ACIT., CIRCLE-5(1), HYDERABAD vs. LAKSHMI TECHNOSOLUTIONS PRIVATE LIMITED, HYDERABAD

The assessee challenged the order of the Assessing Officer before the learned CIT (A). The learned CIT (A) vide the impugned order has held that there is no transfer of immovable property in terms of section 2(47)(v) of the Act as there was no transfer of possession of the land and ownership in favour of the developer vide the said joint development agreement dated 16/12/2013.

Aggrieved by the impugned order of the learned CIT (A), the Revenue has filed the present appeal.

On the other hand, the learned Counsel for the assessee has submitted that as per the terms of the JDA dated 16/12/2013, the assessee would introduce the land on which the developer would develop and construct the residential flats. It was agreed between the parties that the assessee would be entitled to 47.5% and the developer will get 52.5% of the shares of the constructed area in the residential complex. He has referred to clause (2) of the JDA and submitted that the intention of the parties is clear that the assessee gave a license to the developer to enter into the land and develop the same for construction of the residential flats/complex. Further, it is clearly stated in clause (2)

We have considered the rival contentions as well as the relevant material available on record. The Assessing Officer has reopened the assessment by recording the reasons that during the scrutiny assessment completed u/s 143(3) for the A.Y 2017-18, it was observed that the assessee has sold 8 flats for a total consideration of Rs.3,13,84,340/- and admitted capital gain on the same after claiming indexed cost of acquisition. These flats sold during the financial year 2016-17 were received by the assessee on account of JDA dated 16/12/2013 entered into with M/s. Sree Balajee Nirmal Estates. Thus, the Assessing Officer Page 6 of 23 formed the opinion that in view of the provisions of section 2(47)(v) r.w.s. 53A of the Transfer of the Property Act, there is a transfer of immovable property vide the said JDA dated 16/12/2013. The Assessing Officer then assessed the Short Term Capital Gains to the tune of Rs.32,52,59,750/- in the hand of the assessee for the A.Y 2014-15 as against the returned income at loss of Rs.1,85,744/-. On appeal, the learned CIT (A) vide the impugned order has deleted the addition in para 9 to 11 as under:

Thus, it is clear that the learned CIT (A) after considering various clauses of the JDA has arrived at the conclusion that there is no transfer of immovable property by virtue of the JDA dated 16/12/2013. The parties have specifically expressed their intentions in the JDA that the developer was allowed to enter into the property only for the purpose of development work and nothing therein shall be construed as parting with the possession of the scheduled property by the owner. It was also specifically stated that nothing contained in the said agreement shall construed as delivery of possession of land in part performance or any agreement of sale u/s 53A of the Transfer of Property Act. This intention of the parties is repeatedly Page 17 of 23 expressed in various clauses of the agreement as reproduced by the learned CIT (A) like clause (2), (31) and 51 reproduced in para 9.1 of the impugned order. Even otherwise, from the contents, the terms & conditions of the JDA in question it is clear that it not an agreement to sell so as to invoke the provisions of section 53A of the Transfer of Property Act and consequently deemed transfer in terms of section 2(47)(v) of the I.T. Act. The Hon'ble jurisdictional High Court in the case of Smt. Shantha Vidyasagar Annam (Supra) as relied upon by the learned Counsel for the assessee, after considering the judgement in case of Potla Nageswara Rao vs. Dy. CIT (365 ITR 249) has held in para 10 to 19 as under: “10. We have considered the rival submissions on both sides and have perused the record.

Before proceeding further, it is apposite to take note of relevant statutory provisions of the Income Tax Act, 1961. Section 2(47) defines the expression 'transfer' in relation to capital assets. The aforesaid definition is inclusive in nature and reads as under: "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 53-A of the Transfer of Property Act, 1882 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a cooperative society, company or other association of persons or Page 18 of 23 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 269-UA. 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 effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;"

In Section 2(47)(v) of the Act, reference has been made to Section 53A of the Transfer of Property Act, 1882, which incorporates the doctrine of equity of part performance of contract. Section 53A introduces in limited form the doctrine of equity of part performance in India where requirements mentioned in the provisions are satisfied (see Ramachandrayya v. Satyanarayana AIR 1964 SC 877 ). Section 53A of the Transfer of Property Act, 1882 reads as under: "53A. Part Performance:- Where any person contracts 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:

Now we may advert to the facts of the case in hand. Clauses 4, 6 and 8 of the development agreement dated 04.05.1996 read as under: "4. That 60% of the constructed portion along with 60% undivided share in land would be retained by the Second Party in lieu of their developing the total area of the schedule property with their funds and the other 40% constructed portion along with 40% undivided share in land with all the amenities will be delivered to the First Party in lieu of utilization of the owner's land by the Second Party for construction. The total super built-up area to be delivered to the First Party will not be less than 6000 sq.ft. spread over Ground, First and Second Floors for the first revised sanction or in any other manner agreed upon by both parties. It is agreed that the ratio of 40% will apply for further floors, if constructed, according to the sanction for construction granted by the Municipal Corporation of Hyderabad or Government which shall include a pent house in the owner's portion with 40% terrace rights.

That as a performance guarantee the Second Party have deposited an amount of Rs.2,00,000/- (Rupees two lakhs only) with First Party vide Pay Order No.002314 dated 04.05.1996 for Rs.2,00,000/- (Rupees two lakhs only) drawn on Bank of Bahrain and Kuwait B.S.C., Somajiguda, Hyderabad. The Page 20 of 23 receipt of which the First Party hereby admits and acknowledged, which is returnable to the Second Party without any interest after the execution of the work entrusted to the Second Party under this agreement and after completion of all further floors. It is hereby clarified that 40% of the built- up portion includes usable area i.e., floor area as also the other areas like Balcony, Staircase, Lifts, Corridors, and other common spaces etc. Similarly, apart from this, 40% of the Car Park area shall be given to the First Party, all these will be clearly demarcated on the plan after obtaining sanction from the MCH or Government.

The owner shall be liable to pay Municipal taxes, non- agriculture and other charges and duties relating to the schedule property up to the date of delivery of possession to the developers."

The assessee vide letter dated 11.05.1996 handed over the possession of the land to the developer. The relevant extract of the aforesaid letter, which is referred to by the assessing officer in para 5.5 of the order reads as under: "5.5 By virtue of a Possession Letter dated 11.05.1996 the assessee handed over possession of the said land to the Developer, which reads as under: "In pursuance of the 'DEVELOPMENT AGREEMENT' dated 4th May 1996, at Hyderabad by and between, I have handed over this day vacant possession of the schedule land mentioned below to the Developers for the purpose of carrying out the development works."

Thereafter, a supplementary agreement dated 26.12.1996 was executed between the parties, which contains a recital that developer had obtained municipal sanction for construction of residential complex under permit No.6 of 1959, dated 26.07.16 and has commenced construction work.

Thus, from the aforementioned facts, it is evident that even though there is a contract to transfer the immovable property, which is signed by the parties, yet the contract has not been executed for consideration. A sum of Rs.2,00,000/- mentioned in paragraph 6 of the development agreement is only the performance guarantee which is refundable. The aforesaid amount of Rs.2,00,000/- has not been paid by way of consideration of the transaction. The developer has been handed over the possession for the limited purpose of carrying out the development work. Therefore, in pursuance of the development agreement, the possession of the immovable property has not been handed over to the developer as contemplated under Section 53A of the Transfer of the Property Act, 1882. Therefore, the same does not fall within the definition of 'transfer' under Section 2(47) of the Act.

Insofar as reliance placed by the learned Senior Standing Counsel for the Revenue in Potla Nageswara Rao (supra) is concerned, the same is an authority for the proposition that element of factual possession and agreement are contemplated as transfer within the meaning of Section 2(47) of the Act. It has further been held that when the transfer is complete, the consideration mentioned in the agreement for sale has to be taken into consideration for the purpose of assessment of income. In the instant case, under the development agreement there is no transfer, and the consideration has also not been paid. Therefore, the aforesaid decision of the Division Bench has no application to the fact situation of the case. Similarly, in the case of Arvind S Phake (supra), the possession was handed over to the developer and the entire consideration was paid. In the instant case, consideration has not been paid. Therefore, the Division Bench decision of the Bombay High Court also does not apply to the fact situation of the case. In. Harbour View (supra), the Division Bench of Kerala High Court on the facts of the case found that the possession of the property was handed over under Section 53A of the Transfer of Property Act, 1882. Therefore, the aforesaid decision also has no application to the fact situation of the case.

However, the finding has been recorded by the Tribunal that the appellant has handed over the possession of the entire property enabling the developer to enjoy 60% of the constructed area of the building cannot but be said to be perverse. Similarly, the finding that the assessee is liable to pay capital gains tax during the assessment year 1997-98 also cannot be sustained.”

In the result, appeal filed by the Revenue is dismissed.