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Income Tax Appellate Tribunal, DELHI BENCHES “G” : DELHI
Before: SHRI BHAVNESH SAINI & SHRI B.R.R. KUMAR
This appeal by Revenue has been directed against the Order of the Ld. CIT(A)-III, New Delhi, Dated 20.03.2013, for the A.Y. 2007-2008, challenging the Order of the Ld. CIT(A) in deleting the addition of Rs.86 crores
2 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. made by the A.O. on account of sale of development rights by the assessee to EMMAR-MGF Land Ltd.,
We have heard the Learned Representative of both the parties through video conferencing and perused the material available on record.
Briefly the facts of the case are that in this case a Search & seizure operation under section 132 of the Income Tax Act, 1961 was carried out on 05.01.2009 in M/s Taneja-Puri Group of cases in various premises. During the course of search, some documents belonging to the assessee were found from the premises covered u/s 132(1) of the I. T. Act, 1961. The case was centralized. The A.O. passed the assessment order Dated 30.12.2010 under section 153C r.w.s. 143(3) of the I.T. Act, 1961, making an addition of Rs.86 crores on account of income resulting because of transfer of rights made to EMMAR-MGF Land Ltd., is to be assessed in the hands of the assessee. The A.O. accordingly made addition of Rs.86 crores being the profit accrued to 3 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. the assessee on sale of development rights during the assessment year under appeal.
3.1. The assessee challenged the addition before the Ld. CIT(A). The Ld. CIT(A) noted that the issue arose from the facts which are enumerated hereinafter (i) The assessee namely SSP Aviation [Formerly known as SSP Properties P. Ltd.,] entered into a collaboration agreement dated 28.04.2006 with Puri Construction Ltd. (“PCL”) pursuant to which PCL transferred development rights in favour of the assessee pertaining to land measuring 19.06 acres. (ii) On 21.07.2006 the assessee entered into an agreement known as "Agreement cum Nominations Agreement" with Emmar MGF Land Ltd. (Emmar), wherein the assessee transferred the development right to Emmar for a consideration of Rs.86 crores. (iii) In the opinion of the assessee since the agreement dated 21.07.2006 with Emmar was subject to fulfillment of certain conditions, therefore the consideration of Rs.86 crore being the sale of development rights, was not liable to be taxed in the year under consideration.
4 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. 3.2. However, the AO was of the view that since the assessee was following the mercantile system of accounting, therefore even if in the year under consideration, no consideration in monetary terms have been received/passed on sale of such development right, even than it constitute the income of the year in which such agreement is signed. The A.O. accordingly, taxed Rs. 86 crores to the assessee’s income in the assessment year under appeal.
3.3. The assessee challenged the addition before the Ld. CIT(A) and filed written submissions which is reproduced in the appellate order explaining briefly that no income accrued to the assessee in assessment year under appeal and that agreement were subjected to certain terms and conditions which did not fulfilled, therefore, no income accrued to assessee in assessment year under appeal. The assessee shall have to obtain certain licenses and permissions from the Government Authorities for completion of the project. The assessee did not receive any amount in assessment year under appeal and the impugned amount was payable to the assessee on and after successful
5 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. completion of the project by the assessee to the satisfaction of PCL Group and as per the terms and conditions of the Agreement Dated 28.04.2006. Therefore, reference to the timely completion of the project was essence of the Agreement. All the terms and conditions of the Agreement shal have to comply with by both the parties. It is, therefore, clear from the relevant clauses of the agreement that assessee would be entitled for impugned consideration after the successful completion of the project only and out of the impugned amount, Rs.50 crores is to be received by the assessee from EMMAR as initial interest free refundable /adjustable security deposit against due performance of the agreement as per the terms and conditions of the Agreement. It was also submitted that as against Rs.50 crores mentioned, Rs.44 crores only were received by the assessee as security deposit in subsequent A.Y. 2008-2009. The impugned amount is only a contingent income and can be taxed only on happening of the contingencies mentioned in the Agreement. The assessee did not get any right on any immovable property. The ownership over the land continue
6 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. to vest in PCL and there is no registration or transfer in favour of the assessee or its assignee. It was submitted that decisions relied upon by the A.O. are not applicable to the facts and circumstances of the case. It was, therefore, submitted that no income accrued to assessee in assessment year under appeal.
3.4. The Ld. CIT(A) considering the material on record in the light of findings of the A.O. and submissions of the assessee held that no income accrued to the assessee of the impugned amount in assessment year under appeal, therefore, addition of Rs.86 crores were deleted and appeal of assessee has been allowed. The findings of the Ld. CIT(A) based on relevant clauses of the Agreement in question in paras 5 to 8 of the impugned Order are reproduced as under : “FINDING 5. I have gone through the above submissions of the appellant and have perused the AO's order and have considered the facts and evidences on record and the case laws relied upon both by the appellant as well as the AO.
7 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. From the above grounds of appeal and submission of the appellant it is seen that the only issue which requires to be adjudicated. "Whether the income has accrued or not to the appellant, on the date of the signing of the agreement, under which the development rights have been given to Emaar MGF ? "
5.1 As per the law lexicon the word "accrue" means- coming as a natural course or result arising in due course. Tax accrues, when all events have occurred which fix the amount of tax and determines the taxpayers liability to pay the tax. With this basic definition, when we analyze the relevant agreements only than one can determine the actual point of taxations.
5.2 It is seen that following two agreements are the relevant ones, to adjudicate the issue in hand :
(a) Collaboration Agreement (including Supplementary Agreement) dated 28.04.2006 entered between, Puri Construction Limited (PCL) and the appellant,
8 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. (b) Assignment cum Nomination Agreement dated 21.07.2006 between the appellant and Emaar MGF.
5.3 From the perusal of both the agreements, it is seen that the land was owned by PCL and the appellant decided to join hands with PCL to develop the same. Later, the appellant sold its development right to Emaar for a consideration of Rs.86 crores on 21.07.2006.
The AO is of the view that the amount of Rs.86 crores has accrued as income in the hands of the appellant for the year under consideration immediately on signing of the agreement and it should be taxed accordingly.
Whereas, as per the appellant the income becomes due only subject to fulfillment of certain conditions laid down in agreements dated 28.04.2006 and 21.07.2006, as both these 2 agreements are inextricably linked with each other.
5.4 On going through the both the agreement. I find that following are some of the Salient feature of the Collaboration Agreement dated 28.04.2006 :
9 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. • PCL, who were facing number of hurdles in developing the land on its own and were incurring cost overruns, decided to join hands with the appellant. Given this, by agreement dated 28.04.2006, PCL handed over approximately 19.6 acres its own land to the appellant for development. The relevant clause of the agreement in this regard is Clause 2 which provides as under :
"2.SSPPL, on the basis of facts as disclosed above by the PCL Group and after verifying the same, has decided to associate with the PCL Group to take up the Development of the lands in Sector 54, Gurgaon covered by the instant agreement and to jointly resolve the issues pending resolution as stated herein above. SSPPL has been made aware that the PCL Group has already made huge investments in time and money with respect to the Project Land in :
10 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. a. acquiring the land; b. getting the land licensed from Group Housing; c. paying EDC and other charges aggregating to Rs.27.0 Crores (Rupees Twenty Seven Crores and Eighty Lacs only) approximately; d. settling the claim of M/s CREF Finance Ltd., formerly known as ITC Classic Real Estate Finance Ltd. and its successor in interest ITC. e. getting the licenses revalidated from time to time at its own cost and expense; f. furnishing of requisite Bank Guarantee in favour of DTCP, Haryana; and g. furnishing of the Bank Guarantees for Rs.5 (Five) Crores in favour of the Registrar General of the Hon'ble High Court of Delhi in terms of the order dated 16.04.2004 in I.A.No.8570 of 2003 and I.A.No.8906 of 2003 in Suit No.1614 of 2003 pending for 11 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. adjudication in the Hon'ble High Court of Delhi, h. and the PCL Group is desirous of expeditiously unlocking its investments by resolving all pending issues and by developing and marketing the Project Land with SSPPL, who is a reputed developer having the necessary expertise and capacity to assist the PCL Group in resolving and finally settling and compromising all the disputes with respect to the Project Land"
• The appellant represented to PCL that they are one of the leading real estate companies and have requisite experience of developing and marketing of residential colonies including multi-storied group housing schemes and complexes. Further, the appellant had capacity to take up the work of developing the project and successful marketing at the best market rates in a time bound manner. The appellant would use its expertise to built and 12 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. market the saleable areas as per the specifications acceptable to the PCL Group. The relevant clause of the agreement in this regard is Clause 3 (a) which provides as under :
3. That SSPPL, relying upon the said statements of facts made by the PCL Group, has represented to the PCL Group that: (a) It is one of the leading real estate companies and has requisite experience of developing constructing and marketing of residential colonies including multi-storied group housing schemes and complexes and has the capacity to take up the work of development and successful marketing at the best market rates in a time bound manner.... (b) …………………..
The appellant was to obtain the building development plans within 180 days after the signing of the agreement. Further 50% of the saleable built area 13 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. would be ready for occupation within 36 months after getting the approval / sanction of the building development plans and the balance 50% of the saleable built area would be ready for occupation within a further period of 6 months. The relevant Clause of the agreement in this regard are Clause 3 (g), (h), (i) (j) which provides as under :
3. That SSPPL, relying upon the said statements of facts made by the PCL Group, has represented to the PCL Group that: (a ) ...................................... (b ) ...................................... (c ) ............................................................................ (d ) ...................................... (e ) ...................................... (f ) ...................................... (g) It will market the super built area at the best possible market price and frame the specifications acceptable to the PCL Group, which would be 14 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. comparable with the best of the group housing development projects in Gurgaon (specifications annexed herewith as Annexure II to this Agreement) so as to enable the realization of the best possible salable rate; (h) It will appoint consultants and architects of international repute to the consultation with the PCL Group for the implementation of the Project as envisaged in this Agreement; (i) It will get the development plans and building plans with respect to the development of the Project Land and the said Complex approved within 180 (One hundred and eighty) days after the PCL Group executes, signs and verifies all the necessary documents, applications and papers and supplies all the requisite information and documents and papers, as and when called upon by SSPPL un connection therewith including the necessary authorizations, authorities, attorneys etc.; 15 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. (j) 50% (fifty percent) of the salable built up area would be ready for occupation within a period of 36 (Thirty-six) months of the approval/ sanction of the development plans and building plans, and the balance 50% (fifty percent) of the salable built up area would be ready for occupation within a period of 6 (Six) months from the above said date; (k) ……………. (l) …………… (m) ………….
• Further, pursuant to the above agreement Rs. 24 crores is to be paid against the reimbursement of expenses already incurred by PCL. Out of this, Rs. 12 crores was paid immediately and balance Rs.12 crores was to be paid subsequently on the sale of the properties to be built on the land in question. The relevant clause of the agreement in this regard are Clauses A.6 (a), (b), (c) (d) which provides as under :
"A.6 (a) That it has been agreed between the parties that out of the sums received towards 16 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. the booking/sale proceeds in respect of the spaces proposed to be constructed on the land admeasuring 17.06 acres out of the total area of 19.06 acres of the Project Land, the sum of Rs.24 (Twenty four) crores is to be first appropriated by the PCL Group towards re- imbursement of expenses and thereafter, the remaining sums received towards the booking/sale proceeds in respect of the spaces proposed to be constructed on the land admeasuring acres out of the total area of 19.06 acres of the Project Land shall be divided equally, 50% (fifty percent) each, between the PCL Group and SSPPL.
(b) That on the date of execution of this Agreement, a sum of Rs.12 (Twelve) crores is being paid by SSPPL to the PCL Group vide Cheque bearing No.837083 dated 28.04.2006 for Rs.12,00,00,000 (Rupees Twelve Crores only) drawn on Bank of India, Asaf Ali Road, 17 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. Branch, New Delhi drawn in the favour of Puri Construction Limited, which is out of the sum of Rs. 24 (twenty four) crores appropriatable under Clause A. 7(a).
(c) That besides the sum of Rs.l2 (twelve) Crores being paid by SSPPL to PCL Group in terms of clause A.7(b) hereinabove, a further sum of Rs 12(Twelve) Crores out of the booking/sale receipts of the, residential space in the said Complex will be first paid to the PCL Group from the Escrow Account No.1 so as to complete the sum of Rs.24 (twenty four) crores appropriatable under Clause A. 7(a).
(d) Thereafter, out of the sums received towards the booking/sale proceeds in respect of the spaces proposed to be constructed on the land admeasuring 17.06 acres out of the total area of 19.06 acres of the project land, the sum of Rs.12 (Twelve) crores will be first paid to SSPPL from the Escrow Account No.1."
18 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. • Apart from the above reimbursement of Rs.24 crores, the appellant agreed to share the cost of settlement of dispute with Ansal Buildwell amounting to Rs. 36.50 crores in equal proportion. The relevant Clause of the agreement in this regard is Clause A.32 which provides as under :
A.32 That in consideration of the mutual covenants contained herein, the PCL Group and SSPPL have entered into this agreement, which is in the nature of a Joint Venture Agreement and it is agreed that after settlement of all disputes with ABL qua the Project Land and subject to the other terms recorded in this Agreement, the PCL Group and SSPPL shall jointly bear, from the date of this agreement in equal measure, all further costs (including but not limited to the cost of licensing of balance unlicensed land, payment of EDC for unlicensed balance land, bank guarantee charges, charges for renewal of licenses, fee 19 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. payable to consultants and architects, payment made to contractors) of development works and construction of the said Complex upon the Project Land and the developed / constructed / build-up area shall be shared in equal proportion by the PCL Group and SSPPL in the manner hereinafter provided.
Further, Clause 2 of the Supplementary Agreement dated 28.04.2006 also refers regarding the sharing of the cost of settlement of disputes with Ansal Buildwell Ltd. and it read as under:
2. The cost of settling disputes with Ansal Buildwell Ltd. through court or outside court would be borne in equal measure by SSPPL and the PCL group. 50% (fifty percent) of the entire cost of settlement of all disputes with Ansal Buildwell Ltd. shall be borne by the PCL group. This clause inasmuch as it deals with settling the claim of ABL will only apply if as a result of a negotiated settlement, the PCL group 20 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. is required to pay any compensation or make any restitution to Ansal Buildwell Ltd. however, if damages are awarded in favour of PCL Group in Suit No. 1758 of 2003, then the entire amount so awarded/decreed will be retained by the PCL alone.
After the payment of Rs 24 crores, an escrow account is to be opened from which l/3rd to be spent on construction, l/3rd is to be given to the appellant and is l/3rd to be given to PCL. (Clauses A.7) The appellant was also at a liberty to assign this right of development to Emaar Group or any of its associate companies or joint venture company and perform any/or all its obligation under the agreement dated with the assistance of such collaborator.(Clause S4).
5.4.2. The salient features of Nomination Agreement dated 21.07.2006 between the appellant and Emmar MGF are as under :
21 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. The appellant, assigned the development rights of the land to Emaar for a consideration of Rs 86 crore (which was later reduced to Rs 82 crore). The consideration of Rs. 86 crores was payable to the appellant, on and after the successful completion of the project to the satisfaction of PCL group and as per the terms and conditions of agreement dated 28.04.2006 entered between the appellant and Puri Group. The relevant Clause of the agreement in this regard is Clause 'N' which reads as under : "N. The SECOND PARTY has conditionally agreed to acquire, by way of assignment and/or nomination from the FIRST PARTY, certain rights under the said Agreement for a total consideration of :
(j) Rs.12,00,00,000 (Rupees Twelve Crores Only) payable by the SECOND PARTY to the FIRST PARTY and, 22 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. (ii) The undertaking of the SECOND PARTY to pay Rs.86,00,00,000 (Rupees Eighty Six Crores only) to the FIRST PARTY towards making available certain rights as mentioned supra by the FIRST PARTY to SECOND PARTY. This amount of Rs.86.00.00.000 IRupees Eighty Six Crores only) shall be payable by the SECOND PARTY to the FIRST PARTY on and after successful completion of the project by the SECOND PARTY to the satisfaction of PCL group and as per the terms and conditions of agreement date 28.04.2006 specially with reference to Clause 3(i) related to timely completion of the project. (iii) However, it is mutually agreed amongst the parties that in case of successful and timely completion of the 23 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. project in consonance with Clause 3(j) of the agreement dated 28.04.2006 the security deposit as mentioned herein above would stand adjusted against the consideration mentioned supra. In case of default / failure of the SECOND PARTY in fulfilling its part of the obligations under this agreement, the aforesaid security deposit shall stand forfeited.
THEREFORE, IT IS HEREBY AGREED, DECLARED, CONVENANTED AND RECORDED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS: 1. That against: (i)……………… (ii)……………….
(iii) However, it is mutually agreed amongst the parties that in case of successful and timely completion of the 24 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. project in consonance with Clause 3(j) of the agreement dated 28.04.2006, the security deposit as mentioned herein above would stand adjusted against the consideration mentioned supra. In case of default / failure of the SECOND PARTY in fulfilling its part of the obligations under this agreement, the aforesaid security deposit shall stand forfeited. the FIRST PARTY hereby conditionally assigns and/or nominates certain rights under the Said Agreement in favour of the SECOND PARTY as mentioned supra.
2. That all the terms and conditions set out in the Said Agreement shall mutatis mutandis apply to the Parties to this Agreement."
The appellant, was to receive Rs.50 Crores "as interest free deposit" which were to be adjusted against the due performance of the agreement 25 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. pursuant to which Emaar was to develop the said property.
5.5. It is a trite law that in order to see whether the income is taxable or not, one has to see whether the income in question has really been accrued or arisen to the assessee. This must be judged in the light of reality of situation. Further, the conduct of the parties in treating the income in a particular manner is an "evidence of the fact", so as to come to the conclusion, as to whether the income has accrued or not. The concept of real income has to be applied and it should not be hypothetical. The courts have also held that there is no straight jacket formula applicable for all occasion but each and every case has to be seen and judged in the light of the agreement and conduct of the parties in question.
5.6. In the facts of the present case, it is seen that the AO is of the view that having sold the development right on 21.07.2006 for a consideration of Rs. 86 crore, the income stands accrued immediately on signing of the agreement and 26 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. is therefore taxable in the year under consideration. In my humble view, on the plain and conjoint reading of both the agreements dated 28.04.2006 and agreement dated 21.07.2006 I find that they are inextricably linked with each other in view of the condition attached to it. Accordingly, when Clauses 3(g,h,i,j) of agreement dated 28.04.2006 is read with clause "N" of Nomination agreement dated 21.07.2006, it is seen that the money, becomes "due" to the appellant, not on the date of signing of the agreement i.e. 28.04.2006, but it becomes payable /due, only on the conditions namely :
(a) on the successful completion of the project by Emmar and (b) on the completion of the project within the time bound period i.e. 50% (fifty percent) of the project should be ready with 3 years of necessary approval and the balance 50% of the project is to be completed within further 6 months thereon.
27 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. Hence, it is very clear from the two agreements, that the income of Rs.86 crore to the appellant accrues only when both the conditions are cumulatively fulfilled. Therefore without any doubt it is seen that both the agreements dated 28.04.2006 and 21.07.2006 are interconnected and inextricability linked with each other. Therefore, in my humble view the AO's contention does not appear to be correct.
In coming to the above conclusion I draw support from the following :-
5.6.1 . Accrue means "to increase, to augment, to be added as increase, to arise or spring as a natural growth or result". In order that income, profit or gains may accrue to a person, it is necessary that he must have acquired a right to receive the same or a right to the income, profits or gains has become vested in him, though its valuation may be postponed or though its materialization may depend on the contingency that the making up of the accounts would show income, profits or gains. Thus, it is manifest that if an assessee 28 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. acquires a right to receive income, the income can be said to accrue to him, though it may be received later on. Unless and until, there is created in favour of an 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. A mere claim to income without an enforceable right thereto cannot be regarded as accrued income for the purpose of the income tax act.
By applying this principal to the facts of the appellant's case and by referring to the Clauses of the agreement i.e., Clause 'N' referred above of the Assignment and Nomination Agreement, Rs 86 crore does not become due on signing of the agreement as held by the AO.
In order to tax any receipt as "income", one has 5.6.2. to see whether it is the real income and/or whether the such income has materialized or not. What necessary is to be seen the true nature of the transaction and whether in fact the transaction has resulted in profit or loss to the assessee. Once accrual takes place and income accrues, the same 29 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. cannot be defeated even under the mercantile system of accounting. It is only the accrual of real income which is chargeable to tax.
The income should not be hypothetical income, but real income. When income has not resulted at all, there is neither accrual nor receipt of income even if there is an entry to that effect in the books of account. Mere posting of an entry in the account books would not always supply conclusive evidence on the question whether the disputed amount has accrued to the assessee or not.
5.6.3. As per section 5 of the Income Tax Act, an income or profit and gains are taxable if the same have accrued and arisen as income or deemed to have accrued/arisen to the assessee in the accounting year. The income must accrue first and receipt normally follows the accrual. In other words, the right to receive must come into existence, and then the actual receipt takes place.
30 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. The receipt by itself is not sufficient to attract tax. It is only receipt as "income" which would attract tax over receipt by the assessee. Therefore receipt of a sum is not necessary the income in his hands. It will bear the character of income only at the time when it accrues in his hands and it becomes liability to tax.
What is relevant to determine is whether money received by the assessee was his income or simply an advance. Crediting the sum so received in the books under any head is also not relevant. If no income has resulted, it cannot be said that the income has accrued merely on the ground that the assessee has been following the mercantile system of accounting. The facts and the evidence on the basis of agreement entered between the parties shows that the money becomes due to the appellant only on and after successful completion of the project by Emaar and as per the terms and conditions of agreement dated 28.04.2006 specially with reference to Clause 3(j) which relates to the timely completion of the project.
31 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. Thus, the contention of the AO is incorrect that on signing of the agreement whereby development rights are given to Emmar, it tantamounts to the sale of development right as such. Further it is also observed that the appellant has not even received any consideration/advance or has acquired the right to receive the income during the year under consideration; hence the question of taxability does not arise.
5.6.4. The facts of the appellant's case are covered by a recent case of Income Tax Officer vs. Finian Estates Developers (P) Ltd. [2011] 142 TTJ (Del) 545. In that case, the assessee entered into a development agreement with a developer granting development rights to it over the property to be purchased by the assessee with the stipulation that the development right would come into existence only when a license is granted by the Director, Town & Country Planning., No development rights came into existence at all under the agreement as the necessary approvals/license for development were not granted during the relevant year. In light of these facts, no income was held to have accrued to the assessee during the year on account of transfer of development rights in the land.
32 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. Thus, in that case, it has been held that as per the agreement, no development right comes into existence till the time license is granted. Indisputably, till such time, the nature of the exact development is to be carried out on authorizing the assessee to do the same, is undecided. Till such time, the land purchased remains raw land only. The right under the development agreement, therefore, is merely a contingent right, depending on the grant of license or approval, as provided for in the agreement. It is only from the date of grant of license from the DTCP, the developer would actually be vested with the license to develop the property. Prior to such development, all approvals as enumerated in the agreement are to be obtained from DTCP and it is the responsibility of the developer to do so. It is only when the sanctioned plan and the approvals are obtained, that the developer can commence the development on the scheduled property. Moreover, this is on 2007 and for the three subsequent years, that no development work was undertaken in the said years. The necessary approvals/ license for development have also not been shown to have 33 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. been granted either to the assessee or the developer during the year. Sans these approvals/license obviously, no development could have been carried out. Without these approvals/license, it cannot be said that any development rights came into existence at all. The contingent right under the agreement has not been established to have been fructified into a vested right. Apropos the interest- free performance deposit, this has not been shown to be representing part of sale consideration for the. development rights. It cannot be so, since, as observed, no such development rights came into existence during the year. In view of the above, finding no error whatsoever with the order of the CIT(A), the same is upheld rejecting the grievance sought to be raised by the Department.
In the case of appellant also, the condition is that the amount of Rs.86 crores shall become due to the appellant on successful completion of the project. Since, like Finian Estates Developers, where the income on account of development rights shall accrue only when a license is granted which is conditional, in appellant's case also, the 34 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. income on account of development rights shall accrue on fulfillment of a condition only and not before that.
5.6.5. Further also, the time of accrual of income does not always depend upon date of signing of the agreement though it is relevant in certain circumstances. The terms and conditions laid down by the parties to the agreement are the relevant factors which only determines, as to when income would accrue in the hands of the recipient. The case of the appellant is also covered by the order of Hon'ble Delhi High Court Commissioner of Income Tax & Anr. vs. Dinesh Kumar Goel [2011] 331 ITR 10, where it has been held that it is important that receipt of a particular amount in the relevant year should be an "income" under the provision of section 5 of the Act. What is relevant yardstick is the time of accrual or arisal for the purpose of its taxation, viz., in order to be chargeable, the income should accrue or arise to the assessee during the previous year. If income has accrued or arisen, even if actual receipt of the amount is not there, it would be chargeable to tax in the said year. Though the amount may be received later in the 35 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. succeeding year, the income would be said to accrue or arise if there is a debt owed to the assessee by somebody at that moment. From this, it follows that there must be the "right to receive the income on a particular date, so as to bring about a creditor and debtor relationship on the relevant date".
5.6.6. The concept off accrual was considered in E.D. Sassoon & Co. vs. CIT (1954) 26 ITR 27 (SC) and it was held: "What is sought to be taxed must be income and it cannot be taxed unless it has arrived at a stage when it can be called income". Merely because advance payment is received the same does not become taxable. For any receipt to be taxable, the receipt has to be as income and not otherwise. The said principle has been laid down in judgment of Hon'ble Supreme Court in Keshav Mills, 23 ITR 230. The said principle has been followed by Hon'ble Bombay High Court in case reported in CIT vs. Shah Construction Company Limited [1999] 237 ITR 814 and by Hon'ble Income Tax Appellate Tribunal in case reported in 57 ITD 81 (Hyd). Therefore, mere receipt of advance cannot be criteria to determine the taxability of the amount.
36 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. 6. The AO has relied on two cases namely CD Kapadia vs. CIT [2003] 260 ITR 491 (Bombay) quoted in the assessment order and Hillside Construction Company Pvt. Ltd. Vs. Deputy Commissioner of Income Tax ("HSC") mentioned in the remand report which was received during the appellate proceedings. In both these cases I find that they are distinguishable on facts with appellant's case.
The case of CD Kapadia vs. CIT [2003] 260 ITR 491 (Bombay) is not comparable to the appellant as that case is related to the charging of capital gains which would arise on handing over of the possession in part performance of the contract. However, in appellant's case, land as such was not transferred by PCL to the appellant and therefore it could not have transferred land in favour of Emaar. It was only the development rights in relation to the land that were subject matter of transaction and that too on the fulfillment of the conditions laid down in the agreement. The land remained in the ownership of PCL which would be transferred to the purchaser of the flats or the houses or to the society which might be formed of the purchasers. Thus, 37 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. the appellant's case is not the case of sale of a land but only of dealing in development rights as stock in trade or adventure in the nature of trade as has been held & observed by the AO in the assessment order also. Handing over of possession of land to Emaar was not a part performance of contract of sale of the land but it was only a process for getting the land developed through the development rights.
6.2. The facts of Hillside Construction Company Pvt. Ltd. Vs. Deputy Commissioner of Income Tax in brief are as under: The dispute was regarding assessment of income receivable by the assessee from the transfer of development rights. The assessee along with Mukund Bhawan Trust had acquired development rights in land admeasuring 108 acres and 26 gunthas in which share of the assessee was 32%. During the relevant year, assessee jointly with the trust granted development rights in respect of part of land to Mahanagar Construction for a total consideration of 38 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. Rs.7,87,58,000 in which share of the assessee was @ 32% was Rs.2.52 crores out of which the assessee received during the year a sum of Rs.92.00 lacs and balance amount was received in installments in subsequent years. The issue is whether the entire amount of Rs.2.52 crores has to be assessed in the relevant assessment year i.e. assessment year 2004-05 in which the development rights were granted or income should be assessed @ 25% as done by the assessee in case of the development project. The case of the assessee was that granting of development rights was an integral part of development project which was one indivisible project and therefore, the income had to be assessed @ 25% as part of the development project. Further, the assessee had development rights in respect of certain piece of land. The assessee instead of developing the land, transferred the development rights in respect of part of the land to a separate construction company. As per the agreement, the assessee jointly with the trust was required to convey the land to the proposed buyers and possession of the land had also been given during the year along with 39 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. development rights. Thus, instead of developing land, the assessee parted with the development rights in respect of part of the land forever. This was an independent activity having no connection with the development of the remaining part of the land. The assessee was following mercantile system of accounting as per which income accrues when it becomes due for payment. In this case, the entire amount became due to the assessee in the relevant year on signing of development agreement and on handing over of the possession of the land. The transfer was complete during the year and income, therefore, had accrued during the year as in mercantile system of accounting, accrual of income does not depend upon receipt of income. The postponement of payment does not stop accrual of income. Therefore, even if part of the payments were received in subsequent years, the entire income had accrued during the year. The facts of Hillside Construction Co. (HSC) are not applicable due to the following reasons :
(a) No condition is attached in the case of HSC as to when the right to receive the sum would become income of 40 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. the transferor. However, in appellant's case, right to receive income would accrue to it only on the successful completion of the project and also on timely completion of the project. (b) In HSC's case, land was transferred along with development rights, therefore, income on account of development right had accrued on sale of the land. However, in the present case, there is no sale of the land which squarely remained in the ownership of PCL; (c) The Tribunal in HSC's case observed that the assessee jointly with the trust had handed over possession of the land along with development rights against which part consideration has been received and therefore, the transfer was complete in the relevant year under section 53A, of the Transfer of Property Act. It shows that, it was a case of sale of the land and not merely a case of assigning of development rights which is not in the appellant's case, as in the present case there is no sale of land.
41 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. 7. Hence from the above discussion and considering in totality of all the facts and evidences on record, in my humble view the consideration of Rs.86 crore on the sale of development right by the appellant to Emmar does not constitute an "income" on the date of signing of the agreement and thus the addition of Rs.86 crore made by the AO deserves to be deleted. 8. In a result the appeal is allowed.”
The Ld. D.R. relied upon the Order of the A.O. and submitted that assessee held the agreement Dated 28.04.2006 only for three months and sold the development right therein to EMMAR-MGF Land Ltd., [“EMMAR”]. Both the parties has agreed for work contract. The assessee got the amount as per the agreement Dated 21.07.2006. The other parties acted on accrual basis to offer the income for taxation. Since the development right exist for assessee, so on transfer of such right and receipt of the amount, it’s income accrued to the assessee in assessment year under appeal. The assessee is admittedly following the mercantile system of accounting, therefore, on accrual basis, the 42 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. income was rightly taxed by the A.O. in assessment year under appeal. The Ld. D.R. submitted that settlement of due may be a conditional, but, does not enough to delete the addition. Rs.44 crores was paid in subsequent year. All these conditions have not been considered by the Ld. CIT(A) for deleting the addition. The Ld. D.R. submitted that right to receive the amount had been created through the impugned assignment –cum- nomination agreement Dated 21.07.2006 and since assessee is following the mercantile system of accounting, therefore, A.O. correctly made addition in assessment year under appeal. In support of the contention, the Ld. D.R. relied upon the following decisions :
Kailash Nath & Associates vs., ITO [2010] 1 ITR (T) 77 (Del.) [SB] 2. Rohini Holdings (P.) Ltd., vs., CIT [2012] 345 ITR 466 3. CIT vs., Gautam R. Chadha [2011] 202 Taxman 25 (Del.) 4. Growth Techno Projects ltd., vs., CIT [2010] 5 ITR (T) 510 (Del.) 5. ACIT vs., Paras Build Call (P.) Ltd., [2015] 57 taxmann.com 112 (Del.)
On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that in assessment year 43 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. under appeal, assessee entered into an agreement with Puri Construction Ltd., Group [“PCL”] on 28.04.2006 copy of which along with supplementary agreement are filed in the PB. According to this agreement, assessee undertook to develop the project land for development thereof as per terms contained in the agreement. Certain disputes with regard to project land were prevailing with Ansal Buildwell Ltd., According to the agreement, assessee was entitled to assign development contract to any of its group company. Accordingly, assessee entered into an agreement Dated 21.07.2006 with its associate company namely EMMAR copy of which is filed in the PB. According to Clause-(M) of the said agreement [PB-55], assessee was to receive interest free/adjustable security deposit of Rs.50 crores against due performances of the project development agreement Dated 28.04.2006. According to Clause-(N) [PB-55] the total amount of Rs.86 crores was liable to be paid by EMMAR to the assessee after successful completion of the project by EMMAR. He has referred to PB-101 which is balance-sheet of assessee for the A.Y. 2008-2009 to show that Rs.44 44 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. crores have been received as security deposit from EMMAR. PB-103 is notes on account of the balance-sheet in which it is mentioned that assessee company has received a sum of Rs.44 crores in A.Y. 2008-2009 out of total amount of Rs.50 crores as per agreement Dated 21.07.2006 as refundable / adjustable interest free security deposit from its associate company i.e., EMMAR. PB-182 is written submissions filed by the assessee before the Ld. CIT(A) in which it is explained that assessee is not dependent on the sale of the project, but, is only dependent on the completion of the project. The assessee while applying POCM to determine recognizable revenue applied the ratio of project completed to its total sale consideration instead of applying the ratio to sales ratio for sold apartment. The details of the revenue recognised by the assessee during A.Ys. 2009-2010, 2010-2011 and 2011- 2012 were filed as per Annexure-A [PB-186] which shows the details of revenue recognized on the basis of Percentage Completion Method [“POCM”] as under :
45 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. A.Y. Income Recognized 2009-2010 Rs.37,57,24,522/- 2010-2011 Rs.23,83,04,910/- 2011-2012 Rs. 7,25,48,723/- 5.1. PB-111 is Profit and Loss Account for A.Y. 2009- 2010 in which income from sale of development rights have been declared in a sum of Rs.37,57,24,522/- and total income after adding the other income have been declared in a sum of Rs.41,21,92,611/-. PB-167 is assessment order in the case of assessee under section 143(3) Dated 30.12.2010 for the A.Y. 2009-2010 in which the assessee has declared the same facts and income from sale of development rights as mentioned above and the A.O. accepted the returned income in scrutiny assessment. Learned Counsel for the Assessee submitted that the same A.O. on the same day took a different view in assessment year under appeal. He has submitted that the agreement Dated 28.04.2006 was a conditional agreement which was to be completed on fulfilling its conditions, therefore, no income accrued to assessee in assessment year under appeal. He has further submitted that it was also un-registered agreement and as 46 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. such cannot be acted upon by the Revenue Authorities. He has submitted that in three months assessee made payments and tried to perform the duties as per the Collaboration Agreement. The Ld. CIT(A), therefore, rightly concluded that simply on signing the impugned agreement, amount of Rs.86 crores did not accrue to the assessee and as such the view taken by the Ld. CIT(A) is in accordance with the decision of the Hon’ble Supreme Court in the case of E.D. Sasoon Company vs., CIT (supra) and Judgment of the Hon’ble Delhi High Court in the case of CIT vs., Dinesh Kumar Goyal (supra) relied upon by the Ld. CIT(A). He has also submitted that the issue is also covered by the Order of ITAT, Delhi G-Bench, Delhi in the case of Saamag Developers (P.) Ltd., vs., ACIT, Central Circle-19, New Delhi [2018] 173 ITD 350 (Del.) (Tribu.) in which in para 9.1 the Tribunal held as under :
9.1. The assessee-company filed all the agreements in question on record which were the basis for making the addition against the assessee- company in A.Y. 2008-2009. The assessee-company 47 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. rightly contended that income from transfer of development rights would accrue as per I.T. Act when assessee-company would receive approval for construction for specified FAR area from GDA. Unless and until it does not receive the approval from GDA, income would not accrue to the assessee-company. The assessee-company also rightly contended that as per the above agreements, transfer of development rights is only a transfer in vacuum because the Town Planning Scheme may be required for construction of roads and other public facilities for public at large and in that situation, assessee-company may not be able to complete the development work in property in question. Therefore, it was a conditional agreement depending upon the approval taken from various authorities for completion of the agreement. The agreements also contain the penalty clause i.e., in case, the project is not completed, the assessee- company has to comply with all its obligations till the approval from GDA is received for construction of 48 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. specified FAR area. Therefore, income would accrue to the assessee-company only on satisfying the conditions of the agreement. The assessee-company rightly offered the amounts for taxation in A.Ys. 2010- 2011, 2013-2014, 2014-2015 on such basis. The agreements in question are unregistered as have been considered by the Tribunal in A.Y. 2008-2009. The facts and material on record are identical as have been considered in A.Y. 2008-2009 and in assessment year under appeal. Therefore, the issue is covered in favour of the assessee by the Order of the Tribunal for A.Y. 2008-2009, dated 12.01.2018 (supra). The Ld. CIT(A) has followed his Order for A.Y. 2008-2009 for dismissing the appeal of assessee- company and no other independent reasons have been given. Since the Order of the Ld. CIT(A) for A.Y. 2008-2009 have been set aside by the Tribunal, therefore, nothing survives in favour of the Revenue. Following the Order of the Tribunal for A.Y. 2008- 2009 (supra), we set aside the Orders of the 49 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. authorities below and delete the addition. In the result, ground Nos. 1 to 3 of the appeal of the assessee are allowed.
5.2. Learned Counsel for the Assessee, therefore, submitted that there is no infirmity in the Order of the Ld. CIT(A) in deleting the addition in assessment year under appeal.
We have considered the rival submissions and perused the material on record. We have also perused the agreements in question Dated 28.04.2006 and 21.07.2006. The Ld. CIT(A) has also reproduced the relevant paras of both the agreements in his findings as reproduced above. It is, therefore, clear from these agreements in question that the development rights were acquired by the assessee vide agreement Dated 28.04.2006 from PCL etc., for execution of the project which were incomplete. The income from such rights was to accrue only on conduct and completion of the project and not otherwise. The development rights with the assessee are also contingent because if due to any reason 50 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. there is no sale, no amount will accrue to the assessee company, therefore, the income of the assessee will depend on the contingency when the sale of the property would start. The assessee through the impugned agreement agreed to develop the project based on various terms and conditions mentioned in the agreement. M/s. PCL was the owner of the land in question and had incurred initial expenses on obtaining various approvals/licenses from Government Authorities. The revenue from this project was to accrue to the assessee as well as PCL based on the sale proceeds receivables coming out from the project to be deposited in Escrow Account. After compensating PCL to the extent of Rs.24 crores initially, the funds in Escrow account as accruing from the sale of the project were to be utilised for construction and development to the extent of 1/3rd and the balance was to share amongst the parties in equal proportions. The agreement find mentioned the fact with respect to initially compensating PCL to the extent of Rs.24 crores and utilising the balance amount in Escrew account, therefore, it is not a case of outright transfer of land by PCL 51 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. and purchased by the assessee. Therefore, the agreement was not in absolute term but, was a conditional one. Similar is the agreement between assessee and EMMAR. The various clauses of the agreement clearly stipulate that assessee was to perform various acts and duties in order to become eligible for its share of revenue. The right of the assessee was inchoate and incomplete unless all such acts and responsibilities were duly fulfilled like assisting PCL in resolving their pending disputes pertaining to land, payment of additional compensation to the parties, preparation of the project report, approval by various authorities, supervising construction activity and completion. The assignment agreement Dated 21.07.2006 did not provide that the assessee will be eligible to the impugned consideration for conditional transfer of its rights without fulfilling its obligations under original agreement Dated 28.04.2006. What was transfer by the assessee was, what it got and not anything which it never acquired or owned. No amount was paid in assessment year under appeal for transfering the development right. The rights assigned through agreement 52 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. Dated 21.07.2006 was conditional in nature. It was also agreed that all the terms and conditions of the agreement Dated 28.04.2006 shall apply to the assignment agreement also. It was also agreed that what was being paid by EMMAR was a refundable/adjustable security deposit which was to be adjusted only according to terms and conditions mentioned in the agreement Dated 28.04.2006. In case EMMAR would not have perform its obligation, the said security deposit would have stood forfeited. Therefore, the fulfillment of the obligation to construct and develop the project within the stipulated time was a condition precedent for the assessee to the satisfaction of the PCL as mentioned in the assignment agreement Dated 21.07.2006. Therefore, the security deposit received by the assessee for conditional transfer could never be treated as an income of the assessee. All the conditions of the original agreement shall have to be satisfied and completed by EMMAR only. Then income would accrue to the assessee. The assessee also explained that it has followed POCM method and in A.Ys. 2009-2010, 2010-2011 and 2011-2012 assessee has 53 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. recognized the income and offered for taxation. In A.Y. 2009-2010 even the A.O. has accepted the similar explanation of assessee in scrutiny assessment under section 143(3) of the I.T. Act. It is also interesting to note that in A.Y. 2009-2010 the same A.O. passed the same assessment order under section 143(3) of the Act in the case of the assessee on the same day. The A.O. accepted the explanation of assessee after recognizing the income based on both the agreements and accepted the explanation of assessee without making any addition. But, in assessment year under appeal, the same A.O. on the same day took a different view against the assessee which is not permissible in Law. It is well settled Law that Income Tax Authorities shall have to follow the Rule of Consistency. But, in the present case, the A.O. did not do so. The Ld. CIT(A) on consideration of the Clauses of both the agreements in question rightly found that they are inextricably linked with each other in view of the conditions attached to these agreements. The Ld. CIT(A), therefore, going through the Clauses of both the agreements, rightly found that money 54 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. become due to the assessee not on the date of signing of the agreements, but, it becomes payable/due only on satisfying the conditions namely (1) on the successful completion of the project by EMMAR and (2) on completion of the project within the time bound period. Therefore, the income of Rs.86 crores to the assessee would accrue only when both the conditions are cumulatively fulfilled. The Ld. CIT(A), therefore, considering the totality of the circumstances and the fact that agreements in question was not registered, rightly taken a view that impugned amount on the sale of development right by assessee to EMMAR does not constitute the income of the assessee on the date of signing of the agreement. The Ld. CIT(A), therefore, rightly deleted the addition. We, therefore, do not find any infirmity in the Order of the Ld. CIT(A) in deleting the addition, particularly when the assessee has already offered the amount in question for taxation in subsequent years. The decisions relied upon by the Ld. D.R. would not support the case of the Revenue as the same are distinguishable on facts of the case. In view of the above discussion, we do not find any 55 ITA.No.3439/Del./2013 M/s. SSP Aviation Ltd., New Delhi. justification to interfere with the Order of the Ld. CIT(A) in deleting the addition. The Departmental Appeal is accordingly stands dismissed.
In the result, appeal of the Revenue dismissed.
Order pronounced in the open Court.