MAHIPAL REDDY MOLUGU,HYDERABAD vs. ITO., WARD-13(3), HYDERABAD

आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A‘ Bench, Hyderabad �ी रिवश सूद,�ाियक सद� एवं �ी मधुसूदन साविड़या लेखा सद� सम� | Before Shri Ravish Sood, Judicial Member A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA No. 1485/Hyd/2025 (िनधा�रण वष�/Assessment Year: 2010-11) Shri Mahipal Reddy Vs. Income Tax Officer Molugu, HYDERABAD Ward 13(3) PAN: AEYPM9241D Hyderabad (Appellant) (Respondent) िनधा�रती �ारा/Assessee by: Advocate Mohd Afzal राज� व �ारा/Revenue by: Shri Mohan Babu, Sr. AR सुनवाई की तारीख/Date of hearing: 01/07/2026 घोषणा की तारीख/Pronouncement: 05/08/2026 आदेश/ORDER Per Madhusudan Sawdia, A.M.:

This appeal is filed by Shri Mahipal Reddy Molugu (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals)-11, Hyderabad, (“Ld. CIT(A)”) dated 30.08.2025 for the A.Y. 2010- 11. 2. The assessee has raised the following grounds of appeal: “1. On the facts and in the circumstances of the case the order of the learned Assessing Officer is contrary to law and facts of the case.

the case of M/s Sai Mitra Constructions (“the developer”). During the course of survey proceedings, the Learned Assessing Officer (“Ld. AO”) came to know that the assessee, along with twelve other co-owners, had entered into a Development Agreement-cum-General Power of Attorney (“JDA”) with the developer on 25.02.2010 in respect of land situated at Kushaiguda Village, Kapra Municipality. Accordingly, the Ld. AO initiated reassessment proceedings under section 147 of the Act and issued notice under section 148 of the Act to the assessee. The reassessment was completed by the Ld. AO under section 143(3) read with section 147 of the Act vide order dated 30.12.2016, accepting the returned income. Thereafter, the Learned Principal Commissioner of Income-tax (“Ld. PCIT”) invoked his revisional jurisdiction under section 263 of the Act and vide order dated 29.03.2019 set aside the assessment order passed under section 143(3) read with section 147 of the Act with a direction to the Ld. AO to redo the assessment. Pursuant to the said directions, the Ld. AO completed the assessment under section 143(3) read with section 263 of the Act vide order dated 26.12.2019, making an addition of ₹2,27,99,005 in the hands of the assessee under the head “Long-Term Capital Gains”. 4. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT (A) who partly allowed the appeal. 5. Aggrieved by the order of the Ld. CIT (A), the assessee is in further appeal before this Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the solitary issue arising for consideration in the present

appeal is the addition made by the Ld. AO under the head Long- Term Capital Gains arising out of the JDA. The Ld. AR submitted that the assessee, along with twelve other co- owners, had entered into a JDA with the developer on 25.02.2010. Inviting our attention to Clause no. 1 of the JDA placed at page no. 48 of the paper book, he submitted that the possession of the property was handed over to the developer only for the limited purpose of development of the land into flats. He contended that such possession does not amount to a transfer within the meaning of section 2(47) of the Act and, therefore, no capital gains under section 45 of the Act could be brought to tax in the hands of the assessee. The Ld. AR further invited our attention to page no. 3 of the assessment order and submitted that the Ld. AO had erroneously treated the handing over of possession as a transfer falling within the ambit of section 53A of the Transfer of Property Act, 1882, by placing reliance on the decision of the Hon’ble Andhra Pradesh High Court in the case of Potla Nageswara Rao Vs. DCIT in ITTA No. 245 of 2014 dated 09.04.2014. He submitted that the reliance placed by the Ld. AO on the said decision is misplaced, as in that case the Hon’ble High Court had found that the possession handed over was in the nature of possession contemplated under section 53A of the Transfer of Property Act, 1882. However, in the present case, the possession was handed over only for the limited purpose of development and, therefore, would not fall within the ambit of section 53A of the Transfer of Property Act, 1882, nor consequently within the definition of “transfer” under section 2(47) of the Act. In support of their contention, the Ld. AR placed reliance on the decision of the Hon’ble Supreme Court in the case of Seshasayee Steels (P.)

Ltd. Vs. ACIT [(2020) 421 ITR 46 (SC)], wherein it has been categorically held that where possession is given to the developer merely for the limited purpose of development of the land into flats and sale thereof, such possession cannot be regarded as possession contemplated under section 53A of the Transfer of Property Act, 1882. He also relied upon the recent decision of the Hon’ble Telangana High Court in Smt. Santha Vidyasagar Annam Vs. ITO in ITTA No. 527 of 2006 dated 07.01.2025, wherein, after considering the decision in the case of Potla Nageswara Rao Vs. DCIT (supra), the Hon’ble High Court held that where possession is handed over only for the limited purpose of development, the same would not constitute possession within the meaning of section 53A of the Transfer of Property Act, 1882 and, consequently, would not amount to a transfer under section 2(47) of the Act. Accordingly, he prayed that the addition made under the head Long-Term Capital Gains be deleted.

entrusted for development to the Developers herein for construction a multi-storied residential apartment buildings, block-wise, in accordance with the approved plans, to be sanctioned by the Greater Hyderabad Municipal Corporation.” 8. On a perusal of the above, we find that the possession of the property was handed over by the assessee to the developer only for the limited purpose of development of the land into flats. We have also gone through the relevant observations contained at page no. 3 of the assessment order, which is to the following effect:

“17. Thus, from the aforementioned facts, it is evident that even though there is a contract to transfer the immovable property, which is signed by the parties, yet the contract has not been executed for consideration. A sum of Rs.2,00,000/- mentioned in paragraph 6 of the development agreement is only the performance guarantee which is refundable. The aforesaid amount of Rs.2,00,000/- has not been paid by way of consideration of the transaction. The developer has been handed over the possession for the limited purpose of carrying out the development work. Therefore, in pursuance of the development agreement, the possession of the immovable property has not been handed over to the developer as contemplated under Section 53A of the Transfer of the Property Act, 1882. Therefore, the same does not fall within the definition of 'transfer' under Section 2(47) of the Act. 18. Insofar as reliance placed by the learned Senior Standing Counsel for the Revenue in Potla Nageswara Rao vs. Deputy Commissioner of Income Tax (supra) is concerned, the same is an authority for the proposition that element of factual possession and agreement are contemplated as transfer within the meaning of Section 2(47) of the Act. It has further been held that when the transfer is complete, the consideration mentioned in the agreement for sale has to be taken into consideration for the purpose of assessment of income. In the instant case, under the development agreement there is no transfer and the consideration has also not been paid. Therefore, the aforesaid decision of the Division Bench has no application to the fact situation of the case. Similarly, in the case of Commissioner of Income Tax vs. Arvind S Phake (supra), the possession was handed over to the developer, and the entire consideration was paid. In the instant case, consideration has not been paid. Therefore, the Division Bench decision of the Bombay High Court

also does not apply to the fact situation of the case. In Commissioner of Income Tax vs. Harbour View (supra), the Division Bench of Kerala High Court on the facts of the case found that the possession of the property was handed over under Section 53A of the Transfer of Property Act, 1882. Therefore, the aforesaid decision also has no application to the fact situation of the case. 19. However, the finding has been recorded by the Tribunal that the appellant has handed over the possession of the entire property enabling the developer to enjoy 60% of the constructed area of the building cannot but be said to be perverse. Similarly, the finding that the assessee is liable to pay capital gains tax during the assessment year 1997-98 also cannot be sustained. 20. For the aforementioned reasons, the substantial questions of law framed in this appeal are answered in favour of the assessee and against the revenue.” 10. On perusal of the above, we find that the Hon’ble High Court, after considering and distinguishing the decision in the case of Potla Nageswara Rao Vs. DCIT (supra), has categorically held that where possession is handed over to the developer only for the limited purpose of development of the land into flats, such possession cannot be regarded as possession contemplated under section 53A of the Transfer of Property Act, 1882 and, consequently, would not amount to a transfer within the meaning of section 2(47) of the Act. The said view of the Hon’ble Telangana High Court also finds complete support from the judgment of the Hon’ble Supreme Court in Seshasayee Steels (P.) Ltd. Vs. ACIT (supra), the relevant portion of which is reproduced as under:

“In order that the provisions of Section 53A of the T.P. Act be attracted, first and foremost, the transferee must, in part performance of the contract, have taken possession of the property or any part thereof. Secondly, the transferee must have performed or be willing to perform his part of the agreement. It is only if these two important conditions, among others, are satisfied that the provisions of Section 53A can be said to be attracted on the facts of a given case.

On a reading of the agreement to sell dated 15.05.1998, what is clear is that both the parties are entitled to specific performance. (See Clause 14) Clause 16 is crucial, and the expression used in Clause 16 is that the party of the first part hereby gives ‘permission’ to the party of the second part to start construction on the land. Clause 16 would, therefore, lead to the position that a license was given to another upon the land for the purpose of developing the land into flats and selling the same. Such license cannot be said to be ‘possession’ within the 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, Section 53A of the T.P. Act cannot possibly be attracted to the facts of this case for this reason alone.” 11. On perusal of the above, we find that the Hon’ble Supreme Court has categorically held that where possession is granted to the developer only for the limited purpose of developing the land into flats and selling the same, such license or permissive possession cannot be regarded as possession contemplated under section 53A of the Transfer of Property Act, 1882. In the present case, it is an undisputed fact that the possession handed over by the assessee to the developer was only for the limited purpose of development of the land into flats. The Revenue has failed to bring any material on record to demonstrate that the possession handed over was of the nature contemplated under section 53A of the Transfer of Property Act, 1882. Accordingly, respectfully following the ratio laid down by the Hon’ble Supreme Court in Seshasayee Steels (P.) Ltd. Vs. ACIT (supra) and the decision of the Hon’ble Telangana High Court in Smt. Santha Vidyasagar Annam Vs. ITO (supra), we hold that the possession handed over by the assessee to the developer being only for the limited purpose of development of the land into flats does not constitute a “transfer” within the meaning of section 2(47) of the Act. Once there is no transfer

within the meaning of section 2(47) of the Act, the charging provisions contained in section 45 of the Act are not attracted and, therefore, no capital gains can be brought to tax in the hands of the assessee. Accordingly, we direct the Ld. AO to delete the addition made under the head Long-Term Capital Gains.

Order pronounced in the Open Court on 5th August, 2026. Sd/- Sd/- (RAVISH SOOD) (MADHUSUDAN SAWDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated 5th August, 2026 Vinodan/sps Copy to: S.No Addresses 1 Shri Mahipal Reddy Molugu, 2-2-18/18/4/16 IP Colony, Bagh Amberpet, Hyderabad 500013 2 Income Tax Officer Ward-13(3) Aayakar Bhavan, Basheerbagh, Hyderabad 500001 3 Pr. CIT , Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File

By Order TUMMALACHARLA Digitally signed by TUMMALACHARLA LAKSHMI NARAYANA DN: cn=TUMMALACHARLA LAKSHMI LAKSHMI NARAYANA, c=IN, o=INCOME TAX APPELLATE TRIBUNAL, ou=INCOME TAX NARAYANA APPELLATE TRIBUNAL, CHENNAI BENCH Date: 2026.08.05 14:31:24 +05'30'