Calcutta High Court
Income Tax-2 vs M/S. Emporis Properties Pvt on 30 March, 2023
Author: T.S. Sivagnanam
Bench: T.S. Sivagnanam, Hiranmay Bhattacharyya
OD - 5
ITAT/59/2023
IA No.GA/1/2023
IN THE HIGH COURT AT CALCUTTA
Special Jurisdiction
ORIGINAL SIDE
PRINCIPAL COMMISSIONER OF
INCOME TAX-2, KOLKATA
-Versus-
M/S. EMPORIS PROPERTIES PVT.
LTD., KOLKATA
BEFORE :
THE HON'BLE JUSTICE T.S. SIVAGNANAM
And
THE HON'BLE JUSTICE HIRANMAY BHATTACHARYYA
Date : 30th March, 2023
Appearance :
Ms. Smita Das De, Adv.
...for the appellant
Mr. J. P. Khaitan, Sr. Adv.
Mr. G. S. Gupta, Adv.
...for the respondent.
The Court : This appeal filed by the revenue under
Section 260A of the Income Tax Act, 1961 (the 'Act' for
brevity) is directed against the order dated 22nd September,
2022 passed by the Income Tax Appellate Tribunal, "A" Bench,
Kolkata (the Tribunal) in ITA No.299/Kol/2022 for the
assessment year 2014-15.
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The revenue has raised the following substantial
questions of law for consideration:
(i) On the facts and circumstances of the case and
in law whether the Hon'ble ITAT holding that
the very initiation of revisional proceedings
u/s 263 taken against the assessee vide order
dated 26/03/2022 is void in the eyes of law
and therefore quashed ?
(ii) On the facts and circumstances of the case and
in law whether the learned ITAT has failed to
examine the provision of Section 43CA of the
Income Tax Act, 1961 which are applicable to
the case of the assesse and accordingly being
the deeming section the proceeds received by
the assessee are taxable u/s 43CA ?
(iii) Whether the learned ITAT had erroneously held
that there was no conversion of Stock in trade
of the land which was offered in the JDA by
the assessee after extinguishing 45% of rights
to the total sale proceeds ?
We have heard Ms. Smita Das De, learned standing
counsel for the appellant/revenue and Mr. J.P. Khaitan, learned
senior counsel assisted by Mr. G.S. Gupta, learned Advocate for
the respondent/assessee.
The issue involved in the instant case is whether the
Principal Commissioner of Income Tax (PCIT) was justified in
invoking his power under Section 263 of the Act and setting
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aside the assessment order passed under Section 143(3) read
with Section 147 of the Act dated 27th December, 2019.
The assessee had entered into a land development
agreement dated 17th September, 2013 for development of land
and by virtue of the said agreement, after the construction of
the housing complex on the said land, 55% of the constructed
area will be allotted to the assessee and 45% to the developer.
In the opinion of the PCIT, the Assessing Officer omitted to
examine the transaction of transfer of land held as "Stock-in-
trade" in the light of the provision of Section 43CA of the Act
and this was the only reason for invoking the power under
Section 263 of the Act. Firstly, we need to examine as to
whether there was any enquiry conducted by the Assessing
Officer before completing the assessment and whether the
subject issue was taken note of by the Assessing Officer. It
has to be borne in mind that the assessment was a re-assessment
proceedings under Section 147 of the Act and from the reason
furnished from reasons furnished by the Assessing Officer for
re-opening the assessment, we find this very issue was the
reason for re-opening and there was a proposal to tax the long
term capital gains which, in the opinion of the Assessing
Officer, had escaped assessment. The assessee submitted
detailed reply objecting to the re-opening proceedings. It is
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contended that the land was not a capital asset that is not
held by them as a fixed asset or investment. Consequently,
there was no transfer of any capital asset and handing over
possession of the land to the developer pursuant to the Joint
Development Agreement. Further it was stated that the land was
their stock-in-trade and stock-in-trade is not treated as
capital asset under the provisions contained in Section 2(4) of
the Act. The assessee submitted their audited financial
statement for the financial year 2012-13 to substantiate their
claim. Further, it was stated that the profit and loss
statement for the year ended 31st March, 2013 clearly indicates
that the said land was their stock-in-trade. Further, the
assessee submitted that profit from stock-in-trade is
chargeable to tax under the heading profit and gains of
business and the same will arise in future i.e. for the year of
actual sale to the prospective buyer. The assessee also
submitted that the reopening of the assessment was bad in law
as there was no fresh information in the possession of the
Assessing Officer leading him to conclude that income has
escaped assessment. The reply given by the assessee along with
the documents were examined by the Assessing Officer and the
assessment was completed accepting the stand taken by the
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assessee. The order passed by the PCIT under Section 263 was
the subject-matter of challenge before the Tribunal.
The Tribunal has, after taking note of Sections 43CA,
50C and also the definition of transfer as defined under
Section 2(47) of the Act examined the relevant clauses of the
Joint Development Agreement. The following clause would be
relevant for our purpose:
REPRESENTIONS AND OBLIGATIONS OF THE OWNER
2. It is agreed and recorded that the said vested land admeasuring
2 Bighas, 11 cottahs, 12 chittacks ad 36 sq. ft. ad morefully
described in the second schedule hereunder written shall always
be the property of the owner ad any benefit deriving out of the
same shall belong exclusively to the owner and the developer
shall have no right title and interest therein. Provided
however this shall not preclude the owner to enter into an
arrangement with the developer for developing the said vested
land on the terms and conditions as may be mutually agreed upon
provided the owner is permitted by the Government of West
Bengal to develop the said vested land.
APPOINTMENT
1. The owner herein hereby appoint the Developer as the
builder and/or developer for carrying out the development at
the "said premises" as per the sanctioned plan or plan subject
to the terms and conditions recorded therein.
....................
..............
SPACE ALLOCATION
1. In consideration of the development of the Housing Complex at the said premises by the Developer at its own costs and 6 expenses which includes Owner's Allocation and in consideration of the said premises provided by the owner as envisaged herein it is agreed by and between the Owner and the Developer that the entire constructed area of the said Housing Complex shall be divided and apportioned in the manner as stated hereunder :-
(i) 55% of the constructed areas of the said Housing Complex together with all the common areas, amenities and facilities therein and together with undivided proportionate share of the land of the said premises appertaining thereto shall belong to the owner hereinafter called the "Owner's Allocation".
(ii) 45% of the constructed areas of the said Housing Complex together with all the common areas, amenities and facilities therein and together with undivided proportionate share of the land of the said premises appertaining thereto shall belong to the owner hereinafter called the "Developer's Allocation".
SECURITY DEPOSIT & ADVANCE
1. It is agreed and recorded that the Developer shall deposit with the owner a total sum of Rs.10,00,0,000/- (Rupees ten crores) only as an interest free security deposit which shall be paid in the following manner :-
(i) A sum of Rs.5,00,00,000/- (Rupees five crores) only shall be paid by 30th September, 2013.
(ii) A further sum of Rs. 5,00,00,000/- (Rupees five crores) only shall be paid by 31st January, 2014.
(iii) At the time of execution of this presents no payment is being made.
2. It is agreed and recorded that the said interest free security deposit of the said total sum of Rs.10,00,00,000/- (Rupees ten crores) only shall be refunded by the owner to the developer within fortnight from the date of the receipt of the notice of completion of the construction of the said housing complex.
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TERMINATION It is agreed and recorded that in case o failure on the part of the Developer to complete the said Housing Complex and/or hand over Owner allocation with all common amenities and facilities within the stipulated time of 4 (four) years together with grace period of 1 (one) year as provided hereinabove, this agreement shall stand determined and cancelled and the developer shall cease to have any right title interest under this agreement in respect of the said Premises and the Developer shall be entitled to complete the construction of incompleted portions of the said Housing Complex provided however the Owner shall refund the entire outstanding amount of interest free Security deposit ad the costs of construction of the said Housing Complex and value of the costs of construction shall be certified by the structural engineer and architects".
From the above clause in the Joint Development Agreement, it is crystal clear that the assessee continued to be the owner of the property throughout the development of the property and there is no transfer of ownership to the developer. This aspect, in our opinion, was rightly noted by the Tribunal. Thus reading of the entire agreement would show that there was no transfer or sale of asset under the Joint Development Agreement rather the agreement was to develop the land making it saleable and in view of the construction of the same, the developer would take a part of the stock-in-trade. Furthermore, in terms of the termination clause if the 8 developer fails to develop the housing complex and hand over the assessee's allotted area with all common amenities and facilities within the stipulated time of four years together with grace period of one year, the Joint Development Agreement would stand determined and cancelled and the developer shall cease to have any right, title, interest under the Joint Development Agreement and the developer shall be entitled to complete the construction of the incomplete portion of the housing complex provided however the assessee shall refund the entire outstanding amount of interest-free security deposit and the cost of construction of the said housing complex and the value of the construction shall be certified by the structural engineer and architects. Thereafter the Tribunal took note of the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax vs. Balbir Singh Maini reported in [2017] 398 ITR 531 (SC). The said decision is more or less identical to the facts of the case on hand wherein one of the questions which fell for consideration was whether the transaction under the Joint Development Agreement should be envisaged as transfer exigible to tax by reference under Section 4(47)(v) of the Act read with Section 53A of the Transfer of Property Act, 1882. After taking note of the facts, the Hon'ble Supreme Court held as follows: 9
"23. A reading of the JDA in the present case would show that the owner continues to be the owner throughout the agreement, and has at no stage purported to transfer rights akin to ownership to the developer. At the highest, possession alone is given under the agreement, ad that too for a specific purpose - the purpose being to develop the property, as envisaged by all the parties. We are, therefore, of the view that this clause will also not rope in the present transaction."
As mentioned earlier, the facts of the case in Balbir Singh Maini (supra) was more or less identical to the case on hand and after reading the Joint Development Agreement, the Hon'ble Supreme Court found that the owner continues to be the owner throughout the agreement at any state purported to transfer rights akin to ownership to the developer. This is exactly the nature of transaction in the case on hand. That apart, the Tribunal also taken note of how the registering authorities have treated the Joint Development Agreement. The registering authorities have not treated the agreement as a deed of conveyance but have calculated the stamp duty by treating the same under Article 4, 5(f) of Schedule 1A of the Indian Stamp Act. The Explanation under Clause (vi) of Clause 5(f) states that the expression "Agreement or Memorandum of an Agreement" if relating to a sale shall include an agreement to sell or any memorandum or acknowledgement in relation to 10 transfer or deliver of possession of immovable property with an intent to transfer right, interest in, or title to, such property at any future date. This expression was noted and the registering authorities have calculated the stamp duty on the said amount at the fixed rate and not treating it as a conveyance deed.
Thus, we are of the considered view that the Tribunal took note of the factual position and applied the correct legal principle and granted relief to the assessee.
Thus, we find no ground to interfere with the order passed by the learned Tribunal. Accordingly, appeal (ITAT/59/2023) is dismissed and the substantial questions of law are answered against the revenue.
Consequently, the connected application for stay (IA No.GA/1/2023) also stands closed.
(T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.) As./S.Das