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Facts
The Revenue appealed against the CIT(A)'s order deleting an addition of Rs. 2,41,88,998/-. The assessee purchased agricultural land with financial assistance from M/s Homeland Buildwell Pvt. Ltd. A collaboration agreement was made, but it was void due to land reform laws. Later, a compromise and arbitration decree led to the transfer of land to M/s Homeland Buildwell Pvt. Ltd. to settle a loan.
Held
The Tribunal held that the ownership and possession of the land remained with the assessee, and the transfer was to discharge a loan liability. The transaction was rightly treated as Long Term Capital Gain (LTCG) in the current year, and the AO's addition was deleted.
Key Issues
Whether the transfer of land was a sale attracting capital gains tax, and if so, in which assessment year. Whether the CIT(A) erred in deleting the addition made by the AO.
Sections Cited
143(2), 118, 2(47)(v), 53A, 270A
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
the order of the Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 19.02.2024 passed for assessment year 2017-18. The Revenue has taken five grounds of appeal, which read as under :
1. Whether on facts and circumstances of the case and in law, Id. CIT(A) erred in deleting the addition of Rs.2,41,88,998/- made by the AO in the assessment order?
A.Y.2017-18 2 2. Whether on facts and circumstances of the case and in law, Id. CIT(A) erred in relying on the unregistered collaboration agreement dated 11.08.2006 as genuine and ignoring the fact that it was entered into by the assessee and M/s Homeland Buildwell Private Limited was simply to bypass H. P. Tenancy and Land Reforms Act, 1972 and as per terms of agreement all the rights effectively lay with M/s Homeland Buildwell Private Limited and thus, the actual sale was held in FY 2006-07?
Whether on facts and circumstances of the case and in law, Id. CIT(A) erred in holding that the transaction of sale of land is eligible for Capital Gains without any evidence on sale of land during the AY 2017-18?
Whether on facts and circumstances of the case and in law, Id. CIT(A) erred in holding that the transaction of sale of land is eligible for Capital Gains ignoring the fact that as per the compromise agreement dated 17.04.2018 (AY 2019-20) the land was to be sold by M/s Homeland Buildwell Private Limited and sale proceeds handed over to the assessee as per terms of collaboration agreement dated 11.06.2006 and thus, the land had not been sold during the AY 2017-18 ? 2. The brief facts of the case are that assessee has filed his return of income on 30.01.2018 declaring total income of Rs.14,44,431/-, capital gain Rs.91,738/- and 'income from other sources' Rs.12,981/-. The case of the assessee was selected for scrutiny assessment and a notice under Section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the AO that assessee had introduced a capital of Rs.2,41,88,998/- on sale of immovable property for Rs.4,32,59,600/-. The assessee has declared a Long Term Capital Gain of Rs.91,738/-. The ld.
AO has made a deeper scrutiny of this issue. However, perusal of the record would indicate that assessee had A.Y.2017-18 3 purchased 37 bighas of agriculture land in the revenue State of village Kalyanpur, Distt. Solan (H.P.) at a cost of Rs.4.58 Cr. This land was purchased with the financial assistance of Rs.4,32,59,600/- from M/s Homeland Buildwell Pvt. Ltd. The balance amount was contributed by the assessee for purchase of the land. There was a collaboration Agreement entered by him with M/s Homeland Buildwell Pvt. Ltd. for developing this land. This agreement was executed on 11.08.2006. According to this Agreement, a commercial Shopping Mall was to be constructed on this land and cost of development to the extent of 90% was to be incurred by M/s Homeland Buildwell Pvt. Ltd. and 10% contribution was of the assessee. Somehow, as per Section 118 of Himachal Pradesh Tenancy and Land Reforms Act, 1972, it was found that this Agreement is a void Agreement because agriculture land in Himachal Pradesh cannot be transferred to a non Himachali. Therefore, according to the assessee, this land was returned back to him and the contribution of Rs.4,32,59,600/- stood as unsecured loan in his books. The assessee himself has developed a Shopping Mall at a piece of 20.15 bighas of land and remaining 17.5 bighas was treated A.Y.2017-18 4 as fixed asset, it was kept vacant. The assessment of the assessee for assessment year 2007-08 was completed under Section 143(3). The Department has accepted the stand of the assessee and did not disturb the transaction. In other words, according to the assessee, the loan outstanding in the books of the assessee from M/s Homeland Buildwell Pvt. Ltd. was accepted by the Revenue. All necessary permissions for development of the Shopping Mall were in the name of the assessee. Ultimately, all along, the assessment years in between 2007-08 to 2017-18, the business income from this commercial building was assessed in the hands of the assessee. This stand was never disputed. A dispute arose between the assessee and M/s Homeland Buildwell Pvt. Ltd. and litigation went to the Hon'ble Delhi High Court which was referred to arbitration. Ultimately, an arbitration award was received and it was implemented. On execution of this decree, this remaining land of 16.5 bighas was transferred to M/s Homeland Buildwell Pvt. Ltd. in lieu of the outstanding loan received by the assessee before 31.01.2006. Since it was disclosed as a fixed capital asset in the accounts of the assessee, therefore, he computed a Long Term Capital Gain A.Y.2017-18 5 on this. The computation made by the assessee read as under :
Sale consideration Rs. 4,32,59,600/- Less indexed cost of acquisition (19070602 x 497/112) Rs. 4,31,67,862/- LTCG Rs91,738/- Less brought forward Long Term Capital Loss (-)Rs.91,738/- Taxable LTCG NIL (c ) As this original amount was appearing in his books of account as liability, he passed accounting entry as under: Homeland Buildwell Pvt. Ltd. 4,32,59,600 To Land Account (Kalyanpur) 1,90,70,602 To surplus on sale of land 2,41,88,998
3. The AO did not accept this computation. He was of the opinion that since possession was transferred to M/s Homeland Buildwell Pvt. Ltd. in the Financial Year 2006-07 and therefore, capital gain ought to have been shown in that year. He made the addition of the difference between Rs.4,32,59,600/- and Rs.1,90,70,602/-, however, on appeal, the ld. CIT(A) has deleted this addition. The relevant part of the finding of the CIT(A) is being reproduced hereunder :
“OBSERVATIONS & DECISION 5. In the light of the above submissions, the various grounds of appeal are adjudicated as below: 5.1 Ground of Appeal No. 1 is of general in nature, requiring no specific comments, in view of adjudication in the succeeding grounds. 5.2 Grounds of Appeal Nos. 2, 3 & 4: In these grounds, the AR has contested that the addition of Rs 2.41,88,998/- as capital gain during the year without reducing Indexed cost of the land sold.
ITA No.548/CHD/2024 A.Y.2017-18 6
5.2.1 Summary of the facts highlighted by the AO in assessment order.
As per AO the possession of the property was handed over in the year 2006. Therefore, the capital gain would have arisen in the 2006 itself, Therefore, the difference of receipt i.e. Rs. 2,41,88,998/- ( Rs. 4,32,59,600 minus Rs 1,90,70,802/-) is to be taxed in current year, In para 6 of the order, finding was given as under: the assessee had claimed that the Hon'ble courts had also submitted that the sale deed can be registered at any time, but this fact do not have any effect on the arisen of Capital Gain as the Hon'ble court had only permitted for the registration. Therefore, the capital gain should have been declared at the time of possession of land given i.e. Further, the whole amount had already been received by you at the time of possession of property Hence the capital gain can not be camouflaged to be declared during the year Further the act cannot be altered as per convenience or situation, the act had to he followed as per its requirements The assessee had given (he possession of the property hence the transfer had taken place at the same moment and capital gain had to be declared as such. Hence, the capital gain declared during the year is void and do not support its veracity Further the addition had been shown at Rs 241,88,998/- instead of Rs 4 3 2 59,600/- Keeping in view the facts above the addition of Rs 2,41,86,998/- is added to the income being difference" 5.2.2 Summary of the facts highlighted by the assess©© during the appellate proceedings
As per appellant, the amount of Rs 4,32 50 600/- was sought as a financial assistance from a company known as Homeland Buildwell Pvt. Ltd in the financial year 2005-2006 for development and construction of a commercial project situated at Village Kalyanpur in the state of Himachal Pradesh in terms of Collaboration Agreement dated 11.06.2006 As per the Collaboration Agreement dated 11 08 2006, Para 10 i.e. Sharing of Areas, the clause No 10 1 is reproduced as under: That in consideration of the contribution/ obligation of the Owner, in the said project it has been mutually decided and agreed upon between the parties to this Collaboration Agreement that out of the entire super built up areas t o be developed/ constructed by the Developers in the said Complex 10% built - u p area would be provided and given free of cost b y the Developers to the owner The copy of the Collaboration Agreement dated 11 08 2006, was submitted during assessment proceedings The possession of the land in terms of Collaboration Agreement was given to the Developer for the purpose of carrying out development and construction in terms of the Clause No 14 of the Collaboration Agreement dated 11 08.2006, but the possession of land was taken back by the Assessee in the same year. due to the restrictions imposed under Section 118 of H.P, Tenancy and Land Reforms Act 1972, in the State of Himachal Pradesh The construction was commenced by the Assessee on 20-15 Bighas of land in the year 2006-2007 and the project was completed in the financial year 2009- 2010 and the completion certificate was granted by the Competent Authority on 23.04 2010 for 20 15 Bighas (15614 sq mtrs) of land The cost of the development and construction developed by the Assessee was duly reflected in Assessees books of accounts in the financial year 2006-07, 2007-08, 2008-09 and 2009-2010 The possession of balance land measuring 16-05 Bighas under question.
ITA No.548/CHD/2024 A.Y.2017-18 7
During the year remained with the Assessee and shown as fixed asset in the Assessee's cooks of accounts. Also, as per AR, dispute arose between the parties m the financial year 2016-2017 M/s Homeland Buildwell Pvt. Ltd. issued a notice dated 24 01 2017 and asked the Assessee for settlement of accounts of Homeland City Mall in terms of collaboration agreement dated 11 08.2006. The accounts were provided but M/s Homeland Buildwell Pvt.Ltd preferred to file a suit in Hon'ble Delhi High Court, for recovery of an amount of Rs 4.32 59,000/-, which was provided as a financial assistance for the development and construction and had obtained a stay order dated 21 07.2017 in Suit no. OMP (1) (Commercial) 267/2017 titled as Homeland Buildwell Pvt. Ltd versus Sunil Sood Also, the AR submitted that all the events which occurred on or before dated 03.01,2018. i e. the date of signing of Audited Balance Sheet for the financial year 2016-2017, were duly considered and incorporated including the sale of land to Homeland Buildwell Pvt. Ltd as per mutually agreed upon terms and conditions between both the parties in November 2017, which were eventually reduced to writing in compromise deed dated 17.04 2018, filed in me Court of Ld. Arbitrator Justice (Retd.) M L Mehta appointed by Hon'ble Delhi High Court. The copy of the compromise deed dated 17 04 2018 along with the consent settlement award by the Arbitrator dated 22.05.2018 was submitted during assessment proceedings. Further, as per AR, the Assessing officer has alleged that sale of land was completed m FY 2005-06 and hence indexing of cost of the land is not allowable to the Assessee during the AY 2017-18, in spite of the fact that sale was completed in FY 2016-17 and possession of land was also offered in FY 2016-17 Further, if the allegation of the Ld. Assessing officer is to be relied, though not admitted in any way, then any capital gain tax should have been charged in AY 2006-07 The Ld Assessing officer has tried to disallow indexing of the cost of land sold, during the year on surmises and conjectures just to levy more capital gain tax during the year under consideration.
DECISION 5.2.3 I have considered the reasoning given by the AO in assessment order, submissions & documents submitted by the appellant, facts of the case and legal position. Brief Facts :
(i) The brief facts that the appellant has bought agricultural land of 37 bigha in village Kalyanpur, Baddi, Himachal Pradesh for a consideration of Rs.4,32,59,600/-. This amount was provided by M/s Homeland Buildwell Pvt Ltd. A collaboration agreement was entered into between the appellant and M/s Homeland Buildwell Pvt. Ltd. on 11 08 2006 (paper book no 105-125) As per this agreement, this land was to be developed into a commercial complex For the purpose, 90% of the expenses were to be borne by M/s Homeland Buildwell Pvt. Ltd. and 10% by the appellant. (ii) As per clause 14 of the collaboration agreement dated 11 08.2006 the possession was handed over to M/s Homeland Buildwell Pvt. Ltd. to develop the land in the Financial Year 2006-07. However, because of restrictions imposed under section 118 of H P Tenancy and Land Reforms Act 1972. to part with possession of agricultural land to a Non Agriculturist (company being Non Agriculturist), it was agreed between the A.Y.2017-18 8 assessee and the company that all development and construction shall be carried out by the assessee The possession of land measuring 37 Bighas was given back to the assessee by the company in the same financial year, 2006-2007 The assessee started the construction on 20-15 Bighas of lane m me financial year 2006-2007 and completed the construction in F Y 2009-2010 The cost of the construction of the same has been disclosed under the head Fixed Assets in the Balance Sheet of the assessee. (iii) The authorities granted the completion certificate dated 23,04,2010 of construction carried by the Assessee on land measuring 15614.55 sq. meters (20 Bighas 15 Biswas) No construction was earned out on remaining 16-05 bigha land. (iv) Subsequently, some dispute between the parties arose and matter travelled to the Courts and arbitration was awarded. The appellant has filed copy of the order of Hon'ble Delhi High Court dated 19 09.2017 (paper book no 128-130), cop/ of the consent settlement award dated 23.05 2018 (paper book no 131-132). and copy of compromise deed dated 18.04.2018 (paper book no 133-152)'As decided by between the parties the assessee has handed over the possession of the plot measuring 16-05 Bighas to M/s. Homeland Buildwell Pvt. Ltd. in lieu of the payment made by the Company to the assessee In the FY 2005-06 The assessee passed the following entry in his books of accounts:-
Homeland Buildwell Pvt. Ltd. 4,32,59,600
To Land Account (Kalyanpur) 1,90,70,602 To Surplus on sale of land 2,41,88,998
The capital gain in respect of the above entry has been disclosed in the computation of income for the relevant assessment year. (v) The AO has held that as the possession was transferred by the assessee to the Company M/s Homeland Buidwell Pvt Ltd in the FY 2006-07, the capital gain on the same was accrued to the assessee in the that year and the amount of liability has only been reversed by the assessee in the relevant assessment year Thus, the AO added the surplus amount of Rs. 2,41,88,998 (Rs.4,32,59,600-Rs.1,90,70,602/-) as income of the assessee and penalty u/s 270A has been initiated. Decision: (a) Only issue is whether there is some capital gain or not. If yes, then what would be the year of taxability. The AO has held that the possession was handed over in the FY 2006-07 to M/s Homeland Buidwell Pvt Ltd and therefore, capital gain would have arisen in that year only, Therefore, the AO added the surplus amount of Rs 2.41,88 998 IRs 4,32.59,600-1,90.70 602) as Income of the assessee in current year (b) The appellant has disclosed this transaction as LTCG Cost of acquisition was taken as proportionate cost of 16-05 bigha which worked out to Rs.1.90 70,602/ . Sate consideration was taken as amount originally given by Homeland Buldwell Pvt Ltd and was directed to be returned to it by the order of the Hon'ble Court/Arbitration award Therefore, the appellant in his return, worked out Capital Gain as under:
ITA No.548/CHD/2024 A.Y.2017-18 9
Sale consideration Rs. 4,32,59,600/- Less indexed cost of acquisition (19070602 x 497/112) Rs. 4,31,67,862/- LTCG Rs.91,738/- Less brought forward Long Term Capital Loss (-)Rs.91,738/- Taxable LTCG NIL (c ) As this original amount was appearing in his books of account as liability, he passed accounting entry as under: Homeland Buildwell Pvt. Ltd. 4,32,59,600 To Land Account (Kalyanpur) 1,90,70,602 To surplus on sale of land 2,41,88,998
(d) First question regarding possession of the property is to be seen in view of the evidence filed. As per AO. possession of the property was handed over to the company M/s Homeland Buildwell Pvt Ltd during the F.Y. 2006-07 in term of clause 14 of the collaboration agreement dated 11 08 2016 Therefore part performance as per section 53A of the Transfer of Property Act has taken place in F.Y. 2006-07 and transaction in complete in view of the section 2(47)(v) of the I T Act 1961 To understand this situation relevant clause 14 of the collaboration agreement dated 11.08.2016 as reproduced as under " 14 POSSESSION OF LAND 14.1 That with the signing of this Agreement., the owner has handed over the physical possession of sold land alongwith other infrastructure thereon to the developers for the purpose of carrying out development and construction in terms of this Agreement
Along with this agreement a possession letter was also signed, which is being reproduced as under: x x x
(e) On complete reading of the clause 14 and possession letter, it is clear that the possession was handed over only for the purpose of development and construction The possession was not absolute The ownership remained with the appellant. It is a settled law that any document has to be read and interpretated as a whole and not in bit and pieces. On complete reading of these documents, it is evident that ownership is with appellant. The AO has read only one part of the clause and agreement that possession has been handed over and did not take cognizance of further part which elaborated the purpose of possession. The ownership of the property was also substantiated by the way of following documents/facts i. The construction of building was undertaken by the assessee and recorded in his books of accounts for 20-15 bigha and the land measuring 16-05 Bighas was kept vacant with the assessee himself for further development and construction.
A.Y.2017-18 10 The Building Plan Approval Registration Certificate with HIMUDA NOC to ii. use the road, NOC for setting up the commercial complex and Hotel License for shopping cum Multiplex on the impugned land NOC for setting up commercial complex, consent to Establish a shopping cum Multiplex. NOC to operate Homeland City Mall and Power release certificate to M/s Homeland City Mall has been issued in the name of the assesses only and not in the name of the Builder/Company. iii. The units sold by the assessee has been declared in the books of accounts- the assessee has accounted for the sale of the units under the head "Homeland City Mall’ in the profit and loss account. iv. As per compromise deed dated 1704.2018 also the ownership was with the appellant only. As per this deed, he was to remain trustee and transfer the entire sale receipt to M/s. Homeland Buildwell Pvt Ltd. v Sale deeds were existing in the name of the appellant/ The land transferred has been shown as capital gain and the units transferred vi are shown in profit and loss account by the appellant (f) Therefore, from the above discussion, it is clear that the ownership as well as possession was with the appellant only. AO has not brought anything on record, which suggest otherwise. Sole reliance of the AO was on the issue of possession being handed over to M/s. Homeland Buildwell Pvt Ltd In terms of clause 14 of the collaborative agreement dated 11.08.2016, which has been discussed above and it was observed that the possession for only for the purpose of development and construction. Besides, had the possession and ownership been with M/s. Homeland Buildwell Pvt Ltd, then there would have been no question of dispute, and it would not have gone into litigation. Further, the business income on sale of commercial spaces by the appellant, as has been declared in the return, has been accepted by the AO and no adverse view has been taken by the AO. (g) Therefore, it is held that the appellant was the owner of the land in question and the transaction of sale is the Capital Gain. Since the land has been held for more than prescribed time period, it is LTCG. Next question arises about the year of taxability As submitted by the appellant (h) there was an oral agreement during current year in view of the decision of the Hon'ble Delhi High Court, which was subsequently educed to writing in the next F Y . the taxability of LTCG would arise only in the current year. If it is taken for next FY, then also there would not much effect on the working of the LTCG In fact, it would reduce due the indexation effect No useful purpose would be served by treating this transaction to be complete in next year (i) In view of the above discussion, It is held that the appellant has rightly treated this transaction as LTCG In current year and has worked out LTCG In correct manner. Further, it Is also a settled legal principle that manner of the entry in books of accounts can not change the nature of transaction and its taxability. Therefore, the addition made by the AO is deleted. Accordingly, these grounds of appeal are allowed.”
ITA No.548/CHD/2024 A.Y.2017-18 11
With the assistance of ld. Representative, we have gone through the record carefully. It is pertinent to note that as per Section 118 of Himachal Pradesh Tenancy Land Reforms Act, 1972, a non Himachali cannot purchase agriculture land. Therefore, this land was purchased only in the name of the assessee, though financial assistance must have been given by M/s Homeland Buildwell Pvt. Ltd. but this loan taken by the assessee from M/s Homeland Buildwell Pvt. Ltd. has been recognized as an unsecured loan in the accounts. This stand of the assessee has been accepted by the Revenue from assessment year 2007-08 till 2016-17. It was never doubted nor disputed. It is pertinent to note that out of the total land measuring 37 bighas, AO is not disputing the facts narrated by the assessee to the extent of 20.15 bighas which has been used by the assessee for the development of Shopping Mall. This part of the land was always considered as exclusive land of the assessee. We fail to understand as to how he can make a deviation because total land was to be treated equal. If 20.15 bighas of the land was accepted as belonging to the assessee, then how remaining 16.5 A.Y.2017-18 12 bighas which has been sold to the creditor of the assessee in Financial Year 2016-17 for assessment year 2017-18 is not to be accepted. In simple terms, it is a transaction vide which an agriculture land was to be jointly developed by the assessee and M/s Homeland Buildwell Pvt. Ltd. which cannot be materialized because of the position of law, hence, it was dropped. The assessee himself developed the land partially and the stand was accepted by the Revenue. When he was unable to repay the loan taken from M/s Homeland Buildwell Pvt. Ltd., he transferred 16.50 bighas of land to M/s Homeland Buildwell Pvt. Ltd. in execution of an arbitration decree.
In other words, it is only to be construed that 16.5 bighas of land has been transferred by the assessee in order to discharge his loan and this transfer taken place in the accounting year relevant to 2017-18. This land was purchased in assessment year 2007-08 hence, whatever capital gain arose on this land, is to be accepted in 2017- 18 and it has been adjusted against the outstanding loan.
In other words, constructively the price of the land was accepted by these years he discharged long time A.Y.2017-18 13 outstanding liability of the loan. The AO has emphasized that possession of the land was given to M/s Homeland Buildwell Pvt. Ltd. for development but he failed to recognize that since it was a void agreement, it was not executed and possession was handed over to the assessee.
It is pertinent to note that whole of the land was in exclusive possession of the assessee. The Revenue has never doubted it. It has recognized the 16.50 bigha of land as fixed asset in the accounts of the assessee. The Revenue has recognized outstanding loan liability also.
Thus, in order to satisfy arbitrarial decree, assessee has transferred the land and the loan liability was eliminated.
In other words, the loan liability is to be construed as price of the land received by the assessee in this year because once the liability was discharged by the assessee, only then it is to be construed that sale transaction has materialized. Therefore, we are of the view that ld. CIT(A) has appreciated the controversy in right perspective and deleted the addition which was made by the AO A.Y.2017-18 14 unnecessarily. We do not find any merit in this appeal. It is dismissed.
In result, the appeal of the Revenue is dismissed.
Order pronounced on 09.01.2025.