TaxTMI 
TaxTMI 
2022 (8) TMI 685
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....ot treating of advances received by the assessee of Rs.1,78,68,399/- from flat buyers as income of the assessee for AY 2006-07. 3. In assessment year 2007-08, deletion of amount of Rs.96,04,258/- and in assessment year 2008-09 deletion of amount of Rs.2,77,19,807/- has been challenged by the Revenue. 4. Briefly stated facts of the case are that assessee HUF had entered into a development agreement with M/s K Raheja Universal Private Limited (i.e. the developer) for development of residential flats and commercial units on certain land at Malad (East), Mumbai, which was owned by the assessee along with other co-owners (i.e. two brothers of Karta of HUF). As per the development agreement, the owners of the land and the developers were to share the sale proceeds in the ratio of 45.5% and 54.5% respectively. The assessee was having 1/4th share in the land, and therefore it was entitled to receive 25% of the 45.5% share receivable by the landowners. The project consisted of construction of four towers on the said land, out of which first two towers were completed in previous year corresponding to assessment year 2008-09, whereas the remaining two towers were completed in previous year ....
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....ss sale proceeds including interest components for delayed payment from the prospective buyers of flats against sale of his share in the property owned along with his two brothers as coparceners being the land component. Further as per clause 46 of the development agreement, after completion of the building, it is the responsibility of the developer to form a co-operative society or a limited company of the purchasers of the newly constructed building. It is clearly mentioned in the said clause of the agreement that the appellant along with his 2 brothers and the Developer shall jointly convey their respective rights and interest in the said property and the said building in favour of the co-operative society or limited company to be formed by the purchasers of the premises. This execution of the conveyance deed in favour of the co-operative society or limited company is to be done only after completion of the building, receipt of the occupation certificate, after all the residential premises have been sold and the total sale price of all the said premises have been received. 12. The Ld. AR has further brought to the notice of the undersigned the notes forming part of the account....
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....e sale proceeds of land (for Tower & II or Tower A and B) amounting to Rs. 8,97,11,407/- and paid tax thereon totalling to Rs. 2,12,30,019/-. It is further explained by the Ld. AR that the AO has also cumulatively determined the same receipt of Rs. 8,97,11,407/- for the three years i.e., for A.Y. 2006-07, Rs. 1,78,68,399 for Tower & II (Advance), for A.Y. 2007-08, Rs. 96,04,258/- for Tower & II (Advance) and for A.Y. 2008-09, Rs. 6,22,38,750 for Tower & II (Final payment). Thus the amount computed by the AO for three years is the same amount which is offered for taxation in A.Y. 2008-09 i.e., Rs. 8,97,11,407/-. There is no variation at all. Once the appellant has already paid tax on total sale of Rs. 8,97,11,407/- in the A.Y. 2008-09, the year in which the project is completed, the AO is not justified in taxing the same amount in the preceding years, when the receipts were in the nature of advances. There is no loss to the revenue on account of taxation as the tax is fully paid on Rs. 8,97,11,407/- in the A.Y. 2008-09. Hence, the Ld. AR pleaded that the impugned addition made by the AO should be deleted." 7. After considering of the submission of the assessee, the Ld. CIT(A) accep....
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....e and interest in the land and the said buildings in favour of a co-operative society or limited company to be formed by the purchasers of the premises after completion of the buildings. (vii) Finally, it is mentioned that the development agreement has neither created any relationship of partner or as A.O.P. and/or as Joint venture between the land owners and the Developer. The relationship between them are that of 'principal to principal' for the purpose of development of the said property. 16. Apart from that following facts are also important to determine the issue under consideration 1) Occupation certificates from BMC are received on 22/01/2008 for Tower A & B and on 24/04/2008 for Tower C & D i.e., in A.Y.s 2008-09 and 2009-10 2) Land is conveyed in favour of the society after handing over the possession to the flats buyer i.e. after A.Y. 2009-10 & 2010-11 3) As declared in the return of income of A.Y. 2004-05, the land was converted into "stock in trade" valued at Rs. 7,37,50,000/- and all subsequent years, the appellant has consistently treated the land as its "stock in trade". 4) From the return of income of A.Y. 2008-09, it is observed that the appella....
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.... proportionate or completion method is not applicable to the appellant's case. 18. In my considered opinion, in such a case, the land owner can adopted a suitable revenue recognition criteria having consistency in the accounting policies being followed from year to year. Based on the accounting policies being followed and development agreement entered with the Developer, revenue can be recognised once the project is complete and occupation certificates are issued by the municipal authorities. However, much will depend upon the terms and conditions under which the development agreement was entered into and how the revenue flows. Before further dealing on this issue, it needs to be ascertained as to whether the land, in the instant case, will constitute a capital asset or a business asset. In this regard, the appellant has brought on record that in the return of income of A.Y. 2004-05, the land was converted into "stock in trade" and from that time, the appellant has consistently shown it as its "stock in trade". In the return of income for A.Y. 2004-05, the relevant remarks for conversion of land, from capital asset to "stock in trade" is found to be clearly mentioned. The val....
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.... submit the said property to the provisions of the Maharashtra Apartment ownership Act, 1970, the land owner and the Developer shall jointly execute a "Declaration" as per section 2 of the said Act as well as the deeds of apartment in favour of the respective purchasers. Such conveyance/deeds of apartment shall be executed only after the completion of the said buildings and receipt of occupation certificate and after all the residential flats and premises therein shall have been sold and the total purchase price of all the said premises have been received. From the above, it is very clear that the transfer of land has not taken place from the land owner to the Developer as per definition of transfer under section 2(47) and there is no incidence of tax till the right in the undivided land is transferred to the flat owners or possession is given to them. 20. The whole scenario or arrangement can also be looked into from the point of view of joint-venture between the land owners and the Developers, notwithstanding the fact that the clause 43 of the agreement laid down that the agreement is not a partnership between the parties as contemplated under the partnership Act 1932 and/or Jo....
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....(or Tower A and B) on 22nd Jan, 2008 when occupation of the flats were given to the buyers. In view of the above, I agree with the Ld. AR that advance payments received in part during A.Y.s 2006-07 and 2007-08 cannot be treated as sale in those years. The same has been correctly treated as sale in the year of completion i.e., A.Y.2008-09 of Towers and II (or Towers A and B). It is also brought on record that the Towers C & D are completed in A.Y 2009-10, OC was received in A.Y 2009 10 (on 24th April, 2008) and water & electricity connection were obtained much after the OC received. Possessions to the buyers were given much after water & electric connection was done. Hence, all the above mentioned conditions got satisfied in A.YS 2008-09 and 2009-10, for the four Towers. It is further claimed that the commercial premises got completed in the A.Y 2009- 10, which has remain unsold till date and is lying as stock in trade in the P & L A/c of the assessee. 22. Identical facts were considered by Hon'ble Gujarat High Court in the case of CIT vs Ashaland Corporation [1981] 7 Taxman 393 (Guj.). The facts of that case were the assessee-firm was a dealer in land, adopting the cash syste....
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....Thus, the said land continued to be its stock-in-trade. It is axiomatic that an agreement to sell does not create any interest in favour of the purchaser. It is on completion of the transaction of purchase and sale culminating into an extinguishment of the title of the vendor and simultaneous creation of the title of the vendee that the assessee earns profit or suffers loss. Receipt of Rs. 2,13,772 would, therefore, assume the character of income or profit only when sale transaction was completed in accordance with law. Doctrine of part performance embodied in section 52A of the Transfer of Property Act could not also be brought into aid to treat the said receipt of Rs. 2,13,772 as trading receipt. The agreement in writing to sell, coupled with parting of possession, would not confer any legal title on the purchaser, i.e., the society and take the land out of the assessee's stock-in-trade. The assessee's method of accounting has no relevance in determining whether receipt of the above nature was trading receipt or income. The method of accounting, whether cash method or mercantile method, would have bearing only in respect of completed business transaction. 23. There is....