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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI VIJAY PAL RAO & SHRI INTURI RAMA RAO
Per Bench
These three appeals of three assessees who are father and sons, are directed against the orders of CIT(A), all dated 22.02.2016.
The brief facts leading to the controversy are that a survey under section 133A of the Act was conducted in the case of the assessees on 26.11.2012. During the course of verification of records, the AO found the Joint Development Agreement (JDA) dated 01.06.2005 whereby the assessees have transferred their share in the land in favour of the developer M/s. Fortuna Constructions, as per the terms and conditions of the said agreement. The AO also noted that the assessees did not file any return of income for the AY 2006-07. Accordingly, the AO reopened the assessment in view of the decision of the Hon’ble jurisdictional High Court in the case of CIT Vs. T. K. Dayalu ITR 202 Taxmann 531, by issuing a notice under section 148 on 28.12.2012. In response to the notice u/s. 148, the assessees filed their return of income on 19.06.2013 declaring ‘Nil’ income. The AO completed the assessment u/s 143(3) r.w.s. 147 on 28.03.2014 whereby long term capital gain arising from JDA was assessed to tax after allowing exemption u/s 54F. The AO adopted the deemed full value consideration @ 800/- per sq.ft. of the constructed share of the assessee. The assessee challenged the action of the AO before the CIT but could not succeed. The assessees have filed the common grounds of appeal. The grounds raised in the case of Shri. C. Jagannath, HUF are reproduced as under:
3. Ground Nos. 1 to 3 are general in nature and does not require any specific adjudication.
4. Ground Nos. 4 and 5 are regarding validity of the reopening of the assessment. The learned AR of the assessee has submitted that the reopening of assessment is not valid as the AO did not have reason to believe that any income pertaining to the assessee had escaped assessment. The AO reopened the assessment for the AY under consideration purely based on assumption, presumption, surmise and guess work that there was a transfer of capital asset vide JDA. He has further contended that the AO has merely relied upon the decision of Hon’ble jurisdictional High Court in case of CIT Vs. Dr. T. K. Dayalu (supra) and reopened the assessment in the assessees’ case without going into the details and facts whether there is a transfer of capital asset or not. In support of his contention he has relied upon the decision of Hon’ble jurisdictional High Court in the case of Devi Chand Kotari v. ITO reported in 230 Taxmann 301 and submitted that the Hon’ble High Court has held that where the statement recorded was not furnished to the assessee, the assessment renders invalid. Thus the learned AR has pleaded that the reopening of the assessment is not sustainable and the same is required to be quashed.
On the other hand the learned DR has submitted that the assessee has not filed any return of income for the AY 2006-07. It was only when a survey u/s. 133A was conducted in the case of the assessee, the AO came to know that the assessees have entered into a JDA dated 01.06.2005 and therefore this constitutes a tangible material to believe that the income chargeable to tax being capital gain arising from transfer of land under JDA has escaped assessment in the light of the decision of Hon’ble jurisdictional High Court in the case of CIT Vs. Dr. T. K. Dayalu (supra). He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as material on record. There is no dispute that the assessees did not file any return of income for the AY 2006-07. During the course of survey u/s 133(A), the JDA dated 01.06.2005 came to the knowledge of the AO. Therefore the fact of transfer of land by the assessees under the JDA came to the notice of the AO only in the course of survey proceedings. The AO accordingly reopened the assessment by issuing the notice u/s 148 on 28.12.2012 by recording the reasons for reopening of the assessment. The assessee requested the AO to furnish the reasons recorded for reopening which were furnished by the AO as stated in the assessment order. The assessee filed the objections against the reasons as well as notice u/s 148 which were rejected by the AO. The Hon’ble High Court in the case of CIT Vs. Dr. T. K. Dayalu (supra), as held in paras 7 and 8 is as under:
7. So far as other substantial questions of law are concerned, it is clear that the finding of fact arrived at by the Tribunal is based upon the material on record. The contents of the agreement dated 26-1-1996, the second supplementary agreement dated 14-10-1998, the third supplementary agreement dated 26-11-1999 and also the affidavit filed by the assessee stating that the actual possession of the schedule property was handed over on 30-5-1996, the said finding on the question of fact that the possession was handed over on 30-5-1996 is based upon the material on record and cannot be said to be perverse or illegal. The question to be decided is the year in which Rs. 45 lakhs received by the assessee under the agreement dated 26-1-2006 (sic) as modified by the subsequent agreements to be taxed. It is not disputed that the assessee had received capital gain in the year 1997-98 and having regard to the finding of fact that the possession of the property has been handed over on 30-5-1996, we hold that appropriate assessment year in which the capital gain is to be taxed is 1997-98. There is no merit in the contention of learned counsel appearing for the assessee that since the entire project has been completed in the year 2003-04, the tax on capital gain has to be made in that year. It is now well-settled that the date on which possession was handed over to the developer is relevant and in the present case, it is not disputed that assessee has already received a sum of Rs. 45 lakhs in addition to the structures which would enable to put up construction.
8. The Hon'ble Bombay High Court in Chaturbhuj Dwarkadas Kapadia v. CIT [2003] 260 ITR 491 / 129 Taxman 497 held that the date relevant for attracting capital gain having regard to the definition under section 2(47) of the Act is the date on which possession is handed over by the developer and has observed as follows: "Under section 2(47)(v), any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act would come within the ambit of section 2(47)(v). That, in order to attract section 53A, the following conditions need to be fulfilled. There should be a contract for consideration; it should be in writing; it should be signed by the transferor; it should pertain to transfer of immovable property; the transferee should have taken possession of the property; lastly, the transferee should be ready and willing to perform his part of the contract. That even arrangements confirming privileges of ownership without transfer of title could fall under section 2(47)(v). Section 2(47)( v) was introduced in the Act from the assessment year 1988-89 because
prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of the conveyance. Consequently, the assessees used to enter into agreements for developing properties with the builders and under the agreement with the builders, they used to confer privileges of ownership without executing conveyance and to plug that loophole, section 2(47)(v) came to be introduced in the Act." The Hon'ble Supreme Court has referred to the contention of the assessee and the earlier judgments of the Supreme Court cited by him and held that those judgments were prior to introduction of the concept of deemed transfer under section 2(47)(v) of the Act and if the contract, read as a whole, indicates passing of or transferring of complete control over the property in favour of the developer, then the date of the contract would be relevant to decide the year of chargeability. Therefore, in these appeals, we hold that capital gain is to be taxed in the year 1997-98 and not in the year 2003-04 as contended by the assessee. Accordingly, we answer the substantial questions of law framed in in favour of the revenue and substantial questions of law framed in ITA No.3105/2005 against the assessee and pass the following: ORDER
ITA NO.3209/2005 is allowed. is dismissed.”
Thus it is clear that the relevant date for attracting the capital gain having regard to the definition u/s 2(47) of the Act is the date on which the possession of land is handed over in part performance of the contract of the nature referred in section 53A of Transfer of Property Act. Thus the capital gain arising from deemed transfer u/s 2(47)(v) of the Act is chargeable to tax in the year in which the JDA is executed and possession of the land was handed over. The AO found that the capital gain arising from the transfer of the land under JDA is chargeable to tax for the AY under consideration as the JDA coupled with GPA has been executed in the financial year relevant to the AY under consideration. Thus the JDA found during the course of survey along with GPA constitute a tangible material on the basis of which the AO has formed a belief that the income being capital gain chargeable to tax has escaped assessment. Accordingly, we do not find any error or illegality in the order of the authorities below qua this issue.
Ground Nos. 6 to 14 regarding the merits of assessment of capital gain arising from transfer of land under JDA:
We have heard the learned AR as well as learned DR and considered the relevant material on record. The learned AR of the assessee has submitted that the grievances of the assessee is limited only with respect to the full value consideration adopted by the AO by allocating the cost of construction at the rate of Rs.800/- per sq.ft. He has contended that the fair market value or the circle rate of the land as on the date of JDA shall be the full value consideration for the purpose of computing the capital gain. The value of Rs.800/- is taken as per the builder’s letter which was not intact and ascertainable as on the date of JDA. On the date of JDA there existed only land and not building and therefore the cost of construction of building cannot be taken at Rs.800/- per sq.ft. which is without any basis or evidence. Even otherwise the cost of construction includes expenses for material like cement, jelly, sand, bricks, labour cost and other overheads which varies from time to time and therefore the value adopted by the AO is incorrect. Thus the learned AR has pleaded that the fair market value of the land or the circular rate of the land as on the date of JDA should be taken as full value consideration for the purpose of capital gain. On the other hand, the learned DR has relied upon the orders of the authorities below and submitted that since the JDA did not specify the cost of construction, market value, therefore the cost incurred by the builder/developer was lower than the market value and the same was adopted by the AO for the purpose of computing the capital gain.
We have considered the rival submissions as well as relevant material on record. As per the decision of Hon’ble jurisdictional High Court in case of T. K. Dayalu (supra), the capital gain is required to be taxed in the AY in which the land in question is deemed to have been transferred as per provisions of section 247(v) of the Act r.w.s. 53A of the Transfer of Property Act. There is no dispute that JDA in question along with GPA has been executed during the financial year relevant to the AY under consideration. Therefore the capital gain pertaining to the transfer of the land has to be computed by considering the full value consideration being the share of the assessee in the constructed area of the project. The question arises is the valuation of the share of assessee in the constructed area of project as on the date of JDA. The AO has adopted the rate by considering the cost of construction as per the letter of the developer. However, the said cost of construction of the project is not on the date of the JDA but it is a subsequent event. Therefore, the fair market value of the share of the assessee in the constructed area has to be considered as on the date of the JDA. Hence the full value consideration of the land is the fair market value of the share of the assessee in the constructed area under the JDA. Accordingly in the facts and circumstances of the case, we set aside this issue to the record of the AO with the direction to recompute the full value consideration by considering the fair market value of the share of the assessees in the constructed area of the project as on the date of JDA.
Ground No. 15 is regarding deduction u/s 54. We have heard the learned AR as well as learned DR. The AO has allowed the claim of deduction u/s 54 of Rs.26,24,400/- each without any discussion in the assessment order. The AO has completed the assessment proceedings by adopting the cost incurred by the builder and has computed the capital gain on the transaction of JDA. Since the assessee is receiving share after completion of JDA and therefore the entire sale consideration is in the shape of residential flats and hence the assessee is entitled for deduction u/s 54/54F of the Act in respect of capital gain by considering the entire share in the residential project. Ld. AR of the assessee has relied upon the following decisions:
CIT Vs. Smt. K. G. Rukminiamma 331 ITR 211 (Karnataka) 2. CIT Vs. D. Ananda Basappa 309 ITR 329 (Karnataka) 3. Decision dated 20.7.2016 in case of Shri. N. G. Chandra reddy (HUF) Vs. DCIT ITA No. 390/Bang/2015
On the other hand, the learned DR has relied upon the orders of authorities below.
We have considered the rival submissions as well as relevant material on record. There is no dispute that the assessee was to receive the sale consideration in the shape of share in the JDA project. The assessees were to receive the constructed residential houses. Thus for the purpose of Section 54F/54 of the Income Tax Act, the assessee is entitled for the benefit of the investment in the residential house. The question arises whether more than one house or residential unit can be taken into consideration for the benefit of 54/54F of the Act. At the outset we note that the Hon’ble jurisdictional High Court in case of CIT Vs. Smt. K. G. Rukminiamma (supra) has considered an identical issue and held in paras 10 to 13 as under:
Accordingly, in principle this issue is covered by the decision of Hon’ble jurisdictional High Court. However, as regards the computation of exemption u/s. 54, since we already remitted the issue of valuation of the capital gain and full value consideration to the record of the AO therefore this issue is also set aside to the record of the AO for adjudication in the light of the decision of the Hon’ble jurisdictional High Court as well as the other decisions relied upon by the assessees.
In the result, the appeals of the assessees are partly allowed.
Pronounced in the open court on this 20th day of January, 2017.