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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER: Both the appeals of the Revenue are directed against the respective orders of the Commissioner of Income Tax (Appeals) -3, Chennai, dated 18.01.2016 and pertain to assessment year 2008- 09.
The only issue arises for consideration in both the appeals is assessment of profit on transfer of land.
Shri AR.V. Sreenivasan, the Ld. Departmental Representative, submitted that the assessees entered into a joint development agreement on 20.10.2007 with M/s Vijay Shanthi Builders Ltd. for development of property at Chettipedu in Mevalur Kuppam Village, Sriperumbudur Taluk, Kancheepuram District. According to the Ld. D.R., the Assessing Officer found that as per the agreement, the developer accepted to develop the property after getting necessary plan sanctioned by CMDA / local body. The developer is entitled to get 60% or 65% in the proposed construction and owner to get 35% or 40% as the case may be. According to the Ld. D.R., the developer has also paid `2.50 Crores being the interest free refundable deposit. On 20.10.2007, the assessees also handed over the original document of title to the developer. Since the original document of title was handed over, the Assessing Officer found that there was transfer of property between the assessees and M/s Vijay Shanthi Builders Ltd. Hence, according to the Ld. D.R., the gain arising out of such transfer has to be assessed during the year under consideration.
However, on appeal by the assessees, the CIT(Appeals) found that the joint development agreement was cancelled by way of supplementary agreement and the land was sold on outright sale.
The CIT(Appeals) further found that the joint development agreement does not result in transfer of capital asset in the year under consideration, therefore, no capital gain arising in the year under consideration. Accordingly, he deleted the addition made by the Assessing Officer in the case of both the assessees. The Ld. D.R. submitted that in view of joint development agreement, the transfer took place during the year under consideration, therefore, the CIT(Appeals) is not justified in deleting the addition made by the Assessing Officer.
On the contrary, Shri S. Sridhar, the Ld.counsel for the assessees, submitted that no doubt, the assessees along with co- owners entered into a joint development agreement with M/s Vijay Shanthi Builders Ltd. for development of property. Subsequently, the joint development agreement was cancelled by way of supplementary agreement and the property was sold on outright sale. Referring to the order of the CIT(Appeals), the Ld.counsel submitted that after reproducing the joint development agreement, the CIT(Appeals) found that there was no transfer of capital asset during the year under consideration. In fact, according to the Ld. counsel, the CIT(Appeals) placed his reliance on the decision of this Tribunal in Vijaya Productions (P.) Ltd. v. Addl CIT 17 taxman.com
According to the Ld. counsel, as per this joint development agreement, the assessees handed over all the original documents of title to the developer.
Referring to clause (31) of the agreement at page 42 of the paper-book, the Ld.counsel for the assessees submitted that the development agreement should not be construed as delivery of possession being part performance under Section 53A of Transfer of Property Act. The possession shall continue to be with owners of the land. The developer was given only a licence to develop the land. In view of this, the Ld.counsel contends that the possession of property was not handed over to the developer and what was given to the developer is only a licence to construct the building and the possession always remained with the owners. Therefore, according to the Ld. counsel, there was no transfer within the meaning of Section 2(47) of the Income-tax Act, 1961 (in short 'the Act').
Hence, as rightly found by the CIT(Appeals), according to the Ld. counsel, there cannot be any capital gain arising for consideration during the year under consideration.
We have considered the rival submissions on either side and perused the relevant material available on record. For the purpose of assessing capital gain, there shall be transfer of capital asset within the meaning of Section 2(47) of the Act. We have carefully gone through the provisions of Section 2(47) of the Act which reads as follows:-
(47) “transfer”, in relation to a capital asset, includes,— (i) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or (iva) the maturity or redemption of a zero coupon bond ; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property : Explanation 1.— For the purposes of sub-clauses (v) and (vi), “immovable property” shall have the same meaning as in clause (d) of section 269UA. Explanation 2.— For the removal of doubts, it is hereby clarified that “transfer” includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India ; 7. In this case, the assessees handed over the original documents of title deeds at the time of execution of joint development agreement along with other co-owners. Clause (31) of the joint development agreement reads as follows:-
“(31) Such permission to entire Schedule A property shall however not be construed as delivery of possession under section 53A of the Transfer of Property Act. The legal possession of the Schedule A Property, shall continue to vest with the Owners. The Developer is only permitted to enter upon the Schedule A property by way of licence to develop the same.”
In view of the above, there was a clear understanding between the parties. What was given to the developer is only a licence to develop the land and the possession of property will continue to be with the owners of the land including the assessee.
A subsequent agreement was appeared to have been entered on 19th April, 2010, a copy of which is available at page 48 of the paper-book. As per this supplementary agreement, the parties agreed to sell the land instead of development. In view of clause (31) of the joint development agreement, it is obvious that there was no transfer of property during the year under consideration consequent to the joint development agreement. Subsequently, the joint development agreement was substituted by supplementary agreement wherein the parties agreed to sell the property on outright sale.
When the appeal of Shri Pravin Kumar Jain, one of the co- owners of the property, came before this Tribunal in I.T.A.
No.764/Mds/2016, this Tribunal vide its order dated 23.06.2017, remitted the matter back to the file of the Assessing Officer.
However, there was no discussion about clause (31) of the joint development agreement. Even if we consider that the subsequent supplementary agreement is a suspicious one, the joint developer has no right to retain the property as part performance of contract for sale or as an arrangement to enjoy the property. In other words, the developer was given only a licence to develop the property and the possession of property continues to remain with the land owners including the assessees. This factual aspect is crucial for deciding whether the capital gain is to be assessed in the hands of the assessees for the year under consideration or in the subsequent year. Therefore, in view of clause (31) in the joint development agreement, it is certain that there was no transfer of capital gain during the year under consideration.
In the case of Shri Uttam Kumar Jain, one of the co-owners, clause (31) in the joint development agreement was not brought to the notice of the Bench. The Tribunal has not considered clause (31) of the joint development agreement. Therefore, the order of this Tribunal in the joint owner’s case, wherein the crucial, factual aspect was not considered is not applicable at all.
In view of specific clause in (31) of the joint development agreement, this Tribunal is of the considered opinion that there was no transfer during the year under consideration. Hence, there cannot be any assessment of capital gain during the year under consideration. Accordingly, the order of the CIT(Appeals) is confirmed.
In the result, both the appeals filed by the Revenue are dismissed.
Order pronounced on 27th September, 2017 at Chennai.