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Income Tax Appellate Tribunal, “C’’BENCH: BANGALORE
Before: SHRI GEORGE GEORGE K. & SHRI B.R. BASKARAN
PER B.R. BASKARAN, ACCOUNTANT MEMBER:
The assessee has filed this appeal challenging the order dated 30.11.2016 passed by Ld. CIT(A)-7, Bengaluru and it relates to the assessment year 2009-10. In this appeal, the assessee has raised following issues:- a) Validity of reopening of assessment b) Validity of assessing long term capital gain upon entering Joint Development Agreement (JDA).
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Page 2 of 12 At the time of hearing, the Ld. A.R. did not press grounds relating to validity of reopening of assessment. Accordingly, those ground are dismissed as not pressed.
The facts relating to the case are stated in brief. The assessee is an individual. He filed his return of income for the year under consideration on 16.9.2010. Subsequently, information was received by the A.O. that the assessee has executed a Joint Development Agreement (JDA) with a builder named M/s. Brigade Enterprises Ltd. As per the JDA, the assessee has allowed above said builder to develop residential apartments on a land belonging to him, which is located at Survey No.22/7, Thurahalli village, UttarahalliHobli, Bengaluru South. The A.O. has observed that the assessee has transferred 26 guntas to the builder. As per the terms and conditions of the JDA, the assessee has agreed to transfer 63% of the land and in consideration thereof, he would receive 40,251 sq.ft. of super built up area. The assessee has also received non- fundable deposit of Rs.14,41,778/-. Since the assessee did not declare any capital gain on account of entering into JDA, the A.O. reopened the assessment by issuing notice u/s 148 of the Income- tax Act,1961 ['the Act' for short].
Before A.O., the assessee contended that the JDA entered by it would not result in any transfer of asset within the meaning of section 2(47)(v) of the Act. The A.O., however, did not accept the contentions of the assessee. The AO, taking support of the decision rendered by Hon’ble Karnataka High Court in the case of CIT Vs. T.K. Dayalu (202 Taxman 531), held that there was transfer of property in terms of section 2(47)(v) of the Act. Accordingly, he computed long term capital gain of Rs.2.97 crores and assessed the same in the hands of the assessee.
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Page 3 of 12
The Ld. CIT(A) concurred with the view taken by the A.O. that there was transfer of asset in terms of section 2(47)(v) of the Act on entering into JDA. We noticed earlier that the A.O. had taken the view that the assessee has transferred 26 guntas to the builder. Before Ld. CIT(A), the assessee submitted proof to show that he is owner of 17 guntas only. It was explained that there are 3 co- owners including assessee of the land measuring 51 guntas. The assessee’s share being 1/3rd thereof, he was owner of only 17 guntas. The Ld. CIT(A) accepted the above factual aspect and accordingly directed the A.O. to recompute the capital gain by adopting the area of land as 17 guntas. Accordingly, the appeal of the assessee was partly allowed by the Ld. CIT(A). Since the revenue has not filed appeal, the above said factual aspect has attained finality. The assessee has filed this appeal before us challenging the decision of Ld CIT(A) in holding that there was transfer of land upon entering into JDA.
The Ld. A.R. submitted that the assessee has granted only permission to enter into the land to carry out development activities and has retained full control over the possession of land. He submitted that the assessee has not handed over legal possession to the builder and hence, the provisions of section 53A of Transfer of Property Act will not apply and consequently, the provisions of 2(47)(v) of the Act will not apply to the facts of the present case. In support of these submissions, the Ld A.R invited our attention to clause 1.1 & 1.2 of the JDA, which reads as under:- “1.1 The members of First Party hereby irrevocably authorize and empower the Second Party to develop the Schedule Property into Residential Apartment Buildings. The members of First Party have already permitted the Second Party to enter Item Nos.I, II and III of the Schedule Property for joint development on 24.9.2007 on execution of Joint Development Agreement and
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Page 4 of 12 members 3, 5 & 6 have this day permitted the Second Party to enter Item No.IV of the Schedule Property for joint development and thus the members of the First Party have permitted the Second Party to enter entire Schedule Property for joint development by constructing Residential apartment Buildings as per the Sanctioned Plan to be obtained subject to the terms of this agreement. The Second Party shall be entitled to commence and complete the development of the Schedule Property in terms of this Agreement. The Second Party is entitled to immediately commence the preparatory work in the Schedule Property and level the land, clear the bushes and set right the boundaries and erect compound and security, storage sheds, site office etc., in the Schedule Property.
1.2 The permission to enter the Schedule Property shall however not be construed as delivery of possession under Section 53A of Transfer of Property Act read with Section 2(47)(v) of the Income Tax Act of 1961.”
He submitted that the permissive possession given to carry out the work would not attract the provisions of section 2(47)(v) of the Act, as per the decision of Hon’ble Bangalore bench rendered in the case of Anugraha Shelters Pvt. Ltd. (ITA No.2314/Bang/2016 dated 22.11.2011). The Ld. A.R. also submitted that the Hon’ble Supreme Court in the case of Seshasayee Steels Pvt. Ltd.(421 ITR 46) has also expressed the following view, which supports the view taken by the Tribunal:- “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, led 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 Transfer of Property Act cannot possibly be attracted to the facts of this case for this reason alone.”
Accordingly, the Ld. A.R. submitted that mere giving permission to develop the land cannot be said to be possession
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Page 5 of 12 given as contemplated in section 53A of the Transfer of Property Act and consequently, the provisions of section 2(47)(v) of the Act will also not apply. Accordingly, he submitted that the decision rendered by Hon’ble Karnataka High Court in the case of T.K. Dayalu (supra) will not be applicable to the facts of this case.
The Ld. D.R., on the contrary, submitted that clause 1.2 of the JDA should be read along with clause 5.3 of the JDA. She submitted that clause 5.3 states that the assessee will and shall transfer to the builder 66% of divided or undivided share in the scheduled property in one lot or in several shares or in the form of undivided shares as decided by the builder. The Ld. D.R. submitted that the expression “will and shall transfer”, would indicate that the transfer is applicable from the date of JDA itself. The Ld. D.R. further submitted that the assessee has enabled the builder to enjoy possession of the property before completion of the project and hence, clause 1.2 of the agreement would lose its relevance. Accordingly, she contended that the A.O. was right in assessing the capital gain during the year under consideration. The Ld D.R submitted that the facts prevailing in the decision rendered by Hon’ble Supreme Court in the case of Seshasayee Steels P Ltd (supra) are distinguishable. In the above said case, the willingness to perform his part of contract was missing. On the contrary, in the instant case, the builder was willing to perform his part of agreement by taking possession of land from the assessee and hence it results in part performance of the agreement attracting provisions of section 53A of the Act.
The Ld. A.R. on the contrary, submitted that the clauses 5.1 to 5.3 of the JDA, which has been relied on by the Ld. D.R., only specifies the rights of each of the parties over the property. The
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Page 6 of 12 share of the assessee in the constructed area only specifies the mode of receiving consideration. He submitted that clause 1.2 of the JDA (supra) is independent clause clearly laying down that the builder was only given permission to carry out development activities. Hence clause 1.2 and 5.1 – 5.3 are independent of each other. The Ld. A.R. further submitted that the question of ascertaining ‘willingness of the builder’ to perform his part of obligation will require consideration only if the JDA falls within the scope of section 53A of the Transfer of Property Act. He submitted that, in the instant case, the assessee has not given legal possession to the builder and hence, the provisions of section 53A of the Transfer of Property Act will not apply. Accordingly, he submitted that the contentions of the assessee would get support from the legal principles laid down by Hon’ble Supreme Court in the case of Seshasayee Paper Mills P Ltd (supra), even though there may not be parity of facts.
We heard the rival contentions and perused the record. Now the question that arises is whether the provisions of sec.53A of the Transfer of property Act shall apply to the impugned JDA entered by the assessee with Builder (referred above), when one considers the clauses of the JDA referred above. We notice that an identical issue was examined by the co-ordinate bench in the case of Anugraha Shelters (P) Ltd (ITA No.2314/Bang/2016 dated 22.11.2021) and it was decided as under:-
“10. We notice that the assessee has entered into a joint development agreement on 29.12.2005 and on the very same day a supplementary joint development agreement was also entered. Both the agreements have been registered with the registration authorities. The last paragraph in page 4 of the supplementary joint development agreement is relevant here and the same reads as under:-
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Page 7 of 12 “The I Party or Owners hereby undertake to conveyor transfer at the cost of the II Party or Developers 65% share of undivided interest in the Schedule property to the II party or Developers at their request to their nominees or buyers located by them at rates which may be decided by the II Party or Developers and hereby grant them exclusive rights to construct the residential apartments as per the sanctioned plan to obtained from the sanctioning authorities based on the approved plan. For this purpose, the I Party or Owner hereby grant them irrevocable permission and license including authority to the II Party or Developers to enter upon the Schedule Property for the purpose of construction residential apartments as per the sanctioned plan to be obtained. The II Party or Developers shall enter upon the Schedule Property for commencing the preliminary work and continue to exercise the said right throughout the construction period until the completion the entire project. This license however shall not be construed as possession delivered in part performance under Section 53 of Transfer of Property Act nor any property right shall be deemed to vest in favour of the II Party or Developers, save as expressly provided in this agreement. The I Party or Owners shall not enter into any agreement with any party to sell 65% of undivided share in schedule property or any part thereof which is allotted to the II Party or Developers except to the nominees of the II Party or Developers or the buyers located by them.”
We notice that the AO has also extracted the above cited clause in the assessment order, but conveniently omitted the a portion of the paragraph highlighted above.
A careful perusal of the above said paragraph of the agreement would show that the developer is granted irrevocable permission and license to enter the scheduled property for the purpose of construction of residential apartments as per the plan to be obtained. It is specifically been mentioned that the license so granted shall not be considered as possession delivered in part performance of the contract u/s 53(sic. 53A) of Transfer of property Act nor any property right shall be deemed in favour of developer.
We notice that the AO has invoked the provisions of sec.2(47)(v) of the Act, which reads as under:-
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Page 8 of 12 “2(47) “transfer” in relation to a capital asset includes ……………….. (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 (4 of 1882).”
The provisions of section 53A of the Transfer of property Act reads as under:-
“53A. Part performance.—Where any person contracts to transfer for consideration any immoveable 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 2[***] 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.”
A careful perusal of the above said provision would show that the transferee should have taken possession in part performance of the contract and has done same act in furtherance of the contract. In the instant case, development agreement clearly specified on the possession of the property was not given and what was given is only license to enter the property. The question whether granting of such kind of license would amount to “Possession” within the meaning of sec.53A of Transfer of Property Act r.w.s sec. 2(47)(v) of Income tax Act was examined by the Bangalore SMC bench of Tribunal in the case of Smt. Lakshmi Swarupa vs ITO (ITA No.2278/Bang/2018 dated 12.10.2018). The relevant observations made and decision taken by the Tribunal in the above said case are extracted below:-
“4. Clause 1 of the JDA provides as follows:
"1) PERMISSION FOR DEVELOPMENT:
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Page 9 of 12 1.1) The Owner is in possession and enjoyment of the Schedule Property. The Owner hereby authorize the Promoter for the purpose of development, to enter upon the Schedule Property and develop the same, however the authority so granted does not in any manner be construed as delivery of possession by the Owner in part performance of this agreement under Section 53-A of the Transfer of Property Act or under Section 2(47)(iv) of the Income Tax Act, 1961.
1.2) The Owner hereby agrees not to interfere or interrupt in the course of construction and development of the Schedule Property and/or commit any act or omission having the effect of delaying or stopping the work that has to be done under this Agreement. However, the Owner shall always be entitled to inspect the progress of the work and type of work which is being done on the Schedule Property."
…………..
I have carefully considered the rival submissions. Sec.45 of the Act lays down that profits and gains arising out of transfer of capital asset effected in the previous year shall be chargeable to income tax under the head "capital gains" and shall be deemed to be the income of the previous year in which the transfer took place. It is thus clear that there should be transfer during the previous year to attract charge to tax on capital gain. Sec.2(47) of the Act defines "Transfer" for the purpose of the Act. It reads thus:
"Sec.2 (47) "transfer", in relation to a capital asset, includes,-- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein ; 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 by him, such conversion or treatment ; or (iva) the maturity or redemption of a zero coupon bond; or
(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or
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Page 10 of 12 (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.
Explanation [1]: For the purposes of sub-clauses (v) and(vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA;"
The clause that was invoked by the revenue authorities in the case of the Assessee is Sec.2(47)(v) of the Act. Under the general law, transfer of immovable property of the value of rupees one hundred and upwards can take place only by a registered deed. If no registered deed is executed in respect of such property, legal title or ownership is not effectively conveyed to the transferee although transferee might have paid entire consideration and/or obtained possession from the transferor in pursuance of contract of sale. "Transfer" in section 2(47) also envisaged execution of registered deed in such circumstances. Capital gains become liable to be charged to tax only if they arise as a result of "transfer" of capital asset and the date on which they arise is date of "transfer". If as a result of mutual arrangement by parties or otherwise, no registered deed is executed even after transaction is completed by delivery of possession and receipt of consideration, capital gains tax would escape assessment altogether or if such execution of registered sale- deed is postponed, the capital gains tax would also be postponed. In several cases it suited the parties to complete such transactions without execution of registered deed and thereby evade payment of tax on capital gains. It is in order to plug this loophole that cl. (v) was inserted in section 2(47) to lay down that transfer would include any transaction involving allowing of possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of Transfer of Property Act. Thus, the Provisions of Sec.53A of the Transfer of Property Act, 1882 stand incorporated into the provisions of the Income Tax Act, 1961. If that be so then the Tax authorities for coming to a conclusion that provisions of Sec.53A of the Transfer of Property Act, 1882 are attracted to a particular transaction have to come to a conclusion the transaction/agreement in question is such that 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.
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Page 11 of 12 11. In the present case, the clause in the JDA regarding possession clearly states that what is given is not possession contemplated u/s.53A of the Transfer of Property Act and that it is merely a license to enter the property for the purpose of carrying out development. Further, the subsequent MOU dated 16.8.2006 and delivery of legal possession on 22.4.2006 clearly shows that there was no transfer within the meaning of Sec.2(47)(v) of the Act during the previous year relevant to AY 2006-07. Therefore, invocation of the provisions of Sec.2(47)(v) in the facts and circumstances of the present case on the basis of clause-1 of the JDA, in my view was not proper. The possession in the present is traced to the joint development agreement which is in the nature of permissive possession and not possession in part performance of agreement for sale. In the present case, there is no document by which the revenue can come to the conclusion that there was delivery of possession. The mere fact that development of the property cannot be done without possession cannot be the basis to come to a conclusion that possession was delivered in part performance of the agreement for sale in the manner laid down in Sec.53A of the Transfer of Property Act. Such possession as I have already held is on behalf of the Assessee and not in the independent capacity of purchaser of the property.
For the reasons given above, I hold that there was no transfer during the previous year relevant to AY 2006-07. Therefore, capital gain on transfer of the property cannot be assessed in AY 2006-07. The assessment of capital gain in AY 2006-07 is therefore held to be bad and deleted.”
In the instant case also, we have noticed that the assessee has given permissive possession and not “legal possession” as contemplated within the meaning of sec.53A of the Transfer of Property Act. Hence we hold that the provisions of sec.53A of the Transfer of Property Act are not applicable to the impugned Joint Development Agreement. In this view of the matter, the provisions of sec.2(47)(v) of the Act are also not applicable. Hence the tax authorities are not justified in invoking the above said provision and consequently, the capital gains assessed in the hands of the assessee is liable to be deleted.
We have earlier noticed that the assessee, in the instant case, has given only permissive possession and not “legal possession” as contemplated within the meaning of sec.53A of the Transfer of Property Act. We noticed that the Ld D.R stressed the importance of clauses 5.1 to 5.3 of the JDA. However, as rightly pointed out by Ld A.R, those clauses refer to the consideration or right of each of
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Page 12 of 12 the parties. The main clauses to be considered as clauses 1.1 & 1.2 of the JDA, which clearly brings out the intention of the parties that the possession is given by way of permission to enter in the property for developing the same and the legal possession has been retained by the assessee. Accordingly, following the co-ordinate bench decision referred supra, we hold that the provisions of sec.53A of the Transfer of Property Act are not applicable to the impugned Joint Development Agreement. In this view of the matter, the provisions of sec.2(47)(v) of the Act are also not applicable. Hence the tax authorities are not justified in invoking the above said provision and assessing capital gains in the hands of the assessee during the year under consideration. Accordingly, we set aside the order passed by Ld CIT(A) and direct the to delete the capital gains assessed in the hands of the assessee during the year under consideration. 11. In the result, the appeal filed by the assessee is treated as allowed. Order pronounced in the open court on 30th Mar, 2022 Sd/- Sd/- (George George K.) (B.R. Baskaran) Judicial Member Accountant Member
Bangalore, Dated 30th Mar, 2022. VG/SPS Copy to:
The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order
Asst. Registrar, ITAT, Bangalore.