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Facts
The Pr. CIT invoked Section 263 to set aside an assessment order for A.Y. 2016-17, where the Assessing Officer (AO) had not added Long-Term Capital Gain (LTCG) arising from a Joint Development Agreement (JDA) cum General Power of Attorney (GPA). The Pr. CIT considered the AO's order erroneous and prejudicial to the revenue, believing the JDA cum GPA constituted a transfer liable for capital gains, while the AO had accepted the assessee's position that no transfer occurred. The assessee also raised an additional ground regarding the invalidity of the assessment due to lack of a Section 143(2) notice, which was rejected by the Tribunal.
Held
The Tribunal held that the handing over of possession to the developer under the JDA cum GPA for development work does not amount to a transfer of land under Section 2(47)(v) of the Income Tax Act, 1961, read with Section 53A of the Transfer of Property Act, 1882. This conclusion was based on the specific terms of the JDA, which indicated that the security deposit was refundable and legal ownership/possession remained with the landowners, and was supported by binding judicial precedents. Consequently, the Tribunal found that the Pr. CIT's order passed under Section 263, setting aside the AO's order, was not sustainable in law and was liable to be set aside.
Key Issues
1. Whether the Pr. CIT was justified in invoking Section 263 to set aside the assessment order on the ground that a Joint Development Agreement (JDA) cum General Power of Attorney (GPA) constituted a transfer liable for Long-Term Capital Gain. 2. Whether the handing over of possession under a JDA cum irrevocable GPA, for the purpose of development, amounts to a 'transfer' under Section 2(47)(v) of the Income Tax Act, 1961, read with Section 53A of the Transfer of Property Act, 1882, thereby triggering capital gains tax.
Sections Cited
263, 147, 148, 143(1), 143(2), 143(3), 144B, 151, 2(47), 53A
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Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam
Before: Shri Vijay Pal Rao, Vice-Shri S. Balakrishnan
िनधा��रती �ारा/Assessee by: Shri C. Subrahmanyam, CA राज� व �ारा/Revenue by:: Shri Satyasai Rath, DR सुनवाई की तारीख/Date of hearing: 01/04/2025 घोषणा की तारीख/Pronouncement: 13/05/2025 आदेश/ORDER Per Vijay Pal Rao, Vice President These 4 appeals by the 4 related assessees are directed against the 4 separate orders of the learned Pr.CIT, dated, 23/01/2024 passed u/s 263 of the I.T. Act, 1961, for the A.Y 2016-17. The assessees have raised common grounds in these
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur “1. The order passed u/s 263 dt.30.03.2024 is against provisions of the law.
The ld. Pr. CIT exceeded her jurisdiction by re-evaluating Joint development Agreement (in short JDA) and Supplementary Agreement (in short SA) already examined by the Assessing Officer (AO), who had arrived at a conclusion favorable to the assessee.
The conclusion drawn by the Pr. CIT regarding the JDA's provisions and its alleged implication of a transfer of capital asset under section 2(47) of the IT Act, read with section 53A of the Transfer of Property Act, is unfounded and erroneous.
4. This license granted to the developer does not qualify as part performance u/s 53A of the TP Act r.w.s 2(47) of the IT Act.
5. The ld. Pr. CIT overlooked the SA dt. 12.09.2017, which was executed subsequent to obtaining approvals from Govt Authorities.
6. The Pr. CIT failed to give a specific finding and instead remanded the matter to the A0 for further examination of JDA and SA despite the fact that A0 has already scrutinized and accepted the assessee's contentions with due understanding of the contents of JDA and SA.
7. In the light of the aforementioned grounds, it is respectfully prayed that the Hon'ble ITAT set aside the order passed by the Pr. CIT and allow the appeal in favour of the assessee.”
30/03/2024 which is supported by an affidavit of the assessee. The additional ground raised by the assessee read as under:
1. The learned Assessing Officer failed to issue notice u/s 143(2), a statutory notice ought to be issued to assume jurisdiction for conducting assessement proceedings, in the Page 2 of 26
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur absence of issue of such notice the order passed u/s 143(3) r.w.s. 144B is null and void”.
In the additional ground, the assessee has raised a legal issue challenging the validity of the order passed u/s 143(3) r.w.s. 144B of the Act for want of notice u/s 143(2) of the Act. At the outset, it is noted that in response to notice u/s 148, the assessee did not file the return of income within the period as prescribed in the said notice and allowed by the Assessing Officer. Further, the Assessing Officer has recorded the relevant facts in Para 2 of the order as under: “2. Accordingly, proceedings u/s 147 of the I.T. Act, 1961 (Act) were initiated by issuance of notice u/s 148 of the Act dated 22/03/2021 after obtaining necessary approval from designated authority as per provisions of section 151 of the Act. Vide notice u/s 148 of the Act, dated 22/03/2021, the assessee was required to file his return of income for the year under consideration within 30 days from the receipt of the notice. The assessee filed income tax return in response to notice u/s 148 on 07/04/2021 however, the return was validated by the assessee only on 18/12/2021 which is late and thus, the return filed u/s 148 is invalid return at present”.
Thus, the Assessing Officer has stated that vide notice u/s 148 dated 22/03/2021, the assessee was required to file his return of income within 30 days from the receipt of the notice. The assessee though filed the return of income on 7/4/2021, however, the return was validated by the assessee only on 18/12/2021 which is belated and was treated as invalid return by the Assessing Officer. Once the return of income was treated as invalid by the Assessing Officer, then the question of issuance of notice u/s 143(2) of the I.T. Act, 1961 does not arise. Accordingly, in the facts and circumstances of the case, we do not find any Page 3 of 26
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur merit/substance in the additional ground raised by the assessee, the same is rejected.
6. On the merits of the appeal, the learned AR of the assessee has submitted that the assessment was reopened by the Assessing Officer only on the issue of estimation of Long-Term Capital Gain arising from a joint development agreement cum irrevocable power of attorney executed and registered by the assessee along with 11 co-owners of the land, in question. During the assessement proceedings, the Assessing Officer has examined the issue and verified all the necessary documents and records. Only on the satisfaction of the Assessing Officer that, no transfer took place by virtue of joint development agreement, the Assessing Officer did not assess the alleged Long-Term Capital Gain in pursuant to the joint development agreement entered into between the co-owner and the developer. He has referred to the draft assessment order as well as the final assessment order and submitted that the Assessing Officer has discussed this issue on facts as well as on law and finally taken a view that there is no transfer of the land by virtue of JDA entered into by the owner on one hand and developer on the other hand. The Assessing Officer has taken this view by considering and following the decisions of Hon'ble High Courts as well as the decision of the Hon'ble Supreme Court in case of CIT vs. Balbir Singh Maini, dated 4/10/2017. Thus, the learned AR has submitted that the Assessing Officer has taken a possible view by following the binding precedents including the judgement of the Hon'ble High Courts as well as the Hon'ble Supreme Court and therefore, the Page 4 of 26
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur Pr. CIT cannot invoke the provisions of section 263 merely because he does not agree with the view taken by the Assessing Officer. The learned AR has further contended that even otherwise, the view taken by the Pr. CIT is contrary to the binding precedents. In support of his contentions, he has relied upon the following decisions: i) Seshasayee Steels (P) Ltd vs. ACIT (2020) 421 ITR 46 (Supreme Court) ii) Dy.CIT vs. Bharat Jasyantilal Patel (2023) 462 ITR 455 (Supreme Court) iii) Darshana Anand Damle vs. Dy.CIT (2023) 459 ITR 60 (Bom.)
Thus, the learned AR submitted that in all those judgements, it has been held that handing over of the possession under the JDA does not constitute transfer u/s 53A on transfer of property Act r.w.s. 2(47)(v) of the I.T. Act, 1961. Therefore, the Assessing Officer has taken a right view and the order of the Assessing Officer cannot be held as erroneous to invoke the provisions of section 263 of the I.T. Act, 1961. The learned AR has then referred to the impugned order of the Pr. CIT and submitted that the learned Pr. CIT has distinguished the judgment of the Hon'ble Supreme Court in case of CIT vs. Balbir Singh Maini (Supra) by recording the reasoning that in the case of the assessee, the developer has not expressed any unwillingness nor stopped performing the contracts. The learned AR has submitted that mere signing of JDA does not amount to transfer of land in favour of the Developer when the entire project was subjected to the approval from the competent authority. Once the approval
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur was granted and the plan was sanctioned, the assessee along with the other co-owners have entered into a supplementary agreement to determine the total constructed area and sharing of the same as per the approved plan. Thus, the learned AR has submitted that the assessee has offered the capital gain for the A.Y 2022-23. He has also referred to the various clauses of the joint development agreement and submitted that as per clause 2.2 of the JDA, there is a condition of signing of supplementary agreement for sharing of the ownership and developer share between the parties of the JDA within 15 days from the date of obtaining sanctioned plan. Therefore, contrary to the sanction of plan, the entering into JDA does not constitute any transfer of the immovable property when the agreement itself was dependent upon sanction of the plan as well as signing of a supplementary agreement between the parties. He has then referred to clause (5) of the agreement and submitted that it contain the obligation of the developer whereby the developer was to prepare and finalize the plan and submit the same for approval before the competent authority until and unless this obligation is discharged and sanction is obtained, there would not be any meaning of acting of any furtherance of the JDA. He has then referred to clause (8) of the agreement and submitted that the owner has granted license to the developer to enter into property for the purpose of construction of residential complex. It is further agreed upon between the parties that they have understood that license to enter the property is given with an intend of construction of the project and it does not amount to any transfer of the land as per section 53A of the Transfer of the Property Act r.w.s. 2(47)(v) of Page 6 of 26
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur the I.T. Act, 1961. Thus, the learned AR has submitted that once the parties had no intention at the time of signing of the JDA to deliver the possession to the developer as part performance of the agreement of transfer, then the question of transfer of the land, in question, does not arise. The learned AR has then relied upon the decision of the Bangalore Benches of the Tribunal in the case of K.V. Satish Babu (HUF) vs. Income Tax Officer reported in (2023) 201 ITD 876 (Bang.) as well as the decision of the Hyderabad Benches of the Tribunal in the case of Kiran Reddy Gangidi v. Income-tax Officer reported in 163 Taxmann.com 766. Thus, the learned AR has submitted that in all these binding precedents, it has been held that mere entering into JDA for the purpose of construction of the project does not amount to transfer of the land u/s 2(47)(v) of the I.T. Act, 1961 r.w.s 53A of the Transfer of the Property Act. Thus, the Assessing Officer has taken a logical view which is only a possible view but a more appropriate view on this issue, then the Pr. CIT is not permitted to invoke the provisions of section 263 merely because he does not agree with the view taken by the Assessing Officer. The learned AR has reasserted the contention that the Assessing Officer had conducted due inquiry on this issue by issuance of show cause notice which is mentioned in para 2.2 of the assessment order. The assessee duly replied to the said show cause notice which is also referred by the Assessing Officer in para 2.2.1 of the order and therefore, it is not a case of lack of inquiry on the part of the Assessing Officer but the Assessing Officer has conducted a due and proper inquiry. The learned AR has referred the draft assessment order placed at page 152 of the paper book and submitted that at the time of Page 7 of 26
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur draft assessment the Assessing Officer proposed the addition of Long-Term Capital Gain of Rs.10.65 crores whereas after considering the reply and various judgments relied upon b y the assessee, the Assessing Officer in the final assessment order have not made the said addition. This itself shows that the Assessing Officer has taken a decision after considering the relevant fact as well as law on the point. He has then relied upon the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd (2011) 332 ITE 167 (Del.) as well as the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Gabriel India Ltd (1993) 203 ITR 108 (Bom.). The learned AR has also referred to the order of the learned CIT (A) dated 13/12/2023 in case of Smt. Nalini Kotagiri, the co-owner of the land, in question, wherein the Assessing Officer made an addition of Long-Term Capital Gain which was deleted by the learned CIT (A). Thus, the learned AR has submitted that the impugned order passed by the Pr. CIT is not sustainable in law and liable to be quashed/set aside.
8. On the other hand, the learned DR has submitted that the Pr. CIT has dealt with factual as well as legal aspects of the issue of Long-Term Capital Gain arising from the transaction of JDA as well as irrevocable GPA. The learned DR has referred to para 7(x) of the impugned order and submitted that in the case in hand, the JDA as well as the GPA are duly registered and therefore, the judgment of the Hon'ble Supreme Court in case of CIT vs. Balbir Singh Maini (Supra) is not applicable. The learned Pr. CIT relied upon the judgment of the Hon'ble jurisdictional
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur High Court in the case of Potla Nageshwara Rao vs. Dy.CIT reported in 365 ITR 249 dated 09/04/2014. The learned DR has also referred to para 7.iv, 7.v, 7.vi and 7.xi of the impugned order of the Pr. CIT and submitted that in the JDA itself, the parties have determined the total value of the constructed area and share of each of the parties in terms of the value as well as percentage which itself established the fact that the land was transferred in favour of the developer in lieu of the constructed area and the value determined at the time of the agreement itself. The irrevocable GPA was also given to the developer which amounts to sell/transfer of the land. The learned DR has relied upon the following decisions: i) Jaico Automobile Engineering Company (P.) Ltd. Vs. Dy. CIT reported in 131 Taxmann.com 295 (Bang.) ii) Tamil Nadu Brick Industries vs. Income Tax Officer reported in [2018] 97 taxmann.com 1 (Chennai - Trib.)[11-05-2018]
The learned DR thus, submitted that the Tribunal after considering an identical facts where the JDA along with the GPA given to the developer has held to be a transfer as per the provisions of section 2(47)(v) of the Act r.w.s. 53A of the Transfer of Property Act. Thus, once the parties have agreed to the consideration in terms of money, then execution of JDA along with the irrevocable GPA amounts to transfer of the land in favour of the developer. The learned DR has relied upon the impugned order of the learned CIT.
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur
We have considered the rival submission as well as relevant material available on record. Since identical issues based on identical facts and transactions and particularly, the same Joint Development Agreement cum GPA are subject matter of the controversy in all these appeals, therefore, for the sake of convenience, the appeal in is taken as lead case for recording the facts of the matter leading to the controversy. The assessee along with 11 other owners of the lands entered into a JDA cum GPA on 18th March, 2016 with M/s. Aparna Constructions & Estates Ltd for construction of residential buildings on the land measuring 9.31 acres pooled by the 12 owners. The assessee M/s. Konda Srinivasa Reddy (HUF) filed its return of income for the year under consideration on 18/08/2016 declaring total income of Rs.3,27,250/-. The return was processed u/s 143(1) of the I.T. Act, 1961 on 09/10/2016 and thereafter, the assessment was reopened by issuance of notice u/s 148 of the Act on 22/03/2021 to assess the income assessable to tax on account of capital gain accrued to the assessee in pursuant to the JDA cum GPA dated 18/03/2016. The Faceless Assessing Officer vide assessment order dated 29/03/2022 completed the re-assessment order by accepting the returned income without making any addition on account of alleged capital gain accrued to the assessee in pursuant to the JDA. Thereafter, the Pr. CIT on examination of the record found that the Assessing Officer has not examined/verified certain issues properly and hence, the assessment order passed by the Assessing Officer was considered as erroneous in so far it is Page 10 of 26
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur prejudicial to the interest of the Revenue. The learned Pr.CIT accordingly issued show cause notice u/s 263 of the I.T. Act, 1961 dated 18/12/2023. In response to the show cause notice, the assessee filed written submission on 12/01/2024. The learned Pr.CIT finally arrived to the conclusion that there is a transfer of land by the land owners in favour of the developer under the JDA cum irrevocable GPA, dated 18/03/2016 and consequently held that the assessment order passed by the Assessing Officer without making inquiries or verification is erroneous in so far as it is prejudicial to the interest of the Revenue. The learned Pr.CIT consequently set aside the assessment order passed u/s 147 r.w.s. 144B of the I.T. Act, 1961 dated 29/03/2020 and directed the Assessing Officer to redo the assessment in accordance with law after making verification in respect of the issues discussed by her in the impugned order. The learned Pr. CIT has relied upon the judgment of the Hon'ble jurisdictional High Court in the case of Shri Potla Nageswara Rao vs. Dy. CIT reported in 365 ITR 249. The JDA cum GPA contains the terms & conditions agreed upon between the parties to develop the land pooled by 12 owners for development of residential houses and after the plan being approved by the local authority, the land owners and developer shall also enter into a supplementary agreement regarding the sharing of constructed/developed residential area between the owners and the developer in the ratio of 35.833% : 64.167% respectively. Since the assessment was reopened only to assess the income escaped assessment on account of capital gain in pursuant to the JDA cum GPA in question, therefore, the question
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur of not conducting any inquiry on the part of the Assessing Officer does not arise. It is evident from the proceeding and draft assessment order that the Assessing Officer has duly deliberated the issue before passing the final assessment order.
10.1 The next question arises is whether the pooling of the various land owners for the purpose of development of the same through developer under JDA cum GPA would constitute the transfer of land in question. The intention of the parties can be ascertained from the terms & conditions as agreed between the parties reduced in writing in shape of JDA dated 16/03/2016. Para 15 of the recital of the JDA reads as under: “15. Whether the land owners 1 to 12 have decided to entrust their property in an extent of Ac. 9.13 cents as above for the development of the same into a residential complex and the Developer evinced interest in development of the residential complex in the Scheduled Land by obtaining all the requisite permits and sanction of plans from the concerned authorities for the proposed residential project”.
10.2 Thus, it is clear that the owners decided to entrust their land to the Developer for the development of the same into residential complex by obtaining all the requisite sanctions and permissions from the concerned local authorities. The parties have reiterated their intention and purpose for permitting the developer to enter into these pooled lands in clause 2.1 of the JDA as under: “2.1 The Owners hereby permit the Developer to enter upon the Schedule Property for development of the Residential Complex thereon as per the scheme formulated by the Parties and as per the sanctioned pln. Ihe Developer agreed to build a built-up area of 1.20,000 Sft /
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur
Acre including EWS/LIG nits, as per building by-laws, rules and regulations elaborated in clause no.1(b). The Parties agree to share the Residential Complex in the following manner: (a) The Owners share The Owner is entitled to 35.833% (43000 S) of the total saleable constructed super built- up area including EWS/LIG Units, along with proportionate car parking space and proportionate undivided share in the Schedule Property corresponding to the super built-up area falling to the share of the Owners (hereafter referred to as "Owner’s Share). (b) The Developer’s share - The Developer is entitled to the balance o4.166°4% (77000 sq.lt) of the total saleable constructed surer built arca including EWS LIG Units, along with remaining car parking spaces and proportionate undivided share in the Scheule property corresponding to the super built-up area falling to the share of the Developer (hereafter referred to as "Developer's Share"). (c) However, the Rs. 1.20,000/- per Sq.ft. constructed area per acre is subject to final approval of the Building Plan. As per the final approval of the Building Plan, the yield of Sq.ft. constructed area per acre may increase or may decrease and the same will be shared between the landowners and developers as per the agreed ratio as mentioned above. 2.2. A supplemental sharing agreement for sharing the (Owners' Share and the Developer Share between the Parties hereto shall be drawn within Fifteen (15) days from the date of obtaining the sanctioned plan. The Parties after execution of the Sharing Agreement shall be entitled to deal with their respective shares as their own property and shall be entitled to all income, gains, capital appreciation and benefits of all kinds accruing or arising from or in relation thereto. However, at the time of sharing the Parties shall give due account to the advantages/disadvantages in proportion to their respective shares.”
10.3 Therefore, it is manifest from these clauses of the JDA that the land shall first be developed after obtaining necessary
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur permissions and sanctions and then the constructed area to be shared between the owners and the developer. To avoid any confusion or dispute between the parties about the share of the constructed area it was also decided to enter into a supplementary sharing agreement between the parties and after the execution of the sharing agreement, each parties shall be entitled to deal with their respective shares as their own property. Thus, until and unless the land is developed into a residential complex, there could not be any question of getting any part of the developed area by any of the parties. The power of attorney was given to the developer only to facilitate to do all the deeds and acts necessary for carrying out the development work on the land. The developer has also agreed to pay a refundable security amount of Rs.4,27,77,500/- to the land owners as per clause (3) of the JDA reads as under: “(3) The developer hereby paid an amount of Rs.4,27,77,500/- (Rupees Four Crores Twenty Seven Lakhs and Seventy Seven Thousand Five Hundred only) in favour of the LAND OWNERS herein in proportionate to land contributed by them towards refundable security deposits for entrusting the Schedule land to the DEVELOPER for the purpose of development and the receipt of the same is hereby admitted and acknowledged by the LAND OWNERS here as under”
10.4 Therefore, the refundable security paid by the Developer to the land owners would not constitute a consideration for transfer of land. The parties have specifically agreed that the owners shall refund the security deposit on completion of project or within 60 days from the date of intimation from the developer in the event of cancellation of the project or impossible performance. In case of delay in refund of the security, the owners
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur would be liable to be paid interest @ 18% per annum. The parties also express their intention that owners have allowed the developer to enter into the scheduled property only for the purpose of construction of residential complex which is nothing more than a license to the developer as expressed in clause No.8.1 as under: “8.1 The owners have this day granted license to the Developer to enter the Schedule Property for the purpose of constructing the Residential Complex. It is specifically understood between the parties that the license to enter the Schedule Property being given to the Developer is not being given or intended to be given by the owners in part performance of this agreement under section 53A of the Transfer of Property Act r.w.s. 2(47)(v) of the I.T. Act, 1961 and this is not a sale agreement in any form or manner. The parties confirm that the owners shall retain legal possession over the schedule property, subject to other terms and conditions of this agreement. The development contemplated by this Agreement is not in the nature of a partnership as contemplated either by the Indian Partnership Act, 1932, or by the I.T. Act, 1961.
10.5 Thus, it is clear that the owners have granted license to the developer to enter into the property only for the purpose of construction of residential complex agreed between the parties and the same would not amount to transfer of the land as per section 53A of the Transfer of Property Act r.w.s. section 2(47)(v) of the I.T. Act, 1961. There was no ambiguity about the intention of the parties that under the JDA the property/land given to the developer is not under any agreement to sell as the legal ownership/possession over the land in question remains with the land owners. Clause (14) of the development agreement reiterates the intention of the parties that the security deposits by the developer shall be refunded by the owners on completion of 2 ½ years from the date of signing of supplementary sharing
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur agreement. For ready reference, clause (14) of the development agreement is reproduced as under: “14. REFUND OF SECURITY DEPOSIT Total security deposit of RTs.6,05,55,000/- (Rupees Six Crores and Five Lakhs Fifty Five Thousand only) shall be refunded by the Owners to Developer on completion of 2 ½ years from the date of singing of the supplementary sharing agreement.” 10.6 Thus, the intention of the parties were clearly reduced in writing under various clauses of the JDA as to what is the nature of the JDA not being an agreement to sell and possession of the land was given to the developer only for the purpose of completion of the residential complex/project not amount to delivery of possession as part performance of agreement to sell as per section 53A of Transfer of Property Act or section 2(47) of the Act. The security deposit by the developer as performance security was to be refunded on completion of the project and not later than 2½ years from the signing of the supplementary sharing agreement without any interest by the owners and only in case of delay in refunding the security, the owners would be liable to pay interest. Therefore, the security deposit by the developer cannot be construed as part consideration under the agreement to sell or in part performance agreement to sell. Apart from the judgments relied upon by the learned AR of the assessee including the judgment of the Hon'ble Supreme Court in the case of CIT vs. Balbir Singh 398 ITR 531 (SC), there is a recent judgment of the Hon'ble Telangana High Court in the case of Smt. Shanta Vidya Sagar Annam vs. Income Tax Officer reported in 303 Taxmann 348 whereby the Hon'ble High Court has considered an identical issue of transfer in relation to capital asset and consequent
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur capital gain based on JDA. The relevant decision of the Hon'ble High Court in para 10 to 19 is as under: “10. We have considered the rival submissions on both sides and have perused the record.
Before proceeding further, it is apposite to take note of relevant statutory provisions of the Income Tax Act, 1961. Section 2(47) defines the expression 'transfer' in relation to capital assets. The aforesaid definition is inclusive in nature and reads as under: "2(47) "transfer", in relation to a capital asset, includes- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock- in-trade of a business carried on by him, such conversion or treatment; or (iva) the maturity or redemption of a zero coupon bond; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53-A of the Transfer of Property Act, 1882 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a cooperative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation-1.—For the purposes of sub-clauses (v) and (vi) "immovable property" shall have the same meaning as in clause (d) of Section 269-UA. Explanation-2.—For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or Page 17 of 26
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterized as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;"
12. In Section 2(47)(v) of the Act, reference has been made to Section 53A of the Transfer of Property Act, 1882, which incorporates the doctrine of equity of part performance of contract. Section 53A introduces in limited form the doctrine of equity of part performance in India where requirements mentioned in the provisions are satisfied (see Ramachandrayya v. Satyanarayana AIR 1964 SC 877 ). Section 53A of the Transfer of Property Act, 1882 reads as under: "53A. Part Performance:- Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof."
Thus, it is evident that in order to attract the applicability of Section 53A of the Transfer of Property Act, 1882, as held by the Supreme Court in Shrimant Shamrao Suryavanshi v. Prahlad Bhariroba Suravanshi (2002) 3 SCC 676, the following conditions are required to be fulfilled: "(1) there must be a contract to transfer for consideration of any immovable property;
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur (2) the contract must be in writing, signed by the transferor, or by someone on his behalf; (3) the writing must be in such words from which the terms necessary to construe the transfer can be ascertained; (4) the transferee must in part-performance of the contract take possession of the property, or of any part thereof; (5) the transferee must have done some act in furtherance of the contract; and (6) the transferee must have performed or be willing to perform his part of the contract."
Now we may advert to the facts of the case in hand. Clauses 4, 6 and 8 of the development agreement dated 04.05.1996 read as under: "4. That 60% of the constructed portion along with 60% undivided share in land would be retained by the Second Party in lieu of their developing the total area of the schedule property with their funds and the other 40% constructed portion along with 40% undivided share in land with all the amenities will be delivered to the First Party in lieu of utilization of the owner's land by the Second Party for construction. The total super built up area to be delivered to the First Party will not be less than 6000 sq.ft. spread over Ground, First and Second Floors for the first revised sanction or in any other manner agreed upon by both parties. It is agreed that the ratio of 40% will apply for further floors, if constructed, according to the sanction for construction granted by the Municipal Corporation of Hyderabad or Government which shall include a pent house in the owner's portion with 40% terrace rights.
That as a performance guarantee the Second Party have deposited an amount of Rs.2,00,000/- (Rupees two lakhs only) with First Party vide Pay Order No.002314 dated 04.05.1996 for Rs.2,00,000/- (Rupees two lakhs only) drawn on Bank of Bahrain and Kuwait B.S.C., Somajiguda, Hyderabad. The receipt of which the First Party hereby admits and acknowledged, which is returnable to the Second Party without any interest after the execution of the work entrusted to the Second Party under this agreement and after completion of all further floors. It is hereby clarified that 40% of the builtup portion includes usable area i.e., floor area as also the other areas like Balcony, Staircase, Lifts, Corridors, and other common spaces etc. Similarly, apart from this, 40% of the Car Park area shall be given to the First Party, all these will be clearly demarcated on the plan after obtaining sanction from the MCH or Government.
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur
The owner shall be liable to pay Municipal taxes, non- agriculture and other charges and duties relating to the schedule property upto the date of delivery of possession to the developers." 15. The assessee vide letter dated 11.05.1996 handed over the possession of the land to the developer. The relevant extract of the aforesaid letter, which is referred to by the assessing officer in para 5.5 of the order reads as under: "5.5 By virtue of a Possession Letter dated 11.05.1996 the assessee handed over possession of the said land to the Developer, which reads as under: "In pursuance of the 'DEVELOPMENT AGREEMENT' dated 4th May, 1996, at Hyderabad by and between, I have handed over this day vacant possession of the schedule land mentioned below to the Developers for the purpose of carrying out the development works." 16. Thereafter, a supplementary agreement dated 26.12.1996 was executed between the parties, which contains a recital that developer had obtained municipal sanction for construction of residential complex under permit No.6 of 1959, dated 26.07.16 and has commenced construction work. 17. Thus, from the aforementioned facts, it is evident that even though there is a contract to transfer the immovable property, which is signed by the parties, yet the contract has not been executed for consideration. A sum of Rs.2,00,000/- mentioned in paragraph 6 of the development agreement is only the performance guarantee which is refundable. The aforesaid amount of Rs.2,00,000/- has not been paid by way of consideration of the transaction. The developer has been handed over the possession for the limited purpose of carrying out the development work. Therefore, in pursuance of the development agreement, the possession of the immovable property has not been handed over to the developer as contemplated under Section 53A of the Transfer of the Property Act, 1882. Therefore, the same does not fall within the definition of 'transfer' under Section 2(47) of the Act. 18. Insofar as reliance placed by the learned Senior Standing Counsel for the Revenue in Potla Nageswara Rao (supra) is concerned, the same is an authority for the proposition that element of factual possession and agreement are contemplated as transfer within the meaning of Section 2(47) of the Act. It has further been held that when the transfer is Page 20 of 26
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur complete, the consideration mentioned in the agreement for sale has to be taken into consideration for the purpose of assessment of income. In the instant case, under the development agreement there is no transfer and the consideration has also not been paid. Therefore, the aforesaid decision of the Division Bench has no application to the fact situation of the case. Similarly, in the case of Arvind S Phake (supra), the possession was handed over to the developer and the entire consideration was paid. In the instant case, consideration has not been paid. Therefore, the Division Bench decision of the Bombay High Court also does not apply to the fact situation of the case. In. Harbour View (supra), the Division Bench of Kerala High Court on the facts of the case found that the possession of the property was handed over under Section 53A of the Transfer of Property Act, 1882. Therefore, the aforesaid decision also has no application to the fact situation of the case.
However, the finding has been recorded by the Tribunal that the appellant has handed over the possession of the entire property enabling the developer to enjoy 60% of the constructed area of the building cannot, but be said to be perverse. Similarly, the finding that the assessee is liable to pay capital gains tax during the assessment year 1997-98 also cannot be sustained.”
10.7 The Hon'ble High Court has decided this issue by considering an identical JDA as well as supplementary agreement between the parties after taking into consideration of an earlier judgment in case of Shri Potla Nageswara Rao vs. Dy. CIT (Supra) and held that for attracting the applicability of section 53A of the Transfer of Property Act, there must be a contract to transfer an immovable property for consideration. The Hon'ble High Court has observed that the terms of the contract necessary to construe the transfer can be ascertained from the contract itself. The transfer must be in part performance of the contract takes possession of the property. The amount deposited by the developer as performance guarantee refundable without interest after execution of work does not amount to receipt of Page 21 of 26
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur consideration for transfer of the immovable property. It is pertinent to note that when there is no contract to transfer an immovable property, then handing over of the possession for the purpose of development would not amount to transfer as per section 2(47)(v) of the I.T. Act, 1961 r.w.s. 53A of the Transfer of Property Act. The Hon'ble Bombay High Court in the case of Darshana Anand Damle vs. Dy. Cit reported in 459 ITR 60 (Bom.) has also taken a similar view in para 9 and 10 as under: “9. At the outset, we have to note that during the assessment proceedings a query had been raised by the AO and Petitioner had submitted copy of agreement relating to joint development at Chikhloli vide its Chartered Account's letter dated 17th March 2016. By a further undated letter, Petitioner, after referring to the ongoing scrutiny assessment proceedings and referring to the query that was raised during the assessment proceedings as to why the Development Agreement entered into by Petitioner with Sai Ashray should not be treated as 'transfer of land' and taxed accordingly, explained in detail as to why there was no 'transfer of land'. Subsequently, the assessment order 31st March 2016 has been passed in which there is even a reference to the Joint Development Agreement between Petitioner and Sai Ashray of land at Chikhloli village. Therefore, it is clear that the issue as to whether there was a transfer of land or otherwise was the subject of consideration before the AO during the assessment proceedings. As seen in Aroni Commercials Ltd. v Dy. CIT [2014] 44 taxmann.com 304/224 Taxman 13 (Mag)/362 ITR 403 (Bom.) once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was the subject of consideration of the AO while computing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. Paragraph 14 of Aroni Commercial Ltd.'s case (supra) reads as under: "14. We find that during the assessment proceedings the petitioner had by a letter dated 9 July 2010 pointed out that they were engaged in the business of financing trading and investment in shares and securities. Further, by a letter dated 8 September 2010 during the course of assessment proceedings on a specific query made by the Assessing
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur
Officer, the petitioner has disclosed in detail as to why its profit on sale of investments should not be taxed as business profits but charged to tax under the head capital gain. In support of its contention the petitioner had also relied upon CBDT Circular No. 4/2007 dated 15 June 2007. (The reasons for reopening furnished by the Assessing Officer also places reliance upon CBDT Circular dated 15 June 2007). It would therefore, be noticed that the very ground on which the notice dated 28 March 2013 seeks to reopen the assessment for assessment year 2008-09 was considered by the Assessing Officer while originally passing assessment order dated 12 October 2010. This by itself demonstrates the fact that notice dated 28 March 2013 under section 148 of the Act seeking to reopen assessment for A.Y.2008-09 is based on mere change of opinion. However, according to Mr. Chhotaray, learned Counsel for the revenue the aforesaid issue now raised has not been considered earlier as the same is not referred to in the assessment order dated 12 October 2010 passed for A.Y.2008-09. We are of the view that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. If an Assessing Officer has to record the consideration bestowed by him on all issues raised by him during the assessment proceedings even where he is satisfied then it would be impossible for the Assessing Officer to complete all the assessments which are required to be scrutinized by him under section 143(3) of the Act. Moreover, one must not forget that the manner in which an assessment order is to be drafted is the sole domain of the Assessing Officer and it is not open to an assessee to insist that the assessment order must record all the questions raised and the satisfaction in respect thereof of the Assessing Officer. The only requirement is that the Assessing Officer ought to have considered the objection now raised in the grounds for issuing notice under section 148 of the Act, during the original assessment proceedings. There can be no doubt in the present facts as evidenced by a letter dated 8 September 2012 the very issue of taxability of sale of shares under the head capital gain or the head profits and gains from business was a subject matter of consideration by the Assessing Officer during the original assessment proceedings leading to an order dated 12 October 2010. It would therefore, follow that the reopening of the assessment by impugned notice dated 28 March 2013 is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceeding leading to Page 23 of 26
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur the order dated 12 October 2010. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment"
10. This would also indicate that there was no failure to disclose any material fact. On that ground alone the notice dated 22nd March 2021 issued under section 148 of the Act has to be quashed and set side. So also, the impugned order dated 14th February 2022 disposing Petitioner's objections. Moreover, the other co-owner's case was also proposed to be reopened. The other co-owner Late Bharat Jayantilal Patel (since deceased) through legal heir Smt. Minal Bharat Patel had filed Bharat Jayantilal Patel v. Dy. CIT [2023] 149 taxmann.com 290/292 Taxman 276 (Bom.) Writ Petition No. 1612 of 2022 which came to be disposed on 10th February 2023. In that case, we could say identical reasons for reopening of the assessment was recorded. The Court after considering the submissions made and relying upon the judgment of the Apex Court in the case of Seshasayee Steels (P.) Ltd. v. Asstt. CIT [2020] 115 taxmann.com 5/275 Taxman 187/421 ITR 46 held that the assessee had only granted a licence to Developer who entered into assessee's land for the purpose of development and that did not amount to 'allowing the possession of the land' as contemplated under section 53A of the Transfer of Property Act, 1882 and therefore Section 2(47)(v) of the Act would not apply. The Court held that granting of a licence for the purpose of development of the flats and selling the same could not be said to be granting possession. The findings of the Court in Writ Petition No. 1612 of 2022 will squarely apply to the facts of this case as well.”
10.8 Thus, it was held that the assessee had only granted a license to the developer who entered into assessee’s land for the purpose of development and that did not amount to allowing the possession of the land as contemplated u/s 53A of the Transfer of Property Act and therefore, section 2(47)(v) of the I.T. Act, 1961 would not apply. Accordingly, in the facts and circumstances of the case as discussed above and by following the judgment of the Hon'ble Telangana High Court in the case of Smt. Shantha Vidya Sagar Annam vs. Dy. CIT (Supra) we hold that handing over of the Page 24 of 26
ITA 209 of 2024 and others Konda Srinivasa Reddy Guntur possession by the assessee along with other owners of the property to the developer for carrying out the development work does not amount to transfer of land as per the definition u/s 2(47)(v) of the I.T. Act, 1961 r.w.s. 53A of the Transfer of Property Act. Once the execution of JDA cum power of attorney does not amount to transfer of the land, then the order of the Assessing Officer not making any addition of capital gain in pursuant to the JDA cannot be held as erroneous in so far it is prejudicial to the interest of the Revenue. Hence, the impugned order of the learned Pr. CIT is not sustainable in law and the same is liable to be set aside. We order accordingly.
11. In all the 4 appeals, the issues are identical and emanating from identical facts and from the same JDA cum GPA. Therefore, all the orders of the learned Pr. CIT in case of these 4 assessees are set aside.
In the result, all the 4 appeals of the assessee are allowed.