THE PRINCIPAL COMMISSIONER OF INCOME TAX-1 vs. M/S BALAJI ELECTRICAL INSULATORS PVT. LTD.

1 It was further submitted that the Assessing Officer has further found that the consideration package was fixed for giving all these rights which clearly indicates that this was a case of transfer of property and not of a contract inasmuch as the assessee ceased to have any legal right to develop the land and such right was vested in the developer. That the Assessing Officer did not accept the contention of the assessee that the real purchasers were the prospective buyers of the units in the developed property and that the developer only nominates the buyers. According to the Assessing Officer all the powers like deciding the terms and conditions with the prospective buyers, deciding the prices and all other matters got vested in the developer and the assessee retained no right at all in this respect. The power of selling the units was given to the developer as an independent owner of the developed property and not as an agent of the assessee. It was submitted that in view of above, the Assessing Officer has found that the assessee has not included the sale consideration of the subject land amounting to Rs.3,86,02,600/- in its books of account which was sold by virtue of the development agreement. It was submitted that in view of the findings recorded by the Assessing Officer, he was wholly justified in making the addition towards consideration of the subject land in the year under consideration.

2 It was submitted that the Commissioner (Appeals) has wrongly held the subject land to be stock in trade of the assessee. It was submitted that the subject land was held by the assessee as capital asset and not as stock in trade and hence the provisions of section 2(47) of the Act read with section 53A of the Transfer of Property Act, would be squarely applicable to the facts of the present case. It was submitted that the Tribunal was, therefore, not justified in confirming the order passed by the Commissioner (Appeals) and that the appeal requires consideration on the questions as proposed or as may be formulated by this court. 6.This court has considered the submissions advanced by the learned senior standing counsel for the appellant and has perused the record of the case. 7.On a perusal of the order passed by the Commissioner (Appeals), it emerges that he has recorded that in the appellate proceedings, the assessee had explained the terms of the development agreement in detail and submitted that there was no transfer of possession of land as held in the assessment order. The assessee had emphasised that the subject land was held as stock in trade by the assessee and hence, the provisions of section 2(47) of the Act which relate to capital asset are not applicable in the facts of the present case.

1 The Commissioner (Appeals), after considering the submissions advanced on behalf of the assessee as well as the terms and conditions of the development agreement, found that the developer was given an authority to construct the flats on the subject land and finalise the buyers for such flats as well as the authority to decide the terms of sale price with the buyers. However, clause 5 of the development agreement clearly stated that the sale deed is to be executed by the assessee in favour of the proposed members. The Commissioner (Appeals), accordingly, found that from this condition it is clear that the assessee has merely transferred the development rights in land to Balaji Associates and not the possession of the land, as the final authority to sign the sale deed in favour of the prospective buyers remained with the assessee, which proved that the ownership still remained with the assessee. The Commissioner (Appeals) further found that the assessee had treated the subject land as stock in trade right from the beginning. The land was acquired by the assessee from Balaji Cine Vision (India) Pvt. Ltd. in view of the scheme of amalgamation and was treated as stock in trade by the assessee. The Commissioner (Appeals) accordingly accepted the argument of the assessee that the subject land was part of the stock in trade of the assessee. He further observed that the provisions of section 2(47) of the Act are applicable to only capital assets and the subject land being held as stock in trade by the assessee, the provisions of section 2(47) of the Act are irrelevant.

2 The Commissioner (Appeals) further examined the clauses of the development agreement and found that the assessee was required to collect the price of land from the developer as per the jantri rate from time to time as and when the construction is completed. Further, as per the condition 2 of the development agreement, consideration of Rs.1 crore was to be paid as and when the work progressed. Thus, the assessee was authorised to collect the consideration from time to time as and when the construction is completed by the developer. The Commissioner (Appeals) found that in terms of the accounting principles in relation to real estate development, the assessee had correctly postponed recognition of revenue on the basis of completion of work by the developer as the same was not determinable with reasonable certainty till the construction of the flats by the developer. He, accordingly, was of the view that in terms of the development agreement, the assessee had correctly taxed consideration of development agreement on proportionate basis as and when the sale-deed is executed in favour of proposed buyers as transfer of proportionate land took place only when the assessee transferred the constructed property/ flats by way of sale-deed. He, accordingly, held that the assessee had correctly recognised revenue on a year to year basis and further found that the assessee had duly offered the income from profit on sale of land to tax, which was more than the income as specified in the development agreement.

3 It is in light of the above findings recorded by him that the Commissioner (Appeals) has held that the provisions of section 2(47)(v) of the Act would not be applicable to the facts of the present case and deleted the addition made by the Assessing Officer. 8.The Tribunal, in the impugned order, has concurred with the findings recorded by the Commissioner (Appeals), namely, that in terms of the development agreement there is no transfer of possession of land. More importantly, the land was held as stock in trade and, therefore, the provisions of section 2(47) of the Act relating to capital assets would not apply. 9.From the facts as noted herein above, it emerges that in terms of the development agreement between the assessee and the developer, there was no transfer of possession of land and the assessee retained the ownership of the land while the developer was given the right to develop the land as well as to find the buyers, to decide on the person who would buy the land as well as the sale price of the flats. In terms of the development agreement, the assessee was to be paid consideration from time to time depending upon the completion of the work. The assessee accordingly, offered the income from profit on sale of the land to tax as and when such consideration in terms of the development agreement was received as set out in paragraph (v) of the order passed by the Commissioner (Appeals). The Commissioner (Appeals) has recorded that in fact the assessee has offered the income from profit on sale of land to tax, which is more than the income as specified in the development agreement. 10.The Commissioner (Appeals) on facts has found that the subject land was treated as stock in trade by the assessee. In view of the categorical finding recorded by the Commissioner (Appeals) that the assessee in all the years has treated the subject land to be stock in trade, he was wholly justified in holding that the provisions of section 2(47) of the Act relating to capital asset would not apply. The Tribunal, therefore, did not commit any error in concurring with the findings recorded by the Commissioner (Appeals). 11.In light of the above discussion, this court does not find any legal infirmity in the view adopted by the Tribunal so as to give rise to any question of law, much less, a substantial question of law, warranting interference. 12.The appeal, therefore, fails and is accordingly, summarily dismissed. (HARSHA DEVANI, J) (SANGEETA K. VISHEN, J) BINOY B PILLAI