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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
A a d o S a / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM: These cross appeals are arising out of the order of Commissioner of Income Tax (Appeals) in short CIT(A) Mumbai in Appeal No. CIT(A)-13/ITO-7(3)(4)/451/2015-16 dated 30.10.2018. The Assessment was framed by the Income Tax Officer 7(1)(4), Mumbai (in short ITO/ AO) for AY 2011-12 vide dated 28.03.2014 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The only common issue in these cross appeal is as regards to the order of CIT(A) in holding that the full value consideration received by assessee is taxable as business income and non-applicability of the provisions of section 50C of the Act but assessee challenge the directions that the assessee has transferred the right to receive the flat not on future date i.e. upon its receipt by assessee from builder. For this revenue has challenged the order of CIT(A) on the following two grounds: - & 1449/Mum/2019 3 | P a g e “1. On the facts and in the circumstances of the case and in Law, the Ld. CIT(A) erred in holding that the consideration that accrues to the assessee on transfer of its rights on a flat is taxable as business income and not as capital gains, though as per the provisions of Sec. 2(47)(ii), 'transfer', in relation to a capital asset, includes, the extinguishment of any rights therein".
2. On the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in holding that sale consideration accrues to the assessee on various stages of completion of building, therefore, the same should be taxed on happening of these events as per the terms of agreement; by ignoring the fact that accounting entries in the books are not sole determinative of accrual of income and that income accrues as and when the assessee had acquired a right to receive it.” The assessee has raised the following two grounds: - ITA Nos. 1690 & 1449/Mum/2019 4 | P a g e “GROUND I: Subject matter of transfer vide Agreement dated 31.12.2007 1.1 On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that vide agreement dated 31.122007. the Appellant has transferred the right to receive the flat and not a flat or, a future date viz, upon its receipt by the Appellant from the Builder. 1.2 The Appellant, prays that it be held that vide the said Agreement dated 31.12.2007, the Appellant has agreed to transfer the flat on a future date and consequently the transaction would be complete only when the flat is received by the Appellant from the Builder Ground II: Direction to tax on accrual basis, on happening of the events mentioned in the said agreement dated 31.12.2007, 2.1 On the facts and circumstances of the case and in law the CT(A) erred in directing the AO to tax the consideration due under the agreement dated 31.12.2007 on accrual basis, on various ITA Nos. 1690 & 1449/Mum/2019 5 | P a g e stages of completion of the building mentioned in the said agreement dated 31.12.2007 2.2 The appellant prays that the said direction be expunged and that it be held that the consideration of ₹ 80 lakh receivable by the Appellant under agreement dated 31.12.2007 is entirely chargeable in the year in which the Appellant received the flat from the Builder and handed over to the buyer.”
Briefly stated facts are that the assessee is a builder and developer entered into an agreement of development on 14.10.2004 with Mr. Samir Bhojwani. Under the terms of the development agreement, the assessee agreed to assign development rights in respect of rehabilitation of building No. 2 and the free sale building to Samir Bhojwani. The assessee in consideration of such agreement, under the development agreement entitled to receive consideration of 4 crores but subject to Samir Bhojwani becoming entitled to 3533 sq. mts of free sale FSI and sanction of building space for free sale of said FSI. Accordingly, he will receive total 218.76 sq. meters of TDR. In term of this development agreement Mr. Samir Bhojwani undertook to provide the assessee fee of cost a flat on 9th Floor of free sale component building to be constructed by Samir Bhojwani at his cost. The AO treated this as long term & 1449/Mum/2019 6 | P a g e transaction and after applying the provisions of section 50C of the Act valued the flat on the basis of Circle Rate of registering authority at ₹ 1,27,61,500/-. The AO accordingly brought this amount under long term capital gain tax and charged the same. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) treated this as business income and held that the provisions of section 50C of the Act could not have been applied by the AO but he has given specific directions. The relevant findings of the AO are reproduced from Para 5.2.2. to 5.2.4 as under: - “5.2.2 Vide Agreement dated 31st December, 2007 entered into between the Appellant as the party of the First Part, Samir Bhojwani as confirming Party, party of the Second Part and Jyoti Ramesh Dedhia and Mr. Ramesh Dedhia as Purchasers, parry of the Third Part, the Appellant agreed to sell and transfer the flat, which it was entitled to receive from Samir Bhojwani, to Mrs. Jyoti Ramesh Dedhi and Mr. Ramesh Dedhia for a consideration of Rs. 80 Iakhs. The agreement to sell was registered by the appellant on 03/04/2010 vide deed of confirmation dated 02/04/2010. The stamp valuation authorities have valued ITA Nos. 1690 & 1449/Mum/2019 7 | P a g e this flat at Rs. 1,27,61,500 for the purposes of levy of stamp duty. The AO has brought to tax an amount of Rs. 1,27,61,500 U/s. 8OC of the I.T. Act as LTCG.
5.2.3 I have considered the submission made by the appellant and the reasons recorded by the AO. It is clear from the facts recorded above that the flat under consideration was part of the business receipts of the appellant and value of the flat was not offered for taxation in the year of agreement with Samir Bhojwani because receipt of flat was subject to certain conditions and income had not accrued in the year of agreement. In view of these facts, I am in agreement with the submission of the appellant that provisions of section 8OC have been wrongly applied by the AO because the flat was not in existence during the previous year under consideration and thus, the transaction could not have amounted to transfer of the flat. Moreover, the full value of the & 1449/Mum/2019 8 | P a g e consideration receivable by the appellant was not taxable under section 48 Of the IT Act, rather it was taxable as business income of the appellant, therefore, for this reason also provisions of section 50C could not have been applied by the AO. 5.2.4 However, I am not in agreement with the submission of the appellant that what it has transferred vide agreement dated 31/ 12/2007 is a flat on a future date and the transaction would be complete only when the flat is handed over by the appellant. Vide agreement with Samir Bhojwani, the appellant has received a right to receive a flat, as described above, on a future date. This right to receive the flat has been transferred by the appellant vide agreement dated 31/12/2007 in which the builder is also a confirming party. Though clause 3 of the agreement talks about sale and purchase of flat, it is a mere recital and it is clear from reading the whole - agreement that right to receive the flat had been transferred by the appellant to Jyoti Ramesh Dedhia and Mr. Ramesh ITA Nos. 1690 & 1449/Mum/2019 9 | P a g e Dedhia. Neither there is any clause in the agreement to alter/ cancel this right of the purchasers at a future date in any manner nor there is any clause for refund of the consideration receive. Therefore, I am of the opinion that the right to receive the flat from Samir Bhojwani has been irrevocably transferred by the appellant by registration of agreement dated 31/12/2007, through the deed of confirmation 02/04/2010, for a total consideration of Rs. Lacs. The consideration for sale of this right accrues to the appellant in parts on happening of the events mentioned on page 16 and 17 of the agreement dated 3/I2/2007. Considering the terms of the agreement. I'm of the opinion that the consideration that accrues to the appellant on various stages of completion of building should be taxed in the hands of the appellant as business income on happening of these events. The AO is directed to tax the accrued consideration in the hands of the appellant accordingly.
ITA Nos. 1690 & 1449/Mum/2019 10 | P a g e Accordingly, the first ground of appeal is treated as partly allowed.;” Aggrieved, against these directions, the revenue as well as the assessee came in appeal before Tribunal.
4. We have heard rival contentions and gone through the facts and circumstances of the case. We noted that as per clause 5 of the development agreement entered into by assessee with Mr. Samir Bhojwani, the entitlement of the assessee was to receive the said flat from Samir Bhojwani as an additional one flat subject to condition mentioned in clause 5 of the Act. The relevant clause 5 of development read as under: - “5. Subject to Samir becoming entitled to 3533 sq. mets free sale FSI and sanction of building plans for free sale by utilization of the said FSI and receiving DRC for 218.76 sq. mts of TDR Samir will provide a flat of 160 sq. mts (carpet area) including balcony, on the 9th floor of the free sale component building to Pushpak Homes free of charge with minimum specifications and bare minimum Amenities as set out in Annexure ‘H’. pushpak Homes will be bound to become member of any co-operative society, limited company or condominium of & 1449/Mum/2019 11 | P a g e apartments which Samir may from of the purchasers of premises in the said free sale component building and abide by the provisions of bye laws of such society or memorandum of association and articles of association of company or Rules and regulations of condominium of Apartments and pay entrance fee of ₹ 10/- and share money of ₹ 250/- and also pay all outgoings, cesses, taxes, rates and other charges and maintenance charges and security deposit with effect from the date of occupation certificate in respect of the said flat in the free Sale component building on or before 5th of each month without any delay or default in respect of the said flat. It is agreed that all the provisions (except for payment of price_ subject to the terms of this Agreement of the Agreement for Sale of Flat, which Samir may enter into with prospective Purchasers in the Free Sale Component Building shall apply to Pushpak Homes and persons claiming through them in respect of the said flat. It is further agreed that Pushpak Homes shall be solely responsible and liable for payment ITA Nos. 1690 & 1449/Mum/2019 12 | P a g e of any stamp duty and registration charges in respect of the said flat in the said Free Sale Component Building.”
5. We noted that the assessee vide agreement dated 31.12.2007 entered into between the assessee and Samir Bhojwani, the assessee agreed to sale and transfer the flat which it was entitled to receive from Samir Bhojwani, Jyoti Ramesh Dedhia and Mr. Ramesh Dedhia for consideration of ₹ 80 lacs. The stamp valuation authority has valued this flat at ₹ 1.27 lakhs for the purpose of levy of stamp duty. As per this agreement assessee received a sum of ₹ 16 lakhs only. The assessee has not received any further amount even till the course of assessment proceedings. Till date, the only sum of ₹ 26 lakhs has been received by assessee and the entire amount is not received from the purchases. We noted from the facts that even now, this flat is not constructed till AY 2011-12. Even otherwise, the assessee entered into a normal business transaction by entering into a development agreement for developing the property under SRA project. The cost incurred is on their own right from inception was reflected in the audited accounts as stock in trade i.e. as on 31.03.2005 amounting to ₹ 1,85,24,206/-. Hence, the CIT(A) has rightly allowed the appeal of assessee and we confirm the same.
Coming to assessee’s objection regarding specific direction that right to receive the flat from Samir Bhojwani, is to be taxed. The relevant direction read as under: - & 1449/Mum/2019 13 | P a g e “………..Therefore, I am of the opinion that the right to receive the flat from Samir Bhojwani has been irrevocably transferred by the appellant by registration of agreement dated 31/12/2007, through the deed of confirmation 02/04/2010, for a total consideration of Rs. Lacs. The consideration for sale of this right accrues to the appellant in parts on happening of the events mentioned on page 16 and 17 of the agreement dated 3/I2/2007. Considering the terms of the agreement. I'm of the opinion that the consideration that accrues to the appellant on various stages of completion of building should be taxed in the hands of the appellant as business income on happening of these events. The AO is directed to tax the accrued consideration in the hands of the appellant accordingly. Accordingly, the first ground of appeal
is treated as partly allowed.”
7. After hearing both the sides, we are of the view that the flat value is to be taxed in the year when the assessee received the flat from the builder or it is handed over by the builder ITA Nos. 1690 & 1449/Mum/2019 14 | P a g e