SRI BIJAY SHANKAR HALWASIYA,KOLKATA vs. ITO, WARD - 44(4), KOLKATA, KOLKATA

These appeals by the assessee arise out of the separate order of the Learned Commissioner of Income Tax(Appeals)-13, Kolkata [in short the ld CIT(A)] in Appeal No.93/CIT(A)-13/Kol/2015-16 dated 06.09.2016 and Appeal No. 97/CIT(A)-13/W- 44(4)/Kol/2015-16 dated 18.01.2018 against the separate order passed by ITO, Ward- 44(4), Kolkata [ in short the ld AO] under section 147 / 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 25.03.2015 and 30.03.2015 respectively for the Assessment Years 2007-08 and 2009-10 respectively. both the appeals are taken together and disposed off by this common order for the sake of convenience.

The brief facts of this issue are that the assessee is an individual and had filed his return of income for the Asst Year 2007-08 on 8.9.2007 declaring total income of Rs 1,43,510/-. The return was processed u/s 143(1) of the Act. Later the assessment was sought to be reopened by the ld AO on the ground that the assessee had not disclosed any capital gain on conversion of his capital asset into business asset in the relevant financial year. Notice u/s 148 of the Act was issued and served on the assessee. In response to the said notice, the assessee stated vide letter dated 3.4.2014 that the original return filed may be treated as a return in response to notice u/s 148 of the Act. The brief facts of the dispute regarding the capital gains are that the assessee entered into a Development Agreement dated 13.9.2006 with M/s Kokra Develepors Pvt Ltd for construction of building on his ancestral land. It was agreed that assessee and developer would share 50% each of constructed portion and all construction and other related costs would be borne by the Developer. No construction activities were taken up / completed by 31.3.2007. The ld AO showcaused the assessee vide office letter dated 17.3.2015 mentioning as under:- ‘As per details of valuation by the valuer of Govt. of India for Income Tax & Wealth Tax, it has stated that the value of the landed property is Rs 38,22,000/- as on 01/04/1981 . So, by calculating C.I.I. for the financial year 2006-07 i.e on the date of 13/09/2006 , it has come to :

The ld AO observed in his order as under:- “Since this is a time barring case and the assessment proceedings have to be completed within the stipulated time. Rather depending on the assessee's submission, it is inevitable to substantiate with the preliminary report provided by the department's valuation officer. The assessee's contention for objection on the preliminary report by the valuation officer is not tenable as because it is an expert opinion. The preliminary report by the District Valuation Officer is estimated and duly reported to this office on 07/11/2014 is as under:

The assessee specifically drew the attention of the ld CITA that as per the development agreement dated 13.9.2006 and in supplementary agreement dated 9.3.2007, it was clearly mentioned that possession of land would be handed over only after approval of project sanction plan by the Municipal Council, Bhiwani and actual date of filing of project sanction plan was 15.10.2007 and sanction obtained on 19.10.2007 for construction of total 2271.19 sq.yard vide Misal No. 179 dated 15.10.2007 for 1100 sq.yard in the name of Amarish Halwasiya and Misal No. 180 dated 15.10.2007 for 1171.19 sq.yard in the name of Bijay Shankar Halwasiya respectively and actual date of handing over of possession by land owners to developer was on 29.10.2007, falling in Asst Year 2008-09. It was specifically argued that the possession of the land was not handed over by the assessee to the developer in Financial year 2006-07 and hence there is no transfer within the meaning of section 2(47) of the Act read with section 53A of Transfer of Property Act, 1882. Hence at the first instance, there cannot be any capital gains in Asst Year 2007-08 and consequently there cannot be any income escaping assessment for the Asst Year 2007-08. The assessee further submitted that balance land out of total land around 5500 sq.yard as per development agreement dated 13.9.2006 was not constructed and was under possession of land owner and with mutual consent, no further construction would be made due to

The ld CITA observed that final valuation of land for Financial Year 2006-07 of Departmental Valuation Officer (DVO), Rohtak vide their report dated 30.3.2015 was Rs 2,33,24,000/-. The indexed cost of acquisition for the assessee after taking cost inflation index for financial year 2006-07 was Rs 1,98,36,180/- as has been worked out by the ld AO in his order. The ld CITA observed that the assessee’s argument for not giving possession of land to developer in financial year 2006-07 is not acceptable on the ground that security deposit of Rs 50 lacs was given to the assessee by the developer in financial year 2006-07 and development agreement was also executed in financial year 2006-07 . Therefore, remaining and other activities were only follow up activity. The ld CITA held that the development agreement effectively amounts to transfer agreement 5

The ld CITA further observed that if a person desires to develop or exploit in any other manner, a capital asset held by him, he may take full advantage of the full provisions of section 45(2) of the Act. Such a person or the assessee may convert the capital asset into stock in trade and thereafter, he may either develop it or exploit in any other manner. Such a course of action will be very useful in the case of a person who desires to develop a plot of land, which he is holding as a capital asset. He may convert such a plot of land into stock in trade and thereafter, by way of development of plot of land, he may construct residential or commercial building units on the sae. Such a course of action will provide an advantage to such a person, because he will not be required to pay capital gains tax immediately on the date of conversion of capital asset into stock in trade. He may, in view of provisions of section 45(2) of the Act make payment of capital gains tax at the time of sale of such capital asset, after its conversion

The ld CITA keeping in view the aforesaid observations, held that capital gains of the assessee is determined at Rs 34,87,820/- for Asst Year 2007-08. Remaining addition made by the ld AO on account of capital gains of Rs 5,15,12,180/- ( 5,50,00,000 – 34,87,820) is hereby deleted. It is not chargeable in Asst Year 2007-08 as there is no sales during the year and it will be charged in the year in which actual land sold / transferred in proportion to total land area. The AO is directed to compute the capital gain afresh and charge the same as discussed above.

Aggrieved, by the aforesaid action and observations of the ld CITA , the assessee is in appeal before us.

We have heard the rival submissions. At the outset, we find that the assessee had only given its 5500 sq.yard of land in part for development pursuant to a development 7

In the result, the appeal of the assessee in ITANo. 2353/Kol/2016 for Asst Year 2007-08 is allowed.

The only issue involved in this appeal is as to whether the ld CITA was justified in deleting the business income added by the ld AO in the sum of Rs 26,60,000/- and on the contrary directing the ld AO to compute the long term capital gains on transfer of land by the assessee to the developer, in the facts and circumstances of the case.

The brief facts of this issue are that the assessee entered into a development agreement dated 13.9.2006 with Kokra Developers Pvt Ltd for construction of multi storied building on assessse’s ancestral land. It was agreed that assessee and developer will share 50% each of constructed portion and all construction and other related costs would be borne by the developer. On the basis of aforesaid development agreement dated 13.9.2006, the developer could not complete the construction during the year and only some shops were constructed. 4 shops were allotted to the developer and land appurtenant thereto of 253.33 sq.yards was transferred to developer out of total 2550 sq.yards, originally agreed as his share and construction was not fully complete on balance land. The assessee executed transfer deeds for 4 shops to the developer in consequence of the development agreement with the developer for total value of Rs 53,20,000/- (assessee’s 50% share is Rs 26,60,000/-) as per transfer deeds dated 17.11.2008. The assessee stated that this consideration of Rs 53,20,000/- was meant only for the limited purpose of stamp duty valuation on transfer of proportionate land pertaining to 4 shops allotted to the developer. The assessee further clarified before the ld AO that equivalent constructed area has been handed over to him by the developer as remaining 50% of constructed area as per terms and conditions of development agreement dated 13.9.2006 and the same was under his possession and not sold / let out during the financial year 2008-09 and in future, whenever his portion were sold out / let out, resultant gain / loss would be duly accounted for by him in his income tax returns. The assessee also clarified that he is not dealing in any construction activity and has no

The ld AO however, disregarded all these contentions and held that 50% of sale proceeds of land attributable to 4 shops transferred to the developer pursuant to transfer deed becomes business income of the assessee and accordingly added a sum of Rs 26,60,000/- (53,20,000 * 50%) as undisclosed income from business of the assessee.

The ld CITA observed in his order as under:- “"During the course of appellate proceeding the appellant has also produced the copy of transferred agreement wherein it has been clearly stated that in lieu of the agreement as per joint development agreement there is transfer of 253.33 square yard of land on which four shops are also constructed and it was only the portion of land which was to be transferred to the developer after the completion of contract as joint agreement. In this case no material value has been received by the appellant rather in lieu of transfer of aforesaid land where four shops were constructed by the developer. The appellant has got benefited for getting free of cost construction in his share in lieu of transferring land under the joint development agreement. Keeping in view of the aforesaid facts it is clear that the appellant has transferred land for AY 2009- 10 on which proportionate capital gain is chargeable on 253.33 square yard as it has been determined in AY 2006-07 at Rs.34,87,820/- on 5500 square yard . As regard the cost of construction for remaining shops which are left with the appellant will be treated as NIL and the market value as on date of sale will be reduced by the stamp value of land on the date of conversion of assets into stock in trade as mentioned in AY 2006-07 and differential will be the business profit of the appellant. Therefore except capital gain on this transfer of land no business profit was to be charged. Therefore, the addition made as a business profit in the hands of the appellant is hereby deleted and the AO is directed to compute the LTCG and tax it to the portion of land transferred to the developer. The ground of appeal is partly allowed. It is further seen that the building is completed in the year itself as it has been transferred to the developer but the appellant has not shown sale of any shop of his share, therefore neither capital gain has been paid nor business profit has been given. The AO is directed to ascertain the ALV of the constructed shop which are in the share of the appellant as per amended provision and deemed rental income may be worked out and taxed accordingly. The business profit and capital gain should also be charged after ascertaining the sale of these shops year-wise.

Aggrieved, the assessee is in appeal before us.

We have heard the rival submissions. At the outset, we hold that there was no conversion of capital asset (i.e land) of the assessee into stock in trade at any time. The assessee had only entered into development agreement dated 13.9.2006 for construction of multi storied building. The entire cost of construction is to be borne by the developer. The consideration for the assessee would be 50% of constructed portion which includes shops to be built thereon. We find that during the year under appeal, the assessee had just executed transfer deeds for the lands proportionate to the 4 shops allotted to the developer. It was also specifically mentioned before the ld AO that the said transfer deeds were executed only for the limited purpose of fixing stamp duty on transfer of proportionate land attributable to 4 shops allotted to the developer. Actually we find that the assessee held 5500 sq.yards of land in total and had retained some portion of land with him which was never transferred to the developer. The possession of the land to be transferred by the assessee was to be done on obtaining the sanction of the building plan as per the specific clause contained in this regard in the development agreement dated 13.9.2006. Admittedly the sanction of the building plan was obtained on 29.10.2007 and the possession of land (after retaining the land which was not the subject matter of development agreement) was handed over by the assessee to the developer in Asst Year 2008-09. This tantamounts to transfer u/s 2(47)(v) of the Act read with section 53A of the Transfer of Property Act, 1882 and capital gains, if any, on transfer of land, should be considered only in Asst Year 2008-09. Reliance in this regard is placed on the decision of Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay vs CIT reported in 260 ITR 491 (Bom). We hold that pursuant to the development agreement dated 13.9.2006 and handing over of possession of land in Asst Year 2008-09 by the assessee to the developer , the 12

In the result, the appeal of the assessee in ITA No. 910/Kol/2018 for Asst Year 2009-10 is allowed.

To sum up, both the appeals of the assessee are allowed.