TaxTMI 
TaxTMI 
2022 (8) TMI 1385
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....m Properties Limited resulting in-complete inaction much less any commercial activity on the said property warranting assumption of income in the manner assessed in the impugned order. (4) The Learned Respondent equally overlooked all the glaring facts and submissions made by the appellant before the survey authorities and therefore the impugned orders are liable to be quashed on this ground alone. (5) The learned respondent further grossly erred in assuming income during the impugned period although the appellant had never accrued any income in view of complete inaction on the project. (6) The learned respondent further grossly erred in assuming the selling price absolutely without any basis and had arrived at an imaginary figure without any basis and therefore the impugned orders is liable to be set aside on this ground also. (7) The learned respondent also seriously erred in not considering the various statutory documents like granting of Khata on the property, releasing the original Joint Development Agreement by the Registering Authority, continuation of the litigation over the properties which are the subject matter of Joint Development Agr....
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....A) entered on 7.5.2009 with M/s. Sriram Properties Ltd. for construction of residential flats on land owned by assessee measuring 2 acres and 5 guntas situated at Singapura village, Jalahalli East, Yelahanka Hobli, Bengaluru. According to the A.O., the possession of said land was given the builder developer on signing the JDA i.e. on 7.5.2009. The contention of the assessee is that the permissive possession of land was given to the developer only in October, 2013. The A.O. treated the transfer in terms of section 2(47)(v) of the Act and computed the short term capital gain arising out of JDA. Further, during the survey, the assessee was asked to produce details of bills/vouchers and documentary proof for the developmental expenditure charged to the P&L account and consequently statement u/s 133A of the Act from the assessee with the declaration of 25% of the development expenses as additional income of Rs.1,37,60,592/- was obtained as additional income. Consequent to survey, the assessment was reopened by issuing a notice u/s 148 of the Act on 17.3.2015 by recording a reason as follows:- "The assessee Sri.K.V Naidu (PAN: ABMPN6059K) has filed his return of income for the A....
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....rvey, the Assessee was asked to explain the present situation on the matters on the Joint Development agreement entered on 07-05-2009 with M/S Shriram Properties Limited, for construction of residential flats on the land owned by the Assessee measuring 2 Acres and 5 guntas situated at Singapura Village, Jalahalli East, Yelhanka Hobli, Bengaluru. According to A.O the possession of the land was given to the Builder/developer on signing the JDA, in spite of the contention of the Assessee that the permissive possession of land was given to the Developer only in October 2013. Accordingly, he completed assessment so as to keep the matter alive. Thereby, he has wrongly computed the alleged STCG arising out of JDA. 7.2 The Ld. A.R. submitted that the Assessee has entered into JDA on 07-05-2009 with M/S Shriram Properties Limited for developing residential flats in land measuring 10 Acres 27 guntas situated at Singapura Village, Jalahalli East, Yelhanka Hobli, Bangalore. As per clause No. 1.2 of JDA, the Assessee has granted license to the Developer to enter into the vacant property and to construct a residential complex as per the plan to be sanctioned by competent authority for the com....
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....der power of attorney or otherwise and in the name of the assessee, the AO is entitled to take the date of contract as the date of the transfer under section 2(47)(v)" 7.5 He submitted that 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" and in the case before Hon'ble Bombay High Court, there was no dispute that the conditions of section 53A were satisfied. In other words, the proposition laid down by their Lordships can at best be inferred as that when conditions under section 53A are satisfied, and when the assessee enters into a contract which is a development agreement, in the garb of agreement of sale, it is the date of this development agreement which is material date to decide the date of transfer. However, by no stretch of logic, this legal precedent can support the proposition that all development agreements, in all situations, satisfy the conditions of section 53A which is a sine qua non for invoking section 2(47)(v). 7.6 According to Ld. A.R., in order to invoke the 'principles' laid down by the Hon'ble Bo....
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.... 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 his obligations. Unless the party has performed or is willing to perform his 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 satisfied on the facts of a case, the transaction in question cannot fall within the scope of deemed transfer under section 2(47)(v) of the IT Act. Let us therefore consider whether the transferee, on the facts of the present case, can be said to have 'performed or is willing to perform' his obligations under the agreement. 7.9 He submitted that facts of this case would show that the transferee had neither performed nor was he willing to perform his obligation under the agreement. The agreement based on which capital gains are sought to be taxed in the present assessment year is agreement dated 07-05-2009 but this....
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....ntial ingredients to cover a transaction by the scope of section 53A of the Transfer of Property Act. Revenue does not get any assistance from this judicial precedent. The very foundation of A.O's case is thus base less. 7.10 As stated in the assessment order, it only explains the reasons of re-opening the assessment is that the entering of JDA on 7.5.2009 and there is no offering of income of the capital gain on this count. The clause no. 1.2 of JDA itself states that no possession of the property has been given through the said JDA. The JDA is only for granting license to enter plot and start developmental activities" as narrated in clause 1.2 of JDA and that "as a result of this, the provisions of section 2 (47)(v) have no application. In this context, it is submitted that, the AO himself aware of the fact that the possession of the property was not given vide JDA and, having noted that valid consideration was not received by the assessee and no possession of the property was given by the assessee to the Developer in the relevant assessment year, concludes that this agreement was not given effect to. There was no material before the AO to infer that the transferee had perform....
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.... the case of Chaturbuji Dwarakadas Kapadia Vs. CIT reported in 260 ITR 491 and also in the case of T.K. Dayalu 202 Taxmann 500 (Karn). Further, he also relied on the judgement in the case of CIT Vs. Balbir Singh Maini reported in 398 ITR 531 (SC). He also relied on the order of Tribunal Cochin bench in the case of Smt. Hema Mohanlal for assessment year 2009-10 in ITA No.367/Coch/2017 dated 27.12.2018, wherein held as under:- " 7. We have carefully perused the JDA entered between the assessee and the developer. As per the JDA (in page 3 para 4), the construction should have completed and the share of build up area marked for the assessee ought to have been handed over within 36 months of obtaining necessary sanction. The developer could not complete the construction as per the JDA due to their internal problems and working capital issues and 20,000 sq. ft. of buildup area was handed over to the assessee only on 12.04.2016 after a gap of seven years. The closure agreement dated 12th April, 2016 evidencing the handing over is enclosed from page 16 of the paper book. As per page 3 para 5 of the JDA, it is stated that "the sale deeds the developer executes with the prospective ....
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....n non fulfillment of the contract terms. Conditional possession granted for development of plot does not amount to taking possession of the property under section 53A of the Transfer of Property Act. "Willingness to perform" the conditions stipulated has been specifically recognized as one of the essential ingredients to cover a transaction within the scope of section 53A of the Transfer of Property Act. 7.3 The provisions of deemed transfer u/s 2(47)(v) cannot be invoked in the assessee's case since she did not receive any consideration and also no construction actually took place during the Asst. Year 2009-2010. The permission from Trivandrum Corporation to construct the building was issued only during the next financial year on 08.06.2009. Copy of permission to construct the building is enclosed at page 19 of the paper book filed by the assessee. 7.4 The Power of Attorney was given to the developer only to represent the land owner and to sign on behalf of the land owner as per the instruction given by her since she is handicapped and living abroad at the time of execution of power of attorney. Nowhere in the power of attorney, handing over of the complete posse....
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.... has taken place at the impugned property in the previous relevant to the assessment year under consideration and the right to receive the sales consideration has not actually accrued to the assessee." Further it is held that "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 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 satisfied on the facts of the case, the transaction in question cannot fall within the scope of deemed transfer under section 2(47)(v) of the Act." 7.7 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 right on the vendor / landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement cannot be said to be in the nature of a contract referred to in section 53A of the Transfer of Property Act. The provisions of s....
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....s:- "20. The effect of the aforesaid amendment is that, on and after the commencement of the Amendment Act of 2001, if an agreement, like the JDA in the present case, is not registered, then it shall have no effect in law for the purposes of section 53A. In short, there is no agreement in the eyes of law which can be enforced under section 53A of the Transfer of Property Act. This being the case, we are of the view that the High Court was right in stating that in order to qualify as a "transfer" of a capital asset under section 2(47)(v) of the Act, there must be a "contract" which can be enforced in law under section 53A of the Transfer of Property Act. A reading of section 17(1A) and section 49 of the Registration Act shows that in the eyes of law, there is no contract which can be taken cognizance of, for the purpose specified in section 53A. The Income-tax Appellate Tribunal was not correct in referring to the expression "of the nature referred to in section 53A" in section 2(47)(v) in order to arrive at the opposite conclusion. This expression was used by the Legislature ever since sub-section (v) was inserted by the Finance Act of 1987, with effect from April 1, 1988.....
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....reads as follows:- "PERMISSION TO DEVELOP: 1.1) The First Party on this day delivered permissive possession of the Schedule B Property to the Second Party for the purpose of Development and Construction of residential complex. 1.2) The First Party hereby grants license to the Second Party or its nominees to enter into the vacant Schedule B Property and to construct a residential complex as per the plan to be sanctioned by BDA/BMP or any other competent authority for the composite development of Schedule Property. The Second Party shall enter upon Schedule B Property for commencing the work and shall continue to exercise the said right throughout the duration of the project and its completion. It is specifically understood between the Parties that the permissive possession of Schedule B Property given to the Second Party is not being given or intended to be given by the First Party in part performance of this agreement and this is not a sale agreement in any form or manner. Both the Parties confirm that the First Party shall retain legal possession of the Schedule B Property, subject to other terms and conditions of this agreement. The Development contempl....
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.... fact that section 2(47)(v) was introduced in the Act w.e.f. A.Y 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of conveyance. It was also noted by their Lordships that, in this scenario, assessee used to enter into agreements for developing properties with the builders and under arrangement with the builders, they used to confer privileges of ownership without executing conveyance, and to plug that loophole, section 2(47)(v) came to be introduced in the Act. 8.5 There was no dispute on whether or not the conditions of section 53A of the Transfer of Property Act were satisfied on the facts of the case before the Hon'ble Bombay High Court. It was in this context, and after elaborate analysis of the facts of the case before their Lordships, their Lordships also observed as follows: "If on a bare reading of a contract in its entirety, an AO comes to the conclusion that in the guise of agreement for sale, a development agreement is contemplated, under which the developer applies for permission from various authorities, either under power of attorney or otherwise and in the name of the assessee....
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....which the transferee has taken or continued in possession, other than the right specifically provided by the terms of the contract; Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof." 8.8 A plain reading of the 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 s. 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. This aspect has been duly taken note of by the Hon'ble Bombay High when their Lordships observed as follows: "That, in order to attract s. 53A, the following conditions need to be fulfilled. There should be contract for consideration; it should be in writing; it should be signed by the transferor; it should pertain to the transfer of immovable property; the transferee should have taken possession of property; lastly, transferee should be ready and willing to perform the contract.". Elaborating upon the scope of expression "has performed or is willi....
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....his obligation under the agreement. The agreement based on which capital gains are sought to be taxed in the present assessment year is agreement dated 07.05.2009 but this agreement was not adhered to by the transferee. There are various litigations were pending before City Civil Court at Bangalore in O.S. No. 3391/1997 & OS No.1682/2011 and they are finally settle in subsequent assessment years. So, the transferee did not make the payments as stipulated in the said agreement. Despite best efforts by the Assessee, the payments from the transferee could not be obtained. In fact, as a result of this lapse by the transferee, the possession as well as ownership of the impugned property was with Assessee and it was rightly shown as asset in the balance sheet of the Assessee as on 31- 03-2010 and thereafter. All these factors unambiguously establish that not only the transferee never performed his obligations under the agreement but the transferee was, not even willing to perform his obligations in the A.Y under consideration. When transferee, by his conduct and by his deeds, demonstrates that he is unwilling to perform his obligations under the agreement, the date of agreement ceases to....
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....ssession of the property was not given vide JDA and, having noted that valid consideration was not received by the assessee and only permissive possession of the property was given by the assessee to the Developer in the relevant assessment year, concludes that this agreement was not given effect to. There was no material before the AO to infer that the transferee had performed, or was willing to perform his obligations under the agreement, and yet he concludes that the conditions of section 53A are satisfied. On the contrary, there was material on record to suggest that the transferee has not, and is not willing to, perform his obligations under the agreement dated 07-05.2009, as was discernable from the details of payments received vis-a-vis the payment obligations under the agreement in question. The AO has apparently proceeded to reopen the assessment on the basis that mere grant of license, coupled with entering of development agreement, was enough to invoke deemed transfer under section 2(47)(v) of the Act. That is clearly an erroneous assumption, and an action based on such a fallacious assumption cannot be sustained in law. The provisions of deemed transfer under section 2(....
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....equired cost of acquisition by the developer. 8.14 The admitted facts of the case would show that the transferee had neither performed nor was it willing to perform its obligation under the agreement in the assessment year under consideration. The agreement based on which capital gains are sought to be taxed in the present case is agreement dated 07-05-2009 but this agreement was not adhered to by the transferee. As such, the assessee has received only a meager amount as refundable security deposit which cannot be construed as receipt of part of sale consideration. Admittedly, there is no progress in the development agreement in the assessment year under consideration. The Khata of the property transferred in the name of the Assessee in on 28.5.2013, and the plan sanction of the building plan is utmost important for the implementation of the agreement entered between the parties. Without sanction of the building plan, the very genesis of the agreement fails. To enable the execution of the agreement, firstly, the khata of the property has to be transferred in the name of the assessee, plan is to be approved by the competent authority. In fact, the building plan was not got approv....
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....sing authorities has not brought on record the actual position of the project even as on the date of assessment or he has not recorded the findings whether the developer started the construction work at any time during the assessment year under consideration or any development has taken place in the project in the relevant period. He went on to proceed on the sole issue with regard to handing over the possession of the property to the developer though it was not handed over though JDA. Even otherwise, the handing over of the possession of the property is only one of the condition u/s 53A of the Transfer of Property Act but it is not the sole and isolated condition. It is necessary to go into whether or not the transferee was 'willing to perform' its obligation under these consent terms. When transferee, by its conduct and by its deeds, demonstrates that 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. On these fa....
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.... time schedule is not adhered to, it cannot be said that such a contract confers any rights on the assessee/landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in Section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of Section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, the capital gains could not have been taxed in the in this assessment year under consideration. 8.16 Further, Hon'ble Supreme Court in Civil Appeal No. 15619 OF 2017 (Arising out of SLP (CIVIL) NO.35248 OF 2015) in the case of Commissioner of Income Tax Vs. Balbir Singh Maini, wherein it was held as follows:- "27. In the facts of the present case, it is clear that the income from capital gain on a transaction which never materialized is, at best, a hypothetical income. It is admitted that, for want of permissions, the entire transaction of development envisaged in the JDA fell through. In point of fact, income did not result at all for the aforesaid reason. This being ....
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....ment relied by the Ld. D.R. in the case of T.K. Dayalu cited (supra) cannot be applied to the facts of the present case as the constructive possession of property as per section 53A of the T.P. Act has not been given. Accordingly, we hold that there is no transfer in the assessment year under consideration in the A.Y. 2010-11. However, we make it clear that the capital gain arise out of this JDA dated 07.05.2009 to be taxed in the assessment year when the assessee actually got received his share of constructed area of flats from the developer, if it is not offered to him so far. This ground of assessee is partly allowed. 9. Ground No.12 is not pressed and hence this ground of appeal is dismissed as not pressed. 10. Ground Nos.2 & 13 were not argued before us. Hence, not adjudicated. 11. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 5th Aug, 2022 ============= Document 1 Description of Documents License bearing No. BBMP/Addl. Dir/JDN/0053 of 2013-14 issued by the BBMP; BDA:Nayosa:DLP-06/2009- 10/458/2013-14 issued by the Chairman, BDA; No Objection bearing No. BWSSB/EIC/ACE(R)/DCE(M)- 1/TA(M)-1/1....