TaxTMI 
TaxTMI 
2022 (7) TMI 390
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....ity on transfer of development rights in a plot of land as well as quantum of long-term capital gain thereon, have been disputed. The assessee offered the long-term capital gain on transfer of part interest in plot of land under development agreement in assessment year 2012-13, whereas according to the Assessing Officer the transfer took place in previous year corresponding to assessment year 2009-10 and therefore he has assessed the long-term capital gain on substantive basis in assessment year 2009-10 and on protective basis in the assessment year 2012-13. We find that assessment year 2012-13 has been assessed first and thereafter assessment year 2009-10 has reopened. The Ld. CIT(A) has also decided the issue in assessment year 2012-13 and therefore facts have been elaborated in assessment year 2012-13, accordingly firstly, we are taking up the appeal and cross objection for assessment year 2012-13 for adjudication. The grounds of the appeal of the Revenue in ITA No. 4876/Mum/2017 are reproduced as under: 1. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax(Appeals) has erred in not considering the fact that Sec. 2(47) (v) with Sec....
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.... Rs.88,14,695/- iii Cost of TDR : Rs.8,89,43,240/- iv Cost of 8 open car parking to be provided under Development Agreement : Rs.15,69,206/- Rs.18,74,74,089/- Ld. CIT(A) erred in not considering the fact that cost of construction is only Rs.88146948/- and hence consideration under Development Agreement be computed with reference to said cost of construction being 42% thereof. 2. Ld. CIT(A) erred in upholding disallowance of Rs.3,11,920/- out of interest paid by the appellant during the year on the plea that loan borrowed from ECL Finance Ltd is being utilised for improvement of house property to make it fit for earning rent in future, without properly appreciating the fact of the case and law applicable thereto. 3. Ld. CIT(A) erred in upholding the addition made by Ld. A.O. of Rs.1,30,000/- made u/s. 69C of the I.T. Act, without properly appreciating the fact that 3 payments amounting to Rs.1,30,000/- does not relate to the appellant, but to one of its partner Shri Suresh Patel and the said amount is not to be considered while making the assessment of the appellant. 4. The appellant pray ....
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....account of TDR FSI 4,28,96,000 Less : Indexed cost of land developer 20,08,467 Less : Cost of Basement Demolition 8460 sq ft @ 900/- per sq ft 76,14,000/- 5,25,18,467 Long Term Capital Gain liable for taxation 21,08,973 4.1 However, in the scrutiny assessment completed under section 143(3) of the Act on 26/03/2015, the Assessing Officer held that taxability of the capital gain arises in the assessment year 2009-10. According to him, under the registered development agreement, possession of land was given to the developer in previous year corresponding to AY 2009-10 and therefore in terms of section 2(47) of the Act read with section 53A of Transfer of Property Act, the capital gain arises in AY 2009-10. He also rejected the computation of LTCG i.e. the sale consideration and cost of acquisition and computed the quantum of LTCG at Rs.16,68,07,905/based on stamp duty value of Rs.18,38,53,000/- and assessed the same on protective basis. The computation of capital gain by the Ld. AO for AY 2012-13 (on protective basis) is reproduced as under: 4.2 The Ld. AO also made addition of Rs.1,30,000/- for unexplained expenditure based ....
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....e developer, are summarized as under: (i) Mr. Jethabhai G Shah was carrying business in the name and style of M/s Pankaj enterprise. He was absolute owner of plot No. one of industrial subdivision of survey No. one and two admeasuring 5127.36 m². M/s Pankaj enterprise was granted exemption in the year 1979 for industrial use of the said property. (ii) In the year 1980, Mr. Jethabhai entered into an agreement with M/s Master Clock and watch works P Ltd (in short 'the Master clock') for forming a partnership, wherein Mr. Jethabhai agreed to bring said property as his capital contribution and the master clock to bring monetary capital, which will be required for carrying on the partnership business of M/S Pankaj enterprises. On the execution of the agreement, the said property became the asset and property of partnership firm M/s Pankaj enterprises. (iii) Subsequent to that by way of different deeds of partnership and deeds of retirement several changes made in the Constitution of the firm from time to time. Accordingly in terms of the last such deed of reconstitution of the partnership dated 03/04/2007, the present partners of the partnership firm are ....
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....opment rights should be charged on the basis of the registered development agreement entered into between the assessee i.e. the owner and M/s Vidhi enterprise i.e. developer, in the financial year 2008-09 i.e. the assessment year 2009-10. The relevant finding of the Ld. Assessing Officer is reproduced as under: "Year of Chargeability The assessee in the course of hearing has stated that agreement was executed in the FY 2007-08 and hence the chargeability year should be FY 2007-08 relevant to AY 2008-09. The contention of the assessee is not acceptable as provisions of section 53A of Transfer of Property Act was amended in the year 2001 by which additional condition of registration of the written agreement was introduced and in the instant case the agreement was registered in the FY 2008-09 and therefore, the chargeability should be FY 2008-09 relevant to AY 2009-10. Long-term Capital Gain on transfer of development rights should be charged on the basis of registered agreement entered into between Pankaj Enterprises i.e. the Owner and M/s Vidhi Enterprises in the FY 2008-09 i.e. AY 2009-10 as the year of chargeability of income. Under Section 2(47....
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.... of any immovable property. Therefore, in these two cases, capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of immovable property is not effective or complete under the general law. The assessee in its submission has stated that no rights are being transferred to developers till such time entire building is constructed as per the terms of the Development Agreement. The department would like to state that transfer of developmental rights had taken place and Sec 2(47) would be applicable and to further corroborate our point, the extracted portion of the agreement is placed below: Point No 9B of the Agreement states: The developers shall be liable to remove, settle all legitimate defects, claims to the said property or any part thereof received from any person lawfully claiming from the owners at any time till the entire development project is completed within a period of 30 days of it becoming known. Point No. 22 (b) of the agreement states: The Developers shall be fully responsible for any contravention, violation, non-compliance of any laws, rules, regulations, terms of sanction/approval....
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....dance with plan to be sanction with amendment thereto if any, by the Municipal Corporation of Greater Mumbai". The developer is allowed 10 construct a temporary site-office (CI. 14(in). The developer is also permitted to put hoarding/sign boards (CH 14(iii). (ii) Cl. 16 provides for execution of power of authority infavour of developer. Clause 16 "'immediately upon execution of presents persons the owners have granted in favour of developer or their nominees, an irrevocable power of attorney to do all acts deeds, matters and things as necessary for development of said property and which power of attorney shall be registered simultaneously with this development agreement" (iii) CI. 24 (c) provides "the developers shall be entitled to put the purchaser of the developer's area, in possession of the respective premises as and & when occupation certificate in respect of the said new building is obtained by developers, provided however, the developer shall not handover possession of developer's area to anybody or allow or use the premises in the developers area on any basis whatsoever, unless and until the developers shall have offered to the owner, the owne....
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....n work was handed over to the developer, the developer was never enjoying rights of ownership over the land as is evident from the fact that the developer is not entitled to transfer/sale his portion of developed area. It can be safely held that possession of land was not handed over to the builder in F.Y. 2008-09. The construction was completed in terms of development agreement only in F.Y.2011-12 and the exchange of property between the appellant and the developer took place in that financial year 201112. The sum and substance can be summarized in following words:- (a) That the capital assets was converted into stock-in-trade on 01/04/07 (b) That the development agreement was entered into on 17/04/07 and development agreement was registered on 26.06.08. (c) That neither provision of development agreement nor of the power of attorney has given right of possession to the developer. The builder is only entitled to enter and do all the necessary construction. (d) The right to enter for necessary construction only amount to permissive possession. (e) The appellant's interest in plot of land is exchanged for constructed area in the AY 20....
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....ra 5.16 of the impugned order. It was further submitted that in terms of development agreement, a general power of attorney was executed which was also registered on 26/06/2008 and relevant clauses which have been referred by the Ld. CIT(A) in para 5.17 of the impugned order, which we have extracted above. 10.1 The Ld. counsel in support of the proposition that mere ingress being allowed for carrying development on plot of land is not handing over possession within the meaning of section 2(47) of the Act, and hence, no transfer, relied on following decisions: 1. CS Atwal Vs CIT 378 ITR 244 ( P &H) 2. Binjusari Properties P Ltd. Vs ACIT 164 TTJ 417 (Hyedearbad) 3. Dilip Anand Vazirani Vs ITO 167 TTJ 194(Bom) 4. Shri Sadia Shaikh Tax Appeal No. 11 of 2013 dated 02/12/13 ( Karnataka) 5. Balveer Singh Maini 398 ITR 531 (SC) 6. Faradin Khan 304 CTR 299 (Bom) 10.2 In the case of CS Atwal (supra), Hon'ble High Court observed legislative intent behind incorporating clause (v) to section 2(47) of the Act. The relevant part of the observation of the Hon'ble High Court is reproduced as under: "The legislative intent behind i....
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....ni (supra), the Tribunal held as under: "Thus, ITAT had noticed that the Assessee had received advance amounts much earlier to the execution of development agreement, probably on the strength of the MOU. The property was encumbered with tenancy rights of many persons and the release of tenancy right was completed only in January, 2005. Further, the approval from municipal corporation was also got delayed and the plans were revised subsequent to AY 2000-01. The surrounding circumstances show that the developer does not started the work of development in the year relevant to AY 2001-02. As per the terms of development agreement, the Assessee had given only license to enter into the property, meaning thereby the possession was not given in the year relevant to AY 2001-02. In view of the peculiar facts narrated above, the Assessee had contended that the tax authorities was not correct in holding that the transfer of property took place in the year relevant to AY 2001-02. The various case laws discussed above also support the view taken by the Assessee. Hence, TAT agreed with the contentions of the Assessee in this regard. Accordingly, ITAT hold that the transfer of property do....
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....tion and development of the said plot. The clause 5 provides for consideration which will be 42% constructed area, including loading of TDR, in lieu of constructed area retained by the developer, which will be 58% along with 58% land area. Further, clause 14(1) has provided that "developer shall be deemed to have been allowed to enter upon the said property developer for the purpose of the construction of the said new building thereon". The developer was specifically allowed to construct a temporary site office only. Further, clause 24C provided that developer shall not give possession to any of the party to whom he allotted any areas out of the developer shares, without first giving possession of owners area to owners and the developer was allowed to give possession only after 15 days thereof . Under the power of authority also authorisation was given only for facilitation of the construction activity to the developer and no authority was given to exercise rights as owner of the land. 10.9 In view of the various clauses of the development agreement, it transpires that possession was given merely for carrying out construction work on the plot of land i.e. the permissible possess....
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....9;s 61% share and resisted dispossession by discharging his obligation under the agreement and seeking refuge in terms of Section 53A of the Act of 1882 despite the formal conveyance pertaining to the developer's entitlement not having being executed. In any view of the matter, the right of the developer to retain possession and protect such possession under Section 53A of the Act of 1882 could never have arisen prior to the construction being completed and the apportionment effected." 10.11 Further we find that Hon'ble Supreme Court in the case of Seshasayee Steel (P) Ltd. 115 Taxman.com 5 (SC) considered a development agreement granting permission to start advertising, selling and construction and permitted to execute sale agreements to developer. The Hon'ble court held that such permission is not possession under section 53A of the transfer of property Act. In para 14 the Hon'ble court held that "possession within meaning of section 53A, which is a legal concept and which denotes control over the land and not actual physical occupation of the land. This being the case, the section 53 of the Transfer of Property Act cannot possibly be attracted. 10.12 Respectfully follo....
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....of discussion mentioned above, I find force in the argument of the appellant and draw strength from the various decision given by the judicial High Court especially Bombay High Court decision in the case of Sambhaji Co-operative Housing Ltd and decision of Mumbai Tribunal ir the caseof Voltas Ltd. ITA No.5330/Mum/2009 ITA No.5331 of 2009 on identical facts. 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, while interpreting deemirg provisions neither any words can be added nor deleted from language used expressly. In view of the above referred decision of jurisdictional High Court, I hold that consideration received in the form of constructed area to the extent relatable to loading TDR is not taxable." 12.2 The amount of full value of consideration has been taken by the Assessing Officer in assessment year 2012-13 i.e. year under consideration, at registered agreement value by stamp value authorities at Rs.18,38,53,000/-. Subsequently, the Assessing Officer in assessment year 2009-10 referred the matter to the Ld. DVO and on the basis of his valuation repor....
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....ion of the flats by assessees. 7.2 In case of CIT vs. Jai Trikanand Rao - 60 SOT 0189(Mumbai). The Bombay ITAT also considered a similar issue. In this case, assessee was owning a plot of land and entered into a development agreement as per which the developer was to bear the cost of demolition of old structure and construction of the building and in view thereof the developer agreed to give 50% of the constructed area in the form of flats in the building. Under development agreement, a interest free security deposit was given of Rs.1 crore to the assessee which was refundable after giving possession of the constructed area to the assessee on completion of the building, total constructed area came to Rs.2166.2 Sq. Meter out of which assessee got constructed area of Rs.1082.7 Sq. Meter in the forrn of flat. Assessee sold certain flats out of such area received. Question for consideration was how to compute taxable income on sale of flats and development agreement. The Bench held. in para 11. "Now coming to the matter in controversy before us, as observed above, the 50% of the market value of the total land in question together with value of additional FSI, if any, ....
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....the developer at its cost, as per terms of DA. The assessee further submitted that it has permitted the developer to load TDR on its pre-constructed building on 2785 m² plot and got 42% constructed area therefore receipt of 42% constructed area is exchanged against 58% area of the plot and 42% plot always belonged and continue to belong to the assessee. According to the assessee for evaluating full value of the consideration taxable for transfer under DA will be value of the 42% of the constructed area without any value of the land as land always belongs to the assessee. The Ld. counsel of the assessee relied on the decision of the Tribunal, which have already been considered by the Ld. CIT(A) in the impugned order. 15. The Ld. DR on the other hand submitted that full value of the consideration should be taken at Rs.18,74,74,699/-as that is the value at which development rights have been transacted and value which has been taken by the stamp duty value authorities for a stamp duty purposes. 16. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that as far as non-applicability of section 50C on the d....
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....in the situation when cost of acquisition is Rs. nil and where the cost of acquisition cannot be ascertained or no cost of acquisition has been incurred. The items of capital assets specified in s. 55(2) are those for which the cost of acquisition shall be taken at Rs. nil for computing capital gains. However if the assessee had not incurred any cost of acquisition on a capital asset and such capital asset does not fall in the category of the capital assets specified in s. S5(2) then no capital gain would be charged. it is abundantly clear that the assessee had not incurred any cost of acquisition in respect of the right which emanated from the 1991 Rules making the assessee eligible to additional FSI. The land and building earlier in the possession of the assessee continued to remain with it as such even after the transfer of the right to additional FSI for Rs. 48 96 lakhs. The Departmental Representative could not point cut any particular asset as specified in sub-S. (2) of s. 55, which would include the right to additional FSI. No capital gains conid be charged on tie transfer of the additional FSI by the assessee for sale consideration of Rs. 48-96 lakhs for the reason that it ....
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....t as being paid to (i) ECL Finance Ltd. : Rs.3,11,920/- (ii) Shobha M. Desai : Rs.6,00,000/- (iii) Suresh I. Patel (HUF) : 5,95,000/- Total Rs.15,06.920/- The A.O. stated that such loans on which interest is claimed are not used for the purpose of business; therefore the same are disallowable. The appellant, during the course of appellate proceedings, stated that appellant has claimed deduction against house property. It is also stated that such interest paid is being allowed in all the past years from AY 06-07 to 11-12. In AY 06-07, interest claimed was Rs.12.29 lakhs, in AY 07-08 Rs.13.76 lakhs, and in AY 08-09 Rs.7.68 lakhs, and in 09-10 at Rs.6.05 lakhs. All these assessments has been completed U/s.143(3) of the Act. In AY 10-11, interest claimed is Rs.10.50 lakhs and in AY 11-12 Rs.10.95 lakhs. These Returns are accepted u/s.143(1). It is stated that interest paid to Smt. Shobha Desai of Rs.6 lakhs and Rs.5.95 lakhs to Suresh Patel, HUF is on the borrowings made in the earlier years and utilized for acquisition of house property. In AY 12-13, fresh borrowings has been made of Rs.2 cr. approx. from M/s.ECL F....
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....sonal expenditure, household expenses of Sures7 Patel were claimed to be reflected in the personal books of account of Shri Suresh Patel. A copy of impounded paper pg.149 is filed in compilation at pg.114. It is stated that RSP stand for the wife of Shri Suresh Patel and all these expenses of Rs. 1.30 lakhs are not claimed as business expenses in the books of account of appellant and are the personal expenses of Shri Suresh Patel, which are duly explainable as aimed to be recorded in the books of account of Shri Suresh Patel." 21. The Ld. CIT(A) rejected the contention of the assessee observing as under: "9.2 I have duly considered the submissions made by the appellant and the facts found by AO in the assessment order. Shri Suresh Patel claimed these expenses to be personal and also claimed that these expenses are reçorded in is personal books of account and has no connection with the appellant. /However, Shri Suresh Patel, who is also a partner of the firm, failed to produce any evidence to substantiate the claim that such expenditure is incurred by him out of explained sources. In view of lack of any such proof being produced even in appellate proceeding, no fa....