TaxTMI 
TaxTMI 
2022 (8) TMI 1385
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.... 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 Agreement which disabled the appellant as well as the transferee from not carr....
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....d 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 AY 2010-11 on 13.10.2010 declaring total income of Rs 54,36,810/-. A survey u/s 133A was conducted in the busin....
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....ies 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 composite development of the property. It is also mentioned therein JDA that such permission given under said agreement cannot be construed as delivery of possessi....
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....bmitted 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 Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia (supra), it is, therefore, necessary to demonstrate that the conditions under section 53A of the Transfer of Property Act ....
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....erformed 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 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 assessm....
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....s. 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 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 n....
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....rted 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 buyers or other investors, shall be without prejudice to the complete ownership of land to the land owner until the owner's part of the built-up area is finished and handed over". Hence the builder did not have the right to sell ....
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.... 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 possession of the property to M/s.Artech Realtors (P) Ltd. was mentioned. Copy of the Power of Attorney is enclosed at page 21 of the paper book. As per the Power of Attorney and the JDA, flat can be transferred to a buyer only with the signature of the land owner and no power is given to the develo....
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....ract, 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 section 2(47)(v) will not apply in such a situation. It was held in the case of Sri ABVS Prakash, Hyderabad v. The ACIT, Central Circle-1, Hyderabad (2014) 8 Tax Corp (A.T.) 35688 that "The provisions of deemed transfer under section 2(47)(v) could not have been invoked. Without accrual of the consideration to the asse....
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....ection 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. All that is meant by this expression is to refer to the ingredients of applicability of section 53A to the contracts mentioned therein. It is only where the contract contains all the six features mentioned in Shrimant Shamrao Suryavanshi (supra), that the section applies, and this is what is meant by the expression "of the nature referred to....
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....operty 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 contemplated by this agreement is not in the nature of a partnership as contemplated either by the Indian Partnership Act 1932 or by the Income Tax Act, 1961. Such permission to enter Schedule B Property shall however be not construed as delivery of possession under section 53A of Transfer of Property Act." 8.1 Thus, the assessee granted license to the developer to enter int....
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....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, the AO is entitled to take the date of contract as the date of the transfer under section 2(47)(v)" 8.6 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....
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....ontract 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 willing to perform", the oft quoted commentary "Mulla-The Transfer of Property Act" (9th Edn.: Published by Butterworths India), at p. 448, observes that: "The doctrine of readiness and willingness is an emphatic way of expression to establish that the transferee always abides by the terms of the agreement and is willing to perform his part of the contract. Part performance, as a statutory right, is conditioned upon the t....
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.... 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 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 facts, it is not possible to hold that the transferee was willing to perform his obligations in the A.Y 2010-11 in which the capital gains are sought to be taxed by the Revenue. We hold that this condition laid down under s.53A of the Transfer....
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....nd 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(47)(v) could not have been invoked on the facts of the present case. In the present case, the situation is that the Assessee has received only a 'meager amount' at Rs.5,00,000/- vide clause No.11.1 of JDA dated 7.5.2009 as refundable deposit, the transferee is avoiding adhering to the construction schedule on one ground or the other, and there is no surety that the sales consideration will actually be realized by the Assessee, and yet the Ass....
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....ed 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 approved by the builder in the assessment year under consideration since he do not have legal ownership, since the khata has not been transferred. Until permission is granted, a developer cannot undertake construction. As a result of this lapse by the transferee, the construction was not taken place in the assessment year under consideration. There is a breach and break down of development agreement in the assessment year under consideration and it is no....
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....ugh 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 facts, it is not possible to hold that the transferee was willing to perform its obligations in the financial year in which the capital gains are sought to be taxed by the A.O. It is to be noted that the condition laid down under section 53A of the Transfer of Property Act was not satisfied in this assessment year. Once it is concluded that the transferee was not 'willing to perform', as stipulated by and within meanings assigned to this expr....
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....nd 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 the case, it is clear that there is no profit or gain which arises from the transfer of a capital asset, which could be brought to tax under Section 45 read with Section 48 of the Income Tax Act." "28. In the present case, the assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained. This being the case, in the circumstances, there was no debt owed to the assessees by t....