SMT. KAVITHA KAMLESH SHAH,BANGALORE vs. ACIT-CIRCLE-6(1), BANGALORE

Per Chandra Poojari, Accountant Member These two appeals are by the assessee against the separate orders of the CIT(Appeals), Bengaluru-6, Bengaluru both dated 13.05.2016 for the assessment years 2007-08 & 2009-10.

ITA No.1508/Bang/2016

“1. The Learned CIT (A) without considering the contention in regard to jurisdiction for issue of notice u/s.148 of the Act

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erred in dismissing the appellant's appeal for the assessment year 2007-08. 2. The Learned CIT(A) erred in upholding the order of re- assessment for the assessment year 2007-08. 3. The Learned CIT(A) erred in holding there is a transfer of property by the Appellant in favour of the Developer on 05-02- 2007, being the date of execution of Joint Development Agreement and G.P.A without appreciating that section 2(47)((v) of the Act is not applicable to the facts of the appellant's case. 4. The Learned CIT (A) without any material on record held the appellant has given possession on 05-02-2007 and section 2(47)(v) of the Act is applicable and the transaction is liable to tax for the assessment year 2007-08. 5. The Learned CIT (A) has failed to appreciate that in order to bring a transaction u/s.2(47)(v) of the Act part performance ought to have been performed by the Transferee and there is no material on record to hold there was any part performance by the Developer during the year in question in order to bring the transaction u/s.2(47)(v) of the Act. 6. The Learned CIT(A) erred in upholding the computation of capital gain in the assessment year 2007-08 basing on events that have happened in subsequent years. 7. The Learned CIT(A) erred in upholding the value of transfer at Rs.97,15,500/- for the assessment year 2007-08. The cost of depreciated value of the building in course of time, joint ownership and other disadvantages have not been considered while arriving the above value as against the value of land proposed to be transferred by the Appellant. 8. Assuming for the sake of arguments, there is a transfer as contemplated u/s. 2(47)(v) of the Act during the year, the Learned CIT(A) ought to have considered the value of land agreed to be transferred on the basis of guideline values determined by the State Government for the purposes of registration and ought to have directed to grant exemption u/s.54F out of the said sum.

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by the Appellant located in Kodigehalli Village, Yelahanka, Bangalore. Further, the Joint Venture Development agreement entered into by the appellant enables the appellant to claim 45% of saleable construction area whereas balance 5% belongs to the developer. The AO was of the view that the possession of the land vest with the developer on account of JDA and on account of construction carried on as per JDA and as such there is transfer of property of 55% of land from the appellant to M/s. Home Concept. Further, the Assessing Officer has also observed that to the extent of land transferred, the Appellant is liable to capital gain tax in the year in which JDA is entered into. Subsequently, the assessment was completed u/s.143 (3) r.w.s.147 of the Act by holding that the Appellant is liable to capital gain tax in the year in which Joint Develop Agreement took place since the possession of land was handed over to the developer. 4. During the AY 2009-10 Appellant has sold 3 flats and offered for taxation. The AO has made assessment u/s 143(3) of the Act and aggrieved by the said order the Appellant preferred an appeal before CIT(A) and same is pending for disposal. 5. The ld. AR submitted that without appreciating the submission of the Appellant that the clause 8.1 of the JDA suggest that the Assessee will transfer the share in the land comprising the schedule property to the developer or persons nominated by the him as and when required by the developer by executing the fresh sale deeds. In other words, the developer if and when requires should approach the Assessee for execution of the sale deed. The development agreement does not suggest the developer to be transferee. Consequently the handing over of the possession of land to the developer for the purpose of development would not contemplate transfer in pursuance of the agreement of transfer as provided u/s 53A of the Transfer of Property Act. The AO also levied interest u/s.234A 86 234B of the Act.

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there is no transfer or a deemed transfer by applying the provisions of Sec.2(47)(v) of the Act when the JDA was executed and accordingly there is no incidence of capital gains for the assessment year 2007-08 which required to be offered for taxation by the Appellant. It is very clear that there was no identity of the transferees in the JDA. The contract between the parties would clearly show that the Developers was provided undivided share in the land to be transferred to its nominees or to it. The Developers was required to exercise its option whether to buy the undivided share in the land to itself or to the identified various transferees to whom the transfer should be made by the Owners. Thus, in the JDA, there was no suggestion that the Developer is the transferee. The JDA did not satisfy the conditions provided u/s. 53A of the Transfer of Property Act. Consequently the provisions of Sec.2(47)(v) of the IT Act was also not applicable. Consequently, there is no liability to capital gains for the assessment years 2007-08. The capital gains would arise when the sale deed is registered with respect to each of the transferee since there was no deemed transfer to the Developer, the Appellant themselves was executing the sale deed in respect of transfer of undivided share in the land to the ultimate buyers. 10. In this connection, it is submitted that the judgment of the Karnataka High Court in the case of CIT vs. Dr. T.K. Dayalu reported in 60 DTR (Kar) 403 / 202 Taxman 571, wherein the Hon'ble court followed the judgment of Chaturbhuj Dwarkadas Kapadia vs. CIT (2003) 260 ITR 491 (Bom) were not applicable to the facts of the present case. 11. The ld. AR further submitted that there was non-refundable consideration for the acquisition of undivided share in the land by the Developers apart from giving super-structure free of cost. Nowhere it is provided that the undivided share in the land was required to be transferred to various prospective buyers on the construction of the developer. There is nothing to indicate that the Developer would be the ultimate transferee for

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the transfer of property to the third party without notice to the Appellant. The ld. AR submitted that it was on the specific facts, as found by the High Court in the case of Dr. T.K. Dayalu (supra) has come to the conclusion that the transfer had been completed when the agreement was executed. The facts are distinguishable with regard to the case of the Appellant and accordingly the said case was of no application to suggest that the capital gains was required to be assessed for the assessment year 2007-08. Further the judgment has not been accepted and the same has been pursued in appeal before the Hon'ble Apex Court. 12. The ld. AR submitted that from a reading of clause 48 of the Development agreement, the right to transfer would occur when the transferee is identified and possession is handed over to him. Until then there is no transfer u/s.2(47) r.w.s.45 of the Act. On reading the JDA if the developer is identified as a transferee, then by virtue of the condition that only when the possession of the owners' share of super structure is handed over to them in December 2010, at the earliest the transfer can be contemplated. In such circumstances, the capital gains will fall for taxation for the assessment year 2011-12. However, for the reasons stated hereinabove it was submitted that transfer in accordance with Sec.2(47) of the Act would be complete only when the transferee is identified and with whom an agreement is executed for transfer of undivided share in the land in pursuance of which he/ she has been put in possession either directly or constructively. Until then no capital gains for taxation would arise in the hands of the owners. Accordingly it is prayed that the addition made by AO for the relevant assessment year has to be deleted. 13. On the other hand, the ld. DR submitted that original assessment was completed u/s. 143(1) and reopening was within four years. Being so, there is no infirmity in the order of AO in reopening the assessment and the same to be confirmed.

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1.1 The owners are in possession and enjoyment of the Schedule Property. The owners hereby authorize the development of the schedule property. 1.2 The Owners hereby agree 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 Owners shall always be entitled to inspect the progress of the work and type of work which is being done on the Schedule Property. 1.3 The Owner has given up his share to the developer or his employees or Architecture to carry out the developmental works. This Permissive possession does not be construed as possession given under the agreement as part performance of the contract under Sec 53A of transfer of property Act.” 17. He also drew our attention to clause 8 of GPA which reads as under:- “8. TRANSFER OF DEVELOPERS SHARE : 8.1) The Owner shall agree to convey/transfer share in the land comprised in the Schedule Property to the Developer or person/s nominated by the Developer as and when required by the Developer by executing fresh sale deeds. 8.2) The Developer will be entitled to enter into Agreements for Sale of undivided shares in the Schedule Property to the extent of their agreed share with persons intending to own units and enter into Construction Agreement with such intending Unit Holders entirely at the risk as to and consequences of the Developer. 8.3) The stamp duty, registration charges and expenses in connection with the preparation and execution of the Deed/s of conveyance and/or other documents relating to the Developer share in the land rights in the Schedule Property agreed to be

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conveyed to the Developer or Developer’s nominee/s shall be borne by the Developer or the nominee/s of the Developer.” 18. He also drew our attention to clause 9 of the GPA as under:- “To enter into agreements for sale of undivided share in the Schedule Property to the extent of 55% of Developer with or without construction any intending purchaser of flats in terms of Joint Development Agreement. Except presenting the document relate to the Conveyance of the flat before the Sub Registrar for which the executor “Owner” shall come and present the same before the Sub-Registrar as for as the share of the developer is concern.” 19. Thus, the ld. AR submitted that giving licence to the developer to enter into the land cannot be equated with giving absolute legal title of the property to the developer. He therefore submitted that it cannot constitute as transfer in terms of section 2(47)(v) of the Act. According to him, capital gain under the development agreement arises only on exchange of built-up area by the developer to the landlord.. Further, it was submitted that the construction area of the property is not in existence on the date of JDA or on the date of GPA and it is subject to many factors like sanction of municipal plan, construction of building, getting occupancy certificate, etc. According to the ld. AR, the entire act of construction is under uncertainty. Transfer cannot take place in the assessment year under consideration and also construction being unascertained, no capital gain to be charged in the assessment year under consideration. According to him, accrual of income itself fails, no capital gain is chargeable. As there is no accrual of capital gain, charging section 48 fails and there is no computation of capital gain in the hands of assessee. 20. Further it was submitted that the value of constructed area which will be handed over to the assessee by the developer is not known in the assessment year under consideration and it cannot be determined as they are non-existent on the date of entering into JDA and the construction area

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which accrues to the assessee in future cannot be predicted and it cannot be brought to tax. 21. 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 to be the transaction which had the effect of transferring the immovable property in question. 22. 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

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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. 23. Whereas in the present case, the assessee has permitted the developer to enter upon the schedule property and perform all such acts as are necessary to develop the schedule property. The JDA states that the landlord shall not revoke the rights so granted till completion of development and sale of built-up area. The act of asse and developer, can beyond any doubt of uncertainty, be concluded as a contract within the meaning of section 53A of the Transfer of Property Act, 1882. The assessee has given the possession and the willingness to perform the contract was established since the structure of the building/s got completed and there were no encumbrances to disrupt the terms and condition of JDA so as to draw a compromise deed to ratify the terms of JDA. For the aforementioned reasons, the judgment of Sehasayee Steels (supra) is distinguishable from the facts of the present case. 24. Under the above facts and circumstances of the case, it was prayed that the consideration declared by the assessee and subsequently enhanced by the AO and confirmed by the CIT(Appeals) be deleted in the interest of justice. 25. On the other hand, the ld. DR submitted that the provisions of section 2(47)(v) of the Act has an inclusive definition and submitted that the assessee entered into JDA and given possession of the property. He relied on the judgment of Hon’ble High Court of Karnataka in the case of Dr. T.K. Dayalu (supra) wherein it was held that when possession of the property has been handed over to the assessee and the cash portion of the agreement also received on that date, the appropriate assessment year in which the capital gain is to be taxed is the year of entering into JDA and not

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the year when the project was completed. He also relied on the judgment of the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia (supra) wherein it was held as under:- “Having regard to the finding of fact that possession of the property has been handed over on 30th May, 1996, and cash part of the agreement also received on that date, appropriate assessment year in which the capital gain is to be taxed is 1997- 98 and not in the year when the entire project was completed in 2003-04.”

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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 cost of construction incurred by the developer was not known. Therefore, it is to be inferred that there was no construction activity by the developer during the assessment year in this land. The assessee only received a meagre amount of refundable deposit of Rs.3 lakhs during the financial year as enumerated in clause 13 of the JDA. Being so, there was no transfer of property under this JDA. Also without accrual of construction to the assessee, assessee was not expected to pay capital gain on the JDA entered by the assessee with the developer. The condition laid down in section 2(47)(v) of the Act r.w.s. 53A of the Transfer of Property Act is not complied with as there was no willingness of the developer to perform his part of the duty in terms of the JDA. Accordingly it is held that there was no transfer for the assessment year under consideration as held by the Hon’ble Supreme Court in the case of Seshasayee Steels P Ltd. (supra). Accordingly, we hold that there was no transfer in AY 2007-08. Accordingly, the other grounds are academic and not adjudicated. Thus, the appeal for the AY 2007-08 is partly allowed. AY 2009-10 28. The assessee has raised the following grounds of appeal:- “1. The Learned CIT (A) erred in upholding the adoption of value c consideration at Rs.96,75,000/- by the Learned Assessing Authority for the assessment year 2009-10 as deemed Capital Gains. 2. The learned CIT(A) erred in upholding determination of deemed capita gain at Rs.94,30,223/- for the assessment year 2009-10.

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was received and the assessee has to pay capital in the relevant assessment year. Being so, there is no merit in this ground and it is accordingly dismissed. 32. Ground Nos.3 & 7 is with regard to grant of exemption u/s. 54/54F of the Act. The grievance of the assessee is that the AO has granted deduction u/s. 54/54F only on single flat and assessee claimed exemption on two flats built up on two different floors. In our opinion, this issue is covered by the Hon’ble jurisdictional High Court in the case of Arun K. Thiagarajan v. CIT, ITA No.25 of 2011, judgment dated 18.6.2020 wherein it was observed as under:- “7. Learned Senior Counsel for the assessee has submitted that claim of the assessee in this appeal relates to exemption under section 54 of the Act in respect of investment made in two residential properties. It is argued that there is no dispute with regard to computation of capital gains or factum of investments in two properties. It is pointed out that Section 54(1) was amended by Finance Act, 2014 with effect from 1-4-2015, by which the words 'constructed a residential house' were substituted and the words 'constructed one residential house in India' was substituted. It is argued that the expression 'a residential house' used in Section 54 of the Act refers to the nature of house and the number of residential units to be purchased by the assessee and therefore, the assessee was eligible for exemption. In this connection, reliance has been placed on Circular No. 1/2015 issued by Central Board of Direct Taxes dated 20-1-2015 and it is argued that the aforesaid amendment is prospective in nature. It is also urged that several courts including a bench of this court has interpreted the expression 'a residential house' and have held that the letter 'a' in the context, in which it is used should not be construed as singular but the expression also permits use of plural. In support of aforesaid submission, reliance has been placed on the following decisions in K G Rukminiamma (supra), B. Srinivas v. ITO [IT Appeal No. 1134 of 2008, dated 4-7- 2014], CIT v. Late Khoobchand M. Makhija [IT Appeal No. 496

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of 2007, dated 18-12-2013], CIT v. Smt. Jyothi K. Mehta [2011] 12 taxmann.com 440/201 Taxman 79 (Mag.) (Kar.), Tilokchand & Sons v. ITO [2019] 105 taxmann.com 151/263 Taxman 713/413 ITR 189 (Mad.), CIT v. Gita Duggal [2014] 52 taxmann.com 246/[2015] 228 Taxman 62 (SC), CIT v. Gita Duggal [2013] 30 taxmann.com 230/214 Taxman 51/357 ITR 153 (Delhi), D. Anand Basappa (supra), CIT v. Smt. V.R. Karpagam [2014] 50 taxmann.com 55/226 Taxman 197 (Mag.)/[2015] 373 ITR 127 (Mad.), CIT v. Syed Ali Adil [2013] 33 taxmann.com 212/215 Taxman 283/352 ITR 418 (AP), G. Chinnadurai v. ITO [2016] 74 taxmann.com 227 (Mad.). 8. On the other hand, learned counsel for the revenue submitted that the word used 'a residential house' has to be interpreted in the facts and circumstances of the case. It is further submitted that assessee in the facts of the case is not entitled to the benefit of Section 54(1) of the Act and the same would amount to abuse of law. It is further submitted that an attempt is made by the assessee to evade the tax. Learned counsel for the revenue has invited our attention to the decision relied by learned Senior Counsel for the assessee in the case of Smt. K.G Rukminiamma (supra) and has pointed out that on a site a residential premises existed, which was demolished and was given to a builder under a Joint Development Agreement for putting up flats. In the aforesaid factual background, it was held that all four flats are situate in a residential building and therefore, constitute 'a residential house' for the purposes of Section 54 of the Act. Similarly, it is pointed out that in all the cases relied upon by the assessee in the fact situation of the cases referred to by the counsel for assessee, it was held that assessee is entitled to benefit to Section 54(1) of the Act. Therefore, the aforesaid decision is of no assistance to the assessee. 9. By way of rejoinder, learned Senior Counsel for the assessee has submitted that there is no finding by any of the authorities that assessee had engaged either in tax planning or tax evasion and in various decisions, the expression 'a residential house' has been interpreted and the ratio laid down in the aforesaid decision applies to the fact situation of the instant case. 10. We have considered the submissions made on both the sides and have perused the record. In order to appreciate the rival

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submissions made at the bar, we deem it appropriate to reproduce Section 54(1) of the Act, which read, prior to its amendment by Finance (No.2) Act, 2014, as under: 54(1) Subject to the provisions of sub-Section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased or has within a period of three years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the Previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section. 11. From close scrutiny of the aforesaid provision, it is axiomatic that property sold is referred to as original asset and the original asset is prescribed as buildings and lands appurtenant thereto and being a residential house. The expression 'a residential house' therefore, includes building or lands appurtenant thereto. It cannot be construed as one residential house. 12. A Bench of this court in case of Smt. KG Rukminiamma (supra) dealt with the meaning of expression 'a residential house' used in Section 54(1) of the Act while taking into account Section 13(2) of the General Clauses Act, 1897 held that unless there is anything repugnant in the subject or context, the words in singular shall include the plural and vice versa. It was further held that context in which the expression 'a residential house' is used in Section 54 makes it evident that it is not the intention of the legislature to convey the meaning that it refers to a single residential house. It was also held that an asset newly acquired after sale of original asset can also be buildings or lands appurtenant thereto, which also should be residential house, therefore, the letter 'a' in the context it is used should not be construed as meaning singular, but the expression should be read in consonance with other words viz., buildings and lands.

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Accordingly, the contention raised by the revenue was rejected. Similar view was taken by a bench of this court in Khoobchand M. Makhija supra, B. Srinivas supra and in the case of Smt. Jyothi K Mehta supra. The Madras High Court while dealing with Section 54 of the Act as it stood prior to amendment by Finance Act No. 2/2014 in the case of Tilokchand & Sons supra took the similar view and held that the word 'a' would normally mean one but in some circumstances it may include within its ambit and scope some plural numbers also. The Delhi High Court also took the similar view in case of Gita Duggal supra. 13. It is well settled in law that an Amending Act may be purely clarificatory in nature intended to clear a meaning of a provision of the principal Act, which was already implicit. [See: Decision of The Supreme Court In CIT v. Ram Kishan Das [2019] 103 taxmann.com 414/263 Taxman 657/413 ITR 337. In view of aforesaid enunciation of law by different High Courts including this court and with a view to give definite meaning to the expression 'a residential house', the provisions of Section 54(1) were amended with an object to restrict the plurality to mean singularity by substituting the word 'a residential house' with the word 'one residential house'. The aforesaid amendment came into force with effect from 1-4-2015. The relevant extracts of Explanatory note to provisions of Finance (No. 2) Act, 2014 reads as under: 20.3 Certain courts had interpreted that the exemption is also available if investment is made in more than one residential house. The benefit was intended for investment in one residential house within India. Accordingly, sub-Section (1) of Section 54 of the Income- Tax Act has been amended to provide that the rollover relief under the said Section is available if the investment is made in one residential house situated in India. 20.5 Applicability:- These amendments take effect from 1st April, 2015 and will accordingly apply in relation to Assessment year 2015-16 and subsequent Assessment years. Thus it is axiomatic that the aforesaid amendment was specifically applied only prospectively with effect from Assessment year 2015-16.

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of exemption under section 54(1) of the Act. In the result, the appeal is allowed.” 33. Being so, the assessee is entitled to deduction u/s. 54/54F on two flats in principle, though they are in different floors, provided it satisfies all the conditions laid down in section 54/54F. Accordingly, this issue is remitted back to the file of AO fresh consideration, after giving opportunity of being heard to the assessee. 34. Ground No.8 is regarding charging of interest which is mandatory and to be computed accordingly. 35. In the result, the appeal by the assessee is partly allowed. 36. Thus, both the appeals by the assessee are partly allowed. Pronounced in the open court on this 25th day of June, 2021. Sd/- Sd/- ( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER

Bangalore, Dated, the 25th June, 2021. /Desai S Murthy /

Copy to:

By order

Assistant Registrar ITAT, Bangalore.