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Facts
The assessee, a member of a housing society, entered into a development agreement for redevelopment of the society's property. The AO initiated reassessment proceedings to tax capital gains arising from the transfer of rights in the property, considering the Stamp Duty Valuation Authority's higher valuation compared to the agreement value.
Held
The Tribunal held that the reopening of assessment proceedings was bad in law because the transaction was in the nature of a license, not a transfer of possession under Section 53A of the Transfer of Property Act and Section 2(47) of the Income Tax Act. Consequently, no capital gains accrued in the relevant assessment year.
Key Issues
Whether the redevelopment agreement constituted a transfer of property attracting capital gains tax or a license, and whether the reopening of assessment was valid.
Sections Cited
250, 50C, 142(1), 53A, 54, 148, 2(47)
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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY
Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Assessee against the order dated 26.08.2024, impugned herein, passed by the Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2011-12.
The Assessee was a member of MIG Co-operative Housing Society, who vide agreement dated 17.11.2010 had entered into a development agreement with M/s. Keystone Realtors Pvt. Ltd. and Rustomjee Construction Pvt. Ltd. for redevelopment of the society or redevelopment of 40 flats of 5A type building, 40 flats of 6B type buildings and 80 flats of 5D type building and accordingly the developer paid an amount of Rs.112,51,36,000/-. Along with such consideration amount for flats, car parking and other amenities including club house, play area etc. were to be provided to the existing members of the society. The Registrar of Registration Authority, adopted market value of the said project at Rs.189,59,79,000/- as against Rs.112,51,36,000/- as shown in registered agreement dated 18.11.2010.
As the Assessee was a member of the society, therefore the Assessee’s share was determined at Rs.80,00,000/- out of which Rs.8,00,000/- was allegedly paid to the Assessee on 13.08.2010 vide cheque No.053954. As there was transfer of right and thus the Assessing Officer (AO) was of the opinion that capital gain was taxable in the hands of the Assessee as per section 50C of the Act and therefore in order to examine the issue, the AO vide notice dated 09.11.2018 u/s 142(1) of the Act asked the Assessee to give complete details of transfer of immovable property and capital gain arising from such transfer and show caused “as to why the provisions of section 50C of the Act should not be applied”.
The Assessee, in response to the query raised by the AO, submitted a copy of agreement dated 25.09.2018 for allotment of new flat from M/s. Keystone Realtors Pvt. Ltd. with his brother Shri Manmohan Mehra, copy of letter dated February 2015 issued by builder for allotment of additional area and amount payable for the said area. The Assessee also submitted copy of gift deed made by his father {Shri Manmohan Mehra} for release of shares in permanent accommodation, allotted by the builder. The Assessee before the AO also submitted as under:
That property was received from his father therefore The Assessee and his brother namely Shri Manmohan Mehra claimed joint ownership in the said property and consequently were allotted two permanent accommodations in which both had undivided shares. As additional area was provided by the builder, therefore monetary consideration was adjusted against that area
Though the AO considered the aforesaid claim of the Assessee, however, found the same unacceptable, on the following reasons:
“As per the share certificate issued by the Society the Assessee was member of the society from 04.02.2007. After 5 years on dated 25.03.2015 as appears from the share certificate name of Assessee’s brother Shri Manmohan Mehra was added in the share certificate. The Assessee had inherited property from father and having equal share/rights in the property along with his brother and therefore capital gain was taxable in the case of both Assessee and his brother. As per registered agreement the Assessee has transferred right in property on dated 18.11.2010 and received Rs.8,00,000/- on dated 13.08.2010 and therefore part performance was done by the Assessee u/s 53A of the Transfer of Property Act and therefore capital gain was taxable in the hands of the Assessee in A.Y. 2011-12. Further, the Assessee has received two flats along with his brother, cost of both the properties would be sale consideration and the Assessee’s share would be 50%. Therefore, the benefit of exemption u/s 54 would be available to the Assessee in respect of 50% share in one property and the balance amount was taxable as capital gain u/s 50C of the Act. Further, new flat was purchased vide agreement dated 25.09.2018 i.e. after 3 years from the date of transfer of original asset on dated 18.11.2010 therefore exemption u/s 54 could not be available. Even the Assessee had not submitted details of the amount received as per development agreement, proof of amount paid or adjusted against additional area provided to him, proof of date and charges paid in respect of such additional area.
The AO thus on the aforesaid reasons, again issued a notice dated 01.12.2018 u/s 142(1) of the Act, in response to which the Assessee filed his reply.
7. The AO again noted the fact that the amount of Rs.8,00,000/- was received on 13.08.2010 and vide agreement dated 17.09.2010 all the members gave consent to the developer for redevelopment of the society. Thus, as per section 53A of the Transfer of Property Act (in short TPA) the Assessee transferred rights in the property to the builder in F.Y. 2010-11 and therefore capital gain was taxable in that year. Further, as per agreement dated 18.11.2010, the Assessee was to have received Rs.80,00,000/-. The Stamp Duty Authority had also determined the value of the society at Rs.189,59,79,000/- instead of Rs.112,51,36,000/-.
8. Thus the AO on the aforesaid consideration, calculated proportionate market value of the amount receivable by the Assessee at Rs.134,82,085/- instead of Rs.80,00,000/- and consequently considered the market value of newly allotted flat at Rs.37,96,500/- and the share of the Assessee @ 50% and thus allowed the exemption to the tune of Rs.18,98,250/- being 50% of Rs.37,96,500/-, u/s 54 of the Act and in consequence, made the addition of Rs.47,42,792/- in respect of capital gain.
9. The Assessee, being aggrieved, challenged the said addition as well as reopening of the assessment proceedings by filing first appeal before the Ld. Commissioner, however, despite of seeking time to file written submissions, failed to file the same and therefore in the absence of any written submissions, the Ld. Commissioner decided the appeal of the Assessee on the basis of material available on record and by holding as under:
“6.2 During the appellate proceedings, notices u/s.250 dated 10.02.2021, 20.12.2021, 20.12.2022, 06.06.2023, 14.08.2023, 09.10.2023, 23.11.2023 and 29.07.2023 were issued to the appellant for providing details/explanation on this ground of appeal.
The appellant vide order dated 22.08.2023 submitted a paper book comprising of 266 pages. The appellant requested further time to file written submission. Again vide letter dated 29.11.2023, the appellant requested further time of one week to file written submission. However, till date no written submission has been provided by the appellant. In the absence of any written submission, these grounds of appeal related to addition of capital gain is decided on the material available on record.
It is a fact that MIG Co-operative Housing Society Group IV Ltd. for AY.2011- 12 had entered into development agreement on 17.11.2010 with M/s. Keystone Realtors Pvt. Ltd. and Rustomjee Construction Pvt. Ltd for re-development of the society. The appellant was a member of MIG Co-operative Housing Society Group IV Ltd. As per re-development agreement, the appellant received a new flat and also an amount of Rs.8,00,000/- was receivable. Out of the Rs.80,00,000/-, Rs.8.00,000/- was received on 13.08.2010. The stamp duty valuation authority had valued the stamp value of the society at Rs.189,59,79,000/- as against the value of Rs.112,51,36,000/- mentioned in the registered agreement dated 18.11.2010. The appellant was member of the society from 04.02.2007 and his brother was added as a member on 25.03.2015. As the flat in the society was received by the appellant from his father, his share in the flat was 50%. The old flat admeasured 907 sq. ft. and against that the appellant got two flats admeasuring 1814 sq. ft. in new developed society. For additional area allotted by the developer in the new society, part of the amount of Rs.80,00,000/- was receivable was adjusted in the cost of new flats. Vide letter dated 30.09.2015 issued by M/s. Keystone Realtors Pvt. Ltd., the appellant was allotted additional area and the amount payable for such additional area was mentioned. The members of the society gave consent for development to the builder on 17.09.2010. As the appellant received an amount of Rs.8,00,000/- on 13.08.2010 and the right in the property was transferred vide agreement dated 17.09.2010, as per provisions of section 53A of Transfer of Property Act, the assessee was liable to capital in FY.2010-11 relevant to AY.2011-12. However, the appellant had not filed Return of income for AY.2011-12 and offered the capital gain for taxation.
The appellant has not filed any written submission and made out any case in his favour. However, from the undisputed facts discussed above, the value determined by the stamp duty valuation authority was Rs.189,59,79,000/-. The value of assessee’s share of Rs.80,00,000/- in that property was Rs.1,34,82,085/- as per section 50C of the Act. The assessee’s share in that was Rs.67,41,042/-. The AO has not given benefit of indexed cost of acquisition. However, the property was acquired by the assessee from his father and he became the owner of the property on 04.02.2007. The right in the property was transferred on 17.09.2010. Therefore, the benefit of indexation of cost of acquisition is to be given to the appellant to work out long term capital gain. The AO is directed to re-compute the long term capital gain after allowing indexation of the cost of acquisition.
The appellant alongwith his brother was allotted two flats. The AO has considered the claim of deduction in respect of only one flat and allowed exemption u/s.54 at Rs.18,98,250/-. The AO has allowed exemption u/s.54 considering the provisions of section 54 of the Act. Thus, the AO is directed to re-compute the long term capital gain as directed above.
Accordingly, the ground of appeal nos. 3, 4 and 5 are Partly Allowed.”
The Ld. Commissioner also by observing “that the AO has not given benefit of index cost of acquisition, as the property was acquired by the Assessee from his father and Assessee became owner of the property on 04.02.2007 and the right in the property was transferred on 17.09.2010, therefore the benefit of the index cost of acquisition is to be given to the Assessee to work out long term capital gain”, directed the AO to recompute the long term capital gain, after allowing indexation cost of acquisition.
The Ld. Commissioner, eventually affirmed the addition made by the AO, in respect of other aspects.
The Assessee, being aggrieved, challenged the decision of the Ld. Commissioner by filing the instant appeal and at the outset has raised various issues including the reopening of the proceedings as bad in law. The Assessee has claimed that no corpus was received in the A.Y. 2011-12 and even otherwise no possession was handed over but in fact only development agreement was executed in which only license of development of the property was given, hence no capital gain accrued in the year under consideration and therefore reopening of the assessment proceedings is bad in law. Further corpus and rent paid for alternative accommodation by the builder are capital receipt, hence the same are not taxable and thus basic consideration of income gets escaped, is not fulfilled. Hence, the proceeding u/s 148 of the Act, is bad in law as per the judgments of the Hon’ble Higher Courts in the case of DCIT vs. Bharat Jayantilal Patel (2023) 149 taxmann.com 290 (Bombay HC) and DCIT vs. Bharat Jayantilal Patel (2023) 156 taxmann.com 308 (SC) and Narayandev Ranjan Iyengar vs. ITO {ITA No.106/M/2023) decided on 10.05.2023}.
13. On the contrary, the Ld. D.R. refuted the claim of the Assessee by submitting that both the authorities below have thoroughly examined the case on merit as well as on legal aspects and thus no interference is required in the impugned order.
14. This Court has given thoughtful considerations to the peculiar facts and circumstances of the case. The Assessee has raised the legal issue qua reopening of the assessment proceedings and therefore before going into the case on merit, it would be more appropriate to decide the legal issue first.
The Assessee has contended that the Assessee’s father had acquired flat No.581 in MIG Cooperative Housing Society which was formed in 1981 and after demise of his father the Assessee along with his brother being a nominee got registered as sharer in the property in the proportionate share of 50-50% along with his brother on dated 04.02.2007.
On dated 17.09.2010 redevelopment agreement was executed with the developer and the society for which license was given for redevelopment of the property. The Assessee and his brother on dated 13.04.2017 requested the society for allocation of two flats admeasuring 1064 sq. ft. each in the redeveloped building, by cancelling the allocation of one flat of 1814 sq. ft. Thereafter, inter-se allotment of flats between members was completed on dated 04.04.2015 and 05.04.2015. Subsequently, on dated 30.09.2015, the builder accepted the request and issued the allotment letter for two flats with an additional area against the consideration amount of Rs.1,70,76,200/- in the redeveloped building and after adjusting the compensation, if any receivable from the builder.
Thereafter on 25.09.2018, the Assessee had entered into with a permanent alternative agreement qua Flat Nos. F-1204 & F- 2202. Subsequently, on dated 22.11.2018, possessions of flats were handed over to the Assessee. The Assessee in support of its claim also filed HDFC bank statement for the month of November 2018.
The Assessee also claimed that the case of the Assessee was reopened mainly on the reason and/or information received from ITO-23(2)(3) to the effect that Assessee had received part corpus to the tune of Rs.8,00,000/- under the development agreement by giving possession of the existing flat for redevelopment. The Assessee thus has claimed that in fact the Assessee did not receive any such amount and even otherwise has not parted with the possession but in fact, given “license” to the Developer for redevelopment and therefore no capital gain, has in fact been accrued, as per section 2(47) of the Act r.w.s 53A of the TPA.
This Court observes that the Hon’ble Jurisdictional High Court in the case of Bharat Jayantilal Patel vs. DCIT (2023) 149 taxmann.com 290 (Bom.) has also dealt with the identical issue, wherein the then Assessees were entered into redevelopment agreement and received certain amounts and handed over possession of the property for redevelopment but claimed that they had given development rights to the developer, as a “licensee” and therefore such a licensee could not be in “possession” with the meaning of section 53A of the TPA and that “possession” was otherwise necessary and an integral ingredient for the purposes of bringing a transaction within the purview of section 2(47)(v) of the Act.
The Hon’ble Jurisdictional High Court considered the aforesaid claim of the Assessee and ultimately held the action of the AO in reopening of the assessment proceedings lacks any tangible material and/or any reason to believe, as without jurisdiction, by observing and holding as under:
“6. Before us today, learned Counsel for the Petitioner has only urged one point from out of various grounds otherwise urged before the Assessing Officer and in the present writ petition and that has its basis in the ratio of the judgment in Seshasayee Steels (P.) Ltd. (supra). It was urged that the agreement between the Petitioner along with other owners and developers was a development agreement - according to which the developer was given rights only as a licensee. That such a licensee could not be said to be in 'possession' within the meaning of section 53A of the T.P. Act and that 'possession' was otherwise necessary and an integral ingredient for purposes of bringing a transaction within the purview of section 2(47)(v) of the Act.
Section 2(47) of the Act defines a 'transfer' in relation to a capital asset as under :
"(i) the sale, exchange or relinquishment of the assets; or (ii) the extinguishment of any rights herein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on him, such conversion or treatment; [or] (iva) the maturity or redemption of a zero coupon bond; or (v) any transaction involving the allowing the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53-A of the Transfer of Property Act, 1882 (4 of 1882); or (vi).........
[Explanation 1] - …….
[Explanation 2 - For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being affected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;]"
Section 53A, which finds a mention in section 2(47)(v) of the Act envisages as under:
"53A. Part performance Where any person contract to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly 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.
The Apex Court in Seshasayee Steels (P.) Ltd. (supra), held that section 53A of the Transfer of Property Act, 1882 would not be attracted in a case where a license was given to another for purposes of development of the flats and selling the same and that granting such a license could not be said to be granting possession within the meaning of section 53A. It was held
"11. 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.
12. On a reading of the agreement to sell dated 15-5-1998, 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 pat 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."
Learned Counsel for the Petitioner, vehemently, urged that even in the present case there was a development agreement executed between the owners including the Petitioner and the developer, namely, Sat Ashray Developers Pvt. Ltd., which had permitted the said developer to develop the property belonging to the owners only as a licensee'. Reliance in this regard was placed upon the clause 10(7) of the development agreement, which reads as under:
"10. DEVELOPERS RIGHTS, ENTITLEMENTS, DECLARATIONS AND OBLIGATIONS
On and from execution hereof and subject to the fulfilment of all the terms and conditions to he performed and complied with by them under this Agreement, the Developers shall have rights and be entitled to do the following, at its own costs and expenses
(1) To enter into the said properties as an exclusive licensee for the purpose of development of the said Properties thereon with their own sources and cost as per the permission/NOC that may be given by the Local Authorities and the Applicable law;"
Applying the principle as crystallized by the Apex Court reproduced herein above, to the facts of the present case, it can be seen that the development agreement permitted construction on the land in question only as a licensee which did not have the effect of transmitting possession in favour of the licensee within the meaning and spirit of section 53A of T.P. Act. If that is so, then there would be neither any tangible material nor any reason for the assessing officer to believe that 'any income chargeable to tax had escaped assessment and the action of the assessing officer, therefore, would be without jurisdiction.
10. Be that as it may, the Petition is allowed. The notice impugned dated 27 March 2021 issued under section 148 of the Act as also the Order dated 27 January 2022 are set aside.”
The aforesaid judgment came into scrutiny before the Hon’ble Apex Court in the case of DCIT Vs. Bharat Jayantilal Patel (2023) 156 taxmann.com 308 (SC) and the Hon’ble Apex Court, ultimately affirmed the aforesaid decision of the Hon’ble Jurisdictional High Court, by observing and holding as under:
“1. Delay condoned. 2. Having regard to the terms of the agreement which has been pointed out by learned ASG to us, we do n think that this is a fit case where the notice under section 148 of the Income-tax Act should have been issued to the respondent(s) for reopening the assessment.
3. Hence, Special Leave Petition stands dismissed.
4. Pending application(s), if any, shall stand disposed of.”
Admittedly, in the instant case also, the Assessee through society had entered into redevelopment agreement for redevelopment of the flats and/or building and handed over the possession to the builder as “licensee” and therefore such a possession would not fall within the meaning of section 53A of the Transfer of Property Act and 2{47} of the Act and consequently the provision of such sections, would not be applicable. Thus, the reopening proceedings along with notice issued u/s 148 of the Act are liable to be treated as bad in law being void ab initio. Consequently, the notice u/s 148 of the Act along with assessment order is quashed being bad in law.
As the assessment order itself is quashed and thus, this Court is inclined not to delve into other aspects of the issues raised by the Assessee, as adjudication of the same would prove futile exercise.
Thus, the appeal filed by the Assessee stands allowed.
Order pronounced in the open court on 29.08.2025.