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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI A.K. GARODIA & SHRI VIJAY PAL RAO
Per Shri A.K. Garodia, Accountant Member
This is an assessee’s appeal directed against the order of ld. CIT (A) – 2, Bangalore dated 02.02.2017 for Assessment Year 2007 – 08.
The assessee has raised as many as 17 grounds but the grievances are three. The first grievance is about validity of reassessment proceedings u/s 148. The second grievance is chargeability of Capital Gain Tax. The third grievance is an alternative argument that even if it is held that the assessee is liable to Capital Gain Tax, it should be also held that the assessee is eligible for deduction u/s 54F. The assessee has also raised an additional ground, which reads as under:- “The Ld AO erred in treating the year of entering into the Joint Development Agreement as the year of taxability of Capital gains Page 2 of 6 completely ignoring the fact that the underlying condition of land conversion for enforceability of the JDA for AY 2007 – 08 did not stand satisfied in AY 2007 – 08.”
It was submitted by the learned AR of the assessee that the issue regarding validity of reassessment proceedings is covered in favour of the assessee by the tribunal order rendered in the case of Smt. Lokamma & others vs. DCIT in to 565/bang/2015 dated 09.11.2016, copy submitted as Annexure – 4 with written submissions. He drawn our attention to Para 6 of this tribunal order and pointed out that it was held by the tribunal in this case that prior to the conversion of agriculture land to non agriculture, it cannot be a transfer in terms of section 2 (47) of the I. T. Act and reopening was held to be invalid and consequent assessment was quashed. Thereafter, he submitted that the conversion of land in the present case has taken place on 04.02.2008 and in support of this, he submitted a copy of the Official Memorandum dated 04.02.2008 by way of additional evidence. He submitted that under these facts, in the present year i.e. A. Y. 2007 – 08, it cannot be said that any transfer has taken place resulting into Capital gain. Learned DR of the revenue submitted that as per the judgment of Hon’ble Karnataka High Court rendered in the case of CIT vs. Dr.T. K. Dayalu as reported in 202 Taxman 531, transfer takes place in the year of JDA if the possession of the property is handed over and part consideration is paid by the developer and therefore, the A. O. is right in taxing the capital gain in the present year because possession was handed over by the land owner to the developer in the present year and the developer has paid security deposit of Rs. 30 lacs to land owner in the present year as per the JDA. In the rejoinder, it was submitted by the learned AR of the assessee that as per Para 12.3 of JDA, the land owner has to render schedule property to the developer in duly converted conditions from the earlier agricultural to Non agricultural residential use from the competent authority and since, the conversion has taken place on 04.02.2008, handing over of possession prior to such conversion is not a valid handing over of possession.
Page 3 of 6 4. We have considered the rival submissions. We find that as per the Para 12.3 of JDA, the land owner has to render schedule property to the developer in duly converted conditions from the earlier agricultural to Non agricultural residential use from the competent authority and we also find that the conversion has taken place on 04.02.2008. In the light of these facts of the present case, we examine the applicability of the tribunal order rendered in the case of Smt. Lokamma & others vs. DCIT (Supra) in which one of us i.e. the J. M. is the author. For ready reference, we reproduce Para 6 of this tribunal order. This reads as under:-
“6. As regards the objection of the ld. AR that till the agriculture land is converted into a non-agriculture land there cannot be a transfer. The JDA between the parties is to develop the housing project on the agricultural land after conversion of the same to non- agriculture use. In order to apply the provisions of section 53A of Transfer of Property Act, the transaction shall constitute transfer of capital asset. This can be ascertained from the terms and conditions of the agreement with reasonable certainty. The certainty of the transfer in this case is depending upon the conversion of agricultural land to non-agriculture use which is not in the control of the parties to the agreement therefore the enforceability of the agreement itself is dependent as well as the performance of the respective part of the parties under the agreement is dependent on the condition that the agriculture land is converted into non-agriculture use. Thus if the enforceability of the agreement is depending on certain condition not in the control of the parties to the agreement then only on happening of such event it became valid otherwise it cannot be enforced. Further the consideration in the shape of constructed area would become impossible once the project itself cannot be fructified for want of conversion of agriculture land to non-agriculture land and consequently approval of plan. Therefore prior to the conversion of agriculture land to non-agriculture it cannot be a transfer in terms of section 2(47) of the Income Tax Act. The plan was sanctioned by the local authority in the year 2010 and therefore prior to the conversion and sanction of plan it was not certain whether JDA would fructifies or not. Hence it does not constitute transfer when the transaction itself is subjected to the occurrence of an event which is not certain. The Assessing Officer has reopened assessment by recording reasons as under :
As it is clear from the reasons recorded that the Assessing Officer has reopened the assessment on the basis of JDA dt.27.7.2007 without applying its mind on the fact that as on the date of JDA the property in question was an agriculture land and without conversion of the same to non-agriculture use the JDA itself would not be given effect. The decision of Hon'ble High Court in the case of CIT Vs. Dr. T.K. Dayalu (supra) is based on the fact that the part performance under the JDA was not subjected to any condition, failure of such would render the agreement void and unforceable under law. In case of CIT Vs. Dinesh D Ranka (supra), it was an undisputed fact that the JDA was executed on 19.10.1995 whereas the assessment of capital gains was brought to tax for the Assessment Year 1999-2000. The entire land was converted from agriculture to housing purpose in the year 1992 itself. Subsequently the plan was approved and renewed on 19.2.1998. Thus in the cases before Hon'ble High Court there was no dispute regarding the conversion of the land to non-agriculture use as on the date of JDA whereas in the case on hand it is undisputed fact that the land in question was an agriculture land on the date of JDA and it was converted into non-agriculture use on 6.11.2008 and therefore the transfer of capital asset in question cannot be completed prior to the conversion of the land. Even if on examination of record, the intention of the parties is established that the parties to the documents Page 5 of 6 had intention to treat the transaction as concluded it is a debatable issue and therefore the reopening without application of mind on the crucial fact of conversion of agriculture land to non-agriculture land on subsequent date not falling under the assessment year does not constitute a tangible material to form a belief that the income assessable to tax for the year under consideration has escaped assessment. Accordingly, we hold that the reopening is not valid and consequential reassessment is quashed.”
In the present case, notice u/s 148 was issued by the A. O. on 27.03.2014 and as per the summary of reasons noted by the A.O. in Para 2 of the assessment order, there is no mention that the land in question is a converted land. In fact, in the entire assessment order or in the order of CIT (A), there is no reference to this aspect that the land in question is a converted land or not in the present year in spite of the fact that as per the JDA, this was a specific obligation of the assessee being land owner that he has to render schedule property to the developer in duly converted conditions from the earlier agricultural to Non agricultural residential use from the competent authority. Learned DR of the revenue has submitted before us the copy of Form for recording of reasons for initiating proceedings u/s 148 for obtaining approval of the Commissioner/Addl. Commissioner of Income tax along with Annexure thereof containing reasons and in that also, there is no mention about conversion of land. As per the Official Memorandum dated 04.02.2008 brought on record before us by way of additional evidence, the conversion of land in the present case has taken place on 04.02.2008. Hence, this tribunal order is squarely applicable in the present case and the judgment of Hon’ble Karnataka High Court rendered in the case of CIT vs. Dr.T. K. Dayalu (Supra) was duly considered by the tribunal in this case. Hence, respectfully following this tribunal order, we hold that reopening in the present case is not valid because the same is without application of mind on the crucial fact of conversion of agriculture land to non agriculture land on subsequent date not falling in the present assessment year and hence, it does not constitute a tangible material to form a belief that the income has escaped assessment for the present year. Accordingly, we hold that the reopening is not valid and consequential assessment is quashed.
Page 6 of 6 6. Other grounds do not call for any adjudication.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on the date mentioned on the caption page.