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Income Tax Appellate Tribunal, BANGALORE BENCH “ B ”
Before: SHRI A.K. GARODIA & SHRI VIJAY PAL RAO
Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.13.2.2015 of the Commissioner of Income Tax (Appeals) for the Assessment Year 2005-06.
The assessee has raised the following grounds : “ [1] The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
The order of re-assessment is bad in law and void-ab-initio for want of requisite jurisdiction especially, the mandatory requirements to assume jurisdiction u/s 148 of the Act did not exist and have not been complied with L' and consequently, the re-assessment requires to be cancelled.
[3] Without prejudice to the above, the learned CIT[A] is not justified in upholding that there was a transfer of the undivided interest in land in favour of the Builder on the execution of the joint development agreement on 12/05/2004 giving rise to liability to Capital Gains tax for the year under appeal under appeal under the facts and in the circumstances of the appellant's case.
[4] Without prejudice to the above, the learned CIT[A] is not justified in directing 'the learned A.O. to compute the long term capital gains on the joint development by adopting the fair market value of the project as on the date of the joint development agreement under the facts and in the circumstances of the appellant's case. [5] Without prejudice to the right to seek waiver with the Hon'ble CCITIDG, the appellant denies himself liable to be charged to interest u/s.234A, 234B and 234C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled.
[6] For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
3. Ground No.1 is general in nature and does not require any adjudication.
4. Ground No.2 is regarding validity of reassessment. The assessee-HUF filed its return of income on 5.2.2006 declaring total income of Rs.1,79,727 and agricultural income of Rs.1,78,000. Subsequently, during the course of enquiry the Assessing Officer found that the assessee has entered into Joint
Development Agreement (in short ‘JDA’) dt.12.5.2004 with M/s. SJR Builders along with assessee's brother’s wife in respect of the property measuring 2 acres of land bearing Survey No.136/1 situated at Munnekollalu Village, Varthur Hobli, Bangalore East Taluk, Bangalore. The Assessing Officer accordingly reopened the assessment by issuing a notice under Section 148 on 19.3.2012 by recording the reasons that there is a transfer of land as per the provisions of section 2(47)(v) of the Income Tax Act, 1961 (in short 'the Act') as the possession of the said property has been taken by the developer in part performance of contract referred in section 53A of the Transfer of Property Act.
The Assessing Officer has placed reliance on the judgment of Hon'ble jurisdictional High Court in the case of CIT Vs. Dr.T.K. Dayalu 202 taxman 531.
Accordingly, the Assessing Officer held that the assessee has not offered the capital gains in the year of entering of the JDA, which income is chargeable to tax has escaped assessment. The assessee challenged the action of the Assessing Officer before the CIT (Appeals) including the validity of reopening of the assessment under Section 147 of the Act. The CIT (Appeals) did not accept the objections raised by the assessee against the reopening.
Before us, the learned Authorised Representative of the assessee has submitted that the Assessing Officer has reopened the assessment on the basis of judgement of Hon'ble jurisdictional High Court in the case of Dr. T.K. Dayalu (supra). However, there was no transfer as on the date of JDA as the assessee has not handed over the possession of the land to the developer which may constitute a transfer as per the provisions of section 2(47)(v) of the Act. The assessee has just allowed the developer to carry out the construction on the land and therefore the Assessing Officer has reopened the assessment without jurisdiction when there were no reasons to believe that the income assessable to tax has escaped assessment. The learned Authorised Representative has pointed out that the assessee has offered the capital gain on sale of the undivided interest in the land in the name of developer during the years 2007- 08 and 2008-09. The learned Authorised Representative has submitted that the developer did not get any right or ownership over the land by virtue of JDA but he was allowed to construct the building and after construction of the building the assessee was required to execute the sale document to the developer or its nominee or to third party identified by the developer. It was only a grant of license or permission to enter upon the property in question and construct
residential apartments. He has referred to the various clauses of the development agreement including clauses 3 & 4, wherein it is specifically mentioned that possession shall not be considered as possession handed over to the developer under Section 53A of the Transfer of Property Act. Thus the learned Authorised Representative has submitted that in the absence of any material to show that income assessable to tax has escaped and reopening is not valid.
On the other hand, the learned Departmental Representative has submitted that the assessee did not offer the capital gains arising from transfer of the land in question by virtue of JDA dt.12.5.2004 and subsequently the Assessing Officer found that the assessee had entered into a JDA and accordingly it is a tangible material to indicate that the income assessable in the form of capital gains has escaped assessment. He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as the relevant material on record. The return was filed on 15.2.2006 and there is no assessment on the original return filed by the assessee. Subsequently, the Assessing Officer issued a notice dt.29.2.2012 under Section 148 for reopening of assessment as under :
“F.No.AC-7(1)/12-13 Dated : 25.04.2012.
To Mr. N.G. Chandra Reddy, 22/222, Doddankundi Village, Marthahalli, Bangalore-560 037 Madam, Sub : Furnishing of reasons recorded for reopening u/s.147 as requested by you for the A.Y. 2005-06. -- -- -- -- -- Kind reference is invited to the above.
The reasons recorded for reopening is as under : “You have entered into joint development agreement with SJR Builders dt.12.5.2004 i.e. F.Y. 04-05 A.Y. 05-06. As per the Joint Development Agreement the assessee is entitled to approximately 16% of the Super Built up Area in the said Development. The Developer has obtained necessary Govt. approvals and constructed Residential Apartment Complex SJR Spencer. Thus in view of provision of section 2(47)(v) the transfer of land has taken place as possession of immovable property has been taken by the Developer in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882.
Hon'ble Karnakaka High Court in the case of CIT Vs. Dr.T.K. Dayalu in of 2005 has held that in a development agreement the relevant date for attracting capital gains is the date on which possession is handed over to the developer. Similar view has been taken by the Bombay High Court in Chaturbhuj Dwarkadas Kapadia Vs. CIT 260 ITR 491,wherein it has been held that if a contract read as a whole indicates passing of or transferring of control of the property in favour of Developer then the date of contract would be relevant to decide the year of taxability.
In the instant case the assessee has not offered capital gains in the year of entering of JDA. The prima facie capital gain escaping assessment appears to be approximately 3 Crores.”
Therefore, I have reason to believe that your income chargeable the income in respect of which you are assessable to tax for the assessment year 2005-06 has escaped assessment within the meaning of section 147 of the Income Tax Act.
Sd/- (Abirama Karthikeyan S, IRS) Asst. Commissioner of Income Tax, Circle 7(1), Bangalore.”
There is no dispute that the assessee had entered into a JDA dt.12.5.2004 and had not offered any income being capital gain arising from the said JDA, Hon'ble jurisdictional High Court in the case of Dr. T.K.Dayalu (supra) held that when the possession was handed over to the developer at the time of entering into JDA, it constitutes transfer under Section 2(47)(v) of the Act and consequently the capital gains is to be taxed in the year in which the JDA was entered into. The CIT (Appeals) has decided this issue by following the judgment of Hon’ble Madras High Court in the case of CIT Vs. Devi Marine Food Exports (P.) Ltd. 126 taxman 456 wherein the question of validity of reopening of assessment based on decision of the Hon'ble High Court was held to be valid in para 3 as under :
The Tribunal has held that such reopening was not justified, as in its view the reopening was only as a consequence of a change of opinion which was not warranted having regard to the fact that the assessee had furnished all the information required to the time of the original assessment. learned counsel for the assessee sought to support the view so taken by the Tribunal by relying on certain observations of the Supreme Court in the case of ITO vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC) : TC 51R.598. At p. 448 of that judgment, the Court observed as under : "As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts..... The reason for the formation of the belief must be held in good faith and should not be a mere pretence."
In this case, the reopening was not on the ground that the assessee had failed to disclose all the relevant materials fully and completely. It was on the ground that the information which came to the notice of the AO subsequently led to the belief that there had been escapement of income to tax. That information was the decision of the Madhya Pradesh High Court. There is no dispute about the fact that the reopening was done within the time allowed by law. The reopening of the assessment, in the circumstances, was justified, it was not a case of mere pretence of having received the information even when the reality was one of change of opinion.”
In view of the facts and circumstances of the case, when the assessee did not offer the income arising from transfer of land in question under JDA and there was no original assessment then the reopening based on the decision of Hon'ble jurisdictional High Court as well as facts came to the knowledge of the Assessing Officer that the assessee had entered into JDA is valid and justified.
Ground Nos.3 & 4 are regarding addition on account of capital gains.
On merits, the learned Authorised Representative of the assessee has submitted that the Assessing Officer has reopened the assessment for assessing the capital gains arising from JDA however the valuation of the capital
Assessing Officer by taking the sale consideration of the land being the cost of construction of the built up area falling to the share of the assessee. He has relied upon the order dt.18.3.2016 of this Tribunal in the case of ACIT Vs. Shankar Vittal Motor Co. Ltd. in as well as the decision dt.14.8.2014 of this Tribunal in the case of Sri K.M. Nagaraj & Smt. Sathya Prema Vs.CIT in ITA Nos.136 & 137/Bang/2012 and submitted that the Fair Market Value as on the date of JDA ought to be considered as sale consideration of the land.
On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below as well as the decision of the Hon'ble jurisdictional High Court in the case of Dr.T.K. Dayalu (supra).
We have considered the rival submissions as well as the relevant material on record. We find that as per the JDA dt.12.5.2004 the assessee has handed over possession to the developer for construction of the residential project though the said JDA and handing over of the possession does not constitute an outright and absolute sale however it would certainly constitute the transfer of the immovable property as per the provisions of section 2(47)(v)
Act as held by the Hon'ble jurisdictional High Court in the case of Dr.T.K.
Dayalu (supra) in para 8 as under :
8. The Hon’ble Supreme Court (sic-Bombay High Court) in Chaturbhuj Dwarkadas Kapadia vs. CIT (2003) 180 CTR (Bom) 107 : (2003) 260 ITR 491 (Bom) held that the date relevant for attracting capital gain having regard to the definition under s. 2(47) of the Act is the date on which possession is handed over by the developer and has observed as follows : "Under s. 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 s. 53A of the Transfer of Property Act would come within the ambit of s. 2(47)(v). That, in order to attract s. 53A. the following conditions need to be fulfilled. There should be a contract for consideration. It should be in wining; it should be signed by the transferor; it should pertain to transfer of immovable property; the transferee should have taken possession of the properly; 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 s. 2(47)(v). Sec. 2(47)(v) was introduced in the Act from the asst. yr. 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, s. 2(47)(v) came to be introduced in the Act." The Hon’ble Supreme Court (sic) 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 s. 2(47)(v) if 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 IT Appeal No. 3209 of 2005 in favour of the Revenue and substantial questions of law framed in IT Appeal No. 3165 of 2005 against the assessee and pass the following order : IT Appeal No. 3209 of 2005 is allowed. IT Appeal No. 3165 of 2005 is dismissed.”
Following the decision of the Hon'ble jurisdictional High Court (supra), we do not find any error or illegality so far as the JDA along with handing over of possession constitute transfer of land in question in terms of section 2(47)(v) of Act. In the case of K.M. Nagaraj (supra), the Tribunal though taken a different view however the judgment of Hon'ble jurisdictional High Court in the case of Dr.T.K.Dayalu (supra) was not taken into consideration as it was not brought to the notice of the Tribunal. As regards the computation of capital gains, we find that the co-ordinate bench of this Tribunal in the case of Shankar Vittal Motor Co. Ltd. (supra) has held as under :
“ We have given our thoughtful consideration and rival submissions and facts and circumstances of the case and also gone through the order of the authorities below.
As the case referred as Smt Prathima Reddy Vs ITO, Ward- 6(4) (2012) 25 Taxmann.com 264(Hyd.) by the learned DR actually dissimilar to the facts of the present case because in the said case, the controversy was with regard to the assessment year, but the determination of value was not in dispute. However, in the instant case, the main controversy is not with regard to the assessment year, but it is of the valuation of property whether market value as on the date of JDA has to be considered or Construction cost has to be considered. The judgment passed by the jurisdictional High Court in the case of CIT Vs Dr. T.K.Dayalu 292 Taxman.com531 is relevant for deciding the present controversy.
We are of the view, because at the time of signing JDA the capital gain has to be computed only on the guidance value of the land. Even otherwise, if any capital gains to be accrued in future in favour of assessee after receiving the possession of the property. Certainly that would also be subject to capital gains. Therefore, in our final conclusion valuation of the capital gain should be appropriate to adopt the FMV/asset as deemed consideration, but not cost of the construction. With the above observation we dismiss the appeal of the revenue.”
Accordingly in the facts and circumstances of the case, the issue of computation of capital gains is set aside to the record of the Assessing Officer with a direction to compute the capital gains by taking consideration for JDA as market value of the asset to be received by the assessee.
In the result, the appeal is partly allowed.
Order pronounced in the open court on 20th day of July, 2016.