TaxTMI 
TaxTMI 
2012 (6) TMI 705
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the developer from the date of purchase of the land by the assessee and art. 5.1 provides that in consideration of the assessee transferring the exclusive development rights over the property the developer shall pay to the assessee the consideration within two years from the effective date sum of Rs. 2.25 crores per acre. (b) The AO has pointed out in clear-cut terms that the impugned agreement is skewed heavily in favour of the developer as it has unlimited rights under the agreement-to enter upon the property, to build and construct option to purchase the property upon its failure to obtain licence from the authorities without any opposition from FEDPL, right to enter into agreement with purchasers/lessees of the developers plots without any objection "from FEDPL. The exclusive right to name the building, right to assign all the right to any entity or company without any consent from FEDPL. Thus it cannot be denied that the assessee company has parted completely with all rights of development in favour of the developer. (c) The non-obtaining of permission by the developer to undertake development activities from the Director, Town and Country Planning, Chandi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation, i.e., the developer. It received Rs. 58.69 crores as interest-free performance deposit from the developer. The AO observed that the agreement was skewed heavily in favour of the developer, who had unlimited rights under the agreement, i.e., to enter upon the property, to build and construct, option to purchase the property upon its failure to obtain licence from the authorities without any opposition from FEDPL, the exclusive right to name the building, right to assign all the rights to any entity or company without any consent from FEDPL. The AO observed that FEDPL had parted completely with all rights of development; that even on the failure of the developer to obtain the township licence, FEDPL is bound to agree to the sale of its property at the fixed rate of consideration payable; that it had no right whatsoever to terminate the agreement, except in the event of the developer not obtaining the licence and also not offering to purchase its property; that its consent was not required even where the developer assigned all of the development rights to any other entity; that FEDPL was also under an obligation to offer the development rights in any future acquisition of land ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e company has parted with all its rights of development completely; that even on the failure of the developer to obtain township licence, the assessee was bound to agree to the sale of its property at the fixed rate of consideration payable, having no right to terminate the agreement, except in the event of the failure of developer in obtaining licence and also not over its property to purchase, no sign of the assessee was required even where the developer assigned all the development rights to any other entity; that the assessee was also under an obligation to offer the development rights in any future acquisition of land made by it in the vicinity of the scheduled property; that the assessee had only tried to justify the amount received as interest-free advances and not its income; and that the development agreement was, in fact, not looked into by the learned CIT(A). 9. Reliance has been placed on the following case laws:- 1. CIT vs. Syndicate Bank (1986) 52 CTR (Kar) 117 : (1986) 159 ITR 464 (Kar); 2. Keshav Mills Ltd. vs. CIT (1953) 23 ITR 230 (SC); 3. Ansal Properties and Industries Ltd. vs. Dy. CIT (2008) 115 ITD 443 (Del); 4. Suraj Pra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the date of accrual of income is as to the appellant could have in its own right legally claimed the receipt on sale of development right, from the developer from the effective date as defined in art. 1.1 or whether such right to legally claim in the income vest only on the date requisite approval/licence for development is granted by DTCP in favour of the appellant. The answer to the above questions are dependent on a composite reading of all the clauses of the agreement in totality and not reading the provisions of the agreement in parts. On this proposition the appellant has relied on the observations of the apex Court in cases of Union of India us. Gosalia Shipping (P) Ltd. 1978 CTR (SC) 76 : (1978) 113 ITR 307 (SC), CED vs. Aloke Mitra (1980) 19 CTR (SC) 367 : (1980) 126 ITR 599 (SC). On this issue it is observed that there can be no two opinion that in order to understand the true import of an agreement all the provisions thereof would have to be read in conjunction and in totality. The assessee has also filed a separate legal note distinguishing all the judgments relied upon by the AO (on the issue of accrual of income) and has advanced its own arguments ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt of the obligation stipulated in the agreement. The agreement is no doubt a valid agreement in the sense that the consideration for the agreement can be past consideration or future consideration, but on that account, it cannot be assumed that the right to receive the payment had accrued in favour of the assessee on the date of agreement. Some of the other judgments, which confirm the proposition that unless the right to receive the income is vested in the assessee, the same cannot be said to have accrued or arisen to the assessee, are CIT vs. Govind Prasad Prabhu Nath (1988) 72 CTR (All) 62 : (1988) 171 ITR 417 (All), Seth Pushalal Mansinghka (P) Ltd. vs. CIT (1967) 66 ITR 159 (SC), Seth Madan Lal Modi vs. CIT (2003) 179 CTR (Del) 67 : (2003) 261 ITR 49 (Del). The Supreme Court and the jurisdictional Delhi High Court have also consistently reiterated the principle in law that only real income and not notional income can be brought to tax. Some of the decisions in which this principle has been discussed are CIT vs. Shoorji Vallabhdas and Co. (1962) 46 ITR 144 (SC), CIT vs. Birla Gwalior (P) Ltd. 1973 CTR (SC) 349 : (1973) 89 ITR 266 (SC), Morvi Industries Ltd. v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the assessee has granted to the developer from the effective date an exclusive licence to enter the scheduled property and develop the same in terms of the agreement. Article 2.2 clarifies that the assessee shall remain the owner of the scheduled property and the developer shall have only permission to enter upon the scheduled property for carrying out development work. Article 2.3 clarifies that on the effective date the assessee shall execute and deliver a power of attorney in favour of the developer. Article 2.4 clarifies that the developer shall be responsible for obtaining all the approvals including the licence from the Director, Town and Country Planning, Chandigarh, Haryana for the township development and the scheduled property and upon receipt of the sanctioned plan and all approvals, the developer shall commence the development and construction on the scheduled property and complete the development and construction of the building. Therefore, there are other articles which define the other eventualities of what has to happen if no approval is received or if no other options and covenants of the agreement are completed. 2.5 It is sp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsideration FEDPL shall immediately refund outstanding interest-free performance deposit to the developer. Article 10 talks about development rights and inter alia states that the developer shall be entitled to undertake the development and construction work on the scheduled property in such manner it deems fit and always in accordance with the applicable laws. The parties have agreed that a fixed consideration is payable for the grant of development rights. Article 12 defines the obligations of FEDPL inasmuch as FEDPL shall extend necessary cooperation to the developer and do all such acts, deeds and sign/execute/deliver all such documents, deed, statements, affidavits as may be required for the development of the scheduled property in accordance with the agreement including taking of all approvals. FEDPL shall upon execution of the said POA, not do an act any or deed that may have the effect of cancelling or revoking the POA or in any manner prejudicing or effecting the power/authority vested in the developer. Upon careful consideration of the findings of the AO as well as the various submissions and arguments of the appellant's Authorised Represent....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to my understanding is in the nature of a contingent contract in terms of s. 32 of the Indian Contract Act, 1872 which would become enforceable by law on the happening of the event envisaged in such contract viz. grant of licence/approval as defined in art. 1 of the agreement. In this connection it is observed that in art. 2.1 of the agreement there is a mention that the assessee has granted to the developer, from the effective date, an exclusive licence to enter the scheduled property and to develop the same in terms of the agreement. Now, while on the face of it, it may appear that the developer has already been vested with the exclusive licence to enter the scheduled property and to develop the same from the effective date as per the agreement, but in reality the developer actually becomes vested with this exclusive licence to develop the property only from the date when the licence is granted by the DTCP. That without the licence having been granted by the DTCP the developer has got no legal authority/sanction to develop the property. This position further becomes evident on a reading of art. 2.4 of the agreement which states that it is the responsibility of the developer to o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rved that the inference drawn by the AO oh this issue are not appropriate. The terms of the agreement has to be given its plain and normal meaning and the apparent has to be treated as real unless proved otherwise. There is no material on record to suggest that the 'interest-free performance deposit' represents part of the sale consideration towards sale of development rights, which as already held above would come into existence only on granting of approval/licence by the DTCP. Even if it is assumed for argument sake that the said interest-free deposit represents part of sale consideration, the appellant is not legally entitled to have a vested right on this amount till such time the licence/approval for development of land is granted by the DTCP in favour of appellant or developer. To put it differently, uptill the grant of licence/approval, this amount would remain as deposit with the appellant, which as per the agreement the later is required to refund back in case the licence is not granted and the developer does not opt to purchase the property. I, therefore, hold that AO was not justified in holding that income has accrued to the assessee and the additions m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....licable to the facts present here. In all those cases, there was actual physical parting of possession in favour of the developer which is not so herein. 16. In view of the above, finding no error whatsoever with the order of the learned CIT(A), we uphold the same rejecting the grievance sought to be raised by the Department by way of ground of appeal taken. This grievance of the Department, hence, rejected. ITA No. 1953/Del/2011:- 17. This is assessee's appeal for the asst. yr. 2007-08, taking the following grounds:- "1. That the impugned order dt. 8th March, 2011 passed by the learned CIT(A)-XII, New Delhi is bad in law and wrong on facts. 2. That on the facts and circumstances of the case, the learned CIT(A)-XII has erred in law in upholding the action of the AO in making disallowance under s. 40(a)(ia) of the IT Act, 1961 amounting to Rs. 4,20,15,681 (correct amount is Rs. 1,24,33,376) paid by the assessee to the consolidator for transfer of rights. 2.1. That on the facts and circumstances of the case, the learned CIT(A)-XIII has erred in holding that the consolidator was working as an agent of the assessee and hence the assessee ought to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee's paper book ('APB' for short), which is a copy of the assessee's P and L a/c for the period from 31st March, 2006 to 31st March, 2007; that as per this PandL a/c, an amount of only Rs. 19,700 has been claimed as expenditure and no expenditure has been claimed regarding purchase of land, due to which, the provisions of s. 40(a)(ia) of the Act are not applicable; that further, even as per the MoU entered into by the assessee with the consolidator (APB 8-14), 2 per cent of every registration of land is to be paid; and that as per the details of land purchased during the year under consideration (APB 16), it is only 2 per cent of every registration which has been actually paid. 22. The learned Departmental Representative, on the other hand, has strongly relied on the impugned order in this regard. It has been submitted that the learned CIT(A) has correctly decided this issue against the assessee; that the remuneration has indeed been fixed at a fixed percentage of cost of land in each case of the land transferred; that therefore, the consolidation charges paid by the assessee to Vikram Electric Equipment (P) Ltd., i.e., the consolidator, squarely falls within ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... It has been maintained by the assessee all through that the payment to Vikram Electric Equipment (P) Ltd. was on account of transfer of certain rights of Vikram Electric Equipment (P) Ltd. in the lands transferred to the assessee and was not towards any services rendered. As a consolidator, Vikram Electric Equipment (P) Ltd. was to contact the local farmers in and around Gurgaon, who were willing to sell their land. Vikram Electric Equipment (P) Ltd. was making payments from its account to the farmers and thereto have certain rights in the land. On the ultimate transfer of land to the assessee through Vikram Electric Equipment (P) Ltd., the final payment was to be made to the farmers. Towards the right of Vikram Electric Equipment (P) Ltd., 2 per cent of the cost of land (in some cases, even a higher amount) was to be paid to Vikram Electric Equipment (P) Ltd., as mutually agreed. This was the mutually agreed price. Vikram Electric Equipment (P) Ltd. worked for land acquisition and after scrutiny of the concerned documents of the land, Vikram Electric Equipment (P) Ltd. would suggest the appropriate land for purchase by the assessee. Vikram Electric Equipment (P) Ltd. thus acted ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- "3.2 In consideration of the consolidator or its agent/nominee assigning its rights to purchase the land in favour of the buyer company and causing the land owners to execute the sale deeds directly in favour of the buyer company, the buyer company shall pay the consolidator such sum as may be mutually agreed. However, it is specifically agreed by the consolidator that no sum shall accrue to it on this account till it procures 27 acres of land for the buyer company (unless the buyer company decides to procure less than 27 acres through the consolidator) and all the issues relating to possession and mutation of such land are settled to the satisfaction of the buyer company." 28. The above clause also makes it evident that unless the assessee decided to procure less than 27 acres of land through Vikram Electric Equipment (P) Ltd., Vikram Electric Equipment (P) Ltd., was to procure 27 acres of land for the assessee, failing which, no payment was to be made by the assessee to Vikram Electric Equipment (P) Ltd. 29. This clearly shows that Vikram Electric Equipment (P) Ltd. was transacting on a principal to principal basis and it cannot be said that the payment was made ....