ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE- 4(2)(1), BANGALORE vs. M/S. N G BALU REDDY HUF, BANGALORE

The Revenue raised the following grounds:- “1 . "On the facts of the case and in the law, the learned CIT(A) erred in holding that the information on which the case of the assessee HUF was re-opened was already available to the AO at the time of assessment of G.Anitha(Individual), though the case under consideration

The facts of the case are that the assessee has filed its return of income in the capacity of HUF represented by his wife Smt.G.Anitha as the manager of HUF on 21.02.2011 belatedly u/s. 139(4) and not u/s.139(1) declaring income of Rs.5,07,070/-

On verification of the income tax return filed for the above year, it is noticed that the assessee has not paid capital gains tax on account of joint development agreement entered by the assessee in respect of land owned by HUF along with Sri.N.G.Chandra Reddy. The assessee has received the constructed portion of the flats on 06.08.2008 in lieu of surrendering 68% of undivided share of land in the above property. The total extent of land given for joint development was 90049 SFT. Total land surrendered comes to 61223 SF'T. In lieu of surrendering the above land the assessee has got super built up area of 48191 SFT. The assessee's share is 50% of the above which comes to 24096 SF'T. The builder vide his letter dated 11.09.2012 has furnished the cost of project at Rs.20.91 crores. 32% of the same as per the sharing ratio of 68:32 comes to

On going through the return of income filed by the assessee it is found that the assessee has not offered the above capital gains tax. As per the provisions of Sec.2(47)(v), the assessee is liable for capital gain tax, but the assessee has failed to offer the same. In the above circumstances, the AO was of the opinion that that income has escaped assessment in the capacity of HUF for A.Y.2009-10. Therefore, to assess the escaped capital gains tax, a notice u/ s. 148 was issued to the assessee on 08.03.2013 with the prior approval of the Addl.CIT, Range-7, Bangalore which was duly served on the assessee. In response to the above notice the assessee's representative Sri.M.Raghavan, Advocate vide his letter dated 01.04.20 13 has requested the grounds on which the assessment was reopened and also the reasons recorded thereon. The reasons recorded for issue of notice u/s.148 was communicated to the assessee. In response to the above notice the assessee has filed its return of income on 28.03.2013 offering the capital gains on account of the JDA entered by him with a detailed explanation vide assessee's representative Sri.M.Raghavan's, Advocate letter dated 28.03.2013 arriving at the capital gains at Rs.98,73,200/- after claiming various expenses like cost of acquisition, cost of improvement etc. before claiming deduction u/s.54F of Rs.8,28,940/- and arrived at the net capita' gains of Rs.90,44,260/- as against the actual capital

The assessee challenged the reopening of the assessment before the lower authorities. The CIT(A) given a finding that same transaction of subject matter of assessment in the hands of individual capacity of Smt. G Anitha. Being so, the same transaction cannot be considered in the case of members of assessee or HUF and the reopening which is already on record is bad in law. Accordingly, he cancelled the reopening of the assessment.

Further, the chargeability of the transaction in the hands of the assessee as capital gain with reference to above transaction, the CIT(A) observed that the accessibility arises in assessment year 2005-06 and not in the assessment year i.e 2009-10. On this basis also we delete the addition. Against this, Revenue is in appeal before us.

The ld.DR submitted that assessment was reopened on the reason that the assessee had entered into Joint Development Agreement (JDA) on 12/5/2004 with M/s SJR Builders, Bangalore along with Shri NG Chandra Reddy bother of

According to ld.DR, the CIT(A) has not properly considered the details of the transaction which was available with the AO in the case of Smt. G Anitha and on that basis, assessment cannot be cancelled. According to ld.DR the mere fact that a particular income has been disclosed in the hands of a particular person that would not disentitle the A.O to hold subsequently that, that income is not the income of that person on the basis of materials in the possession of the AO or on the basis of enquiry, he may come to the conclusion that the income was that of another person and cannot be income of person who has offered it as his income. It is immaterial whether the material was already in the possession of AO on the date on which on the admission of a particular assessee as his income or the information came into possession of the AO subsequently. What is material is whether in the facts and circumstances of the particular case, it can be said that the AO has irrevocably made up his mind upon materials before him that it is the income of another assessee and is not and cannot be the income of assessee who has offered it as his income. There is nothing in the Act which

The ld.AR submitted that the assessee has filed returns of income on 29.03.2006 under the Income Tax Act, 1961 (the Act) and declared the total income of Rs.1,43,400/- and agriculture income of Rs.1,65,000/- under the Act.

It is submitted that after filing of returns under the Act, the work of enquiry specifically in respect of joint development agreements pertaining to the assessee herein, was entrusted to the assessing authority, wherein, in the due course of enquiry, it was found that the assessee along with Shri Chandra Reddy entered into said joint development agreements on 12.05.2004 with M/s. SJR Builders, Further, it was found that the said agreement had been made out, relating to the immovable land in Sy.No.136/1, measuring on the Eastern Side – 240 Feet, on the Western Side – 256 Feet, on the Northern Side – 149 Feet and on the Southern Side – 188 Feet, totally measuring 2 Acres, situated

Further it is submitted that the AO issued notice u/s 148 on 29.03.2012 to Smt.G.Anita (Ind) seeking to assess the escaped Capital gains to Tax for the AY- 2005-06 which was duly served on her on 30.03.2012, in response to which Smt.G.Anita (Ind) filed Return of Income repeating the same income as was disclosed in her original return taking the stand that the property involved belonged to the HUF of which she was Kartha. Smt.G.Anita further took the stand that the income arising out of the JDA was assessable for the AY- 2009-10 since the project was completed and handed over in the year 2008-09.

The Assessing officer even after getting the detailed reply to the notice under section 148 of the Act concluded that the assessment in the hand of Anita (Ind) for the AY- 2005-06 and passed the assessment order taxing capital gain in the hands of Smt.Anita G (Indl). However, assessing authority had continued parallel proceedings by issue of notice under section 148 of the Act on 08.03.2013 in the hands of assessee (HUF) for the AY- 2009-10 assessing the capital gain arising out of the JDA dt. 12.05.2004 in the assessee (HUF) hands. In response to notice u/s 148 of the Act dated 08.03.2013 the Assessee filed return under protest disclosing capital gain in the hand of HUF for the AY- 2009-10. However on 31.03.2014 AO concluded the proceedings for the AY- 2009-10 u/s 143(3) r.w.s 147 of the Act

It was also submitted that the action of AO against Anita (Ind) had formed an opinion that capital gain arising from JDA is assessable in the hands of Mrs. Anita G.(Indl) and concluded the assessment on 25.03.2013 rejecting the plea that the assessable entity is HUF and not Individual. The learned AO recorded the reasons in no uncertain terms for coming to the conclusion that Individual Anita alone not HUF is liable for capital gain tax on JDA dt. 15.05.2004 for AY- 2005-06. However even after giving such an opinion he initiated action against the HUF by issuing the notice u/s 148 of the Act on 08.03.2013 by changing his opinion that capital gain tax is to be assessed in the hand of HUF and not in Individual for the AY- 2009-10. Hence he continued parallel proceedings simultaneously for different assessment years. It is further submitted that if the AO was of opinion that capital gain is chargeable in the hand of HUF he ought to have dropped further proceeding in the case of individual but he did not do so but continued to assess individual and also HUF for different assessment year in respect of same Income. Hence notice issued under section 148 of the Act is bad in law. Further there was no new tangible material, and assessment was done only by change of opinion and suspicious that there is escapement of income. Further it is submitted that reopening can never be done on the basis of change of opinion. AO cannot stand on platform and catch two different trains together of same

The ld.AR contended that unfortunately when the notice u/s.147 was issued, the assessment made in the individual status of Smt.G.Anitha was subsisting. Obviously the notice u/s.147 was issued to the HUF status of Balu Reddy only to assess Balu Reddy HUF for the assessment year 2009-10 only on the basis of the information given by Anitha. No further investigation having been done by the assessing authority. In the circumstances, the notice u/s.147 was bad in law as held in the following cases:-

The assessee placed reliance in the case of Dy.CIT vs. Bullion Investments and Financial Services (P)Ltd., 314 ITR 187, wherein, under similar circumstances, the co-ordinate bench of this Tribunal held that the reopening was bad in law. Accordingly, the reassessment made is required to be cancelled. Though, this was pursued in appeal by the Revenue before the High Court, the same stood disposed of by the High Court by dismissing the appeal on monitory limit and upheld the order of the Tribunal.

In alternative, it is respectfully submitted that since development agreement was entered on 12.05.2004 and

The ld.AR relied on the order of the Ld. CIT(A) and submitted that the JDA on the basis of which assessment was reopended was alredy available with the A.O in the case of Mrs. G.Anitha and he has already taken a stan that the capital gains was assessable in her hands in individual capacity of G.Anitha. In such circmstances for the same property, same transaction and on the basis of same information, the AO could not reopen the assessment of present assesse. The information on the basis of which the notice was issued u/s 148 of the IT Act to the HUF was already available with the AO at the time of the assessment of G. Anitha in her individual capacity. As such there was no new information and hnce, the reopening is invalid.

We have heard both the parties and perused the materials on record. In the present case, the assessee entered into JDA on 12/5/2004 with SJR Builders, No.49, 27th Main, 1st Stage, BTM Layout, Bengalur along with Shri NG Chandra Reddy brother of assessee’s HUF in respect of proper bearing survey No.136/1 situated at Munnekolallu Village, Varthur Hobli, Bangalore East Taluk. The assessee has not offered income from this transaction in the assessment year under consideration. On the basis of

Now, the contention of the ld.AR is that this JDA was considered in the hands of Smt. G Anitha in her individual capacity in assessment year 2005-06 and this was subject matter of appeal before the CIT(A). The CIT(A) vide order dated 25/4/2013 annulled the assessment by observing that the assesse Mrs. G. Anitha was taxed wrongly. The partion deed clearly divides properties of the Sri N.C. Gurumurthy, HUF between the co-parcencers, who in turn are Karthas of their HUFs. The A.O has also recognized that the assessee’s late husband was the Kartha of his HUF and properties have devolved upon this HUF. On his demise, such properties devolve on the succeeding HUF consisting of assesse and her minor children. The only flimsy reason provided by the AO is that the assesse Mrs. G.Anitha has not been named as Kartha in the Partition Deed nor the JDA.

According to ld.AR on the basis of same information, he reopened the assessment of assessee being HUF for the assessment year 2009-10. In our opinion, the AO has jurisdiction to initiate the proceedings u/s 147 r.w.s 148, if the conditions laid down therein are complied with, against a person

Qua the person who is subsequently sought to be made liable for it, income must be held to have escaped assessment when the AO decides not to include it in its income. Where the escaped income is sought to be assessed in the hands of the right person, the AO justified in reopening that assessment by following the procedure laid down in sec. 147 and 148. The only argument of the ld.AR is that this information had to be of income arises out of JDA cited supra was considered in the hands of Smt. G Anitha and this information is already with AO and he was prevented from reopening the assessment of HUF in the assessment year 2009-10.

In the present case, the AO has not followed any information for reopening of this assessment on the basis of order of CIT(A) dated 25/4/2013 in the case of Mrs.. G Anitha as the notice u/s 148 was issued to the present assessee much before the issue on 8/3/2013 which is much before the order of CIT(A)

The fact of this issue are that the CIT(A) after annulling reopening of the assessment further observed that the capital gains are assessable in the asst. year 2005-06 instead of assessment year 2009-10in the hands of present assessee-HUF. The AO taken a stand that since the assessee has himself offered the capital gain in the assessment year 2009-10 and on the basis of that the income from capital gain arising out of joint JDA for the assessment year 2009-10 was to be taxed. However, the CIT(A) placed reliance on the judgment of Hon’ble Karnataka High Court in the case of Dr. T.K Dayalu 202 Taxmann 531, and observed that capital gain arises out of JDA dated 12/5/2004 are assessable in the assessment year 2005-06 and not in the assessment order 2009-10. Against this Revenue is in appeal before us.

We have heard both the parties and perused the materials on record. The ld.AR field written submissions stating that in view of the judgment of judicial High Court in the case of T.K Dayalu cited supra, the income arises out of JDA on 12/5/2004 to be taxed in the assessment year 2005-06. We have carefully gone through the JDA and also various judgment cited by the parties. The ld.DR has cited the order of the Tribunal in the case of Smt. Kavitha Kamlesh Shah in ITA Nos.1508 & 1509/Bang/2016 dated 25/6/2021 wherein it is held as follows:- “27. We have heard both the parties and perused the material on record. We have carefully gone through the conditions laid down in JDA and GPA. The assessee entered into JDA on 5.2.2007, the financial year ended on 31.3.2007. GPA was also entered into on 5.2.2007. We have also gone through the clauses No. 1, 3, 6 & 8 of JDA and the clauses in GPA, specifically clause no. 9. A reading of the above clauses make it clear that the assessee has only given the licence to the developer to enter into the land and to construct the building on the same. The assessee has to come for final registration in favour of flat owners who has to convey the ownership in their favour. As seen from the date of JDA, it was entered on 5.2.2007 at the fag end of the FY 2006-07 relating to AY 2007-08. In this year under consideration, no much development has taken place. The AO sought to bring capital gain only on the reason that the assessee entered into JDA with the Developer. But there was no progress in the development in the assessment year under consideration. It was the submission of the ld. AR that there was no development activity until the end of FY 2006- 07. Commencment of building construction has not been ITA Nos. 1508 & 1509/Bang/2016 Page 15 of 22 initiated a the building approval was obtained in the next financial year. Therefore, no income is said to have accrued as laid down in section 48 of the Act. Nothing is brought on record by the AO to show that there was development activity in the impugned land during the assessment year under consideration and

We have gone through the JDA dated 12/5/2004. As per this JDA, transaction took place in the previous year 2004-05 relevant to assessment year 2005-06. We have perused the various clauses of this JDA. The clause No.4 of the JDA reads as follows:- “4. The First Party Owners hereby agrees and undertakes to grant the Second Party Developer irrevocable right, license and permission to enter upon the Schedule 'A' and 'B' Property for the purpose of construction of the proposed Residential Apartment and to deliver Vacant Possession of the Schedule Property simultaneously subject to the payment of the Security deposit referred infra. The Second Party Developer are entitled to enter upon the Schedule 'A' and ' B' Property for commencing the preliminary work and continue to exercise the said right till the completion of the project in terms of this Agreement. This Possession however shall not be construed as Possession handed

As per the above clause of JDA the possession given under JDA shall not be construed as possession in the hands in part performance u/s 53A and 53B of Transfer of Property Act. Further, no progress has been taken place in the assessment year 2005-06 and the assessee has received only 30 lakhs as refundable security deposit as discussed in clause 10 of JDA.

Nothing is brought on record by the assessee to show that there was development activity in the scheduled property during the assessment year 2005-06. Therefore, it is to be inferred that

The ld. AR submitted that the facts of the case in the latest decision of the Hon'ble Supreme Court in the case of Seshasayee Steels P Ltd Vs ACIT reported in 421 ITR 46 is distinguishable from the assessee's case as it was held therein that mere giving of licence to the developer could not be said to be "possession" within the meaning of section 53A of the Transfer of Property Act, 1882, and the developer has to get the control over the land and not actual physical occupation of land. The Hon'ble Supreme Court observed that on the date of agreement to sell the owner’s rights were completely intact and the further held that the assessee's right in the immovable property were extinguished on the receipt of last cheque and compromise deed could be stated

In the case of Seshasayee Steels P Ltd. (supra) the facts were that landlord had entered into an agreement to sell coupled with GPA. Subsequently, the parties thereto had entered into a comprise deed to ratify the GPA and the agreement to sell. The compromise deed was executed for the fact that the developer had not adhered to all the terms and condition of agreement to sell and therefore, provisions of section 53A of Transfer of Property Act, 1882 were not complied with and contract for sale fell into question. As per section 53A of Transfer of Property Act, 1882 contract can be ascertained when in part performance of contract, a person has taken over the possession and has done in furtherance of the contract performed or is willing to perform his part of the contract. In the case of Seshasayee Steels though the possession was taken over, there was no willingness to perform his part of contract as the transferee had not adhered to the terms and conditions of the agreement to sell and therefore, the compromise deed was executed to ratify the agreement to sell and GPA. The compromise deed could be stated to be the document to effect the transfer and as such the Hon'ble Supreme Court held that on the receipt of the last cheque mentioned in the compromise deed, the assessee's rights in the property stood extinguished.

In the present case, the assessee got its share of constructed area in the assessment year under consideration and capital gain accrued to the assessee in the assessment year under consideration and the assessee has acknowledge the same by declaring the capital gain in the assessment year 2009-10. Now, the assessee cannot take a plea that the capital gain accrued in assessment year 2005-06 could be accepted.

According to the assessee, the date of transfer u/s 2(47)(v) of the Act to be the financial year 2004-2005 relevant to the assessment year 2005-2006 and not the financial year 2008-09 relevant to the assessment year 2009-10, in which year the assessee got his share of constructed area into his possession. Though it was initially held by various Courts that the capital gains are to be assessed in the year in which the development agreement has been entered into between the land owner and the developer, considering the fact that in many cases, the development agreement was not acted upon by the developer, different views have been expressed as to be year of assessability, based on the facts and circumstance of each case. It was held by various Courts that “willing to perform” for the purpose of section 53A of the Transfer of Property Act, 1882 is something vital; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligation under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of section 53A of the Transfer of

It is important to bear in mind that s. 2(47)(v) refers to 'possession’ to be taken or retained in part performance of the contract of the nature referred to in s. 53A of the Transfer of Property Act" and in the case before Hon'ble Karnataka High Court, there was no dispute that the conditions of s. 53A were satisfied. In other words, the proposition laid down by their Lordships can at best be inferred as that when conditions under s. 53A are satisfied, and when the assessee enters into a contract which is a development agreement, in the garb of agreement of sale, it is the date of this development agreement which is material date to decide the date of transfer. However, by no stretch of logic, this legal precedent can support the proposition that all development agreements, in all situations, satisfy the conditions of s. 53A which is a sine qua non for invoking s. 2(47)(v). 35. In order to invoke the principles laid down by the Hon'ble Karnataka High Court in the case of Dr. T.K Dayalu, it is, therefore, necessary to demonstrate that the conditions under s.

A plain reading of the s. 53A of the Transfer of Property Act shows that in order that a contract can be termed to be "of the nature referred to in s. 53A of the Transfer of Property Act" it is one of the necessary preconditions that transferee should have or is willing to perform his part of the contract. This aspect has been duly taken note of by the Hon'ble Bombay High when their Lordships observed as follows "That, in order to attract s. 53A, the following conditions need to be fulfilled (a) There should be contract for consideration; (b) It should be in writing; (c) It should be signed by the transferor; (d) It should pertain to the transfer of immovable property; (e) The transferee should have taken possession of property; (f) Lastly, transferee should be ready and willing to perform the contract".

Elaborating upon the scope of expression "has performed or is willing to perform", the oft quoted commentary "Mu/la—The Transfer of Property Act" (9th Edn. : Published by Butterworths India), at p. 448, observes that "The doctrine of readiness and willingness is an emphatic way of expression to establish that the transferee always abides by the terms of the agreement and is willing to perform his part of the contract. Part performance, as a statutory right, is conditioned upon the transferee's willingness to perform his part of the contract in terms covenanted thereunder.

We are in agreement with the views so expressed in this commentary on the provisions of the Transfer of Property Act. It is thus clear that 'willingness to perform' for the purposes of s. 53A is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of s. 53A of the Transfer of Property Act will come into play on the facts of that case. It is only elementary that, unless provisions of s. 53A of the Transfer of Property Act are satisfied on the facts of a case, the transaction in question cannot fall within the scope of deemed transfer under s. 2(47)(v) of the IT Act. Let us therefore consider whether the

Even a cursory look at the admitted facts of the case would show that the transferee had neither performed nor was it willing to perform its obligation under the agreement in the assessment year 2005-06. The agreement on the basis of which capital gains is sought to be taxed in the present case is agreement dated 12.5.2004. The transferee made a payment of Rs30 lakhs refundable security deposit as discussed earlier. As such, the assessee has received only a meager amount as refundable security deposit which cannot be construed as receipt of part of sale consideration. Admittedly, there is no progress in the development agreement in the assessment year 2005-2006. The sanction of the building plan is utmost important for the implementation of the agreement entered between the parties. Without sanction of the building plan, the very genesis, of the agreement fails. To enable the execution of the agreement, firstly, plan is to be approved by the competent authority. In fact, the building plan was not got approved by the builder in the assessment year under consideration. Until permission is granted, a developer cannot undertake construction. As a result of this lapse by the transferee, the construction had not taken place in the assessment year under consideration. There is a breach and break down of development agreement in the assessment year under consideration. Nothing is brought on

That is clearly an erroneous assumption, and the provisions of deemed transfer under s. 2(47)(v) could not have been invoked on the facts of the present case for the assessment year 2005- 06. In the present case, the situation is that the assessee has received only a 'meager amount' out of total consideration, the transferee is avoiding adhering to the agreement and there is no evidence brought on record by the Revenue authorities to show that there was actual construction at the impugned property in the assessment year 2005-06 and also there is no evidence to show that the right to receive the sale consideration actually

Being so, the argument of the learned AR that the capital gains are to be taxed in the present case in the assessment year 2005-2006 is not tenable. The transferee only made payment of refundable deposit of Rs.30 lakhs and other necessary permission so as to commence the construction not at all commenced and there was no progress in the development of property in the assessment year 2005-2006. The Municipal sanction for development was obtained subsequently, which is utmost important for the implementation of the JDA. Without sanctioning of the building plan, the very genesis of the agreement fails. To enable the execution of the JDA, firstly, plan

In the result, the appeal of the Revenue is allowed.