DEPUTY COMMISSIONER OF INCOME TAX, VISAKHAPATNAM vs. RAJA RAO PARACHURI, VISAKHAPATNAM

DCIT vs. Raja Rao Parachuri 5. Aggrieved, the assessee carried the matter in appeal before the CIT(A), who allowed the same. For the sake of clarity, the observations of the CIT(A) are culled out as under:

“5.1. The appellant is an individual and filed his return of income for the AY 2013- 14 declaring total income of Rs.1,73,79,050/-. The information in this case was received that the assessee entered into a Joint Development Agreement (Herein after referred to as “JDA” for short) for total consideration of Rs.23.94 Crores and did not declare any capital gain arising from such transaction. On the basis of this information available with the AO, the case of the appellant was reopened u/s 147 of the Act and notice was issued to the appellant u/s 148 of the Act. In response to notice u/s 148, the assessee submitted that he had already filed his return of income & requested to treat the same as return filed in response to notice issued u/s 148 of the Act. 5.2. During the year under consideration, the assessee along with three others entered into a joint development agreement with M/s BBCL Vajra, a registered partnership firm having its office at No.20, Mylai Rangnatahn Street, T. Nagar, Chennai on 25/04/2012 i.e. in the financial year 2012-13 relevant to the assessment year 2013-14, for the purpose of development of land admeasuring Ac. 1.45 cents situated at old survey No.318/3AI, new survey nos. 318/3AIB/3AID & 318/3AIE, Nolambur Village, Ambattur Taluk, Thiruvallur District of Tamilnadu, for a total consideration of Rs.23.94 Crores. As part of the agreement entered by the assessee along with other co-owners & the developer, the four co-owners of the land were entitled to a share of revenue from the sale of flats & commercial area which was to be developed by M/s BCCL Vajra. However on perusal of the return of income filed for the AY 2013- 14, it was noted that the assessee did not declare any capital gain for taxation arising from the impugned joint development agreement. Therefore the AO issued notice u/s 142(1) of the Act asking the assessee to furnish computation of capital gain arisen. In response thereto, the assessee submitted that he along with 3 other co-owners entered into an unregistered JDA with the developer on 25/04/2012. As per addendum to the JDA, the developer was supposed to apply for plan approvals within 1.5 months of receipt of FMB or 90 days from the date of the JDA whichever is later & was supposed to obtain the approval of plans within 16.5 months from such date. But if the approval was likely to be delayed indefinitely, the JDA was to be cancelled. The assessee further submitted that since the approvals were obtained on 17/10/2013 i.e. during F.Y. 2013-14 relevant to the AY 2014-15, he offered the capital gains to taxation by filing return of income for the AY 2014-15. The assessee relied on the decision of the Hon’ble Supreme Court in the case of CIT Vs Balbir Singh Maini wherein it is held that an unregistered JDA cannot be said to have resulted in transfer of title, irrespective of the fact whether possession of the property was handed over under the contract or not. However the AO reiterated that as DCIT vs. Raja Rao Parachuri per the terms of agreement dated 25/04/2012 at clause 17, the possession of the property was handed over to the developer for commencing & completing the construction activities and hence the AO concluded that the capital gain was earned by the assessee during the FY 2012-13 relevant to the AY 2013-14 as against during the FY 2013-14 relevant to the AY 2014-15 as claimed by the assessee. Accordingly, the AO made addition of Rs.11,26,01,500/- on account of long term capital gain. The computation of long term capital gain made by the AO is reproduced here as under:- 5.3. XX XXX XX 5.4. During the appellate proceedings, the appellant contended same as during the assessment proceedings that JDA came into effect only on 17/10/2013 & not on 25/04/2012 as is claimed by the AO. He further claimed that the JDA entered on 25/04/2012 was unregistered and hence handing over possession of the property on the basis of unregistered JDA did not constitute “transfer” of the property as per Transfer of Property Act. The assessee also submitted that after transfer of property on 17/10/2013, he had voluntarily offered capital gain arising from such JDA for taxation by filing return of income for the AY 2014-15. The appellant relied on the decision of the Hon’ble Supreme Court in the case of CIT Vs Balbir Singh Maini wherein it is held that an unregistered JDA cannot be said to have resulted in transfer of title, irrespective of the fact whether possession of the property was handed over under the contract or not. The relevant portion of the Supreme Court Order is reproduced here as under:- 20. The effect of the aforesaid amendment is that, on and after the commencement of the Amendment Act of 2001, if an agreement, like the JDA in the present case, is not registered, then it shall have no effect in law for the purposes of Section 53A. In short, there is no agreement in the eyes of law which can be enforced under Section 53A of the Transfer of Property Act. This being the case, we are of the view that the High Court was right in stating that in order to qualify as a "transfer" of a capital asset under Section 2(47)(v) of the Act, there must be a "contract" which can be enforced in law under Section 53A of the Transfer of Property Act. A reading of Section 17(1A) and Section 49 of the Registration Act shows that in the eyes of law, there is no contract which can be taken cognizance of, for the purpose specified in Section 53A. The ITAT was not correct in referring to the expression "of the nature referred to in Section 53A" in Section 2(47)(v) in order to arrive at the opposite conclusion. This expression was used by the legislature ever since sub- section (v) was inserted by the Finance Act of 1987 w.e.f. 01.04.1988. All that is meant by this expression is to refer to the ingredients of applicability of Section 53A to the contracts mentioned therein. It is only where the contract contains all the six features mentioned in Shrimant Shamrao Suryavanshi (supra), that the Section applies, and this is what is meant by the expression "of the nature referred to in Section 53A". This expression cannot be stretched to refer to an amendment that was DCIT vs. Raja Rao Parachuri made years later in 2001, so as to then say that though registration of a contract is required by the Amendment Act of 2001, yet the aforesaid expression "of the nature referred to in Section 53A" would somehow refer only to the nature of contract mentioned in Section 53A, which would then in turn not require registration. As has been stated above, there is no contract in the eye of law in force under Section 53A after 2001 unless the said contract is registered. 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. I have perused the Supreme Court Order carefully wherein it is held that the property can be said to have been transferred u/s 2(47(v) of the Act only if there is a "contract" which can be enforced in law under Section 53A of the Transfer of Property Act. The facts of the case are identical and in this case, the AO treated the transfer of the property only on the basis of unregistered JDA. Since the unregistered JDA is not a contract enforceable in law under Section 53A of the Transfer of Property Act, only handing over possession of the property to the developer in order to get certain approvals for starting construction activities, cannot be treated as “Transfer” of the property as per section 2(47)(v) of the Act as was done by the AO during the assessment proceedings. Thus the AO erred in treating the transaction as “Transfer” of property. As such there was not any transfer of property, the question of capital gain & its taxation does not arise at all. Further the appellant submitted that he entered into registered JDA on 17/10/2013 i.e. during the F.Y. 2013-14 and offered long term capital gain from such JDA for taxation by filing return of income for the AY 2014-15. I have perused the return of income filed by the assessee for the AY 2014-15 and found the contention of the assessee to be correct. Also taxation of the same amount for the AY 2014-15 & 2013-14 would have resulted in double taxation of the same amount In view of the Hon’ble Supreme Court’s decision & facts discussed above, the contention of the assessee is accepted and hence, the AO is directed to delete the addition of Rs.11,26,01,500/- on account of long term capital gains. Accordingly, Ground No. 1 is allowed.”

DCIT vs. Raja Rao Parachuri 7. We have heard the Ld. Authorised Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR.

DCIT vs. Raja Rao Parachuri 9. Per Contra, Shri. P. Murali, CA, Ld. Authorized Representative for the assessee supported the order of the CIT(A). The Ld. AR submitted that core issue involved in the present appeal, viz. the year of taxability of capital gains based on the unregistered Joint Development Agreement (JDA) dated 25.04.2012 vis-à-vis subsequent registered arrangement/approvals on 17.10.2013. The Ld. AR submitted that the assessee, along with three other co-owners, had entered into an unregistered JDA with the developer on 25/04/2012. As per the addendum to the JDA, the developer was supposed to apply for plan approvals within 1.5 months of receipt of FMB or 90 days from the date of the JDA, whichever was later, and was supposed to obtain the approval of plans within 16.5 months from such date. But if the approval was likely to be delayed indefinitely, the JDA was to be cancelled. The Ld. AR submitted that since the approvals were obtained on 17/10/2013, i.e., during F.Y. 2013-14 relevant to the AY 2014-15, therefore, the assessee had, as per the mandate of law, rightly offered the capital gains to tax in his return of income for the AY 2014-15. The Ld. AR in the support of his contention that the assessee had rightly offered the capital gains to tax in his return of income for AY 2014-15 had relied on the judgment of the Hon’ble Supreme Court in the case of CIT Vs Balbir Singh Maini (2017) 398 ITR 531 (SC). The Ld. AR submitted that the Hon’ble Apex Court in its DCIT vs. Raja Rao Parachuri aforesaid order had held that an unregistered JDA cannot be said to have resulted in transfer of title, irrespective of the fact whether possession of the property was handed over under the contract or not.