TaxTMI 
TaxTMI 
2021 (3) TMI 40
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.... During the course of search, some documents belonging to the assessee were found from the premises covered u/s 132(1) of the I. T. Act, 1961. The case was centralized. The A.O. passed the assessment order Dated 30.12.2010 under section 153C r.w.s. 143(3) of the I.T. Act, 1961, making an addition of Rs. 86 crores on account of income resulting because of transfer of rights made to EMMAR-MGF Land Ltd., is to be assessed in the hands of the assessee. The A.O. accordingly made addition of Rs. 86 crores being the profit accrued to the assessee on sale of development rights during the assessment year under appeal. 3.1. The assessee challenged the addition before the Ld. CIT(A). The Ld. CIT(A) noted that the issue arose from the facts which are enumerated hereinafter (i) The assessee namely SSP Aviation [Formerly known as SSP Properties P. Ltd.,] entered into a collaboration agreement dated 28.04.2006 with Puri Construction Ltd. ("PCL") pursuant to which PCL transferred development rights in favour of the assessee pertaining to land measuring 19.06 acres. (ii) On 21.07.2006 the assessee entered into an agreement known as "Agreement cum Nominations Agreement" with Emmar MGF Land Ltd. (....
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....subsequent A.Y. 2008-2009. The impugned amount is only a contingent income and can be taxed only on happening of the contingencies mentioned in the Agreement. The assessee did not get any right on any immovable property. The ownership over the land continue to vest in PCL and there is no registration or transfer in favour of the assessee or its assignee. It was submitted that decisions relied upon by the A.O. are not applicable to the facts and circumstances of the case. It was, therefore, submitted that no income accrued to assessee in assessment year under appeal. 3.4. The Ld. CIT(A) considering the material on record in the light of findings of the A.O. and submissions of the assessee held that no income accrued to the assessee of the impugned amount in assessment year under appeal, therefore, addition of Rs. 86 crores were deleted and appeal of assessee has been allowed. The findings of the Ld. CIT(A) based on relevant clauses of the Agreement in question in paras 5 to 8 of the impugned Order are reproduced as under : "FINDING 5. I have gone through the above submissions of the appellant and have perused the AO's order and have considered the facts and evi....
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....2 which provides as under : "2.SSPPL, on the basis of facts as disclosed above by the PCL Group and after verifying the same, has decided to associate with the PCL Group to take up the Development of the lands in Sector 54, Gurgaon covered by the instant agreement and to jointly resolve the issues pending resolution as stated herein above. SSPPL has been made aware that the PCL Group has already made huge investments in time and money with respect to the Project Land in : a. acquiring the land; b. getting the land licensed from Group Housing; c. paying EDC and other charges aggregating to Rs. 27.0 Crores (Rupees Twenty Seven Crores and Eighty Lacs only) approximately; d. settling the claim of M/s CREF Finance Ltd., formerly known as ITC Classic Real Estate Finance Ltd. and its successor in interest ITC. e. getting the licenses revalidated from time to time at its own cost and expense; f. furnishing of requisite Bank Guarantee in favour of DTCP, Haryana; and g. furnishing of the Bank Guarantees for Rs. 5 (Five) Crores in favour of the Registrar General of the Hon'ble High Court of Delhi in terms of the order....
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........ (c ) ............................................................................ (d ) ...................................... (e ) ...................................... (f ) ...................................... (g) It will market the super built area at the best possible market price and frame the specifications acceptable to the PCL Group, which would be comparable with the best of the group housing development projects in Gurgaon (specifications annexed herewith as Annexure II to this Agreement) so as to enable the realization of the best possible salable rate; (h) It will appoint consultants and architects of international repute to the consultation with the PCL Group for the implementation of the Project as envisaged in this Agreement; (i) It will get the development plans and building plans with respect to the development of the Project Land and the said Complex approved within 180 (One hundred and eighty) days after the PCL Group executes, signs and verifies all the necessary documents, applications and papers and supplies all the requisite information and documents and papers, as and when called upon by S....
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....s to complete the sum of Rs. 24 (twenty four) crores appropriatable under Clause A. 7(a). (d) Thereafter, out of the sums received towards the booking/sale proceeds in respect of the spaces proposed to be constructed on the land admeasuring 17.06 acres out of the total area of 19.06 acres of the project land, the sum of Rs. 12 (Twelve) crores will be first paid to SSPPL from the Escrow Account No.1." * Apart from the above reimbursement of Rs. 24 crores, the appellant agreed to share the cost of settlement of dispute with Ansal Buildwell amounting to Rs. 36.50 crores in equal proportion. The relevant Clause of the agreement in this regard is Clause A.32 which provides as under : "A.32 That in consideration of the mutual covenants contained herein, the PCL Group and SSPPL have entered into this agreement, which is in the nature of a Joint Venture Agreement and it is agreed that after settlement of all disputes with ABL qua the Project Land and subject to the other terms recorded in this Agreement, the PCL Group and SSPPL shall jointly bear, from the date of this agreement in equal measure, all further costs (including but not limited to the cost of licensi....
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.... Clause 'N' which reads as under : "N. The SECOND PARTY has conditionally agreed to acquire, by way of assignment an d / o r nomination from the FIRST PARTY, certain rights under the said Agreement for a total consideration of : (j) Rs. 12,00,00,000 (Rupees Twelve Crores Only) payable by the SECOND PARTY to the FIRST PARTY and, (ii) The undertaking of the SECOND PARTY to pay Rs. 86,00,00,000 (Rupees Eighty Six Crores only) to the FIRST PARTY towards making available certain rights as mentioned supra by the FIRST PARTY to SECOND PARTY. This amount of Rs. 86.00.00.000 IRupees Eighty Six Crores only) shall be payable by the SECOND PARTY to the FIRST PARTY on and after successful completion of the project by the SECOND PARTY to the satisfaction of PCL group and as per the terms and conditions of agreement date 28.04.2006 specially with reference to Clause 3(i) related to timely completion of the project. (iii) However, it is mutually agreed amongst the parties that in case of successful and timely completion of the project in consonance with Clause 3(j) of the agreement dated 28.04.2006 the security deposit as mentioned herein above would sta....
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....therefore taxable in the year under consideration. In my humble view, on the plain and conjoint reading of both the agreements dated 28.04.2006 and agreement dated 21.07.2006 I find that they are inextricably linked with each other in view of the condition attached to it. Accordingly, when Clauses 3(g,h,i,j) of agreement dated 28.04.2006 is read with clause "N" of Nomination agreement dated 21.07.2006, it is seen that the money, becomes "due" to the appellant, not on the date of signing of the agreement i.e. 28.04.2006, but it becomes payable /due, only on the conditions namely : (a) on the successful completion of the project by Emmar and (b) on the completion of the project within the time bound period i.e. 50% (fifty percent) of the project should be ready with 3 years of necessary approval and the balance 50% of the project is to be completed within further 6 months thereon. Hence, it is very clear from the two agreements, that the income of Rs. 86 crore to the appellant accrues only when both the conditions are cumulatively fulfilled. Therefore without any doubt it is seen that both the agreements dated 28.04.2006 and 21.07.2006 are interconnected an....
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....5.6.3. As per section 5 of the Income Tax Act, an income or profit and gains are taxable if the same have accrued and arisen as income or deemed to have accrued/arisen to the assessee in the accounting year. The income must accrue first and receipt normally follows the accrual. In other words, the right to receive must come into existence, and then the actual receipt takes place. The receipt by itself is not sufficient to attract tax. It is only receipt as "income" which would attract tax over receipt by the assessee. Therefore receipt of a sum is not necessary the income in his hands. It will bear the character of income only at the time when it accrues in his hands and it becomes liability to tax. What is relevant to determine is whether money received by the assessee was his income or simply an advance. Crediting the sum so received in the books under any head is also not relevant. If no income has resulted, it cannot be said that the income has accrued merely on the ground that the assessee has been following the mercantile system of accounting. The facts and the evidence on the basis of agreement entered between the parties shows that the money becom....
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....ent on the scheduled property. Moreover, this is on 2007 and for the three subsequent years, that no development work was undertaken in the said years. The necessary approvals/ license for development have also not been shown to have been granted either to the assessee or the developer during the year. Sans these approvals/license obviously, no development could have been carried out. Without these approvals/license, it cannot be said that any development rights came into existence at all. The contingent right under the agreement has not been established to have been fructified into a vested right. Apropos the interest- free performance deposit, this has not been shown to be representing part of sale consideration for the. development rights. It cannot be so, since, as observed, no such development rights came into existence during the year. In view of the above, finding no error whatsoever with the order of the CIT(A), the same is upheld rejecting the grievance sought to be raised by the Department. In the case of appellant also, the condition is that the amount of Rs. 86 crores shall become due to the appellant on successful completion of the project. Since, like Finian ....
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....rted in 57 ITD 81 (Hyd). Therefore, mere receipt of advance cannot be criteria to determine the taxability of the amount. 6. The AO has relied on two cases namely CD Kapadia vs. CIT [2003] 260 ITR 491 (Bombay) quoted in the assessment order and Hillside Construction Company Pvt. Ltd. Vs. Deputy Commissioner of Income Tax ("HSC") mentioned in the remand report which was received during the appellate proceedings. In both these cases I find that they are distinguishable on facts with appellant's case. The case of CD Kapadia vs. CIT [2003] 260 ITR 491 (Bombay) is not comparable to the appellant as that case is related to the charging of capital gains which would arise on handing over of the possession in part performance of the contract. However, in appellant's case, land as such was not transferred by PCL to the appellant and therefore it could not have transferred land in favour of Emaar. It was only the development rights in relation to the land that were subject matter of transaction and that too on the fulfillment of the conditions laid down in the agreement. The land remained in the ownership of PCL which would be transferred to the purchaser of the flat....
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....vity having no connection with the development of the remaining part of the land. The assessee was following mercantile system of accounting as per which income accrues when it becomes due for payment. In this case, the entire amount became due to the assessee in the relevant year on signing of development agreement and on handing over of the possession of the land. The transfer was complete during the year and income, therefore, had accrued during the year as in mercantile system of accounting, accrual of income does not depend upon receipt of income. The postponement of payment does not stop accrual of income. Therefore, even if part of the payments were received in subsequent years, the entire income had accrued during the year. The facts of Hillside Construction Co. (HSC) are not applicable due to the following reasons : (a) No condition is attached in the case of HSC as to when the right to receive the sum would become income of the transferor. However, in appellant's case, right to receive income would accrue to it only on the successful completion of the project and also on timely completion of the project. (b) In HSC's case, land was trans....
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...., therefore, A.O. correctly made addition in assessment year under appeal. In support of the contention, the Ld. D.R. relied upon the following decisions : 1. Kailash Nath & Associates vs., ITO [2010] 1 ITR (T) 77 (Del.) [SB] 2. Rohini Holdings (P.) Ltd., vs., CIT [2012] 345 ITR 466 3. CIT vs., Gautam R. Chadha [2011] 202 Taxman 25 (Del.) 4. Growth Techno Projects ltd., vs., CIT [2010] 5 ITR (T) 510 (Del.) 5. ACIT vs., Paras Build Call (P.) Ltd., [2015] 57 taxmann.com 112 (Del.) 5. On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that in assessment year under appeal, assessee entered into an agreement with Puri Construction Ltd., Group ["PCL"] on 28.04.2006 copy of which along with supplementary agreement are filed in the PB. According to this agreement, assessee undertook to develop the project land for development thereof as per terms contained in the agreement. Certain disputes with regard to project land were prevailing with Ansal Buildwell Ltd., According to the agreement, assessee was entitled to assign development contract to any of its group company.....
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....itted that the same A.O. on the same day took a different view in assessment year under appeal. He has submitted that the agreement Dated 28.04.2006 was a conditional agreement which was to be completed on fulfilling its conditions, therefore, no income accrued to assessee in assessment year under appeal. He has further submitted that it was also un-registered agreement and as such cannot be acted upon by the Revenue Authorities. He has submitted that in three months assessee made payments and tried to perform the duties as per the Collaboration Agreement. The Ld. CIT(A), therefore, rightly concluded that simply on signing the impugned agreement, amount of Rs. 86 crores did not accrue to the assessee and as such the view taken by the Ld. CIT(A) is in accordance with the decision of the Hon'ble Supreme Court in the case of E.D. Sasoon Company vs., CIT (supra) and Judgment of the Hon'ble Delhi High Court in the case of CIT vs., Dinesh Kumar Goyal (supra) relied upon by the Ld. CIT(A). He has also submitted that the issue is also covered by the Order of ITAT, Delhi G-Bench, Delhi in the case of Saamag Developers (P.) Ltd., vs., ACIT, Central Circle-19, New Delhi [2018] 173 ITD 350 (De....
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.... are allowed." 5.2. Learned Counsel for the Assessee, therefore, submitted that there is no infirmity in the Order of the Ld. CIT(A) in deleting the addition in assessment year under appeal. 6. We have considered the rival submissions and perused the material on record. We have also perused the agreements in question Dated 28.04.2006 and 21.07.2006. The Ld. CIT(A) has also reproduced the relevant paras of both the agreements in his findings as reproduced above. It is, therefore, clear from these agreements in question that the development rights were acquired by the assessee vide agreement Dated 28.04.2006 from PCL etc., for execution of the project which were incomplete. The income from such rights was to accrue only on conduct and completion of the project and not otherwise. The development rights with the assessee are also contingent because if due to any reason there is no sale, no amount will accrue to the assessee company, therefore, the income of the assessee will depend on the contingency when the sale of the property would start. The assessee through the impugned agreement agreed to develop the project based on various terms and conditions mentioned in the agreeme....
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.... not have perform its obligation, the said security deposit would have stood forfeited. Therefore, the fulfillment of the obligation to construct and develop the project within the stipulated time was a condition precedent for the assessee to the satisfaction of the PCL as mentioned in the assignment agreement Dated 21.07.2006. Therefore, the security deposit received by the assessee for conditional transfer could never be treated as an income of the assessee. All the conditions of the original agreement shall have to be satisfied and completed by EMMAR only. Then income would accrue to the assessee. The assessee also explained that it has followed POCM method and in A.Ys. 2009-2010, 2010-2011 and 2011-2012 assessee has recognized the income and offered for taxation. In A.Y. 2009-2010 even the A.O. has accepted the similar explanation of assessee in scrutiny assessment under section 143(3) of the I.T. Act. It is also interesting to note that in A.Y. 2009-2010 the same A.O. passed the same assessment order under section 143(3) of the Act in the case of the assessee on the same day. The A.O. accepted the explanation of assessee after recognizing the income based on both the agreement....