TaxTMI 
TaxTMI 
2011 (9) TMI 257
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....f long term capital gain as assessed by CIT(A) (Rs.) Acres Guntas 1. K. Srinivasa Rao 06 08 50.93 6,77,26,736 2. Smt. K. Venkayamma 03 25 29.77 3,95,88,159 3. Smt. K. Radhika 02 00 16.43 2,18,48,621 4. Smt. K. Hemalatha 00 14 2.87 38,16,527 Total 11 47 100 13,29,80,043 4. There was a search and seizure operations under section 132 of the Income-tax Act, 1961 was carried out on 9-10-2007 at the residential premises of the co-owners. In response to notice under section 153A of the Income-tax Act, 1961, the co-owners submitted returns of income as submitted originally. The co-owners did not disclose any income prior to the date of search as the Development Agreement to develop the property was executed on 11-5-2005. Therefore, the Development Agreement became the subject matter of post search proceedings to examine the liability of the capital gains of the co-owners. 5. The Development Agreement which was entered into on 11-5-2005 for development of the land admeasuring 11 acres 33 guntas with M/s. Ambience Properties Ltd. The co-owners were to get 45% of the property for surre....
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....,405 Long term capital gains Rs. 24,78,91,385 7. On the basis of the percentage of shares of each person in the land, the capital gain is computed as follows: S. No. Name of the party Extent Percentage of share in the land Share of Long Term Capital Gain (Rs.) Acres Guntas 1. Sri K. Srinivasa Rao 06 08 50.93 12,62,51,082 2. Smt. K. Venkayamma 03 25 29.77 7,37,97,265 3. Smt. K. Radhika 02 00 16.43 4,07,28,555 4. Smt. K. Hemalatha 00 14 2.87 71,14,483 Total 11 47 100.00 24,78,91,385 8. On appeal, the CIT(A) confirmed the transfer of property under section 2(47)(v) of the I.T. Act as the assessees herein by signing the development agreement have given possession of the land for the purpose of development of property to M/s. Ambience Properties Pvt. Ltd. However, he changed the consideration computed by the assessing officer and re-determined the capital gain, as follows: Sl. No. Item Amount (Rs.) 1. Cost of construction of 1,13,295 sq. ft. @ Rs. 900 per sq. ft. 10,19,65,500 2. Cost of development of 15,106 sq. yd. @ Rs. 2358 per sq. ....
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....ansaction does not fall within the ambit of section 2(47)(i)(ii)(iii) and (iv) of the IT Act, 1961. 11. Further he submitted that the other section which is to be looked into is section 2(47)(v) of the IT Act, 1961. He submitted that the development agreement does not fall under the transaction of allowing possession of any immovable property to be taken or in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. The reasons being development agreement is not an agreement for a sale, because it is an executor contract with the developers and not the intended purchaser. Thus it is essentially a business agreement. Thus a development agreement basically postulates coming together of two parties i.e. the owners and developers. The owner owns the land but has no finance to develop the property and the developer who does not have the land has the necessary finance. Thus coming together of land and finance for project development is necessarily a business agreement whereby the landlord allows the developers to enter the land for the limited purpose of developer retaining his share as his award. A look into the provisions of Transfer P....
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....he case. It would be of benefit to see what was the Law prevailing before the introduction of section 2(47)(v) and 2(47)(vi) and what was the mischief that was sought to be remedied by legislative interference. The provisions of section 2(47)(v) & (vi) were introduction by way of amendment w.e.f. 1-4-1988. The object and analysis of section 2(47)(v) & (vi) on its introduction was to include transactions that closely resembles transfers but are not treated as such under the general law. An agreement of sale by itself does not create any right or interest in or near immovable property under section 54 of the Transfer of Property Act. Judicial precedents under the IT Act took the view until a sale deed was executed no transfer could take place. The mischief that was sought to be remedied was to include under transfer purchasers who became members or by acquiring shares in a cooperative society, company, etc. or by way of any agreement or arrangement. Thus the amendments did not cover transactions by way of development agreement as they are purely commercial transactions not involving transfer until the happening of the event by which the developers had over a built up area to the owne....
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....ot changed this legal position. If a transfer takes place and it is coupled with certain conditions and events taking place in future the transfer would take place only on the happening of the event and not earlier. 16. He submitted that capital gains under development agreement as a mode of transfer arises mainly on account of exchange only when the developer handing over the built up area to the owners. It is at this point of time exchange as a mode of transfer blossoms triggering a change of capital gains. 17. He submitted without admitting transfer does take place on execution of development agreement yet the question that has to be answered is how is the capital gains is to be computed having regard to the provisions of section 48 of the IT Act, 1961. Section 48 of the Act states that: "The income chargeable under the head 'capital gains' shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts: (i) Expenditure incurred wholly and exclusively in connection with such transfer (ii) The cost of acquisition of the asset and the cost of....
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....rovisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. All transaction encompassed by section 45 must fall under the governance of its computation provisions. A transaction to which those applied must be regarded as never intended by section 45 to be the subject of the charge. This vital principle has not been considered by the Assessing Officer in the order. In the case of the assessee, the money considered could not be ascertained with reasonable certainty on the date of entering into the development agreement. Although, the consideration for transfer of land was specified in the agreement in terms of constructed area (45:55) the same cannot be translated into money on the date of entering into the agreement as receipt of consideration was dependant on many factors viz., (a) Giving full effect to the agreement (b) Sanction of the lay out plan by regulatory authorised and possibility of non receipt of approvals from them (c) Cancellation of agreement (d) Failure to ....
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....consideration fixed under the agreement is in terms of constructed area on the date of execution of the document. The same cannot be quantified in monetary terms with reasonable certainty for working out the capital gain. It is only when the constructions is completed and cost of construction in the hands of the builder is known, the same can be adopted to work out full value of consideration accruing to the land owner in respect of the constructed area falling to his share. The project is at a standstill. In the case of the assessee, the construction was completed during financial year 2009-2010 relevant to assessment year 2010-11. Therefore, the cost in the hands of the builder could be ascertained with reasonable certainty so as to compute the capital gain in the assessment year 2010-11 only but not earlier to the same. (b) On the date of execution of the agreement, it may not be correct to work out the full value of consideration of the constructed area with reference to estimated market value for the purposes of subjecting the transaction to tax. Full value of consideration under section 48 cannot be equated with market value of the capital asset as on the date ....
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....rtainty that influences a contract under a development agreement. Income tax is a levy on income either at the stage of accrual or its receipt but substance of the matter is the income. Where the income can be said to be not to have resulted at all, there is neither receipt nor accrual. Thus, any hypothetical method to work out consideration on the date of entering into the agreement would negate this basic concept of real income. No power is vested on the Assessing Officer to tax an income that would accrue or arise in a subsequent year in an earlier year on the ground that the said income arose out of an earlier transaction. He relied on the judgment in the case of CIT v. Ganapathy Naidu (53 ITR 114) (SC) and in the case of CIT v. Shoorji Vallabhdas & Co. (46 ITR 144) (SC). Further he drew our attention to the findings in the case of CIT v. Ashokbhai Chimanbhai 56 ITR 42 SC wherein it was held as under: "The words 'accrue' and 'arise' are used to contradistinguish the word 'receive'. Income is said to be received when it reaches the assessee, when the right to receive the income vested in the assessee, it is said to accrue or arise. Income becomes taxable on the footing of acc....
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....cording to the learned counsel for the assessee the decision in the case of Shri T. Achuta Rao and Dr. Maya Shenoy (supra) enunciates the principle that the taxable event occurs on the date of entering into the development agreement and for the purpose consideration can be estimated. In this regard he has submitted as follows: (i) The event of capital gain i.e. the date of transfer was not question in Maya Shenoy's case. (ii) Even accepting that a charge was created on the date of entering into the agreement, no computation of full value of consideration is possible for the detailed reasons. This aspect has been conceded in Maya Shenoy's case. (iii) The decision of Apex Court in the case of BC Srinivasa Setty on a vital aspect was not pointed out before the Tribunal and considered rendering the decisions per incurium. Therefore there could be no precedent value in the above two decisions. (iv) The Tribunal did not consider the concept of full value of consideration as contained in section 45 as distinguished from market value or an estimated value as the same was not canvassed before it. (v) While coming to a co....
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....fter full consideration of all aspects of law and fact. c. There is nothing to indicate that the decision conflicts with well established principles or fails to go with a definite stream of authority. d. The decision was not perverse or manifestly wrong on any issue. e. There is nothing to indicate that the previous decision was manifestly against the scheme of the Act. It is not an erroneous decision or a vague one touching upon interpretation which has given rise to public inconvenience or hardship. On the other hand, by the putting position of law straight, the decision leans towards avoiding litigation. This decision has not encouraged the imposition of tax burden or other liability upon tax payer on erroneous interpretation of law. 29. According to the learned AR, in such a scenario, the matter of following the later decision, which with utmost respect left many questions unanswered because the same were not be appropriate. The preference in such a situation leans towards following the earlier decisions as the same was a wholesome decision addressing to all issues following various judicial precedents on the ....
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....a sum of Rs.50 lakhs was refunded by the landlord to the developer on 5-3-2009. The project has not been completed till date due to very bad market conditions and hence the possession of the constructed flats has not been handed over to Mr. K. Srinivasa Rao & Family. 35. With prejudice to the above it is submitted by the AR that the consideration accruing cannot be evaluated as the subject matter is not in existence and therefore cannot be discounted as on the date of transfer as it would amount to calculation of discount figures on an unknown figure for a non existing asset and therefore incapable of being determined. Therefore without prejudice to any of the aforesaid submissions it is submitted that the computation provisions cannot be involved and therefore the change to capital gains fails. In this connection he relied on the judgment of Supreme Court in the case of CIT v. BC Srinivasa Setty (128 ITR 294). 36. He submitted that yet another decision which has escaped the attention of the adjudicators in the previous judgments is that of the Calcutta High Court in the case of Maha Society v. UOI (78 Taxman 401). He drew our attention specifically to para 22 of the judgment....
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....t in the case of Chaturbhuj Dwarkadas Kapadia (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, and perhaps even more important that that, what it does not lay down. 41. 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 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 ....
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....nt, 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). 45. 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....
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....gness 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........" 48. 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 ....
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....brought on record by authorities to show that there was development activity in the project during the assessment year under consideration and cost of construction was incurred by the builder/developer. Hence it is to be inferred that 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 shows that it had violated essential terms of the agreement which tend to subvert the relationship established by the development agreement. Being so, it was clear that in the year under consideration, there w....
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....lling to perform', as stipulated by and within 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 dated 11-5-2005 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 Chaturbhuj Dwarkadas Kapadia (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. Revenue does not get any assistance from this judicial precedent. The very foundation of Revenue's case is thus devoid of legally sustainable basis. 50. That is clearly an erroneous assum....
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....income for the assessment years under consideration admitting total income as below: Assessment year Income returned Agricultural income 2002-03 Rs.2,52,593 Rs.1,88,145 2003-045 Rs.6,31,709 Nil 2004-05 Rs.11,33,261 Nil 52. In the assessments made, the assessing officer observed that the assessee is the owner of various landed properties situated at Vattinagulapalli village, Kokapet Village, Nanakramguda village and Musapet village and sold different landed properties and claimed exemption of capital gain stating they were all agricultural lands. The assessing officer observed that the assessee was involved in the business of real estate activity of purchase and sale of agricultural lands. He therefore assessed the income returned and claimed as exempt under section 2(14) of the IT Act by the assessee under the head capital gains, as income under the head profits and gains of business treating assessee's earnings for the above years as adventure in nature of trade. The Assessing Officer made the additions of Rs.15,45,000, Rs.23,92,812, and Rs.4,56,45,000 for the assessment years 2002-03, 2003-04 and 2004-05 respectively. The total income was th....
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....,500 Total gain/profit earned out of the transaction : Rs.23,92,812 Assessment year 2004-05 1-9-1996 ..... A8-G0 23-2-04 1,36,00,000 1,36,00,000 The assessee has purchased the lands situated at Sy.No.228 and 229 Vattinagulapally village in the name of Y. Pratima d/o Y. Ravindra Babu on 1-9-96. It was nothing but a benami purchase. Those lands only sold subsequently and she has credited the gain into her capital account. Hence, no benefit of cost was given to her. 1-9-1996 ...... A6-G9 23-2-04 1,05,82,500 1,05,82,500 1-9-1996 ..... A12-G25. 23-2-04 1,12,62,500 (A6-G25.) 1,02,00,000 (A6-G0) 1,12,62,500 1,02,00,000 In this case also the assessee has purchased landed property situated at Sy.No.193 (Ac.4-16 gts.) and in 12-25 gts.) in the name of Y.Pratima on 1-9-96. It was also nothing but a benami purchase. However, the sale consideration was credited into her capital account. Hence, no benefit of cost was given to her. Out of Ac.17-01 gts. She has still own Ac.4-16 gts situated at sy. No.193. Total gain out of benami purchase and sale Rs.4,56,45,000 Assessment year 2006-07 23-9-2002 6,....
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....ce from family members of vendors on 28-8-01 and a case was filed in OS. 113 before Addl. Distt. Judge, L.B. Nagar, Remand Report Distt. To avoid future complication, the land was sold. Vattinagulapalli S. No. 229 & 228 1996 A26-G31 2003-04 This land was falling in bio-conservation zone/green belt. This fact was not within the knowledge of the appellant. Although purchased to retain the same, it was sold under compelling circumstances to realise the investment to avoid any future dispute. This was acquired in the name of niece of appellant's husband and declared in VDIS. Vattinagulapalli S. No. 244 2002-03 A2-G36 2004-05 (19-7-2004) This is a contiguous land to the above land. Sold to the same party. This is a contiguous land to the above land. Sold to the same party. 55. As seen from the above tables, the assessee has been acquiring the land from the year 1995 which has been sold in the subsequent years. It is also fact that the assessee was showing income from the said land holding as agricultural income. As per the table, the land which was acquired in Sept. 1996 was sold during the financial year relevant to the assessment year 2004 -05 which....