RAMA RAJU SEETHA PENUMATSA,HYDERABAD vs. INCOME TAX OFFICER, WARD-8(1), HYDERABAD

PER S. RIFAUR RAHMAN, A.M. :

Both these appeals filed by the assessees are directed against a common order of the Commissioner of Income Tax (Appeals)-8, Hyderabad, dated 22-12-2017. As identical issues are involved in both these appeals, we find it convenient to pass a common order.

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Accordingly notice u/s. 143(2) of the Act was issued on 20-09- 2016. Subsequently, a notice u/s. 142(1) was issued to the assessee calling for necessary information pertaining to deductions claimed u/s. 54B, 54C, 54D, 54G, 54GA and 54F (as quoted in CASS reasons) etc. In response to the notices, the AR of the assessee appeared from time to time and submitted the information/clarification called for. The assessee’s submissions/ clarifications were verified by the Assessing Officer and accordingly, a show cause notice was issued to the assessee on 09-12-2016. 2.1 In response to the above mentioned show cause letter, assessee submitted his reply on 16-12-2016 wherein it was stated that the capital gain arises only when the developer had done something on his part to implement the provisions of Development Agreement-cum-Irrecoverable General Power of Attorney (DAIGPA) dated 07/10/2013 and it is demonstrated in the assessee’s case that nothing has been done by the developer in this regard. It was, therefore, stated that capital gains shall not be attracted for the AY. 2014-15 and in support of the same, Ld.AR of the assessee relied on the following case law : i. Binjusaria [106 DTR 321] (HYD)(Trib); ii. Fibars Infratech P. Ltd., [98 DTR 281] (HYD)(Trib); iii. Ranjith Reddy in ITA No. 292/Hyd/2012, dt. 07-06-13; iv. K. Radhika & Others [65 DTDR 250] (HYD)(Trib);

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municipal approval, land levelling and other constructions related activities. Hence, not withstanding the stage of completion I stage of works taken up by the developer, the spirit of the Development Agreement clearly envisage the true transfer of property by the assessee to the developer as stipulated under sec.2(47) of the I T Act, and squarely attracts the capital gains on the basis of the facts of the assesse's case and assessee has clearly admitted the same in the return of income which was filed for the Asst Year 2014-15 holding to the analogy of Transfer of Property in the year of Development Agreement that is A Y 2014-15, under sec.2(47) of the I T Act, read with Sec.53A of Transfer of property Act. Hence, as per the Development Agreement, the capital gain is squarely leviable in assessee's case in view of above discussion and following logical and analytical reasoning as per the provisions of I.T. Act read with the Development Agreement of the assessee as entered on 7-10-2013. (i) The clause(i) of the Development Agreement dated 07- 10-2013 reads as under and clearly proves depicting the possession of the assessee's land by developer as transferred with irrecoverable rights to the developer. Hence, section 2(47) of the I T Act is squarely applicable as it is Transfer of Property leading to levy of Capital Gains in the hands of landlords / transferor as per this Development Agreement. "The owners hereby grant the irrevocable rights to the developer to construct the gated community consisting of independent houses, as per the specifications annexed hereto, subject to the other terms of this agreement and accordingly, deliver the possession of a schedule property of the developer." (ii) Further, the Development Agreement at clause (b) clearly provides rights to enter into subsequent agreement if any for earmarking their respective shares by identifying the same by number of residential units / villas etc so as to complete the project. (iii) Further, at clause (4), it is clearly mentioned that the developer shall obtain necessary permission, clearance etc., as per law to construct the residential gated community without any further reference to the owner on such terms as :- 5 -:

the developer may deem fit to expedite for the developer in the interest of the project for brevity and clarity the clause (4) as quoted is re-produced as under. "The developer shall obtain all the necessary permissions, clearances, service connections, etc., from the authorities / service providers concerned and construct independent Houses, as per the specifications mentioned in schedule-B annexed hereto and as per the sanctioned plan, at the developer's cost. The developer shall be entitled to include any other land for the purpose of developing the same along with the Schedule property, without any further reference to the owners, on such terms as the developer may deem it expedient for the developer, without anyway reducing the Schedule Areas and enter into suitable agreement with third parties. If the developer enters into development agreement with third parties and obtains permission for construction from the competent authority, the land covered by the same permission shall be treated as joint property, subject to the scheme and the developer shall be entitled to allot the Schedule Area out of plotted covered by such permission. " Similarly the other clauses also reinforce the Transfer of Property by the assessee to the developer as per the provisions of sec.2(47) of LT. Act i.e. to say without transfer of property in clear terms by the land lord / assessee, it would be very difficult for developer to start the project for construction as envisaged. Hence, the developer becomes true owner of the property from the date of development agreement and the assessee is virtual owner to the extent of to be constructed area and he is no more a owner of the full land as it existed prior to development agreement falling under 60% share of developer. Hence, the 60% share of land stands completely transferred. to the Developer for a consideration computable as equivalent to the construction cost attributable to 40% of total constructed area falling to the asessee's share. On this analysis the chargeable capital gain is to be calculated in the hands of the assessee by adopting construction cost as obtained per sft as equivalent to transfer of land. Accordingly the same is computed as under as per the provisions of the I.T. Act, as under:

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The total chargeable value of the Rs. 22,82,00,000 Development agreement as per SRO District,