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Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
Before: Ms. Sushma ChowlaDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member: These appeals have been filed against the orders of the ld. CIT (A)-1, Gurgaon dated 26.10.2016 passed against the orders of the Assessing Officer u/s 143(3)/147 in the case of Sh. Shrichand, S/o Sh. Todar, Through Legal Heirs, Smt. Vishan Devi W/o Lt. Sh. Shri Chand, Sh. Ram Kishan S/o Lt. Sh. Shri Chand, Sh. Kawal Singh S/o Lt. Sh. Shri Chand,Sh. Uday Vir S/o Lt. Sh. Shri Chand, R/o Village Gwal Pahari, Sohna, Sh. Jeet Ram S/o Sh. Todar, Sh. Net Ram S/o Sh. Todar, Gurgaon.
2. Since, the issues involved in all these appeals are common, they were heard together and are being disposed off by common order.
3. In following grounds have been raised by the assessee: “1. That having regard to the fact and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned reassessment order as the assessment order was passed without complying with the mandatory conditions of section 147 to 151 of the Income Tax Act, 1961 and without recording valid reasons as per law and without obtaining valid approval as per law and in any case reopening of the assessment and framing of the reassessment order was contrary to law.
2. That in any view of the matter and in any case, action of Ld. CIT(A) in confirming the action of Ld. AO in reopening of the impugned assessment u/s 143(3)/147 is bad in law and against the facts and circumstances of the case. , 6301 & 6302/Del/2016 3 Shri Chand, Jeet Ram & Net Ram
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and facts in upholding the action of the Ld. AO in making addition of an amount of Rs. 50,00,000/- (1/3 of Rs. 1,50,00,000/-) by treating the receipt of non- refundable security as income from other sources and that too by recording incorrect facts and findings and by disregarding the evidences/submissions filed by the assessee and without providing adequate opportunity of being heard and in violation of principles of natural justice.
4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the addition of Rs. 50,00,000/- (1/3rd of Rs. 1,50,00,000/-) allegedly by treating it as income from other sources is bad in law and against the facts and circumstances of the case.
5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned order without giving adequate opportunity of being heard.
6. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making the impugned addition is bad in law and against the facts and circumstances of the case.”
4. Ground Nos. 1 & 2 are not pressed.
In the case of Sh. Shri Chand, the Assessing Officer had issued assessment orders in the name of each of legal heirs and accordingly four orders were issued in the case of same assessee Sh. Shrichand. All the three legal heirs had accordingly filed separate appeals and these four appeals are therefore being taken together for disposal. Similarly, in the case of Sh. Jeet Ram & Sh. Net Ram, the issue involved are same and Sh. Net Ram & Sh. Jeet Ram being brothers of Sh. Shri Chand, these appeals are also being taken up together for , 6301 & 6302/Del/2016 4 Shri Chand, Jeet Ram & Net Ram disposal. The issues involved in all the for the sake of convenience appeal no. 6302/Del/2016 is narrating the facts and addition involved.
Brief facts are that the A.O received information that the appellant had made an agreement for development of his land situated at Gwal Pahadi, Sohna in F.Y. 2007-08 with M/s First Hospitality & Leisure Pvt. Ltd. and received payments of Rs.50 lacs through two cheques dated 07.05.2007 of Rs.25 lacs each. The Assessing Officer examined the facts of the information and verified the same from the returns. The A.O noted that the appellant did not have any PAN and no return of income for the said assessment year was filed by the appellant. In response to the notice u/s 148 return was filed by the appellant showing agricultural income of Rs. 50 lacs. The appellant claimed that the amount of Rs. 50 lacs received by him was agricultural income and in this regard the appellant submitted the following detailed reply: Assessee alongwith his two brothers entered into collaboration agreement with M/s First Hospitality & Leisure Pvt. Ltd. dated 07.05.2007. The following conditions were settled in the said agreement: 1. The said MOU is for development of project and construction of information& Technology and Commercial Project on an agriculture land measuring 11.06875 acres.
2. The collaborator/ developer has to make Rs. 50 lakh payment to all the three joint holders equally which is a non refundable amount and the said amount has been paid by the developer for due performance and obligation undertaken by the developer.
After singing the Collaboration agreement the assessee has given a special power of attorney dated 07.05.2007 in favour of , 6301 & 6302/Del/2016 5 Shri Chand, Jeet Ram & Net Ram First Hospitality & Leisure Pvt. Ltd through its director Mr Sachin Goel for the complete land measuring 11.06875 acres for which the collaboration agreement was made. A copy of special power of attorney is being enclosed for your perusal.
The assessee along with his two brothers received Rs. 50 lakh each at the time of execution of collaboration agreement which is non refundable and the said amount was being paid by the developer for due performance and obligation undertaken by the developer.
5. The assessee has given the possession of the said agriculture land on 04.03.2008. A copy of the possession letter is being enclosed for your perusal.
6. From the above collaboration agreement it is very much clear that the amount of Rs. 50 lakh received by assessee with his two brothers separately is a part of sale consideration and it will be taxed if any arises on the stage when complete sale proceeding would take place. The sale deed was not executed during the year under consideration.
7. The assessee with his two other brothers further made a second MOU with M/s First Hospitality & Leisure Pvt. Ltd. this MOV both the parties has decided the value of said agriculture land Measuring 11.06875 acres Rs. 76,50,00,000/- and the collaborators has shown his desire to purchase the said agriculture land at Rs. 76,50,00,000/- and accordingly a MOU has been signed' A copy of the said MOU is being enclosed for your perusal.
As per clause no I of MOU dated. 25.03.20W, "the main purpose of this MOU is to lay down the broad terms and conditions as agreed by and between the parties and that the parties shall enter into a agreement to sell on the said property.
9. The developer i.e. M/s Hospitality & Leisure Pvt. Ltd. has got CLU for group housing colony on the area measuring 11.06875 acre vide CLU dated 14.06.2010. A copy of the same is being enclosed for your perusal.
, 6301 & 6302/Del/2016 6 Shri Chand, Jeet Ram & Net Ram 10. Further a MOU was entered with M/s Nucleus Conbuild Pvt. Ltd. in which assessee with his two brothers is a confirming party. The said MOU was entered on 11.08.2010 in which M/s Nucleus Conbuild Pvt. Ltd. is the first party, M/s First Hospitality & Leisure Pvt. Ltd. being the attorney ib he he If of said agriculture land the assessee with his two other brothers are the confirming party. A copy of the said MOU dated 11.08.2010 is being enclosed for your perusal.
11. Further a TRAI party agreement has been entered by the developer M/s First Hospitality & Leisure Pvt. Ltd. with M/s Nucleus Conbuild Pvt. Ltd. in which the assessee with his two other brothers is confirming party. The said MOU was signed by all the parties on 11.08.2010. In the said MOU total sale price of project has been settled Rs.1,09,69,00,000/-. The said calculation has been made on the basis of FAR. Total FAR is 11,06875/- acre 1.75 843770 sq ft and the selling price is Rs. 1300/- sq ft. Total sales consideration comes to Rs.1,09,69,0, 000/-. Further it is also clearly mentioned in the said MOU that out of Rs. 1,09,69,00,000/- Rs. 76,50,00,000/- is due to the confirming party.
12. After signing the MOU dated. 11.08.2010 being confirming party assessee executed sale deed on 07.10.2011 for a value of Rs.25,91,75,607/- A copy of sale deed is being enclosed for your perusal.
From the above facts it is very much clear that the assessee has executed sale deed on 07.10.2011 for Rs. 25,91,75,607/- that means the amount of Rs. 50 lakh received at the time of execution of collaboration agreement is also a part of sale due to the said amount was received by assessee by making a collaboration agreement with First Hospitality & Leisure Pvt. Ltd. It is a part of sale of agriculture land and the capital gain to be calculated in the year of sale is under:
Fair Market Value as on 01.04.1981 X Less; the advance received by assessee Y(Rs. 50 Lakh) At the time of collaboration agreement Net fair Market Value as on 01.04.1981 Z(X- Y) In other words fair market value as on 01.04.1981 is Rs. Z , 6301 & 6302/Del/2016 7 Shri Chand, Jeet Ram & Net Ram After taking the fair Market value it has to be taxed after indexing and indexation for 31.03.2012 is 785. Capital gain to be calculated after taking the indexation and deduction u/s 54B for investment is agriculture land and deduction 54F for investment is residential house.
After taking all the deduction i.e. index cost, deduction u/s 54B and 54F whatever the capital gain arises assessee is liable to pay tax. as per law. Further the assessee has received notice u/s 148 is bad in law, illegal and against the fact of the case.
Further the said agriculture land has used by the assesseee for the purpose of agriculture produce. A copy of gram panchayat certificate is being enclosed for your perusal.”
The Assessing Officer considered the assessee’s submission but was not satisfied. The Assessing Officer pointed out following facts with regard to the agreement entered into by the assessee: “a) The appellant along with his brother had entered into the collaboration agreement with M/s First Hospitality & Leisure P. Ltd. for developing the land owned by the appellant and his brother.
b) As per the collaboration agreement, the owners were desirous of constructing an IT Park and Commercial Complex on this land. c) The developer will construct/develop the said project over the said piece of land at his own cost. d) The owner shall be entitled to 35% of the entire built up area together with proportionate, undivided, indivisible and proportionate ownership rights in the land beneath and the common areas and common facilities. The developer shall be entitled balance 65% of the entire built up area. e) The developer shall pay the owner a sum of Rs. 1,50,00,000/- (Rupees one crore fifty lacs only) towards the security deposit against the collaboration agreement and this amount is not refundable by the owners.
, 6301 & 6302/Del/2016 8 Shri Chand, Jeet Ram & Net Ram f) If for any reason directly attributable to inaction of the Developer, Permission / License / CLU / approval / Sanction for the development and construction of the said Complex on the said land is not granted by the concerned authorities and the developer is not permitted to commence the construction of the said complex on the said land then in case of such eventualities the non - refundable amount of Rs.1,50,00,000/- (Rupees one crore fifty lacs only) stand forfeited in favour of the owners and the collaboration agreement stands cancelled in all respect.”
8. The Assessing Officer further pointed out that subsequent to this collaboration agreement there were two MOUs between owners, M/s First Hospitality & Leisure P. Ltd. and M/s Nucleus Conbuild Pvt. Ltd. on 25.03.2010 and 11.08.2010 and then a sale deed between the owners and M/s Nucleus Conbuild Pvt. Ltd. As per the sale deed and the MOU, the sale consideration to be received by the owners was Rs. 76.50 crore and there was no mention of Rs. 1.50 Cr. received as refundable security. Further, as per MOU dated 11.08.2010 between M/s Nucleus, M/s FHL and the owners, M/s FHL wanted to exit the project for a total consideration of Rs. 1,09,69,00,000/- which included the amount of Rs. 76,50,00,000/- due to the confirming party. In this MOU also, although there is a mention of collaboration agreement dated 07.05.2007 there was no mention of the amount of Rs. 1.50 Cr. paid as non-refundable security. Subsequently, the land was sold by the assessee vide sale deed dated 07.10.2011 by the assessee to M/s Nucleus for a consideration of Rs. 25,91,75,607/-. In this sale deed also there is no mention of the amount of Rs. 1.50 Cr. received as non- refundable security.
The Assessing Officer further pointed out that the assessee had himself shown the amount of Rs. 50 lacs as agricultural , 6301 & 6302/Del/2016 9 Shri Chand, Jeet Ram & Net Ram income in the return filed on 12.10.2015 in response to notice u/s 148 of the Income Tax Act. The Assessing Officer accordingly held that the amount of Rs. 50 lacs received by the assessee was over and above the sale consideration of Rs.25,91,75,607/- received by the assessee consequent to the sale deed and accordingly held that this amount was taxable as income from other sources.
The other facts filed before the ld. CIT (A) are that the Assessing Officer has brought to tax a sum of Rs.50,00,000/- being 1/3rd share of the assessee out of the total amount of Rs.1.50 Crore received by the assessee and his two brothers on the ground that this amount was received on non-refundable basis pursuant to the collaboration agreement with M/s First Hospitality & Leisure P. Ltd. (FHALPL) on 07.05.2007.
It was submitted that assessee was the owner of agricultural land along with his two brothers which was used by the assessee for the purpose of agricultural and to this effect a certificate from the Gram Panchayat was filed which is enclosed in the paper book.
Such agricultural land was situated in village Gawal Pahari, which was more than 8 kms away from Gurgaon Municipality limit. The assessee along with his brothers entered into an MoU with M/s First Hospitality & Leisure P. Ltd. for the purpose of development, which could not take place and assessee with his brothers agreed to sell this land to M/s First Hospitality & Leisure Pvt. Ltd. vide MOU dated 25.3.2010 for a total consideration of Rs. 76.50 Crores but again the sale did not fructify. , 6301 & 6302/Del/2016 10 Shri Chand, Jeet Ram & Net Ram 13. Thereafter, a. tripartite sale agreement was entered into between the assessee as confirming party and M/s First Hospitality & Leisure P. Ltd. and M/s Nucleus Conbuild P. Ltd. vide agreement dated 11.8.2010 for the sale of this land pursuant to which the subject land was ultimately sold on 7.10.2011. But the appellant, along with his two brothers received earlier agreed aggregate consideration of Rs. 76.50 crores. Chart of events and dates is given below:
Date of Particulars At Page No. of event the paper book 07.05.2007 Collaboration agreement with M/s 9-20 First Hospitality & Leisure P. Ltd. 07.05.2007 Special POA was executed in 74-78 favour of M/s First Hospitality & Leisure P. Ltd. 07.05.2007 Amount of Rs. 50 Lacs being 21 l/3rdofRs. 1.50 Crorewas received by the assessee. 04.03.2008 Limited possession was given for 79 the purpose of development 25.03.2008 MOU entered for the sale of land 80-82 in favour of M/s First Hospitality & Leisure P. Ltd for Rs. 76.50 Crores 14.06.2010 CLU for group housing colony was 83-84 obtained by M/s First Hospitality & Leisure P. Ltd. 11.08.2010 MOU was entered between M/s 85-98 Nucleus Conbuild P. Ltd. and M/s First Hospitality & Leisure P. Ltd. with the assessee as confirming party 07.10.2011 Sale deed was executed by the 99-103 assessee in favour of M/s Nucleus Conbuild P. Ltd
It is now submitted that the said amount of Rs. 50,00,000/- 1/3rd part of Rs. 1.50 Crore received by the assessee from M/s First Hospitality & Leisure Pvt. Ltd. is not , 6301 & 6302/Del/2016 11 Shri Chand, Jeet Ram & Net Ram taxable in the setting of the above facts due to under mentioned reasons: 1. The said amount was received pursuant to the agreement transferring the development, rights and therefore, it was a capital receipt.
The said agricultural land was situated beyond 8 kms. from Gurgaon Municipality limit on the date of transfer and in any case as on 06.01.1994 and therefore in view of the following judicial decisions, such amount cannot give rise any taxable capital gain.
We have carefully considered the assessee’s submissions. In order to fully appreciate the facts of the case and the issue at hand, it may be relevant to first trace out the chronology of events in the present case which is as under:
Sr. No. Date Remarks 1. 07.05.2007 Collaboration agreement entered into between the appellant, his brothers and M/s First Hospitality & Leisure P. Ltd. 2. 07.05.2007 Rs. 50 lacs each received by three brothers including the appellant as non- refundable security. 3. 07.05.2007 Special Power of Attorney signed between the appellant his brother and M/s FHL. 4. 04.03.2008 The appellant with his brother gave possession of land to the Special Power of Attorney holders. 5. 25.03.2010 MOU between the appellant, his brothers and M/s First Hospitality & Leisure P. Ltd. As per this MOU the value of land was estimated at Rs. 76.50 lacs and as per the Terms & Conditions of the MOU the parties were to enter into an agreement to sell the land. 6. 14.06.2010 The use of the land under reference was got changed by M/s First Hospitality & Leisure P. Ltd. to commercial land.
, 6301 & 6302/Del/2016 12 Shri Chand, Jeet Ram & Net Ram 7. 11.08.2010 MOU between M/s First Hospitality & Leisure P. Ltd., M/s Nucleus and the appellant and his brother for a total consideration of Rs. 1,09,69,00,000/- 8. 07.10.2011 Sale deed signed by the appellant transferring the land owned by him to M/s Nucleus for a consideration of Rs. 25,91,75,607/-
From the aforesaid chronology of events, it was argued by the assessee before the ld. CIT (A), that the assessee had initially on 07.05.2007 merely agreed to develop the land in partnership with M/s First Hospitality & Leisure Pvt. Ltd. Moreover, the collaboration agreement was not registered. As such there was no transfer of land at this stage. In fact there was no mention of the intention of the parties to enter into the agreement to sale at this stage. It was as a consequence of this intention to develop the land belonging to the assessee and his brother and the involvement of M/s First Hospitality & Leisure P. Ltd in these ventures that the assessee received non-refundable security of Rs. 50 lacs. It is further evident that there was no transfer of land at this stage and the amount received was not taxable as capital gains. The assessee had also contended during the assessment proceedings that the capital gains will be taxed if any arises on the stage when complete sale proceeding would take place. From the facts discussed above it is evident that the land which was initially agricultural land was specifically changed into commercial land through the order dated 14.06.2010 subsequent to which the land was sold on 07.10.2011 vide the sale deed for a value 91,75,607/-. The land at the time of sale was not agricultural land and was in fact commercial land and the capital gains arising on this sale of , 6301 & 6302/Del/2016 13 Shri Chand, Jeet Ram & Net Ram land on 07.10.2011 are taxable only in the A.Y 2012-13 and not in the A.Y 07.05.2007.
Reliance was placed on the judgment of Hon’ble P&H High Court in the case of M/s C. S. Atwal and others vs CIT, [2015] 59 taxmann.com 359 (Punjab & Haryana). In this case, the Hon'ble High court considered the following issues: “(i) scope and legislative intent of Section 2(47)(ii), (v) and (vi) of the Act; (ii) the essential ingredients for applicability of Section 53A of1882 Act; (Hi) meaning to be assigned to the term "possession"? (iv) whether in the facts and circumstances, any taxable capital gains arises from the transaction entered by the assessee?”
The ld. CIT (A) held that the issue to be considered is whether the amount of Rs. 50 lacs received by the appellant as non-refundable security is taxable as income from other sources as held by the A.O. during the current year. In this regard, the ld. CIT (A) held that, it is evident that the amount of Rs. 50 lacs is not a part of the sale consideration of Rs. 25,91,75,607/- received by the appellant on account of sale. This amount of Rs. 50 lacs is over and above the amount of deed dated 07.10.2011.
During the arguments before us, the ld. AR relied on the order of this Tribunal in the case of Vinod Kumar Yadav in ITA No. 2640/Del/2018. He argued that the facts in that case are squarely applicable to the instant appeal. The ld. DR relied on the orders of the authorities below.
Heard the arguments of both the parties and perused the material available on record.
Before insertion of provision of Finance Act 2015 w.e.f. 1.4.2015, section read as under:
“Where any capital asset was on any previous occasion the subject of negotiations for its transfer, any advance or other money received and retained by the assessee in respect of such negotiations shall be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition.” 22. Later on w.e.f. 1.4.2015 proviso was added which read as under:
Provided that where any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset, has been included in the total income of the assessee for any previous year in accordance with the provisions of clause (ix) of sub-section (2) of section 56. then. such sum shall not be deducted from the cost for which the asset was acquired or the written down value or the fair market value. As the case may be. in computing the cost of acquisition.
Clause ix of sub section 2 to section 56 has been brought in the statute w.e.f. 1.4.2015, which provides that; “any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, if-
(a) Such sum is forfeited; and (b) The negotiations do not result in transfer of such capital asset.
24. Hence, for treating the amount received as advance in the course of negotiation over the transfer of capital asset has been deemed to be income from other sources only w.e.f. 1.4.2015. Hence, the amended provision will not be applicable to the assessee as same will not have a retrospective effect for the year under consideration, that is, for the assessment Year 2013-14. Thus, said amount cannot be held to be chargeable to tax in the current year, neither u/s 45 because there is no , 6301 & 6302/Del/2016 15 Shri Chand, Jeet Ram & Net Ram transfer u/s 2(47)(v); nor u/s 56(2). This position has been clarified by ITAT Mumbai Bench in the case of ITO vs Fiesta Properties (P) Ltd. (2016) 73 taxmann.com (Mumbai) wherein the Tribunal has observed and held as under: “The aforesaid provisions clearly lay down that amount of advance received for sale of property shall be treated as income u/s 56 if the same is forfeited and negotiations did not result in transfer of such capital asset. But these provisions have been inserted w.e.f 01-04-2015. These provisions are not clarificatory in nature. These provisions lay down a substantive law creating additional tax liability upon an assessee and, therefore, this cannot have retrospective effect. Further, with the insertion of these provisions. It becomes clear that earlier the law was not like this. Thus. for the year before us. i.e. A. Y. 2010-11 the then existing provisions of section 51 shall he applicable which clearly provides that the amount of advance received should be reduced from the cost of acquisition of asset. Thus, we reinforce the direction of the Lei. CIT(A) and direct the Assessing Officer to reduce the cost of acquisition of the property by the amount of Rs.3.74 crores on sale of the said properly at the time of computation of capital gains as may be arising on account of sale of the said property."
Further the Hon’ble Supreme Court in the case of CIT vs. Balbir Singh Maini (2017) 398 ITR 531, have held that where for want of permissions, entire transaction of development of land envisages in joint development agreement fell through, there would be no profit or gain which arose from the transfer of capital asset which could be brought to tax u/s 45 read with section 48. The relevant observations made by the lordship in this regard reads as under: "20 This being the case, and it being clear that the said JDA was never registered, since the JDA has no efficacy in the eye of law. Obviously no "transfer" can be said to have taken place under the aforesaid document. Since we are deciding this case on this legal ground, it is unnecessary for us to go into the other questions decided by the High Court namely. whether under the JDA possession was or was not taken; whether only a licence was granted to develop the property; and whether the developers were or were not ready and willing to carry out their part of the bargain. Since we are of the view that sub-clause (v) of Section 2(47) of the Act is not attracted on the facts of this case, we need not go into any other factual question. , 6301 & 6302/Del/2016 16 Shri Chand, Jeet Ram & Net Ram 23. A reading of the JDA in the present case would show that the owner continues to be the owner throughout the agreement, and has at no stage purported to transfer rights akin to ownership to the developer. At the highest, possession alone is given under the agreement, and that too for a speciJic purpose -the purpose being to develop the property. as envisaged by all the parties. We are, therefore, of the view that this clause will also not rope in the present transaction.
The matter can also be viewed from a slightly different angle. Shri Vohra is right when he has referred to Sections 45 and 48 of the Income Tax Act and has then argued that some real income must "arise" on the assumption that there is transfer of a capital asset. This income must have been received or have "accrued" under Section 48 as a result of the transfer of the capital asset."
Thus, this amount cannot be taxed u/s 56 as income from other sources as noted above. The taxability of capital gain if at all would be applicable in the year in which transfer has taken place i.e. in the assessment year 2012-13.
In the result, all the appeals of the assessee are allowed. Order Pronounced in the Open Court on 24/02/2020.