the undivided 70% or proportionate share, title and interest in the land a d retain the remaining undivided 30% or proportionate share in the land (Refer Pg. 12 of the JDA, Point (d)); (Pg. 32 of the revised Paperbook filed on 2-7-2019)

3.7. Vide the JDA, the Appellants and other co-owners have granted permission to M/s. Vaishnavi Infrastructure to enter the land for the purpose of development upon :–

(a) Approval of plan and grant of license for construction of the buildings from BBMP or from the concerned authorities;

(b) Execution of an allocation agreement between the Appellants/Co-owners and M/s. Vaishnavi Infrastructure identifying and allocating area falling to share of each of the parties involved (Refer Pg. 12 of JDA, Para 1.1);

3.8. In the event M/s. Vaishnavi Infrastructure is unsuccessful in obtaining the requisite sanction of License and Plan and other permissions for development/construction purposes within 12 months from the date of entering into the JDA, the Appellants and other co-owners have got the right to, at their discretion, extend the period or put an end to the JDA without assigning any reasons and refund without interest all the amounts received by way of interest free refundable deposits within 30 days of default on the part of M/s. Vaishnavi Infrastructure (Refer Pg. 14 of the JDA, para 2.4);

3.9. The Appellants and co-owners would discharge all Municipal Taxes, cesses and assessments on the entire land to BBMP until delivery of Owners’ Area pursuant to which the same would be borne by the respective parties based on their allocated share in the constructed property. (Refer Page 33 of the JDA, para 11.1)

3.10. A general Power of Attorney has been executed in favour of M/s. Vaishnavi Infrastructure to enable it obtain permissions, sanctions, orders, no objections, consents, clearances and License and Plans, for development of the land authorizing Vaishnavi Infrastructure to represent the Appellants before the BBMP, BDA, State and Central Governments, Fire Force Departments, BESCOM, etc. (Refer Pg. 35 of the JDA, para 12.1);

3.11. Original documents of title to the land would continue to be held by the Appellants and the Co-owners while only photocopies of the same would stand transferred to M/s. Vaishnavi Infrastructure; (refer Pg. 35 of the JDA, Para 13);

4. At this juncture, in order to determine taxability arising consequent upon entering into a JDA, the Appellants wish to draw reference to the relevant provisions under the Act:

4.1. Provisions of Income Tax Act, 1961

Section 45. Capital gains.–(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 548, 54D, 54E, 54EA, 54E8, 54F, 54G and 54H, be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.

In this regard, “transfer” as defined in section 2(47) of the Act inter alia includes, any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882);

4.2. Transfer of capital asset:

Under section 2(47) of the Act, ‘transfer’ includes sale, exchange or relinquishment of asset, extinguishment of any rights, compulsory acquisition under any law and conversion of asset. It also covers any transaction involving the allowing of the possession of any immovable property to be taken or retained in part-performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (hereinafter referred to as “the TP Act”).

5. In the instant case, what calls for examination is the taxability that arises upon entering into a JDA. Entering into a JDA would tantamount to transfer of a capital asset provided the JDA satisfies the condition of existence of event involving allowing of the possession of any immovable property to be taken or retained in part-performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 as stated in the aforesaid para. Further, in order to come into purview of the provisions of section 53A of the TOPA, the following conditions should to be fulfilled :–

(i) There should be a contract for consideration:

(ii) It should be in writing;

(iii) It should be signed by the transferor;

(iv) It should pertain to transfer of immovable property:

(v) The transferee should have taken possession of the property;

(vi) The transferee should be ready and willing to perform his part of the contract.

Here, it is pertinent to note that the above are cumulative conditions which are required to be satisfied for the existence of part performance of contract for the purpose of section 53A.

Here it is essential to note that obtaining of possession of property by the transferee and receipt of consideration or at least part of the consideration are two essential conditions to be satisfied.

6. Therefore. is it submitted that, the terms of the JDA, when analyzed in the background of the aforementioned discussions on the mandates for a transaction to come within the purview of section 53A of TOPA read with section 2(47)(v) of the Act, we submit as follows:

6.1. Possession of the land by M/s. Vaishnavi Infrastructure

It is evident that that possession of the land was not conveyed to M/s. Vaishnavi Infrastructure at the time of entering into contract but was rather deferred to the time of issue of Certificate of completion of the respective buildings and completion and delivery to the Appellants and other co-owners of the land, of the Owners’ Area (Refer Point 3.2 above).

“Possession” is a word of open texture. It is an abstract notion’. It implies a right to enjoy which is attached to the right to property. It is not purely a legal concept but is a matter of fact. The issue of ownership depends on the rule of law whereas possession is a question which is dependent upon fact without any reference to law. To put it differently, ownership is strictly a legal concept and possession is both a legal and a non-legal or pre-legal concept. The test for determining whether any person is in possession of anything is to see whether it is under his general control or not. He should be actually holding, using and enjoying it without any interference on the part of others. It would have to be ascertained in each case independently whether a transferee has been delivered possession in furtherance to the contract in order for it to fall under section 53A of the TP Act and thus is amenable to tax by virtue of section 2(47)(v) read with section 45 of the Act.

In the instant case, what has been conveyed under the JDA is only a permission to enter into the land for the limited purpose of its development and construction as per the sanctioned plans. The power of attorney executed on the same day was only to facilitate the developer to take necessary approvals for executing the contract.

It has been held in the case of Dwarka Das Kapadia v. CIT (2003) 260 ITR 491 (Bom) : 2003 TaxPub(DT) 1029 (Bom-HC) that transfer of possession of the property at the time of entering into JDA can be recognized as transfer under section 2(47)(v) of the Act only in cases where the contract read as a whole indicates that at that point of time there is transfer of complete control over the property in favor of the developer. The test for determining whether any person is in complete control of anything is to see whether it is under his general control. The person holding the complete control shall be using and enjoying his rights on the property without any interference on the part of others. In the present case, the complete control over the property was agreed to be transferred only after the completion of construction which is evident from the features of the JDA stated out in Point 3 above.

6.2. Receipt of consideration:

Receipt of consideration which is another mandate for a transaction to fall within the purview of section 53A, is also absent for the subject assessment year. In fact, the Appellant and the coowners had only received an interest free refundable deposit which was repayable by them upon receipt of Owners’ share (Refer Pg. 20 of JDA, Para 6.4) and therefore, by no stretch of imagination can such deposit be treated on par with consideration.

In fact, the consideration in this case is the handing over of the Owners’ share of 30% which in fact has taken place only during the assessment year 2013-14 vide Letter, dated 25-4-2013.

In this regard, the Appellants rely on the decision of the Hon’ble Hyderabad ITAT in the case of Binjusaria Properties Private Limited v. ACIT in ITA No. 157/Hyd/2011 : 2014 TaxPub(DT) 2438 (Hyd-Trib).

7. The Appellants further wish to submit that the learned assessing officer has relied on the decision of Dr. T.K. Dayalu v. CIT (ITA No. 3209 of 2005, dated 20-6-2011) : 2011 TaxPub(DT) 1642 (Karn-HC) (Refer Pg. 293 of paper book) to tax capital gains arising out of the JDA in the year of entering into the JDA without appreciating that the facts in the instant case are distinguishable on significant aspects from those in Dr. T.K. Dayalu in as much as

The Appellants & co-owners have received an interest free refundable deposit which was repayable on receiving Owners’ share whereas in the case of Dr. T.K. Dayalu, the assessee had received a non-refundable advance which is treated on par with consideration received (Refer Pg. 3 of the decision of Dr. T.K. Dayalu):

The JDA, in the instant case, in clear terms denies the transfer of possession for the purpose of section 53A of TOPA read with section 2(47)(v) of the Act upon entering into the agreement whereas in the case of Dr T.K. Dayalu, there is a finding of fact that possession in land has been transferred upon entering into the JDA (Refer Pg. 4 of the decision of Dr. T.K. Dayalu)

Accordingly, for reasons evident from the above discussions, the Hon’ble Karnataka High Court, in the case of Dr. T.K. Dayalu has held that the assessee would be liable to capital gains in the year of entering into the JDA.

However, it is humbly submitted that this decision, for reasons stated above, would not apply to the facts in the Appellants’ case.

8. The Appellants wish to rely on the judgment of the Hon’ble Bangalore ITAT in the case of Lakshmi Swaroopa (2019) 174 ITD 54 (Bang) : 2019 TaxPub(DT) 0406 (Bang-Trib) wherein on similar facts, it was held as under :–

11. In the present case, the clause in the JDA regarding possession clearly states that what is given is not possession contemplated under section 53A of the Transfer of Property Act and that it is merely a license to enter the property for the purpose of carrying out development. Further, the subsequent MOU dated 16-8-2006 and delivery of legal possession on 22-4-2006 clearly shows that there was no transfer within the meaning of section 2(47)(v) of the Act during the previous year relevant to assessment year 2006-07. Therefore, invocation of the provisions of section 2(47)(v) in the facts and circumstances of the present case on the basis of clause-1 of the JDA, in my view was not proper. The possession in the present is traced to the joint development agreement which is in the nature of permissive possession and not possession in part performance of agreement for sale. In the present case, there is no document by which the revenue can come to the conclusion that there was delivery of possession. The mere fact that development of the property cannot be done without possession cannot be the basis to come to a conclusion that possession was delivered in part performance of the agreement for sale in the manner laid down in section 53A of the Transfer of Property Act. Such possession as I have already held is on behalf of the assessee and not in the independent capacity of purchaser of the property.

12. For the reasons given above, I hold that there was no transfer during the previous year relevant to assessment year 2006-07. Therefore, capital gain on transfer of the property cannot be assessed in assessment year 2006-07. The assessment of capital gain in assessment year 2006-07 is therefore held to be bad and deleted.

9. Additionally, the Appellants refer to the amendment brought vide Finance Act, 2017 to section 45 of the Act by insertion of a new sub-section 5A which provides for taxability of capital gains in the hands of an individual or HUF in the year in which certificate of completion is issued by the concerned authorities. In this regard, it is submitted that though section 45(5A) comes into effect only from 1-4-2018, the principle laid out in this subsection ought to be extended to JDAs entered into even prior to this date given that the intention of the Government to bring about this amendment was to minimize hardship faced by taxpayer landowners of paying capital gains tax in the year. of entering into the JDA. Accordingly, the provisions of section 45(5A) ought to be read retrospectively.

In this regard, we wish to rely on the decision of the Hon’ble Supreme Court in the case of Vatika Township (P.) Ltd. (2014) 367 ITR 466 (SC) : 2014 TaxPub(DT) 3934 (SC) (Refer Para 33) wherein the general principles concerning retrospectivity was laid down as under :–

“We would also like to point out, for sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the Legislators object, then the presumption would be that such a legislation. giving it a purposive construction, would warrant it to be given a retrospective effect……..

In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where, the presumption attaches towards prospectively.”

B. Exemption under section 54F of the Act

1. Notwithstanding the above arguments, even if there are capital gains arising in the subject assessment year, the Appellants submit that the benefit of the provisions of section 54F ought to be given to the Appellant. As per the agreement, the Appellants propose to transfer 70% of undivided share of land in consideration for receipt of 21 flats. As regards allowability of benefit of section 54F, the Appellants submit as follows :–

Purchase or construction of new asset

The provisions of section 54F of the Act reads as under:

“54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say, —

(i) ……………………….. (Emphasis supplied)”

The emphasis in the above provisions is on purchase or construction of a residential house and not on the reference made to ‘new asset’. The wording new asset has been put in place only to bring coherence to the said section. In the instant case, the Appellant has invested in purchase or construction of residential house and therefore, the same should be eligible for deduction under section 54F of the Act.

A reading of the aforesaid provision makes it very clear that the stress is on the use to which the property purchased or constructed is put to. The term ‘a residential house’ cannot be construed as one residential house. The issue involved here is no more res integra and has been considered on a number of instances by the Indian Courts wherein their Lordships while referring to section 13 of the General Clauses Act, 1897 have held that the context in which the expression ‘a residential house’ is used in section 54F of the Act makes it clear that, it was not the intention of the legislation to convey the meaning that it refers to a single residential house, if, that was the intention, they would have used the word “one”.

An asset newly acquired after the sale of the original asset can be buildings or lands appurtenant thereto, which should be “a residential house.” Therefore, the letter ‘a’ in the context it is used should not be construed as meaning singular”. But, being an indefinite article, the said expression should be read in consonance with the other words “buildings’ and lands’ and, therefore, the singular ‘a residential house’ also permits use of plural by virtue of section 13(2) of the General Clauses Act.

In the instant case, the Appellants under the joint development agreement transferred his land to a builder for development of residential flats. Under the agreement, 21 such residential units were to be allocated to the Appellants. In other words, the consideration for selling the Appellants” share in the land is the 21 flats and since these 21 flats amount to a residential house under the provisions of section 54F of the Act, the same would be eligible for exemption thereunder.

2. In this regard, the Appellants wish to rely on the following judicial precedents:

The Karnataka High Court in the case of Commissioner of Income Tax v. Smt. K. G. Rukminiamma and Commissioner of Income Tax v. Anand Basappa (2011) 331 ITR 211 (Kar) : 2011 TaxPub(DT) 0429 (Karn-HC) and (2009) 309 ITR 329 (Kar) : 2009 TaxPub(DT) 0955 (Karn-HC) respectively.

The above interpretation with respect to the provisions of section 54 has been clearly drawn by the Hon’ble Karnataka High Court in the case of CIT v. Smt. K. G. Rukminiamma (supra). The meaning given to the expression “a residential house” will apply pari passu to section 54F since the expression used here is also ‘a residential house’.

Also, the Hon’ble Delhi High Court in the case of CIT v. Gita Duggal in ITA No. 1237/2011 : 2013 TaxPub(DT) 0960 (Del-HC) has held that “the fact that the residential house consists of several independent units could not be permitted to act as an impediment to the allowance of the deduction under section 54/54F”.

The view has also been upheld by Hon’ble Madras High Court in the case of CIT v. Smt. V.R. Karpapam in ITA No. 301 of 2014 : 2014 TaxPub(DT) 4009 (Mad-HC) and CIT-XV v. Bharti Mishra in ITA No. 567 of 2013 (Del-HC) : 2014 TaxPub(DT) 1636 (Del-HC). The Hon’ble Madras HC upheld the order of Hon’ble ITAT which held that —

“New asset defined in the section 54F, as ‘a residential house’ has also to be understood in the plural. It is not necessary that all residential units should have a single door number allotted to it as argued by the learned D.R.

We are therefore of the opinion that even if capital gains is chargeable to tax in the subject assessment year, the Appellants would be eligible for claim of exemption under section 54F of the Act on the 21 flats received by them in lieu of the land they parted with.”

3. The Appellants, at this juncture also wish to draw a reference to the amendment to the said section with regard to the word ‘a’ by the Finance (No. 2) Act, 2014, which will come into effect from 1-4-2015. The said amendment reads as follows:

“32a. Words “constructed”, one residential house in India” shall be substituted for “constructed, a residential house” by the Finance (No. 2) Act, 2014, with effect from 1-4-2015.

“The aforementioned amendment to section 54F of the Act, which came into effect only from 1-4-2015, makes it very clear that the benefit of section 54F will be applicable to one residential house in India. However, prior to the said amendment, it is clear that a residential house would include multiple residential units as in the present case where the assessee has got 21 residential units. In view of above, it is humbly submitted that the stand taken by the learned assessing officer is contrary to the provisions prevailing during the year under consideration. The view has also been upheld by the Hon’ble Madras High Court in the case of CIT v. Smt. V.R. Karpapam (supra) wherein Hon’ble Bench has held that the amendment to section 54 and 54F vide Finance Act, 2014 is prospective one and not retrospective, and

What emanates from the provisions and judicial pronouncements discussed in the forgoing paragraphs is that :–

(a) acquisition of residential units under a JDA on surrender of land satisfy the condition of purchase I construction of residential house (new asset)

(b) the expression ‘a residential house’ may be interpreted to mean more than one residential units.”

Prayer

In light of the above facts and submissions made, it is prayed that the Hon’ble Bench directs deletion of the additions made in the assessment order passed by the learned assessing officer.”

6. Learned D.R. of the revenue submitted that as per page 33 of the paper book, it is stated in the JDA that the assessee grants permission to the builder to enter the scheduled property for the purpose of implementation of that JDA. Thereafter, he drawn our attention to Para 10.4 of the JDA available on page 51 of the paper book and pointed out that as per this para of the JDA, when the builder becomes entitled to transfer/sell the developers’ area, the builder can ask the assessee, i.e., land owner to sign and execute appropriate conveyance in favour of the builder and/or their nominee. He submitted that the assessee has to establish that the builder has not entered into any sale agreement consequent to this para of JDA.

7. We have considered the rival submissions. We find that as per written submissions of the learned A.R. of the assessee as reproduced above, the reliance has been placed as per para 8 on the tribunal order rendered in the case of Smt. Lakshmi Swarupa v. ITO (2019) 174 ITD 54 (Bang) : 2019 TaxPub(DT) 0406 (Bang-Trib). Copy of this tribunal order is also filed. This tribunal order is of SMC bench and hence, not binding on Division Bench but still, it has persuasive value. As per Para 4 of this tribunal order, relevant para of JDA in that case has been reproduced regarding granting of permission for development. For ready reference, this para of this tribunal order is reproduced hereinbelow —

“4. Clause 1 of the JDA provides as follows :–

“1. PERMISSION FOR DEVELOPMENT:

1.1. The Owner is in possession and enjoyment of the Schedule Property. The Owner hereby authorize the Promoter for the purpose of development, to enter upon the Schedule Property and develop the same, however the authority so granted does not in any manner be construed as delivery of possession by the Owner in part performance of this agreement under section 53-A of the Transfer of Property Act or under section 2(47)(iv) of the Income Tax Act, 1961.

1.2. The Owner hereby agrees not to interfere or interrupt in the course of construction and development of the Schedule Property and/or commit any act or omission having the effect of delaying or stopping the work that has to be done under this Agreement. However, the Owner shall always be entitled to inspect the progress of the work and type of work which is being done on the Schedule Property.” “

8. In this case also, the tribunal has duly considered the judgment of Hon’ble Karnataka High Court rendered in the case of Dr. T.K. Dayalu (supra) and thereafter, the issue in dispute was decided in favour of the assessee as per Para 11. This para 11 of that tribunal order in the case of Smt. Lakshmi Swarupa v. ITO (supra) is also reproduced hereinbelow —

“11. In the present case, the clause in the JDA regarding possession clearly states that what is given is not possession contemplated under section 53A of the Transfer of Property Act and that it is merely a license to enter the property for the purpose of carrying out development. Further, the subsequent MOU dated 16-8-2006 and delivery of legal possession on 22-4-2006 clearly shows that there was no transfer within the meaning of section 2(47)(v) of the Act during the previous year relevant to assessment year 2006-07. Therefore, invocation of the provisions of section 2(47)(v) in the facts and circumstances of the present case on the basis of clause-1 of the JDA, in my view was not proper. The possession in the present is traced to the joint development agreement which is in the nature of permissive possession and not possession in part performance of agreement for sale. In the present case, there is no document by which the revenue can come to the conclusion that there was delivery of possession. The mere fact that development of the property cannot be done without possession cannot be the basis to come to a conclusion that possession was delivered in part performance of the agreement for sale in the manner laid down in section 53A of the Transfer of Property Act. Such possession as I have already held is on behalf of the assessee and not in the independent capacity of purchaser of the property.”

9. In the present case, relevant paras of JDA regarding granting of permission for development is available on page 32 to 33 of the paper book and for ready reference, these paras are reproduced hereinbelow :–

“1. PERMISSION FOR DEVELOPMENT:

1.1. The First Party agrees to grant permission to the Second Party to enter the Schedule Property on completion of the items mentioned below for the purpose of implementation of this Agreement:

(i) On approval of the plan and grant of licence for construction of the buildings as aforesaid in the Schedule Property from Bruhat Bangalore Mahanagara Palike and/or from concerned Authorities by the Second Party (to be obtained by Second Party at their cost).

(ii) On execution of an Allocation Agreement between the parties hereto identifying and allocating the areas falling to the share of the First Party and the share of Second Party which shall be executed within Thirty days of Second Party delivering to First Party one set of sanction of licence and plan by Bruhat Bangalore Mahanagara Palike/other authorities.

1.2. That on execution of Allocation Agreement, the Second Party will be permitted to enter Schedule Property and Second Party is empowered to develop the Schedule Property by constructing residential buildings therein as per the Sanctioned plans, subject to terms of this Agreement.

1.3. Such permission to develop the Schedule Property shall however not be construed as delivery of possession under section 53A of Transfer of Property Act read with section 2(47)(v) of the Income Tax Act of 1961. The legal possession of Schedule Property shall continue to vest in the First Party at all times including during the course of development and at no time the Second Party is entitled to claim exclusive possession of the Schedule Property. The Second Party shall not be entitled to possession of the proportionate share in the land in the Schedule Property in part performance until issue of Certificate of Completion of the respective buildings and completion and delivery to First Party ‘OWNERS AREA’ referred to in this Agreement in such building as agreed to under this Agreement and specifically allocated for First Party as per the Allocation Agreement.”

10. When we compare the terms of possession in the said case as per Para 4 of the tribunal order reproduced above and the terms of JDA in the present case as reproduced above, we find that in both cases, the possession is handed over to the builder only for limited purpose to enter upon the property for the purpose of implementation of JDA. In the present case, such permission to enter the scheduled property is granted subject to completion of certain conditions, i.e., on approval of the plan and grant of licence for construction of the buildings from BBMP and/or from concerned authorities. As per commencement certificate dated 24-8-2009 issued by BBMP as available on pages 261 of the paper book, permission was granted by BBMP for commencement of building construction work on 24-8-2009. Hence, even as per this permission granted by the land owners in the present case to the builders to enter upon the property for the purpose of implementation of JDA, the builder cannot enter upon the property prior to 24-8-2009 and hence, in the present year up to 31-3-2009, the builder cannot enter upon the property. The tribunal in the above cited case held that the possession granted is in the nature of permissive possession and not possession in part performance of agreement for sale. In the present case, even this permissive possession is not given to the builder prior to 24-8-2009. Hence, we hold that in the facts of the present case as discussed above, even permissive possession was not handed over to the builder in the present year and therefore, in the present case, we come to the same conclusion as per para 11 of that tribunal order as reproduced above. Since, we have held that there is no transfer in the present year, the remaining grounds no. 5 & 6 do not call for any adjudication.

11. In the result, both the appeals of the assessee are partly allowed.