Income Tax Appellate Tribunal - Hyderabad
Narsing Rao Kunchum, Hyderabad, ... vs Acit,Circle-11(1) Hyderabad, ... on 28 February, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B" (SMC), HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
I.T.A. No. 1300/HYD/2016
Assessment Year: 2009-10
Dr. K. Narsing Rao, Asst. Commissioner of
HYDERABAD Vs Income Tax,
[PAN: ADFPK1195E] Circle-11(1),
HYDERABAD
(Appellant) (Respondent)
For Assessee : Shri V. Siva Kumar, AR
For Revenue : Shri P.V. Subbaraju, DR
Date of Hearing : 01-02-2018
Date of Pronouncement : 28-02-2018
ORDER
This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)-5, Hyderabad, dated 27-07-2016 for the AY. 2009-10.
2. Briefly stated, assessee is a doctor by profession. He filed return of income for the AY. 2009-10 on 28-07-2009 admitting total income at Rs. 2,71,569/-. He did not declare any income under the head 'Capital Gains' therein. Subsequently, a notice u/s. 148 of the Income Tax Act [Act] dt. 17-12-2013 was issued to assessee. He responded by requesting to treat the original return as filed in response to the notice u/s. 148. Assessment was completed u/s. 143(3) r.w.s. 147 of the Act on 09-03-2015.
I.T.A. No. 1300/Hyd/2016 :- 2 -:
Background of the case:
3. Assessee purchased a plot of land measuring 266.67 sq. yds., situated in Sy.No.145, Hydernagar village, Balanagar Mandal, Rangareddy District, on 03-08-2005 for a consideration of Rs.5,87,000/-. He paid advance of Rs. 2,00,000/- by cheque No.593269 dt. 19-02-2001, another Rs. 2,00,000 by cheque No.583942 dt. 26-02-2001, a further sum of Rs.93,750/- by cheque No.593942 dt. 21-3-2001 and balance Rs. 93,650/- by cheque No.655068 dated 29-07-2005. Total amount incurred on purchase of the plot was Rs.6,42,765/- which included registration fee, stamp duty and user charges.
4. Assessee entered into a registered development agreement, along with 17 other persons, on 12-05-2008, with M/s. Diamond Infra, a firm of developers and builders. As per the development agreement, the plot owners were to receive 50% out of the total built up area, including common areas. The spade work for preparation of plans and getting approvals from municipal authorities was to be undertaken by the developer/builder. The developer/builder undertook to hand over the built up area within 30 months from the date of obtaining permission for construction. Grace period of six months was provided for in the agreement. Assessee did not receive any advance money or deposit from the developer. Hence it was the contention that no capital gains arose in this year.
I.T.A. No. 1300/Hyd/2016 :- 3 -:
5. The AO did not consider the contentions of assessee and held that the developer was willing to perform the obligations cast on him consequent to entering into the development agreement. AO took support from the decision of the Hon'ble High Court of Andhra Pradesh in the case of Potla Nageswara Rao Vs. DCIT [365 ITR 249] (AP). AO also opined that the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Ved Prakash Rakhra [26 Taxmann.com 166] (Kar) supports the view that the cost arrived at and mentioned in the development agreement constitutes the exchange value and he adopted the same as the full value of consideration. The cost of the plot of 266.67 sq.yds worked out to Rs.6,42,765/-. AO deducted the entire cost though only 50% of the cost of the said property falls for consideration as cost in computation of Capital Gain. He determined short term capital gains at Rs. 25,41,380/- and added the same to the income declared by the assessee. Tax demand of Rs.15,24,223/- was raised.
6. Aggrieved by the assessment, the assessee filed an appeal before the CIT (Appeals), who dismissed the appeal holding that the date of development agreement is the date of incidence of capital gain. Ld.CIT(A) relied upon the decision of the Hon'ble High Court of A.P in the case of Potla Nageswara Rao Vs. DCIT (supra) and also on the decisions in the cases of Chaturbhuj Dwarakadas Kapadia Vs. CIT [260 ITR 491] BOM HC and Jasbir Singh Sarkaria In re [294 ITR 491] (AAR).
7. Aggrieved by the order of Ld.CIT(A), assessee filed appeal It was submitted that assessee entered into a I.T.A. No. 1300/Hyd/2016 :- 4 -:
development agreement as per which the property which was the subject matter of development was not handed over to the developer/builder. He did not receive either any advance money or part consideration either at the time of development agreement or thereafter. The developer/builder did not honour the terms of the development in that the project was not completed even more than six years after the date of development agreement as is acknowledged by the developer /builder.
8. Ld. Counsel for assessee relied upon the decision of the Co-ordinate Bench decision of ITAT, Hyderabad in the case of ABVS Prakash Vs. ACIT Cen-1 in ITA No. 462/Hyd/2013 dated 27-02-2014 wherein, acknowledging the fact that possession was not handed over to the developer by the said assessee and relying upon the decision in the case of Mrs. K. Radhika Vs. DCIT [47 SOT 180] HYD, it was held that transfer did not take place in the year of development agreement. Finally, Ld. Counsel for assessee prayed for deletion of the addition made by the AO and sustained by the Ld.CIT(A).
8.1. Ld. Counsel also contended that judgment of Hon'ble Jurisdictional High Court in the case of Potla Nageswara Rao Vs. DCIT (supra) is distinguishable. He argued that the facts of the case of the assessee are completely different than that of the facts of case of Sri Potla Nageswara Rao Vs. DCIT (supra). In the case of Sri Potla Nageswara Rao Vs. DCIT (supra), the Hon'ble High Court was only dealing with the question in respect of incidence of capital gains basing on I.T.A. No. 1300/Hyd/2016 :- 5 -:
passing of consideration. In the case of Sri Potla Nageswara Rao Vs. DCIT (supra), on the issue of transfer of possession of land and performance of contract there were no disputes. The judgment of the Hon'ble High Court was only restricted in respect of consideration in case of JDA. However, in the present case, the dispute is with respect to transfer of possession of property and performance of the contract. Therefore, the reliance placed by the authorities on the judgment of Hon'ble High Court is completely misplaced.
8.2. Ld. Counsel further contended referring to the additional ground raised, that in view of the amended provisions of Section 45(5A) by the Finance Act, 2017, the taxation of capital gain in case of Joint development agreement arises in the year in which the land owner receives his share of property from the builder and same is applicable retrospectively. Hence, there is no capital gain arise to assessee in the year under consideration as there is nothing received from the builder. In this regard Ld. Counsel placed reliance on the case law of Ansal Land Mark Township (P.) Ltd vide [2015] 61 taxmann.com 45 (Delhi).
9. Ld.DR, however, submitted that assessee has given possession of the property also during the year and by which, the developer has taken possession, obtained permissions and constructed the flats also, therefore, there is no merit in the contentions now raised.
I.T.A. No. 1300/Hyd/2016 :- 6 -:
9.1. Ld.DR, however, objected the contentions of Ld.AR and placed reliance on the following case law:
i. Judgment of the Hon'ble High Court of Andhra Pradesh in the case of Potla Nageswara Rao Vs. Dy.CIT [365 ITR 249] (AP);
ii. Judgment of the Hon'ble Punjab and Haryana High Court in the case of Paramjit Singh Vs. ITO [323 ITR 588] (Punjab & Haryana);
9.2. With reference to new provisions introduced in Section 45(5A), it was the submission that the provision is applicable w.e.f. 01-04-2018. Therefore, the same cannot be made applicable for the impugned assessment year as it was not clarificatory provision but a substantive provision introduced for the first time.
9.3. Question was raised with reference to period of holding - It was the submission that assessee has originally entered into agreement and paid advances to Sri Balaswami.
But due to internal adjustments between the family, the property was ultimately sold by another person and the recitals clearly indicate the above nature. It was submitted that advances were paid much earlier to registration and therefore, AO was not correct in holding the period from the date of actual registration, whereas assessee was in possession of the property much before. It was fairly admitted that these aspects were not examined by the AO. Further, it was also contended that the valuation adopted on the basis of the development at I.T.A. No. 1300/Hyd/2016 :- 7 -:
the time of completion cannot be considered as value for bringing to tax the capital gain at the time of entering JDA and on transfer of 50% of land, it was also contended that AO wrongly considered the entire value rather than 50% share of the land.
10. I have considered the rival contentions and perused the material placed on record and case law relied on. While completing the assessment, AO considered the period of holding of the property to be less than 36 months and the gains arose in this transaction was considered as short term only. Further, while valuing the property transferred, the AO has considered the entire 267 Sq. Yds., entered into agreement by assessee, ignoring the fact that only 50% of the above was transferred, whereas assessee retained the balance of 50%. To that extent, the order of AO is to be modified.
10.1. Coming to the valuation also, the valuation taken by the AO at the date of his survey and at the time of completion of project cannot be basis for considering the sale consideration on the date of development agreement. These aspects will be considered at a later point of time.
10.2. As far as the issue of bringing to tax the capital gains during the year, it was the contention of assessee that possession was not given and assessee retained possession of the property thereby the capital gains arises in the year in which the new flats were handed over. Ld. Counsel in his arguments, elaborately read out various portions of the I.T.A. No. 1300/Hyd/2016 :- 8 -:
agreement to substantiate assessee's claim, whereas the Ld.DR relied on various other clauses to state that possession was handed over. As far as the development agreement is concerned, it is noticed that assessee did permit M/s. Diamond Infra to enter into the premises, do all the necessary things for construction of apartments. It is the common agreement by many people, who has purchased lands/plots in the developed area. It is also noticed that the said assessee went to construct the apartments and hand over the flats as per the schedule to the respective persons, including assessee. Some of the agreement holders also sold the flats in semi-finished condition or in fully developed condition, whereas few like assessee retained the flats as such. Therefore, I am of the opinion that assessee did hand over the possession and provisions of Section 2(47) regarding transfer certainly get attracted. Since there is part performance of the contract in the nature referred to in Section 53 of Transfer of Property Act, 1882, Clause(v) of Section 2(47) is clearly attracted. Therefore, I agree with the stand of AO that the capital gains did arise during the year under consideration as the agreement was entered on 12-05- 2008. Accordingly, the issue of bringing to tax the capital gains during the year is to be upheld. Even though Ld. Counsel tried to distinguish the jurisdictional High Court judgment in the case of Sri Potla Nageswara Rao Vs. DCIT (supra) that it applies to a case, where there is no sale consideration and the issue is on non-receipt of sale consideration. I do not agree with that as the issue of transfer in the case of development agreement and consequent levy of capital gain in the year of entering into development agreement I.T.A. No. 1300/Hyd/2016 :- 9 -:
has been crystalised by the said judgment of the jurisdictional High Court in the case of Sri Potla Nageswara Rao Vs. DCIT (supra). Accordingly, I agree with the order of the CIT(A), confirming the capital gains during the year.
10.3. One of the arguments raised by the Ld. Counsel is that new Section 45(5A) has been introduced which defers the capital gains to the year of completion of the project by the Finance Act, 2017. This being substantive provision, I am of the opinion that this cannot be applied to the development agreement entered into earlier, in which 2(47)(v) would certainly get attracted. In view of that, I reject the contention and uphold the taxability of the capital gains in the year under consideration.
10.4. However, the matter does not end there. There are two issues which require further consideration. One is that whether property is held for sufficient period so as to attract Short Term Capital Gain or Long Term Capital Gain. The other is the valuation of the full value of consideration. As far as the holding period of the impugned property is concerned, it is the contention of assessee that they have paid advances much earlier and took possession also whereas registration was completed on 03-08-2005. It is not correct on the part of AO to consider the date of registration alone as the date of obtaining the property. There are various judicial principles supporting the contentions that registration is only a conclusive evidence but ownership can be obtained much earlier also. As seen from the purchase deed also, there are recitals that Shri Bala I.T.A. No. 1300/Hyd/2016 :- 10 -:
Swamy, father of vendor has himself developed the property and then obtained permissions but later on made four gift settlements to his son and after obtaining HUDA permissions, has registered the property on that date. Even though the receipt of sale consideration date-wise has not mentioned, it is the contention that assessees have paid the amounts much earlier also. This aspect has not been examined by the AO at all. Therefore, in the interest of justice, I am of the opinion that the issue of having possession of the property at the time of purchase of property by assessee, before registration is to be examined in the light of the payments made by assessee, permissions obtained from HUDA etc., so that the issue can be finally concluded on facts whether the property has to be considered as long term capital asset or short term capital asset. Therefore, this issue is restored to the file of AO to examine, after giving due opportunity to assessee.
10.5. Next issue to be considered is the full value of consideration, for computation of capital gains. As per the agreement, assessee has parted with only 50% of the impugned property. However, AO has taken the cost of construction of the properties which are given in lieu at the time of completion of the project and gave certain discount so that the value is fixed at Rs.1054/ per Sft. This is not a correct method. Since the agreement was entered into in May, 2008 either the cost of the land [at 50% of 266.66 Sq. Yds.,] should have been considered for full value of consideration or the probable value of the cost of construction on that date has to be considered. It is not proper on the part of the AO to consider the subsequent I.T.A. No. 1300/Hyd/2016 :- 11 -:
cost which may involve escalation of cost from 2008 to 2013. Therefore, I direct the AO to consider the probable cost of construction as on May 2008 or the SRO Value of the land-in- question on the date of agreement should be considered as full value of consideration for the purpose of computation of capital gains on the transfer of 50% of the land holding for development. Therefore, while upholding the reopening of assessment and also bringing to tax the capital gains in the impugned year, the issue whether the land is short term capital asset or long term capital asset and the value for considering the capital gains computation is restored to the file of AO for fresh examination. Needless to say that assessee should be given due opportunity. For this purpose, the order of AO and CIT(A) on the above issues are set aside to the re-done as per the facts and law. In case the property was held to be long term capital asset, assessee may be eligible for consequent benefit u/s. 54/54F of the Act, which should be considered on the facts of the case. Assessee is free to raise necessary arguments in this regard before the AO. Grounds of assessee are considered partly allowed for statistical purposes.
11. In the result, the appeal of assessee is considered partly allowed for statistical purposes.
Order pronounced in the open court on 28th February, 2018 Sd/-
(B. RAMAKOTAIAH) ACCOUNTANT MEMBER Hyderabad, Dated 28th February, 2018 TNMM I.T.A. No. 1300/Hyd/2016 :- 12 -:
Copy to :
1. Dr. K. Narsing Rao, C/o. Plot No. A-30, 8-3-222/C/134, Madura Nagar, Hyderabad.
2. The Asst. Commissioner of Income Tax, Circle-11(1), Hyderabad.
3. CIT (Appeals)-5, Hyderabad.
4. Pr.CIT-5, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.