SMT. G. SARASWATHI,BENGALURU vs. THE INCOME TAX OFFICER, WARD - 7(2)(2), BENGALURU

The assessee has raised several grounds. Ground No. 1 is general and in ground no. 2, 2.1 & 2.2, the grievance raised is about validity of reopening but in course of hearing, learned AR of the assessee submitted that these grounds are not pressed and accordingly, these grounds are rejected as not pressed. Learned AR of the assessee also submitted that as per the remaining grounds except the additional ground, this is the grievance of the assessee that the capital gain is not taxable in the present year simply on the basis of execution of JDA on 10.12.2009. He also submitted that as per the additional ground raised by the assessee, this is the claim of the assessee that even if it is held that the capital gain is taxable in the present year, deduction u/s 54F is allowable but since this claim was not raised before the lower authorities and it is being raised before the tribunal for the first time , the additional ground should be admitted because this is a legal claim and this issue may be restored to AO for a decision if the main issue i.e. taxability of capital gain in the present year is decided against the assessee.

Regarding the main issue, it was submitted by the learned AR of the assessee that as per paras 8.4 to 8.6 of his order, learned CIT (A) has followed the judgment of Hon’ble Karnataka High Court rendered in the case of CIT vs. Dr. T. K. Dayalu as reported in 202 Taxmann 531 but as per a later judgment of Hon’ble apex court rendered in the case of Seshasayee Steels Pvt. Ltd. vs. ACIT, 421 ITR 46, it was held by Hon’ble apex court that mere agreement to sell and giving licence to the developer to enter in the land for construction could not be said to be possession within the meaning of section 53A of the Transfer of Property Act, 1882 which is a legal concept and denotes control over the land and not actual physical occupation of the land.

At this juncture, the bench wanted to see the JDA to find out relevant clauses of JDA and after examining the same, the bench pointed out that as per clause 21 of JDA, the developer is entitled to raise loans for the development and construction purposes on the security of the 58% share in the scheduled property from any bank etc. This was the query of the bench that in view of this fact, in the present case, the assessee has given to the developer more rights then entry only to do construction. In reply, learned AR of the assessee submitted that as per clause 34 of the JDA as available on page 47 of the paper book, it is provided in the JDA that if the entire schedule property is acquired under any law by the government or other authority under the law before construction of the building then this agreement shall stand terminated and the entire compensation for the construction part shall be taken by the builder and entire compensation for land shall be taken by the land owner and if the acquisition takes place after completion of construction then compensation shall be divided between the land owner and builder in the ratio of their entitlement of constructed area i.e. 42 % to land owner and 58% to builder. He submitted that in view of this clause, it is clear that the ownership of land is with the land owner till completion of construction. As against this, learned DR of the revenue supported the orders of the lower authorities.

We have considered the rival submissions. We find that if the judgment of Hon’ble apex Court cited by the learned AR of the assessee is applicable in the facts of the present case, then the judgment of Hon’ble Karnataka High Court rendered in the case of CIT vs. Dr. T. K. Dayalu (Supra) followed by CIT (A) cannot be applied in the present case and therefore, we first examine the applicability of the judgment of Hon’ble apex Court cited by the learned AR of the assessee having been rendered in the case of Seshasayee Steels Pvt. Ltd. vs. ACIT (Supra). We find that in that case, the assessee entered into an agreement on 15.051998 with the builder to sell land for a fixed consideration. Under the agreement, the assessee gave permission to the builder to start advertising, selling, and make construction on the land. Subsequently, a memorandum of compromise dated July 19, 2003 was entered into between the parties, under which the agreement to sell and the power of attorney were confirmed and a sum of Rs. 50 lakhs was reduced from the total consideration of Rs. 6.10 crores. Clause 3 of the compromise deed confirmed that the assessee had received a sum of Rs. 4,68,25,644 out of the agreed sale consideration. Clause 4 recorded that the balance Rs. 1.05 crores towards full and final settlement in respect of the agreement entered into would be paid by seven post-dated cheques. Clause 5 stated that the last two cheques would be presented only upon due receipt of the discharge certificate from one Pioneer Homes. This was the decision of Hon’ble Apex Court in that case that the assessee’s rights in the immovable property were extinguished on the receipt of the last cheque and the compromise deed could be stated to be a transaction which had the effect of transferring the immovable property in question.

As per the facts of that case as noted above, it is seen that the original agreement to sell dated 15.05.1998 was revised as per Memorandum of Compromise dated 19.07.2003 as per which the earlier agreed consideration was reduced by Rs. 50 Lacs and as per clauses 4 & 5 of this Memorandum of Compromise dated 19.07.2003, it was agreed that the remaining consideration of Rs. 1.05 Crores will be paid by seven post dated cheques and last two cheques would be presented only upon due receipt of Discharge Certificate from one Pioneer Homes. Hence, it is seen that as per the original agreement of sale, the agreed consideration was later revised and reduced and one more condition was noted in respect of Discharge Certificate from one Pioneer Homes and apart from granting licence to the builder buyer to enter and do construction work etc., no other right like right to create mortgage (as in the present case) was given by the land owner seller to the builder buyer. Hence, the facts of the present case are different. Regarding this argument of the learned AR of the assessee that in view of clause 34 of the JDA which provided that if the entire schedule property is acquired under any law by the government or other authority under the law before construction of the building then this agreement shall stand terminated and the entire compensation for the construction part shall be taken by the builder and entire compensation for land shall be taken by the land owner and if the acquisition takes place after completion of construction then compensation shall be shared between the land owner and builder in the ratio of their entitlement of constructed area i.e. 42 % to land owner and 58% to builder and therefore, in view of this clause, it is clear that the ownership of land is with the land owner till completion of construction, we feel that the effect of this clause of JDA is not this that transfer has not taken place on execution of JDA which gave right of creating mortgage also to the builder. In our considered opinion, this clause of JDA takes care of the situation arising on acquisition if it takes place in future. As the agreed consideration for 58% of land transferred by the land owner is 42% of constructed area to be constructed by the builder on the land of land owner and if acquisition takes place before completion of the construction then such consideration cannot be paid by the builder because full construction has not taken place till acquisition, it is agreed that the compensation receivable for 58% of land transferred by the land owner to builder will be payable to the land owner instead of the builder because the builder cannot pay the agreed consideration of 42% of constructed area. In fact, 58% of total acquisition compensation is agreed consideration of 42% of constructed area which the builder was required to hand over to the land owner but which is not possible because of acquisition. In view of this discussion, we are of the considered opinion that this judgment of Hon’ble apex court is not applicable in the facts of the present case and therefore, no interference is called for in the order of CIT (A) which is rendered by him by following the binding judgment of Hon’ble Karnataka High Court rendered in the case of CIT vs. Dr. T. K. Dayalu (Supra). We, therefore, decline to interfere in the order of CIT (A) on the merit off addition in the present year but we restore back the matter to the file of CIT (A) to decide about the claim of the assessee for deduction u/s 54F as claimed before us by way of an additional ground, which we admit as it is a legal claim.

In the result, the assesseee’s appeal is partly allowed for statistical purposes.