TaxTMI 
TaxTMI 
2026 (7) TMI 1317
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....e assessee is an individual. The assessee along with 2 other person was the owner of land property admeasuring 3 Acres & 10 Guntas situated at Nagondanahalli Village, K R Puram Hobli, bearing survey 105/1 & 105/02. In respect of the impugned property the assessee as on 07th March 2011 entered into JDA with M/s. Saroj Group, Bengaluru for development of a multi-story residential/commercial building. Further supplementary agreement was entered into with respect of the JDA. 4. As per the terms of the JDA, the assessee and other co-owner provided the possession of the NA land property to M/s Saroj Group (developer) for carrying out the work of construction or development of the project. The assessee & other owners were entitled to receive 96030 sq. ft. of constructed area in the developed project or to say 69 units. Furthermore, the developer M/s Saroj Group was subject to survey proceedings under section 133A of the Act as on 20-05-2016. In that connection, the assessee's (owners) statement was recorded and the assessee admitted have also received a sum of Rs. 40 lakhs as nonrefundable advance. The assessee while recording statement also agreed to-offer the income on account of the....
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....sponding capital gain was disclosed in the return of income of A.Y. 2017-18. It was further stated that the assessee continued to hold 3 flats allotted under the JDA and therefore no taxable transfer had taken place in the year under consideration merely because the development agreement was entered into. 4.4 However, the AO was not convinced with the submissions of the assessee. The AO, during the set aside assessment proceedings, examined the Joint Development Agreement dated 07.03.2011 entered by the assessee along with other co-owners with M/s Saroj Group for development of the property situated at Nagondanahalli Village, Bengaluru. The AO observed that under the terms of the JDA and supplementary agreement dated 07.02.2013, the landowners had handed over possession of the property to the developer for the purpose of construction and development of a multi-storied residential/commercial project. The AO noted that the supplementary agreement clearly provided that the owners would receive 69 residential units having total super builtup area of approximately 96,030 sq. ft., whereas the builder would receive 107 units having total super built-up area of approximately 1,44,048 sq....
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.... paid capital gains tax on the transaction and stated that he would consult his auditor and pay the taxes accordingly. According to the AO, the said statement clearly established that the assessee himself had accepted the taxability of capital gains arising from the JDA transaction. 4.8 The AO thereafter relied upon the decision of the Hon'ble Karnataka High Court in the case of CIT vs. T.K. Dayalu reported in 14 taxmann.com 120 and the decision of the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT reported in 260 ITR 491 for the proposition that transfer under section 2(47)(v) takes place once possession is handed over to the developer in part performance of the contract. The AO observed that the JDA in the present case was a registered agreement and all the conditions prescribed under section 53A of the Transfer of Property Act stood satisfied. According to the AO, the developer had taken possession of the property, undertaken development activities, paid part consideration to the owners, and was willing to perform its obligations under the agreement. Therefore, the transaction constituted a deemed transfer within the meaning of section 2(47)(v) ....
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....r upon the land for development does not amount to "transfer" under section 2(47)(v) of the Act. The assessee pointed out that the Hon'ble Supreme Court has categorically held that licence to enter property for development activity cannot be treated as handing over possession within the meaning of section 53A of the Transfer of Property Act. The assessee argued that the facts of the present case were squarely covered by the ratio laid down by the Hon'ble Supreme Court since the developer was never placed in legal possession or control of the property during the relevant year. 5.3 The assessee also relied upon the decisions of the Hon'ble ITAT Bangalore Bench in the cases of Kola Venkat Rama Naidu in ITA No. 206/Bang/2020 dated 05/08/2022 and M/s Anugraha Shelters Pvt. Ltd in ITA No. 2314/Bang/2016 dated 22/11/2021, wherein under similar circumstances it was held that where the JDA itself clarifies that no possession is handed over to the developer in terms of section 53A of the Transfer of Property Act, the provisions of section 2(47)(v) of the Act would not apply in the year of execution of the JDA. On the strength of these judicial precedents, the assessee contended that the a....
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....h one clause in the JDA mentioned that the permission granted should not be construed as possession u/s 53A of the Transfer of Property Act, the real test under the Income-tax Act was the actual substance of the transaction and not the terminology used in the agreement. According to the learned CIT(A), the surrounding circumstances clearly showed that the developer had obtained effective control and beneficial possession of the property for carrying out development activities and therefore the conditions of section 2(47)(v) read with section 53A of the Transfer of Property Act stood satisfied. 5.8 The learned CIT(A) further noticed that the survey materials and the statement recorded of the assessee u/s 133A of the Act indicated that the developer had already entered the property and commenced construction activities pursuant to the JDA. It was therefore held that the assessee and other landowners had parted with substantial rights in the property during the financial year relevant to A.Y. 2011-12 itself. The learned CIT(A) held that the developer could not have carried out construction activities and exercised development rights unless effective possession and control over the ....
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.... and other materials gathered during survey proceedings. The statement recorded during survey was treated only as corroborative evidence. Therefore, the learned CIT(A) rejected the contention of the assessee that the addition was invalid merely because reliance was placed on the survey statement. 5.13 On the issue relating to valuation of consideration, the learned CIT(A) upheld the action of the AO in adopting the rate of Rs. 2,500 per sq.ft. for valuing the built-up area receivable by the assessee under the JDA. The learned CIT(A) observed that the AO had adopted the said value on the basis of contemporaneous information available from the developer's books and survey findings regarding prevailing construction cost and market value of similar residential projects in Bengaluru during the relevant period. The learned CIT(A) further observed that the assessee had not produced any independent valuation report or comparable instances to establish that the value adopted by the AO was excessive. Therefore, the valuation adopted by the AO was upheld. 5.14 The learned CIT(A) also rejected the assessee's claim for deduction towards cost of acquisition by observing that despite suffic....
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....bitrary, appropriate deduction towards cost of acquisition ought to have been allowed, and the assessee was otherwise entitled to exemption under section 54F of the Act. The learned AR accordingly prayed for deletion of the addition. 8. The learned Departmental Representative before us filed written submission dated 7-05-2026 along with the case laws. The ld. DR supported the orders of the Assessing Officer and the learned CIT(A). It was submitted that the registered JDA and the supplementary agreement clearly established that possession and substantial development rights were irrevocably transferred to the developer, thereby satisfying the conditions of section 2(47)(v) of the Act read with section 53A of the Transfer of Property Act. The assessee had also admitted during survey proceedings that consideration had been received and that capital gains were payable. The learned DR contended that the assessee failed to produce any reliable evidence to substantiate the claim that the capital gains had been offered to tax in subsequent years or to support the claim for deduction under section 54F. Reliance was placed on the decisions of the Hon'ble Karnataka High Court in Dr. T.K....
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.... allegation of the revenue is that in pursuance to the JDA, the possession of the land property was transferred to the developer. Further the assessee in the statement recorded during the survey at the premises of developer admitted having received sum of Rs. 40 lakhs as no refundable advance. Therefore, as per the provision of section 2(47)(v) of the Act, transfer took place in the previous year 2010-11 relevant to A.Y. 2011-12 i.e. the year in which JDA was entered and the possession of the land given to the developer. The AO holding so placed reliance on decision of Hon'ble Karnataka High Court in the case of DR. T.K. Dayalu reported in 14 taxmann.com 120. 9.5 On the contrary, the assessee consistently argued that the developer was merely permitted to enter upon the property for the limited purpose of carrying out development activities and no legal possession or control over the property was handed over in part performance of the contract. It was specifically pointed out that the JDA itself clearly stated that the permission granted to the developer shall not be construed as delivery of possession under section 53A of the Transfer of Property Act or section 2(47) of the Act.....
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....so do not find merit in the contention that capital gain should arise only when the constructed flats were actually received or subsequently sold. Such subsequent sale of flats would constitute a separate stage of taxation. However, the first taxable event, being transfer of land/development rights under the JDA, arose when the JDA was executed and possession was handed over to the developer. The subsequent receipt or sale of flats cannot defer the charge of capital gains arising on transfer u/s 2(47)(v) of the Act. In view of the above, we hold that the transfer within the meaning of u/s 2(47)(v) of the Act was completed in the previous year relevant to A.Y. 2011-12, being the year in which the JDA was entered, and possession was given to the developer. 9.10 Be that as maybe and without prejudice to the above, we find that the AO has adopted the developer's cost of construction as the measure of consideration for the assessee's share of built-up area. In our considered view this approach is legally untenable. The cost of construction incurred by the developer is not the price paid to the assessee, but merely the developer's expenditure in fulfilling his contractual obligation t....
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.... as per above laid procedure be brought to tax or whether the assessee shall be eligible for exemption/deduction under section 54/54F of the Act. The learned AR of the assessee before us contended whatever the capital gain arrived shall be considered as investment in the residential house. The learned AR contended entire flats allotted to the assessee shall be considered as investment in a residential house. We find force in argument of the learned AR of the assessee which is supported by the ruling of Hon'ble Jurisdictional High Court of Karnataka in the case of CIT vs. D. Ananda Basappa reported in 180 taxman 4. In the said case, the assessee, HUF sold a residential house and purchased 2 residential flats adjacent to each other through two different sale deeds. The assessee claimed the claimed exemption u/s 54 of the Act on account of purchase of those two flats. But the revenue authority restricted the exemption u/s 54 of the Act to the extent of purchase value of 1 flat. On appeal before the Tribunal by the assessee, the Tribunal decided the issue in favor of the assessee. On further appeal by the revenue before the Hon'ble High Court, the bench held as under: A plain ....
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....divided interest over the land. The handing over of possession of the entire property was, however, only for the limited purpose of development; the undivided interest in the land stood transferred to the developer/builder only to the extent of 22.5% for his exclusive enjoyment. It was on these facts that the assessing officer first took the view that the sale consideration for the transfer of the capital asset should be taken not merely at Rs. 4 crores which was the cash amount received by the assessee, but the cost of construction incurred by the developer on the development of the property amounting to Rs. 3,43,72,529/- should also be added to the sale consideration. The assessee thereupon claimed that if the cost of construction incurred by the builder is to be added to the sale price, then the same should also be correspondingly taken to have been invested in the residential house namely the two floors which the assessee was to get in addition to the cash amount under the agreement with the builder, and the amount so spent on the construction should be allowed as deduction under section 54 of the Act. It was at this stage that the assessing officer rejected the claim for deduc....
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....he capital gain in purchase of additional residential building." This judgment was followed by the same High Court in the decision in CIT v. Smt K.G. Rukminiamma [2011] 196 Taxman 87/[2010] 8 taxmann.com 121 (Kar.). 9. There could also be another angle. Section 54/54F uses the expression "a residential house". The expression used is not "a residential unit". This is a new concept introduced by the assessing officer into the section. Section 54/54F requires the assessee to acquire a "residential house" and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the Section should be taken to have been satisfied. There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, it seems to us that the incom....
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....and the remaining 52% representing another 4 flats is the share of the builder. So the consideration for selling 52% of the site was 4 flats representing 48% of built up area and the 4 flats are situated in a residential building. The Court held that the 4 flats constitute 'a residential house' for the purpose of sec 54. The 4 residential flats cannot be construed as 4 residential houses for the purpose of sec 54. It has to be construed as "a residential house" and the assessee is entitled to the benefit accordingly. In that view of the matter, the Court held that the Tribunal as well as the appellate authority were justified in holding that there is no liability to pay Capital Gains tax as the case squarely falls under sec. 54 of the Income Tax Act, 1961. As far as the decision of the Hon'ble Madras High Court in the case of V.R. Karpagam (supra) is concerned the facts were similar to the case of the assessee. The assessee in the case of V.R.Karpagam entered into an agreement with M for development of a piece of land owned by it-As per agreement, assessee was to receive 43.75% of built up area after development, which was translated into five flats. The Assessee claimed ex....