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Income Tax Appellate Tribunal, ‘C’ BENCH, BENGALURU
O R D E R
Per PAVAN KUMAR GADALE, JM:
The assessee has filed the appeal against the order of the CIT(A)-III, Bengaluru, dated 20/03/2014 passed u/s 143(3) and 250 of the Income-tax Act,1961 ['the Act' for short].
The assessee has raised the following grounds of appeal: 1. “The Order of the Hon'ble CIT, are opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant's case.
2. The Hon'ble CIT(A) has erred in upholding the Order of Learned Assessing Officer with regarding the taxing the Capital Gains on the date of JDA considering it as transfer within the meaning of section 2(14) of the Income Tax Act based on the Page 2 of 10 decision of Hon'ble High Court of Karnataka in the case of Dr T K Dayalu without considering the terms of JDA which clearly establishes that, it is only a license for construction and development of Property and it should not be construed as Transfer within the meaning of section 2(14) of the Income Tax Act, therefore the Order of CIT(A) is bad in law and opposed to the facts and circumstances of the case.
3. The Hon'ble CIT(A) has not considered the pertinent fact that the property is not developed even to this date after JDA for the reasons cited above and the Developer has expressed his inability to continue with JDA. The same is evident from the above narrated circumstances and communication by the Developer. The JDA is terminated by both the parties only the formality of returning the deposit the cancelling the JDA with sub-registrar is pending. Under the circumstances it not justified in taxing the transaction which has not materialized.
4. Further Without prejudice to what is stated above, the hon'ble CIT has not considered the additional ground put before that regarding the sub-division of 1/4th share of Appellant in the property among his other family members. Hence the Capital Gains needs to be assessed accordingly in the hands of other family members.
5. The above position of law has not been properly interpreted by the learned respondent and due to his the appellant is now saddled with huge tax liability. Hence the order of the respondent deserves to be set aside.
6. The appellant craves leave to add, delete, alter or substitute any of the grounds urged above.
7. In view of the above facts and pleadings and submission, the Appellant Humbly prays that: The assessment order is bad in law in taxing i) upon the execution of JDA as transfer within the meaning of section 2(14) of Income Tax Act., even though the Appellant has terminated the JDA and is not bound by any condition to proceed with the JDA., hence the Order need to be set aside.
Page 3 of 10 ii) The Assessment order is not maintainable as the Hon'ble CIT(A) have not considered the sub- division of the property among the family member of Appellant, the same need to considered in the interest of justice. iii) The levy of interest under section 234B and 234C are not in accordance with the law under the facts and circumstances of the Appellant's case and needs to be cancelled; iv) Grant other such relief and benefits as applicable to the Appellant in accordance with law.
8. In view of the above and other grounds that may be urged at the time of hearing of the appeal, your Appellant prays that the appeal may be allowed in the interest of Justice and Equity.”
Brief facts of the case are that the assessee is having income from house property, business income and capital gains and other sources and filed the Return of income for the assessment year 2009-10 on 05/06/2009 with total income of Rs.2,48,980/- and the case was selected for scrutiny under CASS and notices u/s 143(2) and 142(1) were issued. In response to notice, the learned AR of the assessee appeared from time to time and submitted details as called for. The AO, while verifying the details furnished by the assessee found that the assessee, along-with his brothers S/Shri Y.C.Rajanna, Y.C.Gopinath and Y.C.Rangaswamy along-with their children as confirming parties, entered into Joint Development Agreement (JDA) on 14/02/2009 with M/s. Century Real Estate Holdings P. Ltd., to develop and construct apartments in the land
Page 4 of 10 admeasuring 4 acres and 18 guntas in Sy.No.3 of Shivanahalli Village, Yelahanka Hobli, Bengaluru and the said land was ancestral property of the owners and converted on 06/02/1999 for non-agricultural purpose.
The learned AO found as per JDA, 60% of the constructed area is allocated to developer and 40% to owners and further as per the terms of JDA, the Developer has paid Rs.2.3 crores as interest-free refundable deposit to all the owners. The AO observed that the assessee along with others, after converting property for non-agricultural purposes, has handed over the same to the developer for development and construction of flats with sharing ratio of 40:60. Hence, there is transfer within section 2(47)(v) and (vi) of the Act and section 53A of the Transfer of Property Act and the assessee is liable to payment of capital gains tax. Accordingly, the AO, dealt on the sale consideration and has worked out the capital gains on transfer of property Rs.3,90,08,490/- and Assessed the total income of Rs.3,93,37,460/- and passed the order u/s 143(3) of the Act dated 29/12/2011.
Aggrieved by the order, the assessee has filed an appeal with the CIT(A). In the appellate proceedings, the learned AR submitted that JDA could not be implemented as adjacent property has to be secured/acquired by the Developer for Page 5 of 10 construction and that was pre-condition for development agreed with the said owners, and as the adjoining property could not be fetched, the developer has terminated the JDA and insisted for refund of deposit and preliminary expenses incurred by the developer to the extent of Rs.37.70 lakhs and the property is still lying vacant even after 3½ years from date of JDA agreement. Whereas the learned AR’s contention before CIT(A) that the property is very much in the possession of the assessee and there is no transfer within the meaning of section 2(47) of the IT Act attracting capital gains tax. Whereas the CIT(A) has considered these aspects and remand report of AO dealt specially on the terms and conditions of the JDA and has confirmed the action of the AO at page 4 in para.2.4 of the order and partly allowed the appeal. “2.4. I have carefully considered the issue before me. The point consideration is whether the sale consideration received from the called developer M/s Century Real Estate Holdings P ltd., on entering it a JDA by the appellant and his brothers to develop and construct apartments in the land in Sy.No.3 of Shivanahalli Village, Yelahanka Hobli , Bangalore measuring 4 acres have been brought to capital gains tax. As stated by the AO in the remand, 1/4 share of the appellant has to brought to capital gains tax as against 100% adopted by the A.O in the assessment order. With regard to the appellant's contention that the has been terminated and that the appellant is not liable to capital gains tax is not acceptable. As stated by the AO in the remand, cancellation deed duly registered before the Sub Registrar evidencing cancellation the registered JDA was not produced for verification. As evidenced by the remand report, it is crystal clear that the developer has not terminated the agreement. In view of the above, the addition made by the AO sustained to the extent of 1/4 share of the appellant. Reliance is a placed on the decision
Page 6 of 10 of the Hon'ble Karnataka High Court in the case Dr. T.K. Dayalu reported in 14 Taxmann.com 120. This ground is partly allowed.”
Aggrieved by the CIT(A)’s order, the assessee has assailed appeal before the Tribunal. Before us, the learned AR submitted that no possession was given by the assessee to the developer to attract transfer u/s 2(47) of the Act and subsequently the development agreement was terminated. Therefore, there is no capital gains arising in the hands of the assessee and further the submissions were made on this disputed issue before the first appellate authority but were overlooked and supported his arguments with judicial decisions and prayed for allowing of the appeal. Contra, the learned DR vehemently objected to the submissions and mentioned that the assessee has given possession and without possession, JDA could not have been entered and supported the orders of the lower authorities.
We heard rival submissions and perused the material on record. Prima facie, the sole crux of the disputed issue is with reference to the grant of possession of land to the developer. It is a fact that development agreement was entered on 14/02/2009 and due to non-compliance of terms and conditions, the developer terminated the JDA. The contention of the learned AR that no possession was given and as a Page 7 of 10 licensee-Developer in JDA has to commenced the construction activity but due to non-compliance of terms in acquiring the adjacent land, the project was stalled and activities were abandoned. When a query was raised to the learned AR on cancellation of JDA and produce the proof, the learned AR could not substantiate with the evidence of cancellation of registered JDA.
Whereas on the issue of handing over possession of the land by the assessee to the developer, the learned AR submitted that the developer has worked as licensee and there is no transfer within the meaning of section 2(47) of the Act and the learned AR supported his submissions relying on the decision of the co-ordinate bench of the Tribunal in the case of Smt. Lakshmi Swarupa vs. ITO in dated 12/10/2008. We found the Hon’ble Supreme Court in the case of CIT vs. Balbir Singh Maini (398 ITR 531)(SC) and the Hon’ble Punjab & Haryana High Court in the case of C.S.Atwal vs. CIT (378 ITR 244)(P&H) where these aspects of transfer of property u/s 2(47) and section 53A of the Transfer of Property Act were considered by the Hon’ble Supreme Court in the case of Balbir Singh Maini (supra):
“Capital Gains—Transfer of immovable Property— Taxability u/s.2(47)(v)—Assessee were members of Punjabi Cooperative Housing Building Society Ltd—JDA was entered into between owner—Under JDA, it was Page 8 of 10 agreed that HASH and THDC viz., developers, would undertake to develop21.2 acres of land owned and registered in name of society—AO passed order holding that since physical and vacant possession had been handed over under JDA, same would tantamount to "transfer" within meaning of Sections 2(47)(ii), (v) and (vi) of the Income Tax Act—A0 further held that, in case of assessee owning a 1000 square yards plot, full value of consideration would be less cost of acquisition thus long term capital gain was, therefore, stated to be on higher amount—CITA(A) dismissed appeal upholding order passed by AO—Tribunal upheld order of AO—High Court held that transactions in hand envisaged "transfer" exigible to tax by reference to Section 2(47)(v) of the Income Tax Act, 1961 read with Section 53-A of the Transfer of Property Act, 1882—Held, Section 2(47)(vi) would not apply for reason that there was no change in membership of society, as contemplated— Under section 2(47)(vi), any transaction which had effect of transferring or enabling enjoyment of any immovable property would come within its purview—Reading of JDA would show that owner continued to be owner throughout agreement, and had at no stage purported to transfer rights akin to ownership to developer—Income from capital gain on a transaction which never materialized was at best, hypothetical income—It was admitted that, for want of permissions, entire transaction of development envisaged in JDA fell through—There was no profit or gain which arose from transfer of a capital asset, which could be brought to tax under Section 45 read with Section 48 of the Income Tax Act—Assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon necessary permissions being obtained—There was no debt owed to assessees by developers and therefore, assessees have not acquired any right to receive income under the JDA—This being so, no profits or gains "arose" from transfer of a capital asset so as to attract Sections 45 and 48 of the Income Tax Act—Revenue's Appeal dismissed.”
The learned AR made submissions on non-grant of possession to developer. When a query was raised to the learned AR whether these submissions on possession were made before the CIT(A). The learned AR vehemently
Page 9 of 10 mentioned that the CIT(A), having considered the submissions but has not given any appropriate finding on the issue of possession of land and the assessee’s contention before the CIT(A) all along being that due to termination of the JDA, the property is very much in the possession of the assessee and no no transfer under the provisions of section 2(47) of the IT Act. Whereas the learned DR submitted that clauses in the JDA are very clear in respect of possession and the AO was right in making the addition. On perusal of the order of the CIT(A), we found there is no finding or observations of the CIT(A) on the ground of possession of the property or the plea raised in the appellate proceedings. Therefore, we are of the considered opinion that the CIT(A) did not give appropriate findings whether the possession of land was granted or not by the assessee to developer. Accordingly, in the interest of substantial justice and judicial decisions, we restore the disputed issue to the file of the CIT(A) to adjudicate on the issue of granting of possession by the assessee to the developer or not and observations of the Hon’ble Supreme Court and pass a reasoned and speaking order and further the assessee shall co-operate in submitting the information for early disposal of the appeal and the grounds of appeal of assessee are allowed for statistical purposes.
Page 10 of 10 10. In the result, the assessee’s appeal is allowed for statistical purposes.
Order pronounced in the open court on 28th February, 2019.