Income Tax Appellate Tribunal - Hyderabad
Bhavya Constructions Private ... vs Department Of Income Tax on 28 August, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH "B", HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER Sl.No. ITA No. AY Appellant Respondent 1 1786/H/12 2008-09 Asst. Sri R. Srinivasa Commissioner of Rao, Hyderabad.
Income-tax, PAN-
Central Circle - AAYPR6365H
5, Hyd.
2 1787/H/12 2008-09 -do- Sri M.S. Raghava
Reddy, Hyderabad
PAN-
AFYPM0613C
3 1788/H/12 2008-09 -do- Bhavya
Constructions Pvt.
Ltd., Hyderabad
PAN-
AAACB8482C
4 1789/H/12 2008-09 -do- R. Vijaya Lakshmi,
Hyderabad
PAN-
AECPR1242P
5 1806/H/12 2008-09 -do- Shri S. Srinivasa
Rao, Hyderabad
PAN-
AW MPS6837M
6 1807/H/12 2008-09 -do- Sri T. Gopichand,
Hyderabd
PAN-
AAXPG5449G
7 1808/H/12 2008-09 -do- Shri G.C. Subba
Naidu, Hyderabad
PAN-
ADJPG5842N
8 1809/H/12 2008-09 -do- Sri P. Shiva
Kumar, Hyderabad
PAN-
AGUPP5736F
9 1703/H/12 2008-09 Shri S. Srinivasa Asst.
Rao, Hyderabad Commissioner of
PAN- Income-tax,
Central Circle - 5,
AW MPS6837M
Hyd.
Revenue by Shri D. Sudhakar Rao
Assessee by Shri A. Srinivas
Date of hearing 23-07-2014
Date of pronouncement 28-08-2014
2
ITA No. 1788/Hyd/2012 and others
Bhavya Constructions Pvt Ltd and others
O RDE R
PER BENCH:
Appeals in ITA Nos. 1786 to 1789/Hyd/12 and 1806 to 1809/Hyd/12 are filed by the Revenue and appeal in ITA No. 1703/Hyd/12 is filed by the assessee. Since identical issues are involved in these appeals, they were clubbed and heard together, therefore we find it convenient to dispose of these appeals by way of this common order.
ITA Nos. 1786 to 1789/Hyd/2012 and 1806 to 1809/Hyd/12
2. The common effective grounds raised by department in all the appeals are as under:
"1. On the facts and circumstances of the case, the ld. CIT(A) erred in holding that there was no transfer within the meaning of section 2(47)(i) or section 2(47)(v) r.w.s. 53A of Transfer of Property Act.
2. On the facts and circumstances of the case, the ld. CIT(A) erred in holding that the value of consideration received or accruing cannot be determined and thereby the computation of capital gains fails."
3. As facts are common in all the appeals, for the sake of convenience, we refer to the facts as involved in ITA No. 1788/Hyd/2012. Briefly, the facts are assessee a company is engaged in real estate business. For the AY under dispute the assessee originally had filed its return of income on 27/09/2008 declaring total income of Rs. 2,97,79,960. Subsequently, on 07/10/2009, a search and seizure operation u/s 132 of the Act was conducted in case of Shri Vengella Anand Prasad and others in the group which also included the assessee. As a consequence of the search action, notice u/s 153A was issued calling upon the assessee to submit his 3 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others return of income. In response to the said notice, assessee filed his return of income showing the same income as was declared originally. During the assessment proceeding, the AO on the basis of the materials available on record noticed that assessee along with 33 others had entered into a development agreement with M/s Amsri Developers Pvt. Ltd. vide registered document no. 7110, dated 04/05/2007 for development of their land, put together admeasuring to 123.05 acres into an integral residential township. On further examination, the AO noticed that as per the terms of the development agreement, the land owners have handed over the possession of the entire land for development. Further, the market value for the entire project as per the registered document is Rs. 720 crore with sharing ratio of 35% with the land owners on the built up area and undivided land. AO noticed that in terms with the development agreement, the developer has given an advance to each land owner at the rate of 13 lakhs per acre and the total amount received by all land owners put together is Rs. 21,26,15,000. On the basis of the aforesaid facts, the AO was prima-facie of the view that there being a transfer of capital asset under the development agreement, assessee is subject to capital gain. Assessee objecting to such view of the AO submitted that date of handing over of land to the developer cannot be considered as the date of transfer as per section 2(47)(v) of the Act, but, the date of transfer should be the date on which developer hands over possession of the built up area to the assessee. It was submitted that the land transferred by the assessee is an agricultural land, which also remained as agricultural land at the time of transfer to the developer. Hence, the property transferred not being a capital asset as per section 2(14) of the Act, is exempt from capital gain. It was also submitted by the assessee that even though the assessee had entered into a development agreement and performed his part of contract, but, the developer has not taken any steps either to convert the nature of land into non-agricultural or has taken any steps for development of the property. The inaction on the part of the 4 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others developer clearly indicates that there is no intention on his part to proceed with the development activity to be undertaken. Thus, it was submitted that when the developer is neither willing to perform or has shown no intention to perform his part of the contract, then, the entire agreement fails and there cannot be any transfer within the meaning of section 53A of the Transfer of Property Act read with section 2(47)(v) of the Act. It was also submitted by the assessee that as per clause 11 of the agreement allotment of constructed area proportionate to the undivided share of land of the land owner will be worked out after making various adjustments. As on the date of agreement, since the interest or consideration relatable to the land owner is not crystallized, the computation of capital gain fails.
4. The AO after considering the submissions of the assessee was not convinced with the same. He was of the view that capital gain happens at the hands of the land owner on the date of entering into the development. The AO referring to the development agreement opined that as the assessee had delivered possession of the property to the developer there is a transfer within the meaning of section 2(47)(v) of the Act read with section 53A of the Transfer of Properties Act. The AO relying upon a number of decisions of different High Courts as well as Authority for Advance Ruling finally concluded that as the assessee has not only entered into development agreement with developer but has also handed over possession of the property on the date of entering into development and also has received substantial amount towards advance at the rate of Rs. 13 lakhs per acre assessee is liable for capital gain in the impugned assessment year. Accordingly, the AO proceeded to compute short term capital gain of Rs. 64,10,52,596 after allowing deduction towards cost of land as shown in the balance sheet. Being aggrieved of the assessment order so passed, assessee preferred appeal before the CIT(A).
5 ITA No. 1788/Hyd/2012 and othersBhavya Constructions Pvt Ltd and others
5. During the hearing of appeal before the CIT(A), as referred to in para 5.3 of his order, the AR of the assessee contended as under:
• There was no transfer within the meaning of section 2(47);
• Reliance was placed on the decision of Hon'ble Calcutta High Court in the case of Baisakhi Bhattacharjee Vs Shyamalal Bose & Others (2002) 4CHN) 115, wherein, it was held that a Development Agreement does not come within the ambit of Section 53 of the Transfer of Property Act .
• Reliance was also placed on the judgement of jurisdictional High Court in the case of K.Karuna & another Vs Appropriate Authority & Others (251 ITR
230) AP, wherein, it was held that allowing of possession to be taken or retain in part performance of the contract of the nature referred to in section 53 of the Transfer of Property Act alone could be considered as transfer, but not on a permissive possession given by a land owner to a Developer . • Full value of consideration cannot be ascertained in the year of entering into Development Agreement, as the same is in the womb of future .
• It was further submitted that this is a case where the computation section i.e. Section 48 of the I.T. Act fails, as full value of consideration cannot be ascertained to compute the capital gain. For this purpose, reliance was placed in the decision of B.C.Srinivasa Setty (1981) 128 ITR 294. It was decided that the charging section (45) and the computation section (48) forms an integrated code and if the provisions of anyone of the section fails, then computation of capital gains fails .
• It was submitted that full value of consideration cannot be equated with fair market value for the purpose of section 48. For the purpose, reliance was placed in the case of CIT Vs George Henderson & Co. Ltd (1967) 66 ITR 622 (SC) and CIT Vs Gillanders Arbutnon & Co. (1973) 87 ITR 407 (SC) .
• It was vehemently argued that the provisions of section 53 of the Transfer of Property Act read with 2(47)(v) of the I.T.Act do not apply in the present case as all the parameters for application of section 53A of the Transfer of Property Act fails in this case. In this context, it was pointed out that although the Development Agreement was entered into on 04.05.2007, no work whatsoever has commenced even till today. This indicates that the Developer is 6 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others not showing his willing and ready to execute the contract.
• It was argued that if the tax is levied in the year of entering into Development Agreement, it would militate against the theory of real income. In the instant case, neither any income has accrued nor received by the land owner, other than some refundable deposit on which the land owner has no dominion, as the same was to be returned as per the terms of the agreement. On the issue of theory of real income, the learned AR placed reliance on the following cases:
(a) CIT Vs M/s. Shoorji Vallabhdas and Co. (1962) 46 ITR 144 (SC) and
(b) CIT Vs A Gajapati Naidu (1964) 53 ITR 114 (SC).
• While completing his argument, the learned AR placed reliance in the unreported case passed by the jurisdictional ITAT in the case of Sri Raghurami Reddy Vs. ITO in ITA NO. 296/H/2003, dated 30/07/2004. In this case, it was decided that any profit or gain is only assessable when the land owner receives the constructed area.
6. The CIT(A) after considering the submissions of the assessee in the context of facts and materials on record, as well on interpreting the meaning of 'transfer' as contained u/s 2(47)(v) read with section 53A of TP Act, was of the view that to construe a particular transaction to be a transfer as envisaged u/s 2(47)(v) read with section 53A of TP Act, five conditions have to be fulfilled cumulatively, which are as under:
• There should be a contract for a consideration. The contract should be in writing. The terms of the contract should be ascertainable with reasonable certainty; • The contract should be signed by the transfer; • It should pertain to transfer of immovable property; • The transferee should have performed or willing to perform his part of the contract. This is based on the doctrine of readiness and continuous willingness to abide by terms of the agreement by the transferee; • The transferee should have taken possession of the immovable property covered under the contract.7 ITA No. 1788/Hyd/2012 and others
Bhavya Constructions Pvt Ltd and others
7. The CIT(A) observed that in absence of any one of the aforesaid condition, the doctrine of part performance as contemplated u/s 2(47)(v) read with section 53A of the PT Act would fail, as section 53A of TP Act has been incorporated in section 2(47)(v) of the Act by way of a referential legislation. The CIT(A) while examining the import of the phrase 'part performance' noted that it is based upon the doctrine of equity. If one party has performed his part of duty, then, equity demands that the other partly also perform his part of obligation. Therefore, the most noticeable ingredient is not only the transferor has to perform his part of contract but the transferee equally must perform or is willing to perform his part of contract. Willingness to perform for the purpose of section 53A of the TP Act, is something more than a statement of intent. It is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract and in the same sequence in which they are to be performed it cannot be said that the provisions of section 53A of the TP Act will come into play. Once provisions of section 53A of TP Act are not satisfied, the transaction in question cannot also fall within the scope of deemed transfer u/s 2(47)(v) of the Act. The CIT(A) on examining the facts of the assessee's case, in the aforesaid legal context, found that the transferee had neither performed nor is willing to perform his obligation under the agreement in the impugned assessment year. The CIT(A) noted that the development agreement on the basis of which AO sought to tax capital gain was entered into on 04/05/2007, but, the transferee has not performed even a single act under the agreement even as on date. He noted that the transferee originally has made payment of Rs. 13 lakhs per acre to the assessee as a refundable security deposit. However, that amount cannot be construed as receipt of part sale consideration. The CIT(A) noted that as per clause 5 of the development agreement, the developer is to construct at its own 8 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others cost, the integrated residential township as per the plan approved by GHMC/HUDA or any other competent authorities and as per the detailed specifications to be agreed. However, there is no progress in the development agreement in the impugned assessment year. The developer has not applied for conversion of land, municipal sanction for development was not obtained, building plan was not approved by the competent authority. Therefore, until permission is granted, a developer cannot undertake construction. The CIT(A) noted that as a result of such inaction by the transferee no construction activity has taken place even after lapse of 5 years from the date of entering into development agreement on 04/05/2007. Hence, there is a breach and breakdown of development agreement. Further, the CIT(A) noted that AO has not brought anything on record to show that there is development activity in the project during the impugned AY and the developer has incurred any cost of construction. On analysis of the aforesaid facts, the CIT(A) inferred that the developer has not shown its readiness or willingness to perform his part of the contract under the development agreement. Further the CIT(A) noted that as per the development agreement time is the essence of the contract as the property is to be developed and assessee's share in the built up area was supposed to be handed over within 36 months from the date of receiving the sanction of the plan from HUDA and municipality/ grampanchayat with a further grace period of six months. The CIT(A) noted that the transferee not only has failed to perform his obligation under the agreement but was also unwilling to perform his obligations in the impugned AY. The CIT(A) opined that handing over the possession of the property is only one of the condition under section 53A of the TP Act, but is not the sole condition. The CIT(A) further went on to analyse the import of the words 'willing to perform' and noted that to ascertain the existence of willingness on the part of the transferee one must not stop at one event but willingness is to be judged by series of actions of the transferee. In this context, the CIT(A) noted that to show that the 9 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others transferee was willing to perform his part of the contract, he must survey the land and to attract purchaser's put up hoardings, establish sales office and carry out site development work, land scaping, sales promotion. Execution of construction and completion of project are also incidental to demonstrate the willingness of the transferee. On one hand the power of development agreement grants, bundle of possessive rights to the developer, simultaneously on the other hand transferee's gesture of payment of consideration coupled with development work can be construed to be a positive step towards willingness to fulfil the commitment. When the transferee by its conduct and deeds demonstrates that it is unwilling to perform its obligations under the agreement, the date of agreement ceases to be relevant. In such situation only the actual performance of transferees obligation can give rise to the situation envisaged u/s 2(47)(v) read with section 53A of the TP Act. The CIT(A) was of the view that as the facts and materials on record clearly indicate the unwillingness of the developer to perform his part of the contract, the conditions of section 53A of the TP Act are not fulfilled. The CIT(A) also took note of the fact that the assessee along with land owners have filed a suit before the First Additional District Judge, RR District, registered as OS No. 903/12, which shows that the transferee has not undertaken any development work. Hence, no capital gain can be said to have arisen on the date of entering into development agreement as inferred by the AO. Accordingly, the CIT(A) held that there being no 'transfer' within the meaning of section 2(47)(v) read with section 53A of the TP Act, the short term capital gain computed by the AO will not arise. While coming to such conclusion the CIT(A) relied upon the decision of the ITAT, Hyderabad Bench in case of K. Radhika Vs. DCIT, 47 SOT 180.
8. Further, the learned CIT(A) also taking note of the fact that as the land at the time of handing over to the developer was in the nature of agricultural land it cannot be considered to be a capital 10 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others asset within the meaning of section 2(14) of the Act. For this reason also, there cannot be levy of short term capital gain even assuming that there is transfer of land to the developer. The CIT(A) also noted that though the fair market value was adopted by the AO at Rs. 1 crore per acre but he has not obtained any instance of sale for arriving at imaginary cost. The CIT(A) relying upon the ratio of the decision of B.C. Srinivas Shetty, 128 ITR 294 held that adoption of fair market value cannot be equated with full value of consideration as the Hon'ble Apex Court in case of BC Srinivas Shetty (supra) has held that charging section and computation section being an integrated code if one of the section fails no computation can be made. The CIT(A) observed that as the full value of consideration cannot be ascertained with reference to either the market value or the future value the computation provision fails, hence, there cannot be any charge to capital gain. The CIT(A) referring to a number of judicial precedents deleted the addition made towards short term capital gain by holding as under:
a) There was no transfer within the meaning of either 2(47)(i) or 2(47)(v).
b) This is a case in which provisions of section 53A of the Transfer of Property Act is not applicable, as the builder is not willing and ready to perform his part of the contract.
c) For the reasons stated at (a) & (b) above, there could be no transfer which is sine qua non for levy of capital gains tax.
d) The AO has also not addressed to the basic issue as to whether the land is agricultural or not. Hence, he has not reached any conclusion whether the land is a capital asset, the transfer of which is exigible to capital gain.
e) This is case in which full value of consideration is not ascertainable as the same cannot be equated with FMV as decided by the Apex Court. Therefore, another essential requirement of section 48 fails. As decided by the Apex Court, if computation section fails, charge also fails. Hence, no computation is possible in the present case. The SRO's value (prevailing rate of Rs. 1 crore per acre as per the lands 11 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others sold by some land owners at this area of Bowrampet/Dundigal mentioned on page 8 of the assessment order), as adopted by the AO cannot be equated with full value of consideration, which means the price bargained for and paid. This figure is hypothetical and on any event, the same cannot be full value of consideration.
f) The approach of the AD runs contrary to the theory of real income. In this case, on the date of entering into Development Agreement, no consideration has either accrued or received by the appellant for the purpose of working out the gain.
g) The case is fully supported by the decision of the jurisdictional ITAT in the case of Raghuram Reddy (supra). This is a decision which comprehensively addresses to all the issues in relation to assessment of capital gain in case of a Development Agreement.
h) Although, the case of Maya Shenoy was decided later, the case of Raghuram Reddy which was decided by a coordinate bench was not distinguished. It is a settled principle that the latter decision should not weigh over an earlier decision, if the earlier decision addresses to all the issues. The case of Raghuram Reddy falls in this category.
i) While deciding the case, I have kept in mind the principles evolved by the Apex Court on various issues like the relationship between the charging section and computation section, the concept of full value of consideration and also the theory of real income."
9. The learned DR reflecting the point of view of AO submitted that as the assessee has handed over possession of the property on the date of entering into development agreement there was transfer within the meaning of section 2(47)(v) of the Act.
10. The learned AR on the other hand strongly supporting the order of the CIT(A) submitted that though the assessee had entered into the development agreement in the previous year relating to the AY under dispute, but, as the developer has neither performed nor is willing to perform his part of the contract, the development agreement fails. The 12 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others learned AR reiterating the submissions made before the CIT(A) contended that even as on date there is no development activity by the developer. The conversion of the land from agricultural to non- agricultural has also not taken place. It was submitted that for this very reason the assessee along with land owners have filed a suit in the city civil court for cancellation of the development agreement, which is pending. In these circumstances, it cannot be said that there is transfer of property giving rise to capital gain. The learned AR submitted that as developer is totally unwilling to perform his part of contract, the conditions of section 2(47)(v) read with section 53A of the TP Act, is not fulfilled. In support of such contention the learned AR relied upon a decision of the ITAT, Hyderabad in case of Smt. K. Radhika and others v. DCIT (supra) and a recent decision of ITAT, Hyderabad 'B' Bench in case of Binjusaria Properties Ltd Vs. ACIT, dated 04/04/2014.
11. We have considered the submissions of the parties and perused the materials on record along with the orders passed by the revenue authorities. We have also carefully applied our mind to the decisions placed before us. It is clear from the assessment order that the AO has computed capital gain in the impugned assessment year solely on the basis of the fact that assessee has entered into the development agreement with the developer 04/05/2007 and handed over possession of the property. He has also put stress on the fact that the assessee has received refundable security deposit from the developer @ Rs. 13 lakhs per acre. However, as rightly held by the learned CIT(A) neither entering into the development agreement or handing over of the possession of property are the sole and exclusive criteria to construe transfer of capital asset as envisaged u/s 2(47)(v) of the Act. On plain reading of section 2(47)(v) would make it clear that it refers to handing over possession of the property under a development agreement towards part performance of contract as envisaged u/s 53A of the TP Act. However, the handing over of 13 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others possession by the assessee towards part performance of contract will not amount to transfer unless the transferee is also willing and ready to perform his part of the contract under the development agreement. As can be seen from the facts and materials on record, the developer apart from making payment of the refundable security deposit of Rs. 13 lakhs per acre has not taken any step towards development of the property. In fact the most important act of converting the nature of land from agriculture to non agriculture has not been put into motion. The nature and character of land remains as it is even today. The Developer has not taken any steps to get sanction/approval of plan, building construction, etc. from the competent authorities. Even not a single development activity like leveling of land, sales promotion, has been initiated by the developer. These facts, which have not been controverted by the department, clearly demonstrate unwillingness on the part of the developer to perform his part of the contract. It is also a matter requiring consideration that the assessee along with other land owners have filed a civil suit for cancellation of the development agreement, which clearly brings out the dispute between the land owners and developer and also the fact that developer has not only failed to perform but is also unwilling to perform his part of the contract. Therefore, when the developer has not performed or there is unwillingness to perform his part of the contract, it cannot be concluded that there is transfer of capital asset in terms with section 2(47(v) read with section 53A of the TP Act only because the assessee has entered into a development agreement or even handed over possession of the land to the developer during the previous year relevant to AY under dispute. As rightly held by the ld. CIT(A), handing over possession of the property is not the sole ctriteria but one of the criteria to construe 'transfer' u/s 53A of the T.P. Act. The ITAT Hyderabad Bench in case of Smt. K. Radhika Vs. DCIT (supra) has held as under:
"48. We are in considered agreement with the views so expressed in this commentary on the provisions of the Transfer of Property Act. It is thus clear that 'willingness 14 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others to perform' for the purposes of Section 53A is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of Section 53A of the Transfer of Property Act will come into play on the facts of that case. It is only elementary that, unless provisions of Section 53A of the Transfer of Property Act are satisfied on the facts of a case, the transaction in question cannot fall within the scope of deemed transfer under Section 2(47)(v) of the IT Act. Let us therefore consider whether the transferee, on the facts of the present case, can be said to have 'performed or is willing to perform' its obligations under the agreement.
49. Even a cursory look at the admitted facts of the case would show that the transferee had neither performed nor was it willing to perform its obligation under the agreement in the assessment year under consideration. The agreement based on which capital gains are sought to be taxed in the present case is agreement dated 11.05.2005 but this agreement was not adhered to by the transferee. The transferee originally made a payment of Rs.10 lakhs on 11.5.2005 and another payment of Rs.90 lakhs on the same day as refundable security deposit. However, out of this a sum of Rs.50 lakhs was said to be refunded by the landlord to the developer on 5.3.2009. As such, the assessee has received only a meager amount as refundable security deposit which cannot be construed as receipt of part of sale consideration. Admittedly, there is no progress in the development agreement in the assessment year under consideration. The Municipal sanction for development was obtained not in this assessment year and it was obtained only on 17.09.2006 from the Hyderabad Urban Development Authority. The sanction of the building plan is utmost important for the implementation of the agreement entered between the parties. Without sanction of the building plan, the very genesis of the agreement fails. To enable the execution of the agreement, firstly, plan is to be approved by the competent authority. In fact, the building plan was not got approved by the builder in the assessment year under consideration. Until permission is granted, a developer cannot undertake construction. As a result of this lapse by the transferee, the construction was not taken place in the assessment year under consideration. There is a breach and break down of development agreement in the 15 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others assessment year under consideration. Nothing is brought on record by authorities to show that there was development activity in the project during the assessment year under consideration and cost of construction was incurred by the builder/developer. Hence it is to be inferred that no amount of investment by the developer in the construction activity during the assessment year in this project and it would amount to non-incurring of required cost of acquisition by the developer. In the assessment year under consideration, it is not possible to say whether the developer prepared to carry out those parts of the agreement to their logical end. The developer in this assessment year had not shown its readiness or having made preparation for the compliance of the agreement. The developer has not taken steps to make it eligible to undertake the performance of the agreement which are the primary ingredient that make a person eligible and entitled to make the construction. The act and conduct of the developer in this assessment year shows that it had violated essential terms of the agreement which tend to subvert the relationship established by the development agreement. Being so, it was clear that in the year under consideration, there was no transfer of not only the flats as superstructure but also the proportionate land by the assessee under the joint development agreement. As per clause no. 12.11 and 19.1 of Development Agreement-cum Power of Attorney, time is the essence of the contract and as per clause No.12.11 the said property is to be developed and hand over the possession of the owners' allocation to the owners' and or their nominees within 24 months from the date of receiving the sanction of the plan from HUDA and Municipality/Gram Panchayat with a further grace period of 3 months. But the fact remains that the transferee was not only failed to perform its obligations under the agreement, but also unwilling to perform its obligations in the assessment year under consideration. Even otherwise, the assessing authorities has not brought on record the actual position of the project even as on the date of assessment or he has not recorded the findings whether the developer started the construction work at any time during the assessment year under consideration or any development has taken place in the project in the relevant period. He went on to proceed on the sole issue with regard to handing over the possession of the property to the developer in part performance of the Development Agreement-cum-General power of Attorney. In our opinion, the handing over of the possession of the property is only one of the condition u/s 53A of the 16 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others Transfer of Property Act but it is not the sole and isolated condition. It is necessary to go into whether or not the transferee was 'willing to perform' its obligation under these consent terms. When transferee, by its conduct and by its deeds, demonstrates that it is unwilling to perform its obligations under the agreement in this assessment year, the date of agreement ceases to be relevant. In such a situation, it is only the actual performance of transferee's obligations which can give rise to the situation envisaged in Section 53A of the Transfer of Property Act. On these facts, it is not possible to hold that the transferee was willing to perform its obligations in the financial year in which the capital gains are sought to be taxed by the Revenue. We hold that this condition laid down under Section 53A of the Transfer of Property Act was not satisfied in this assessment year. Once we come to the conclusion that the transferee was not 'willing to perform', as stipulated by and within meanings assigned to this expression under Section 53A of the Transfer of Property Act, its contractual obligations in this previous year relevant to the present assessment year, it is only a corollary to this finding that the development agreement dt. 11.5.2005 based on which the impugned taxability of capital gain is imposed by the AO and upheld by the CIT(A), cannot be said to be a "contract of the nature referred to in Section 53A of the Transfer of Property Act"
and, accordingly, provisions of Section 2(47)(v) cannot be invoked on the facts of this case Chaturbhuj Dwarkadas Kapadia v. CIT's case (supra) undoubtedly lays down a proposition which, more often than not, favours the Revenue, but, on the facts of this case, the said judgment supports the case of the assessee inasmuch as 'willingness to perform' has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of Section 53A of the Transfer of Property Act. Revenue does not get any assistance from this judicial precedent. The very foundation of Revenue's case is thus devoid of legally sustainable basis.
50. That is clearly an erroneous assumption, and an the provisions of deemed transfer under Section 2(47)(v) could not have been invoked on the facts of the present case and for the assessment year in dispute before us. In the present case, the situation is that the assessee has received only a 'meager amount' out of total consideration, the transferee is avoiding adhering to the agreement and there is no evidence brought on record by the revenue authorities to show that there was actual construction has been taken place at the impugned 17 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others property in the assessment year under consideration and also there is no evidence to show that the right to receive the sale consideration was actually accrued to the assessee. Without accrual of the consideration to the assessee, the assessee is not expected to pay capital gains on the entire agreed sales consideration. When time is essence of the contract, and the time schedule is not adhered to, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in Section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of Section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on reason that the capital gains could not have been taxed in the in this assessment year in appeal before us. The other grounds raised by the assessees in their appeals have become irrelevant at this point of time as we have held that provisions of section 2(47)(v) will not apply to the assessees in the assessment year under consideration. ...."
12. The coordinate bench again in case of M/s Binjusaria properties (supra) following another decision of same coordinate bench held as under:
"12. It is an undisputed fact that as on date, there was no developmental activity on the land which is subject matter of development agreement. The process of construction has not been even initiated and no approval for the construction of the building is obtained. Thus, the sale consideration in the form of developed area has not been received. Mere receipt of refundable deposit cannot be termed as receipt of consideration. Further, as submitted , the Assessing Officer calculated the capital gain on the entire land, even though the assessee has retained 38% share to itself. The valuation was also disputed. There is, therefore, no accrual of income in favour of the assessee as per S.48 of the Act. Due to lapse on the part of the transferee, the construction has not taken place in the year under consideration, and it has not commenced even now. In the facts and circumstances of the present case, wherein while the assessee has fulfilled its part of the obligation under the development agreement, the developer has not done anything to discharge the obligations cast on it under the develop agreement, the capital gains cannot be brought to tax in the year under appeal, merely on the basis of signing of the development 18 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others agreement during this year. We are supported in this behalf by the decision of the Tribunal dated 3 rd January, 2014 in the case of Fibars Infratech Pvt. Ltd. (supra), wherein it was held as follows-
59. On these facts, it is not possible to hold that the transferee was willing to perform its obligations in the financial year in which the capital gains are sought to be taxed by the Revenue. We hold that this condition laid down under Section 53A of the Transfer of Property Act was not satisfied in this assessment year. Once we come to the conclusion that the transferee's 'willing to perform' the contract is ascertainable in the assessment year, as stipulated by and within the meanings assigned to this expression under Section 53A of the Transfer of Property Act, its contractual obligations in this previous year relevant to the present assessment year, it is only a corollary to this finding that the Development Agreement dt. 15.12.2006, based on which the impugned taxability of capital gain is imposed by the AO and upheld by the CIT(A), cannot be said to be a "contract of the nature referred to in Section 53A of the Transfer of Property Act"
and, accordingly, provisions of Section 2(47)(v) cannot be invoked on the facts of this case. The judgement in the case of Chaturbhuj Dwarkadas Kapadia v. CIT (supra) undoubtedly lays down a proposition which, more often that not, favours the Revenue, but, on the facts of this case, the said judgment supports the case of the assessee inasmuch as 'willingness to perform' has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of Section 53A of the Transfer of Property Act. The Revenue does not get any assistance from this judicial precedent. The very foundation of Revenue's case is thus devoid of legally sustainable basis.
60. That is clearly an erroneous assumption, as the provisions of deemed transfer under Section 2(47)(v) could not have been invoked on the facts of the present case and for the assessment year in dispute before us. In the present case, the situation is that the assessee has not received any consideration, and there is no evidence brought on record by the Revenue authorities to show that there was actual construction taken place at the impugned property in the previous year relevant to the assessment year under consideration and also there is no evidence to show that the right to receive the sale consideration was actually accrued to the assessee. Without accrual of the consideration to the assessee, the assessee is not expected to pay capital gains on the 19 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others entire agreed sales consideration. When time is essence of the contract, and the time schedule is 30 months to complete construction with additional grace period of 6 months, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in Section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of Section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on the reason that the capital gains could not have been taxed in the in this assessment year in appeal before us."
13. In the light of the foregoing discussion, we set aside the impugned orders of the Revenue authorities and hold that the capital gains on the property in question cannot be brought to tax in the year under appeal, and consequently delete the addition made by the Assessing Officer and sustained by the CIT(A). Assessee's grounds on this issue are allowed."
13. On going through the aforesaid decisions of the coordinate bench, the ratio which emerges is unless there is willingness on the part of the developer to perform his part of the contract, there cannot be a 'transfer' of capital asset as envisaged u/s 2(47)(v) read with section 53A of the TP Act. The ratio laid down as above squarely applies to the facts of the present case as the department has failed to controvert the finding of the learned CIT(A) by bringing material on record to show that the developer has taken any steps towards development activity. Further, we may observe, though the AO referring to the development agreement has inferred that possession of the property was handed over to the developer, however, on going through the pleadings and prayer of the plaintiffs in the plaint filed in Civil Court, a copy of which is at page 51 of assessee's paper book, it appears assessee along with others are still having physical possession over the property. Be that as it may, after careful consideration of facts and materials on record, we are of the view, CIT(A)'s order being well founded and well reasoned needs to be 20 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others upheld. Another crucial aspect which needs to be commented upon is the CIT(A) has also held that the transaction will not attract capital gain as the asset transferred being an agricultural land is not a capital asset as defined u/s 2(14) of the Act. This finding of the learned CIT(A) remains unchallenged and uncontroverted by the Department. For this reason also, short term capital gain computed by the AO cannot be sustained. In view of the aforesaid, we do not find any reason to interfere with the order of the CIT(A).
14. So far as the ground raised by the department challenging the view of CIT(A) to the effect that there cannot be any capital gain in absence of value of consideration received or accrued, we are of the view, the same is not required to be adjudicated as it is of mere academic interest in view of our finding that there is no transfer of capital asset by the assessee in the impugned assessment year. Accordingly, we uphold the order of the CIT(A) by dismissing the grounds raised.
15. Before parting we thought it necessary to clarify, the issue whether there is transfer of capital asset under a development agreement, as contemplated u/s 2(47)(v) read with section 53A of the T.P. Act, has to be decided keeping in view the facts involved in each case. Ratio laid down in a particular case cannot be applied uniformly to all cases without considering the factual aspect.
16. The facts and grounds being similar, the decision above will equally apply to other appeals as well.
17. In the result, all the appeals of the revenue are dismissed.
21 ITA No. 1788/Hyd/2012 and othersBhavya Constructions Pvt Ltd and others ITA No. 1703/H/12 - appeal by assessee
18. The only issue in this appeal of the assessee is in respect of addition of Rs. 19,86,664 made as unexplained cash credit by the AO and confirmed by the CIT(A).
19. Briefly the facts are, during the assessment proceeding the AO on examining the record noticed that the assessee and his wife have shown substantial unsecured loan for the FY 2003-04 to 2008-09 claimed to have been received from his family members Viz., brother- in-law, mother-in-law etc. The total unsecured loan claimed to have been received during the FY 2007-08 corresponding to the AY 2008- 09 was Rs. 19,86,664. While explaining the source of such credit, the assessee submitted before the AO that the loan was received from his NRI Sister-in-law Smt. K. Haritha and her husband out of their accumulated saving. The AO noted that funds were apparently transferred from the accounts of the NRI couple to the assessee and these funds were used by assessee and his wife towards investment in purchase of agricultural land during the AY under consideration. However, as mentioned by the AO, inspite of availing sufficient opportunity, the assessee could not produce supporting evidence such as bank account copy, salary/income proof to substantiate the loan. Accordingly, the AO by treating the unsecured loan of Rs. 19,86,664 as unexplained cash credit and added it to the income of the assessee. Being aggrieved of such addition, assessee preferred appeal before the CIT(A).
20. The CIT(A) confirmed the addition with the following observations:
"3.1 I have gone through the issue and I find that the AO has examined the issue in detail in the assessment order. It is clearly observed in the assessment order that the sources of the NRI couple with proper evidence could not be made 22 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others available in support of the claim. The appellant has failed to furnish any justification in support of the claim made by him in course of the appellate proceedings also. Accordingly, I hold that the addition made by the AO was justified. This effective ground of appeal is dismissed."
21. The learned AR submitted before us that the assessee has discharged the primary burden cast upon him by disclosing the identity of the creditor, her creditworthiness. Further, the transaction having been routed through banking channels, the genuineness also cannot be doubted. The learned AR submitted that though the assessee produced all supporting evidence, confirmation letters, bank account statements and other relevant details with regard to the receipt of loan, but, the AO as well as the CIT(A) without considering them have treated the loan received as unexplained cash credit. The learned AR submitted that similar loan received from the very same person Viz., Smt. K. Haritha, who happens to be the sister-in-law of assessee, in AYs 2006-07 and 2007-08 under similar facts and circumstances have been accepted by the CIT(A) and additions made by the AO have been deleted. In this context, he placed before us, orders dated 27/11/2013 passed by the CIT(A)-VII, Hyderabad for the AYs 2006-07 and 2007-08. The learned AR submitted that as the facts and materials placed by the assessee were properly considered by the departmental authorities the matter may be remitted back to the file of the AO for verifying afresh.
22. The learned DR, on the other hand, though supported the order of the CIT(A) and AO, but, he also expressed the view that the issue can be examined afresh by the AO.
23. We have considered the submissions of the parties, perused the orders of the revenue authorities and the materials on record. As can be seen from the assessment order as well as order passed by the CIT(A) the assessee in fact has not only established the identity of the creditor, but, has also submitted confirmation letters in support of 23 ITA No. 1788/Hyd/2012 and others Bhavya Constructions Pvt Ltd and others the loan received. Further, the AO has also observed that funds were transferred from the accounts of the creditor to the assessee. If that is the case, then the AO cannot disbelieve the loan unless there is strong evidence before him to suggest that it is only the assessee's money, which was routed through the bank account of the creditor. Further, on a perusal of the order passed by the CIT(A) for the assessment years 2006-07 and 2007-08 it appears similar loan received from the same creditor was accepted by the CIT(A) after examining the bank statements and other evidences produced by the assessee. Therefore, if the assessee is able to prove the credit by producing similar evidence as is the case in AY 2006-07 and 2007- 08, then, there will be no reason to treat the loan as unexplained cash credit at the hands of the assessee. In the aforesaid view of the matter, we are inclined to remit this issue to the file of the AO for deciding afresh after examining all facts and materials brought on record and only after affording a reasonable opportunity of being heard to the assessee.
24. In the result, assessee's appeal is considered to be allowed for statistical purposes.
25. To sum up, all appeals of the revenue are dismissed and appeal of the assessee is allowed for statistical purposes.
Pronounced in the open court on 28/08/2014.
Sd/- Sd/-
(B. RAMAKOTAIAH) (SAKTIJIT DEY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 28 th August, 2014
kv
24
ITA No. 1788/Hyd/2012 and others
Bhavya Constructions Pvt Ltd and others
Copy to:-
.
1. Asst. Commissioner of Income-tax, Central Circle - 5, Hyd, 8 t h Floor, Aayakar Bhavan, L.B. Stadium Road, Basheerbagh, Hyderabad - 500 004.
2. Sri R. Srinivasa Rao, H.No. 1-7-502/11, Jamistanpur, Musheerabad, Hyderabad.
3. Sri M.S. Raghava Reddy, 7-1-216, F.No. 206, Anjani Towers, Balkampet, Ameerpet, Hyderabad
4. Bhavya Constructions Pvt. Ltd., Padmavathi Mansion, Plot No. 23, Ameerpet, Hyderabad
5. R. Vijaya Lakshmi, 26, Sri Venkateswara Colony, Banjara Hills, Hyderabad
6. Shri S. Srinivasa Rao, H.No. 1-7-502/11, Jamistanpur, Musheerabad, Hyderabad
7. Sri T. Gopichand, No. 8-3-1103, Flat No. 403, Plot No. 106, Jyothi Estaes, Sri Nagar Colony, Hyderabad
8. Shri G.C. Subba Naidu, 5-79, Peoples Hospitals, M.G. Road, Patancheru, Hyderabad
9. Sri P. Shiva Kumar, Flat No. 202, Temple View Residency, H.No. 6-2-10, Lakdikapool, Hyderabad
10. CIT(A)-VII, Hyderabad
11. CIT (Central), Hyderabad
12. The DR, ITAT, Hyderabad