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Facts
The assessee entered into a development agreement in AY 2012-13 and a supplementary agreement in AY 2013-14. The AO treated the development agreement as a transfer of property in AY 2012-13 and raised a demand. The CIT(A) upheld the AO's order.
Held
The Tribunal held that granting a license for development does not amount to possession and therefore not a transfer under Section 53A of the Transfer of Property Act. Following the Bombay High Court's decision, the Tribunal ruled that capital gains did not arise in the assessment year under consideration.
Key Issues
Whether the execution of a development agreement constitutes a transfer of property for the purpose of capital gains tax in the year of agreement execution, or upon receipt of flats.
Sections Cited
2(47), 143(3), 147, 148, 53A, 54F
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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI MANISH BORAD & SHRI VINAY BHAMORE
Assessment Year : 2012-13 Balasaheb Popatrao Phadol, Vs. ITO, Ward-1(2), Nashik. Vaishnav Niwas, Phadol Mala, At Post Ambad, Nashik- 422010. PAN : APIPP8834L Appellant Respondent Assessee by : Shri R. P. Dhaware (Virtual) Revenue by : Ms. Shilpa N. C. Date of hearing : 20.01.2025 Date of pronouncement : 09.04.2025 आदेश / ORDER
PER VINAY BHAMORE, JM:
This appeal filed by the assessee is directed against the order dated 14.06.2023 passed by Ld. CIT(A)/NFAC for the assessment year 2012-13.
The appellant has raised the following ground of appeal :-
1. The development agreement was executed in the AY 2012-13 and supplementary agreement was executed in the AY 2013-14. No sale of flats in the year of assessment order. Only development agreement was not transfer u/s 2(47). Commencement certificate was received in the assessment year 2013-2014.”
3. Facts of the case, in brief, are that the assessee is an individual and has furnished his return of income belatedly i.e. on 29.05.2014. As per the information available with the Department, cash amounting to Rs.10,11,000/- was deposited by the assessee in his bank account and immovable property amounting to Rs.1,22,50,000/- was sold during the year under consideration. Accordingly, notice u/s 148 was issued and in response to the same the assessee furnished his return of income. In reply to notice issued u/s 143(2), the assessee submitted that he has not sold any property but has entered into a development agreement on 05-05-2011 with the builder and the same was registered on 18.05.2011. Subsequently, supplementary development agreement was also entered into on 23-07-2012. According to the development agreements, the assessee was going to receive certain portion of constructed property in shape of flats in subsequent year and, therefore, the income in this year was not shown. However, the assessee submitted that in subsequent assessment year i.e. during assessment year 2013-14, the assessee has received number of flats which were sold and the capital gain on sale of flats was disclosed in subsequent assessment year. The Assessing Officer was of the view that since the development agreement was signed during the period under consideration, the property is said to be transferred during this period only & accordingly not satisfied with the above reply of the assessee and completed the assessment u/s 143(3) r.w.s. 147 on 22.12.2017 by determining the total income at Rs.1,03,65,880/- as against the income retuned by the assessee at Rs.2,89,880/-. The above assessed income includes capital gains of Rs.1,00,76,000/- on sale of immovable property.
After considering the reply of the assessee, Ld. CIT(A)/NFAC dismissed the appeal by observing as under :- “7.1 The contentions of the assessee has been considered as per first joint development agreement which is duly registered, the assessee received cash and 22 Flats. In the supplementary agreement filed by the appellant, it is seen that the flats construction was completed and the list of flats is available in the said agreement. This clearly shows that the construction of flats were completed by the time of entering into supplementary development agreement. The assessing officer has rightly taken the value of constructed property at Rs. 2,23,26,000/- alongwith cash of Rs. 10,11,000/- from the developer. With the completion of flats in the A.Υ. 2012-13, the transaction of transfer of property and receipt of consideration is complete in the A.Y. 2012-13 itself. It is also seen the documents submitted by the appellant that the application for commencement of construction was moved by the appellant on 24.11.2011 which was duly approved in the same assessment year. As soon as the construction of flats is completed in the same assessment year as mentioned by the AO at page no. 5 and para 5e that Sh. Yashree Construction Pvt. Ltd. has shown revenue from operations at Rs. 46408870/- from various projects including revenue from operation from project Sh. Hari which is on assessee's land. In my considered view as soon as the flats are completed and handed over to the assessee. The transaction of transfer of land is complete and the consideration is received by the assessee, making him liable to pay Consideration. In view of the above, the action of the AO is confirmed and the ground taken by the appellant is dismissed.”
It is this order against which the assessee is in appeal before this Tribunal.
Ld. AR appearing from the side of the assessee submitted before us that the order passed by Ld. CIT(A)/NFAC is unjustified. Ld. AR submitted before the Bench that the assessee entered into a development agreement with M/s Shree Yashree Construction Pvt. Ltd. with regard to a piece of land owned by the assessee. According to the agreement, the assessee was to receive 22 flats in consideration. Initially, development agreement was entered into on 05.05.2011 i.e. in assessment year 2012-13 the period under consideration and subsequently a supplementary development agreement was also entered on 23.07.2012 i.e. during the assessment year 2013-14 i.e. the subsequent assessment year. The value of piece of land subjected to development agreement was Rs.1,22,50,000/- and the value of constructed area which the assessee was supposed to receive was valued at Rs.2,23,26,000/-. Accordingly, the capital gains of Rs.1,00,76,000/- (Rs.2,23,26,000/- minus Rs.1,22,50,000/-) was calculated by the Assessing Officer.
Ld. AR further submitted before the Bench that as per the development agreement, the assessee was to receive 22 flats of the value of Rs.2,23,26,000/- and admittedly these flats were handed over to the assessee in subsequent financial year i.e. in assessment year 2013-14 and those flats were sold by the assessee in this subsequent period only and not during the period under consideration. Accordingly, the assessee has rightly shown the capital gains in assessment year 2013-14. In support of its contention, Ld. AR also relied on the judgement passed by Hon’ble Bombay High Court in the case of Late Bharat Jayantilal Patel through Legal Heir Smt. Minal Bharat Patel vs. DCIT, Central Circle-3(4), Mumbai and Others passed in Writ Petition No.1612 of 2022 order dated 10.02.2023, wherein, Hon’ble High Court on identical facts of the case has allowed the writ petition filed by the assessee by observing as under :- “7. 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 53A can be said to be attracted on the facts of a given case.
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) 13. 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, Sai 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(i) of the development agreement, which reads as under : "10. DEVELOPERS' RIGHTS, ENTITLEMENTS, DECLARATIONS AND OBLIGATIONS On and from execution hereof and subject to the fulfllment of all the terms and conditions to be 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 :- (i) 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;"
9. 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.”
It was further submitted by Ld. AR that the facts of the instant case & that decided by Hon’ble Bombay High Court are same- The Assessing Officer issued reopening notice on ground that capital gains income had arisen to assessee on transfer of development rights in its land to a developer, since assessee had merely granted licence to permit construction on land to such developer but not given any possession in land as contemplated under section 53A of T.P. Act, 1882, there was no transfer as per section 2(47)(v) giving rise to any capital gain in hands of assessee and, thus, impugned reopening notice was not justified. Accordingly, in the light of judgement passed by Hon’ble Bombay High Court (supra), Ld. AR prayed before the Bench to delete the addition made by the Assessing Officer and confirmed by Ld. CIT(A)/NFAC.
8. Ld. DR appearing from the side of the Revenue relied on the orders passed by the subordinate authorities and requested to confirm the same.
We have heard Ld. Counsels from both the sides and perused the material available on record including both the development agreements and commencement certificate of the property subject to development and also gone through the judgement relied on by the assessee. In this regard, we find that the assessee has entered into a development agreement with M/s Shree Yashree Construction Pvt. Ltd. which was registered on 18.05.2011. A supplementary development agreement was again entered into between the assessee and M/s Shree Yashree Construction Pvt. Ltd. and was registered on 23.07.2012 i.e. during the subsequent assessment year 2013-14. We also find that the commencement certificate & the building permission of the subjected property was issued on 20.06.2012 by Nashik Municipal Corporation which is also in subsequent assessment year. We also find that in consideration of said development agreement the assessee has received 22 number of flats of value of Rs.2,23,26,000/- in the subsequent assessment year. These flats were handed over to the assessee in subsequent assessment year i.e. in assessment year 2013-14 and not during the period under consideration. We also find that these flats were sold by the assessee in assessment year 2013-14 and the respective capital gains was also shown in the income tax return of assessment year 2013-14. However, deduction u/s 54F was claimed by the assessee against the said capital gain arising on sale of flats in subsequent assessment year & there is no information on record that the department has rejected the deduction claimed by the assessee in subsequent assessment year. The sole grievance of the assessee in this appeal is that although the development agreement was first entered during the period under consideration i.e. assessment year 2012-13 but subsequently a supplementary development was again entered & also registered in the subsequent assessment year & even the consideration i.e. flats were also received in subsequent assessment year i.e. in assessment year 2013-14 and the Assessing Officer erred in calculating capital gains during the period under consideration whereas according to the assessee the said capital gain was arising in subsequent assessment year i.e. in assessment year 2013-14. In this regard, we also find that the building permission was also given in subsequent assessment year & not during the period under consideration. Considering the totality of the facts of the case and the evidences produced before us, & also in the light of the judgement passed by Hon’ble Bombay High Court in the case of Bharat Jayantilal Patel vs. DCIT dated 10-02-2023 (supra), we are of the considered opinion that capital gains income does not arise to the assessee on transfer of development rights in its land to a developer, since assessee had merely granted licence to permit construction on land to such developer but not given any possession in land as contemplated under section 53A of T.P. Act, 1882, there was no transfer as per section 2(47)(v) giving rise to any capital gain in hands of assessee.
The above judgement of Hon’ble Bombay High Court in the case of Late Bharat Jayantilal Patel through Legal Heir Smt. Minal Bharat Patel dated 10-02-2023 (supra) was also followed by the Hon’ble Bombay High Court in the case of Darshana Anand Damle vs. DCIT order dated 04-09-2023 [2023] 155 taxmann.com 202 (Bombay) and subsequently SLP filed by the Department against this judgement was also dismissed by Hon’ble Supreme Court in 164 taxmann.com 665 (SC). Respectfully following the above judgement passed on the identical facts by the Jurisdictional Bombay High Court in the case of Late Bharat Jayantilal Patel through Legal Heir Smt. Minal Bharat Patel (supra), we set-aside the order passed by Ld. CIT(A)/NFAC and direct the Assessing Officer to delete the addition made on account of capital gains of