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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI A.K. GARODIA
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE
BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER
ITA Nos.647 & 648/Bang/2015 Assessment year : 2007-08
Shri Tejas Vs. The Income Tax Officer, PAN: AKBPT 3433F Ward 7(2), Bangalore. Sri Narayanaswamy PAN: ACZPN 1342H No.258, 2nd Floor, Marappa Compound, Belathur, Bangalore – 560 067. APPELLANT RESPONDENT
Appellant by : Smt. Sheetal, Advocate Respondent by : Smt. H.L. Sowmya Achar, Addl. CIT(DR)
Date of hearing : 18.09.2017 Date of Pronouncement : 13.10.2017
O R D E R Per Sunil Kumar Yadav, Judicial Member These appeals are preferred by the assessee against the respective orders of CIT(Appeals) on common grounds. We, however, for the sake of reference, extract the grounds in ITA No.647/Bang/2015:-
“1. The learned CIT (Appeals) erred in passing the order in the manner in which he did.
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The learned CIT (Appeals) ought to have appreciated that the assessing officer having failed to demonstrate how the case was selected for scrutiny, the consequential assessment order is bad in law and accordingly he ought to have deleted the addition. 3. The learned CIT (Appeals) further ought to have appreciated that the transfer itself having not been completed as no transferee was identified, no capital gains arose in the hands of the Appellant to be declared and consequently to be taxed in the Appellant's hands. 4. The learned CIT (Appeals) ought to have appreciated that the capital gain tax should be levied only on completion of the entire transaction when the super built-up area is handed over to the Appellant as per the agreement. 5. The learned CIT (Appeals) erred in not considering the reliance placed by the Appellant on the jurisdictional High Court judgment in the case of Sri N.Vemanna Reddy in ITA No.591/08 dated 18.08.2014. 6. Without prejudice, the transaction having not been covered by the definition of "transfer" either within the meaning of Section 2(47) of the Act or Section 53A of the Transfer of Property Act, no capital gain arose in the hands of the Appellant. 7. Without prejudice, the addition as confirmed by the learned CIT (Appeals) is arbitrary, excessive and ought to be deleted in toto. 8. The learned CIT (Appeals) erred in confirming the levy of interest under Sections 234A and 234B of the Act. 9. For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed.”
Since both these appeals were heard together and the issues involved therein are the same, these are being disposed of through this consolidated order.
ITA Nos.647 & 648/Bang/2015 Page 3 of 11
Though various grounds are raised in this appeal, but they all relate
to the year of chargeability of capital gain accrued on transfer of land under
the Joint Development Agreement (JDA) to the builder for constructing the
property.
The facts borne out from the record are that Shri Tejas and his
father Shri Narayanaswamy entered into JDA with M/s. Sai Construction on
03.11.2006. Consequent to signing the JDA, both the assesses have
transferred 62% undivided share in a land out of 23½ guntas in a land
situated at Belathur Village, Bidrahalli Hobli, Bangalore East Taluk,
Bangalore, in lieu of transfer of 62% of undivided share to the builder, the
assessee to receive 38% of super built up area to be developed by the
builder. On the basis of the JDA, the AO has calculated the long term
capital gain at Rs.1,48,69,650 and taxed it in the impugned assessment
year.
The assessee preferred an appeal before the CIT(Appeals) with the
submission that the assessee has not transferred the possession of the
land in the impugned assessment year, therefore, the capital gain cannot
be charged in the impugned assessment year as per the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. Dr. T.K. Dayalu, 14
taxmann.com 120 (Kar) and CIT v. Shri N. Vemana Reddy in ITA
No.591/2008 dated 18.08.2014.
ITA Nos.647 & 648/Bang/2015 Page 4 of 11
The ld. CIT(Appeals) was not convinced with the contentions of the
assessee and he accordingly confirmed the order of the AO taxing the long
term capital gain in the impugned assessment year.
Now the assessee has preferred an appeal before the Tribunal and
during the course of hearing, the ld. counsel for the assessee has
invited our attention to the JDA and sharing agreement in which it
has been mentioned that plan was sanctioned on 31.10.2007 and
before the sanction of plan, there was no question of handing over
or transfer of the land to the builder. Since the land was not
transferred to the builder in the impugned assessment year, the
capital gain cannot be charged. At the most, the capital gain can
only be held to have been accrued in the year of handing over of
possession of the land. The ld. counsel for the assessee further
invited our attention to the dates & events, according to which, the
conversion order was passed on 12.09.2007 and building plan was
sanction on 28.07.2007 and construction was started on 11.11.2007,
meaning thereby that the land cannot be transferred before the
sanction of plan or the conversion order. It means the land was
transferred only in the AY 2008-09. In support of these contentions,
he relied upon the judgments of the Hon'ble jurisdictional High Court in the cases of CIT v. T.K. Dayalu, 202 Taxman 531 and CIT
v. N. Vemanna Reddy in ITA No.519/2008.
ITA Nos.647 & 648/Bang/2015 Page 5 of 11
The ld. DR placed reliance upon the order of CIT(Appeals).
Having carefully examined the orders of the lower authorities, the
JDA dated 03.11.2006 and sharing agreement dated 11.02.2008, we find
that the AO has charged the long term capital gain during the impugned
assessment year on the basis of the JDA without ascertaining the fact as to
when the possession of the land was transferred. As per the sharing
agreement appearing at pages 49 to 58 of the assessee’s compilation, we
find that the plan was sanctioned by the BDA vide letter No.65/2007-08
dated 31.10.2007. According to the assessee, the conversion order was
passed on 12.09.2007 and building construction start date was 11.11.2007.
From a perusal of the details, we find that the BDA plan was not sanctioned
in the impugned assessment year nor the conversion order was passed.
Though assessee has specifically contended that possession of the land
was not transferred to the builder, but the revenue did not bring anything on
record to demolish the contentions of the assessee, as the assessee in
support of its contentions takes support from the date of conversion order
and building plan sanctioned. In the absence of any evidence on behalf of
the revenue, we are of the view that before the sanction of the building
plan, possession of the land is not transferred. If the revenue has
something in its possession to demonstrate that possession of land was
transferred to the assessee in the impugned assessment year, then only
the long term capital gain can be charged in the impugned assessment
year. Since nothing is placed on record on behalf of the revenue in this
ITA Nos.647 & 648/Bang/2015 Page 6 of 11
regard, we find no justification to ignore the contentions of the assessee. Through the sharing agreement it has been established that building plan was sanctioned on 31.10.2007, therefore before the sanctioning of the building plan, transfer of the land cannot be effected. In the light of these facts, we are of the considered view that possession of land was not transferred to the builder in the impugned assessment year.
We have also carefully examined the judgment of the various High Courts on the point of year of chargeability and it has been repeatedly held by various High Courts that year of chargeability shall be the year in which the possession of land was transferred. This aspect was examined by this Bench of the Tribunal in the case of Smt. Uma Narendra in ITA No.2305/Bang/2016 in which it was held that the year of chargeability is the year in which the possession of land is transferred. The relevant paras of the order of the Tribunal are extracted hereunder:-
“12. In the case of T.K. Dayalu (supra), the Hon'ble jurisdictional High Court has categorically held that the relevant year for taxing the capital gain is the year in which the possession was handed over in terms of the JDA to the developer. This view was again concurred by the Hon'ble jurisdictional High Court in the case of CIT v. N. Vemanna Reddy in ITA No.501/2008 dated 18.08.2014. The relevant observations of the Hon’ble High Court in the case of N. Vemanna Reddy (supra) is extracted hereunder for the sake of reference:- “3. This Court, in the case of Commissioner Vs. D.K. Dayal reported in 202 Taxman 531, after noticing the case law on the point, has held that the date on which possession was handed over to the developer is relevant and therefore, the capital gain tax is payable for the assessment year in which the possession was handed over in terms of the joint development agreement.
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Therefore, on mere entering into a joint development agreement there is no transfer. The “transfer” in the Income Tax Act takes place on the date the possession of the property is delivered though not a registered document is executed conveying the title. 4. In the instant case, the authorities have held that the capital gain tax is payable in the assessment year 1995-96 when the joint development agreement was entered into by the assessee with the developer for transfer of 66% interest in an undivided immovable property and possession of the land was handed over and not when the built up area was completed and handed over to the assessee in the assessment year 1998-99. Hence, we answer the substantial question of law raised in favour of the assessee and against the revenue ……..” 13. The view taken by the High Court has now been approved by the Hon’ble Apex Court in the case of CIT v. Balbir Singh Maini in Civil Appeal No.15619 of 2017 vide its judgment dated 04.10.2017 that without acquiring a right to receive income, no profit or gain arises from transfer of a capital so as to attract sections 45 & 48 of the Income-tax Act. The relevant observations of the Hon’ble Apex Court are extracted hereunder:- “23. A reading of the JDA in the present case would show that the owner continues to be the owner throughout the agreement, and has at no stage purported to transfer rights akin to ownership to the developer. At the highest, possession alone is given under the agreement, and that too for a specific purpose -the purpose being to develop the property, as envisaged by all the parties. We are, therefore, of the view that this clause will also not rope in the present transaction. 24. The matter can also be viewed from a slightly different angle. Shri Vohra is right when he has referred to Sections 45 and 48 of the Income Tax Act and has then argued that some real income must “arise” on the assumption that there is transfer of a capital asset. This income must have been received or have “accrued” under Section 48 as a result of the transfer of the capital asset. 25. This Court in E.D. Sassoon & Co. Ltd. v. CIT, (1955) 1 SCR 313 at 343 held:
ITA Nos.647 & 648/Bang/2015 Page 8 of 11
“It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro; See W.S. Try Ltd. v. Johnson (Inspector of Taxes) [(1946) 1 AER 532 at p. 539], and Webb v. Stenton, Garnishees [11 QBD 518 at p. 522 and 527]. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.” 26. This Court, in Commissioner of Income Tax v. Excel Industries, (2014) 13 SCC 459 at 463-464 referred to various judgments on the expression “accrues”, and then held: “14. First of all, it is now well settled that income tax cannot be levied on hypothetical income. In CIT v. Shoorji Vallabhdas and Co. [CIT v. Shoorji Vallabhdas and Co., (1962) 46 ITR 144 (SC)] it was held as follows: (ITR p. 148) “… Income tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a ‘hypothetical income’, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account.”
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The above passage was cited with approval in Morvi Industries Ltd. v. CIT [Morvi Industries Ltd. v. CIT, (1972) 4 SCC 451 : 1974 SCC (Tax) 140 : (1971) 82 ITR 835] in which this Court also considered the dictionary meaning of the word “accrue” and held that income can be said to accrue when it becomes due. It was then observed that: (SCC p. 454, para 11) “11. … the date of payment … does not affect the accrual of income. The moment the income accrues, the assessee gets vested with the right to claim that amount even though it may not be immediately.” 16. This Court further held, and in our opinion more importantly, that income accrues when there “arises a corresponding liability of the other party from whom the income becomes due to pay that amount”. 17. It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. 18. Insofar as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement passbook, there was no corresponding liability on the Customs Authorities to pass on the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is, therefore, not the income of the assessee.” 27. In the facts of the present case, it is clear that the income from capital gain on a transaction which never materialized is, at best, a hypothetical income. It is admitted that, for want of permissions, the entire transaction of development envisaged in the JDA fell through. In point of fact, income did not result at all for the aforesaid reason. This being the case, it is clear that there is no profit or gain which arises from the transfer of a capital asset, which could be brought to tax under Section 45 read with Section 48 of the Income Tax Act.
ITA Nos.647 & 648/Bang/2015 Page 10 of 11
In the present case, the assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained. This being the case, in the circumstances, there was no debt owed to the assessees by the developers and therefore, the assessees have not acquired any right to receive income under the JDA. This being so, no profits or gains “arose” from the transfer of a capital asset so as to attract Sections 45 and 48 of the Income Tax Act.” 14. Since it has not been established by the revenue that possession was ever transferred to the transferee and now the JDA has been cancelled and the matter has been referred to the Arbitrator for settlement of the dispute, we are of the view that no capital gain has accrued in the hands of the assessee on account of the JDA. Whatever amount was received on execution of the JDA, it was only a refundable security which cannot be taxed in the hands of the assessee as long term capital gain. Accordingly the order of the CIT(Appeals) is set aside and the additions confirmed therein are deleted.” 9. In the light of these facts, we are of the considered view that the land was not transferred in the impugned assessment year, therefore the long term capital gain cannot be charged in the impugned assessment year. Accordingly, we set aside the order of the CIT(Appeals) and delete the additions made therein. However, the revenue is at liberty to tax the long term capital gain in the year of transfer of land to the builder.
In the result, both the appeals of the assessees are allowed.
Pronounced in the open court on this 13th day of October, 2017.
Sd/- Sd/- ( A.K. GARODIA ) ( SUNIL KUMAR YADAV) Accountant Member Judicial Member
Bangalore, Dated, the 13th October, 2017. / Desai Smurthy /
ITA Nos.647 & 648/Bang/2015 Page 11 of 11
Copy to:
Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Senior Private Secretary ITAT, Bangalore.