AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 1168
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....n and conclusive evidence. 1.2. The Learned CIT (Appeals) failed to consider that the additions by the AO are arbitrary in nature, based on assumption and without considering facts of the agreement on which the addition is based. 2. SECOND GROUND OF APPEAL: 2.1. The Learned CIT (Appeals) erred in confirming the addition to the extent of 65% of Rs.5,00,38,800/- i.e. Rs. 3,25,25,220/- by the AO based on misinterpretation of the terms and the facts of the agreement for development entered by the Appellant Firm. 2.2. The Learned CIT (Appeals), erred in law and on facts and in the circumstances of the case by confirming the addition to the extent of 65% without considering the fact that there is no sale or transfer of any property or any right on the property owned by the Appellant Firm to any party in any manner. The Appellant Firm merely entered into an agreement by which the cost of construction including incidental expenses to be borne by the other part in lieu of 35% rights on the constructed building, when completed, without any right of ownership or on title of the land which is owned by the Appellant Firm. Thus, the share of 35% given....
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.... against the confirmation of addition to the extent of Rs. 3,25,25,220/- (being 65% of Rs. 5,32,98,000/-) by the CIT(A) as against Rs. 5,32,98,000/- made by the AO and also that the authorities below have erred in estimating the consideration and also erred in treating the transaction of entering into development agreement as transfer within the meaning of section 2(47)(v) of the Act. 7. Facts of the case in brief are that the assessee owns a piece of land 844.49 sq. meters with factory premises thereon. The assessee in order to develop the said property entered into an agreement dated 21.4.2008 with M/s Nanavati Construction whereunder the assessee was to retain 65% of total constructed area and the balance of 35% of the total constructed area would go to the developer. The constructed area would pass on to the assessee as well as the developer upon the development of the property. Accordingly the construction of the building was taken up and commenced by the Developer after obtaining requisite approvals/permissions from the various authorities. The developer M/s Nanavati Construction was given access to the land only for the purposes of development of the property. The develop....
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....ision rendered in the case of in the case of KCP Ltd. v CIT ITR 421 (SC)], the Hon'ble Supreme Court had held that the subsequent event will not be ta e i 0 consideration while determining the taxability of an income. 5.2.10`The facts brought out in the preceding paragraphs indicates very clearly that in the instant case, the appellant signed development agreement dated 21.4.2008 with M/s Nanavati Constructions The Power of Attorney was executed, the agreement registered and the possession of the said plot was duly handed over to the developer and construction commenced shortly thereafter. Thus in the instant case there was transfer of a capital asserts and as per the provisions of the Act, the capital gains arising from such transfer is assessable in the hands of the appellant. The grounds raise by the appellant are therefore dismissed." 8. The ld.AR submitted that the FAA has grossly erred in partly upholding the order of the AO by ignoring the facts that the development agreement entered into by the assessee with M/s Nanavati Construction on 21.4.2008 was nothing but understanding with the developer to develop the property. The lower authorities have misconceived....
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.... (B) The Fibars Infratech P. Ltd V/s ITO (ITA No.477/Hyd/2013 dated 3.1.2014;= 2014] 46 taxmann.com 313 (Hyderabad - Trib) (C) CIT V/s M/s Chemosyn Ltd in ITA No.361 of 2013 dated 11.2.2015 (Bom HC); (D) Voltas Ltd V/ (E) s ITO in ITA No.5330 and 5331/Mum/2009 order dated 16.9.2016 (F) CIT V/s Smt Najoo Dara Beboo -38 Taxmann.com 258 (All) (G) Nathulal V/s Phoolchand9Civil Appeal No.2345 of 1966 (AIR 1970 Supreme Court 546 The ld.AR submitted that since 2008 no possession of 65% of the constructed area has been given to the assessee. The second plea raised by the ld. Counsel was that the provisions of section 50C of the Income Tax Act should not be applied to the instant case as in this case the development agreement was entered into by the assessee for the development of property and not for the sale of property and the assessee did not part with his interest in the property. In defence of his argument he relied on the decision in the case of C.S. Atwal V/s CIT(2015) 378 ITR 244 (P&H). The ld. AR while taking us through the chronology of the events such as date of development dated 21.4.2008, intimation of disapproval dated 11.6.20....
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....ven possession of 65% of the constructed area. In our considered view, the conclusion drawn by the FAA appears to be not correct as the assessee has not received any consideration in the form of 65% of the total constructed area. It is an undisputed fact that during the year under consideration the 65% of the constructed area was not received nor had accrued in favour of the assessee as per the transfer of the property as defined under section 2(47) of the Income Tax Act, 1961. For the sake of ready reference and convenience, we reproduce section 2(47) of the Act as under : "2(47) "transfer", in relation to a capital asset, includes,- (vi) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or (iva) the maturity or redemption of a zero coupon bond; or (v) any transaction involving the allowing of the possession of any immovable property....
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....greement is not an agreement for sale because the assessee executed a contract with the developer and not with the intended purchaser. The development agreement is some sort of business agreement and it basically postulates coming together of two parties only i.e.the developer and the owner of the land. The developer does not have land to develop the land and the assessee did not have sufficient finance to develop the land and therefore they come together i.e. land and finance for the development of project is necessarily business agreement whereby the owner of land allows the developer to enter and exploit the land for the limited purposes of developing the said land. Looking into the provisions of TPA,1882 which clearly shows that allowing the possession to be taken and retained in part performance of the contract could be considered as transfer and not permissible possession or any other kind of possession. In the case of N. Karuna (supra), the Hon'ble High Court held that "A perusal of the above referred provision shows that allowing of possession to be taken or retaining in part performance of a contract of the nature referred to in section 53A, of the TPA, 1882 alone....
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..... [Para 45]; 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. [Para 51]; A plain reading of 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. [Para 53]; 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 s....
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....n submitted by the assessee company only on 6-3-2007. 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 6-3-2007. Therefore, no income could be said to have accrued, as laid down in section 48, in assessment year 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 had 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 relevant year in this project, it would amount to non-incurring of required cost of acquisition by the developer. Hence....
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....t it is unwilling to perform its obligations under the agreement in this assessment 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. [Para 57]; 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 had 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 Prope....
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....capital gains. Thus, determining the respondentassessee's income at Rs. 19.94 crores for the A.Y.200708 by order dated 2nd December, 2009. 6. In appeal, the Commissioner of Income Tax (Appeals) (CIT (A) did not accept the petitioner's contention and upheld the Assessing Officer's order by relying upon decision of this Court in Chatrubhuj Dwarkadas Kapadia's case (supra). However, the CIT (A) held the consideration for the 18000 sq.feet of constructed area is to be arrived at on the basis of cost of construction and not the Ready Reckoner rates adopted by the Assessing Officer. Consequently, the consideration to be brought to tax was an amount Rs. 2.17 crores. On further appeal, the Tribunal set aside the orders of the Assessing Officer and the CIT (A) by holding that the decision of Chaturbhuj Dwarkadas Kapadia (supra) would not apply in the facts of the present case as in this case there is no dispute as to transfer of property taking place as a result of the development agreement. The dispute is with regard to quantum of sale consideration to be taken for the purpose of computing capital gains. Moreover, the Tribunal also placed reliance upon decision of ....
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.... two points of time at which the liability to tax is attracted viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book keeping, an entry is made about a 'hypothetical income' which does not materialise. Where income tax, has in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account." (emphasis supplied) Thus no income has either accrued or received in the form of 18000 sq.feet of constructed area. No occasion to tax the same can arise. The Tribunal on consideration of facts has reached a finding of fact that no income in-respect of 18000 sq.ft of constructed area has been accrued or received. This finding cannot be said to be perverse or arbitrary. According to us no substantial question of law arises to warrant inte....
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....ted as independent from each other. Thus, the perusal of the definitions given in these sections when compared with section 50C shows that legislature was conscious about the proper expression to be used as per its intention, scope, object and purpose of the section 50C, wherein it has been expressly mentioned that capital asset should be 'land or building or both'. It has not been mentioned that any type of 'rights' shall also be included in the definition of capital assets to be transferred by an assessee. 3.11. The provisions of section 50C are deeming provisions. It is settled law and well accepted rule of interpretation that deeming provisions are to be construed strictly. Thus, whileinterpreting deeming provisions neither any words can be added nor deleted from language used expressly. We should apply the 'Rule of Strict Interpretation' as well as 'Rule of Literal Construction' while understanding the meaning and scope of deeming provisions. In our opinion, under the given facts and circumstances, Ld. Counsel has rightly contended that since the impugned capital asset transferred by the assessee upon which long term capital gain has been computed by the AO is on account of tr....