K Venkayamma, Hyderabad v. DCIT, Central Circle - 2, Hyderabad

ITA 210/HYD/2011 | 2006-2007
Pronouncement Date: 09-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 21022514 RSA 2011
Assessee PAN AEDPK3506Q
Bench Hyderabad
Appeal Number ITA 210/HYD/2011
Duration Of Justice 7 month(s) 1 day(s)
Appellant K Venkayamma, Hyderabad
Respondent DCIT, Central Circle - 2, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 09-09-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 09-09-2011
Date Of Final Hearing 14-07-2011
Next Hearing Date 14-07-2011
Assessment Year 2006-2007
Appeal Filed On 07-02-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER SL. NO. ITA NO. & A.Y. APPELLANT RESPONDENT 1. 208/HYD/2011 A.Y. 2006-07 MS. K. RADHIKA HYDERABAD PAN: AEDPK3506Q DCIT CENTRAL CIRCLE-2 HYDERABAD. 2. 209/HYD/2011 A.Y. 2006-07 MR. K. SRINIVASA RAO HYDERABAD PAN: AFMPK1766N 3. 210/HYD/2011 A.Y. 2006-07 MS. K. VENKAYAMMA HYDERABAD PAN: AEOPK0369N 4. 211/HYD/2011 A.Y. 2006-07 MS. K. HEMALATHA HYDERABAD PAN: AQLPK6573D 5. 328/HYD/2011 A.Y. 2006-07 DCIT CENTRAL CIRCLE-2 HYDERABAD. MR. K. SRINIVASA RAO HYDERABAD 6. 329/HYD/2011 A.Y. 2006-07 MS. K. HEMALATHA HYDERABAD 7. 330/HYD/2011 A.Y. 2006-07 MS. K. VENKAYAMMA HYDERABAD 8. 331/HYD/2011 A.Y. 2006-07 MS. K. RADHIKA HYDERABAD 9. 416/HYD/2011 A.Y. 2002-03 DCIT CENTRAL CIRCLE-2 HYDERABAD MS. K. RADHIKA HYDERABAD 10. 417/HYD/2011 A.Y. 2003-04 11. 418/HYD/2011 A.Y. 2004-05 ASSESSEE BY: MR. K.C. DEVDAS RESPONDENT BY: MR. A. BHASKAR REDDY ORDER PER CHANDRA POOJARI A.M. THE APPEALS BY DIFFERENT ASSESSEES AND CROSS APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE SEPARATE ORDERS OF THE CIT(A)-I HYDERABAD. I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 2 2. FIRST WE WILL TAKE UP THE ASSESSEES APPEALS IN ITA NOS.208 TO 211/HYD/2011 AND REVENUE APPEALS 328 TO 331/HYD/201 1 WHEREIN THE ISSUE INVOLVED ARE INTER-RELATED. 3. BRIEF FACTS OF THE CASE ARE THAT MR. K. SRINIVAS A RAO AND REMAINING THREE CO-OWNERS REFERRED TO ABOVE HAD SPE CIFIED SHARES IN IMMOVABLE PROPERTY LAND ADMEASURING 11 ACRES 33 GUN TAS VIDE SY. NO. 1 2 3 9(P) 10(P) 11 12 13 14 IN POKKALWADA VILLAGE RANGA REDDY DISTRICT HYDERABAD WHICH WAS THE SUBJECT MATTER OF THE DEVELOPMENT AGREEMENT. THE EXTENT OF OWNER SHARE IN LAND AS E NUMERATED IN THE TABLE GIVEN BELOW: SR. NO. NAME OF THE PERSON EXTENT OF LAND % OF SHARES IN THE LAND SHARE OF LONG TERM CAPITAL GAIN AS ASSESSED BY CIT(A) (RS.) ACRES GUNTAS 1. K. SRINIVASA RAO 06 08 50.93 6 77 26 736 2. SMT. K. VENKAYAMMA 03 25 29.77 3 95 88 159 3. SMT. K. RADHIKA 02 00 16.43 2 18 48 621 4. SMT. K. HEMALATHA 00 14 2.87 38 16 527 TOTAL 11 47 100 13 29 80 043 4. THERE WAS A SEARCH AND SEIZURE OPERATIONS U/S. 1 32 OF THE INCOME-TAX ACT 1961 WAS CARRIED OUT ON 9.10.2007 A T THE RESIDENTIAL PREMISES OF THE CO-OWNERS. IN RESPONSE TO NOTICE U /S. 153A OF THE INCOME-TAX ACT 1961 THE CO-OWNERS SUBMITTED RETUR NS OF INCOME AS SUBMITTED ORIGINALLY. THE CO-OWNERS DID NOT DISCL OSE ANY INCOME PRIOR TO THE DATE OF SEARCH AS THE DEVELOPMENT AGREEMENT TO DEVELOP THE PROPERTY WAS EXECUTED ON 11.5.2005. THEREFORE THE DEVELOPMENT AGREEMENT BECAME THE SUBJECT MATTER OF POST SEARCH PROCEEDINGS TO EXAMINE THE LIABILITY OF THE CAPITAL GAINS OF THE C O-OWNERS. 5. THE DEVELOPMENT AGREEMENT WHICH WAS ENTERED INTO ON 11.5.2005 FOR DEVELOPMENT OF THE LAND ADMEASURING 1 1 ACRES 33 GUNTAS WITH M/S. AMBIENCE PROPERTIES LTD. THE CO-O WNERS WERE TO GET I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 3 45% OF THE PROPERTY FOR SURRENDERING THE PROPERTY A ND THE BALANCE OF 55% OF THE LAND WAS IN FAVOUR OF THE DEVELOPERS. T HE DEVELOPERS HAD TO DEVELOP THE LAND AS WELL AS CONSTRUCT DWELLING U NITS ON THE LAND. THE TERMS OF THE DEVELOPMENT AGREEMENT WAS GOVERNED BY WHAT HAD BEEN STATED IN THE DEVELOPMENT AGREEMENT EXECUTED ON 11. 5.2005. THE ASSESSING OFFICER HELD THAT THE ENTIRE CAPITAL GAIN ACCRUES ON THE DATE OF EXECUTION OF DEVELOPMENT AGREEMENT I.E. 11.5.20 05 ALTHOUGH HE NOTED THAT THE PERMISSION FROM HUDA WAS OBTAINED ON 17.9.2006. THE ASSESSING OFFICER COMPUTED THE CAPITAL GAINS ON TRA NSFER OF THE LAND AND ALSO THE FUTURE RECEIPT OF CONSTRUCTED PORTION. HOWEVER THE CIT(A) RESTRICTED THE SAME TO VALUE OF THE BUILT UP AREA A ND DEVELOPED LAND TO WHICH THE ASSESSEES WERE ENTITLED. THE ASSESSING O FFICER AT PARA 1.12(1) HELD THAT THE CONSIDERATION FOR PLOT NO. 56 ADMEASURING 688 SQ. YARDS WAS RS. 55 04 000 WHICH WAS RS. 8000 PER SQUA RE YARD. SINCE THE AREA OF LAND TO WHICH THE ASSESSEES WERE ENTITL ED TO WAS 15 106 SQ.Y. THE CONSIDERATION WAS COMPUTED BY THE ASSESSI NG OFFICER AT RS. 12 08 48 000 (15 106 X RS. 8000). THE ASSESSEES WE RE ENTITLED TO 31 FLATS ADMEASURING ABOUT 1 13 295 SQ. FT. THE ASSES SING OFFICER ADOPTED THE COST OF CONSTRUCTION AT RS. 1 162 PER S Q. FT. AND COMPUTED THE CONSIDERATION AT RS. 13 16 48 790. THE ASSESSI NG OFFICER IN COMING TO CONCLUSION THAT THE DATE OF TRANSFER IS 1 1.5.2005 WHEN THE DEVELOPMENT AGREEMENT WAS EXECUTED RELIED ON THE DE CISION OF ITAT HYDERABAD A BENCH IN THE CASE OF SMT. SHANTHA VID YA SAGAR ANNAM VS. ITO IN I.T.A. NO. 885/HYD/2003 WHEREIN IT WAS C ATEGORICALLY HELD THAT THE DATE OF DEVELOPMENT AGREEMENT IS THE DATE OF TRANSFER FOR COMPUTING CAPITAL GAIN OF THE TRANSFER OF PROPERTY. 6. FURTHER THE ASSESSING OFFICER COMPUTED THE CAPI TAL GAIN IN RESPECT OF THE TRANSFER OF 12 ACRES OF LAND WHICH W OULD BE RECEIVED BY THE ASSESSEE BY WAY OF NET PLOTABLE AREA OF 15 106 SQ. YARD AND 31 FLATS MEASURING 1 13 295 SQ.FT I.E. 45% OF CONSTRUC TED AREA AS I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 4 CONSIDERATION TO THESE ASSESSEES. HE ARRIVED A T THE CAPITAL GAINS AS FOLLOWS: COST OF 1 13 295 SQ.FT. BUILT UP AREA @ RS.1 162 PER SQ.FT. (BASED ON THE SWORN STATEMENT OF MD OF M/S APL) RS. 13 16 48 790 COST OF 15 106 SQ. YARDS OF DEVELOPED PLOTS RS. 12 08 48 000 FULL VALUE OF CONSIDERATION RS. 25 24 96 790 LESS: INDEXED COST OF ACQUISITION RS. 2 00 000 X 12 ACRES X 497/259 RS. 46 05 405 LONG TERM CAPITAL GAINS RS. 24 78 91 385 7. ON THE BASIS OF THE PERCENTAGE OF SHARES OF EACH PERSON IN THE LAND THE CAPITAL GAIN IS COMPUTED AS FOLLOWS: S. NO. NAME OF THE PARTY EXTENT PERCENTAGE OF SHARE IN THE LAND SHARE OF LONG TERM CAPITAL GAIN (RS.) ACRES GUNTAS 1. SRI K. SRINIVASA RAO 06 08 50.93 12 62 51 082 2. SMT. K. VENKAYAMMA 03 25 29.77 7 37 97 265 3. SMT. K. RADHIKA 02 00 16.43 4 07 28 555 4. SMT. K. HEMALATHA 00 14 2.87 71 14 483 TOTAL 11 47 100.00 24 78 91 385 8. ON APPEAL THE CIT(A) CONFIRMED THE TRANSFER OF PROPERTY U/S. 2(47)(V) OF THE I.T. ACT AS THE ASSESSEES HEREIN BY SIGNING THE DEVELOPMENT AGREEMENT HAVE GIVEN POSSESSION OF THE LAND FOR THE PURPOSE OF DEVELOPMENT OF PROPERTY TO M/S. AMBIENCE PROPERTIES PVT. LTD. HOWEVER HE CHANGED THE CONSIDERATION COMPUT ED BY THE ASSESSING OFFICER AND RE-DETERMINED THE CAPITAL GA IN AS FOLLOWS: SL. NO. ITEM AMOUNT (RS.) 1. COST OF CONSTRUCTION OF 1 13 295 SQ. FT. @ RS. 900 PER SQ. FT. 10 19 65 500 2. COST OF DEVELOPMENT OF 15 106 SQ. YD. @ RS. 2358 PER SQ. YD. 3 56 19 948 TOTAL 13 75 85 448 LESS: INDEXED COST OF ACQUISITION 46 05 405 LONG TERM CAPITAL GAIN 13 29 80 043 I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 5 9. AGAINST THE CONFIRMATION OF TRANSFER OF PROPERTY U/S. 2(47)(V) OF THE I.T. ACT AND THEREUPON DETERMINATION OF CAPITA L GAIN THE ASSESSEES ARE IN APPEAL IN I.T.A. NO. 208 TO 211/HYD/2011 AN D THE REVENUE IS IN APPEAL BEFORE US IN ITA NOS. 328 TO 331/HYD/2011 AG AINST THE RE- COMPUTATION OF CONSIDERATION BY CHANGING THE COST O F CONSTRUCTION AND COST OF DEVELOPMENT DETERMINED BY THE ASSESSING OF FICER. 10. THE LEARNED AR SUBMITTED THAT SECTION 2(47) OF THE I.T. ACT 1961 WHICH DEALS WITH THE DEFINITION OF THE TRANSFE R CLEARLY STATES THAT TRANSFER INCLUDES A SALE AN EXCHANGE A RELINQUISH MENT OF THE ASSET AND EXTINGUISHMENT OF ANY RIGHTS THEREIN OR THE COM PULSORY ACQUISITION UNDER THE LAW. THE LEARNED AR SUBMITTED THAT FIR STLY THERE IS NO SALE BECAUSE THE SALE IS GOVERNED BY SECTION 54 OF THE T RANSFER OF PROPERTY ACT 1982 WHEREBY THE PRIME FACTOR IS RECEIPT OF MO NETARY CONSIDERATION. THERE IS NO MONETARY CONSIDERATION WHATSOEVER IN THE DEVELOPMENT AGREEMENT ENTERED INTO BY THE ASSESSEES . THEREFORE SALE IS A MODE OF TRANSFER FAILS. THE TRANSACTIO N OF DEVELOPMENT AGREEMENT IS NOT ON ACCOUNT OF ANY RELINQUISHMENT O F ANY ASSET AS THE RIGHTS IN THE PROPERTY CONTINUED TO BELONG TO THE O WNER NEITHER IS THERE ANY EXTINGUISHMENT OF RIGHT NOR ANY COMPULSORY ACQU ISITION UNDER LAW. THEREFORE THE DEFINITION OF SECTION 2(47) IN RELATI ON TO CAPITAL ASSET EITHER A SALE RELINQUISHMENT EXTINGUISHMENT OR CO MPULSORY ACQUISITION FAILS. THE ONLY OTHER MODE WHICH HAS TO BE SEEN IS EXCHANGE. IN THIS REGARD HE SUBMITTED THAT ON THE DATE OF EXECUTION OF THE DEVELOPMENT AGREEMENT EXCHANGE AS A MODE OF TRANSFER ALSO FAIL S BECAUSE U/S 118 OF THE TRANSFER OF PROPERTY ACT BOTH THE PROPERTIES WHICH IS THE SUBJECT OF EXCHANGE MUST EXIST ON THE DATE OF TRANSFER. AN Y RIGHT OF THE APPELLANTS EXISTING ON THE DATE OF DEVELOPMENT AGRE EMENT IS ONLY LAND OWNED BY THE APPELLANTS. AS REGARDS THE CONSIDERAT ION WHICH ACCRUES OR IS RECEIVABLE IT IS ONLY WHEN THE PROJECT IS C OMPLETED WHICH AS ON DATE IS PENDING AND SINCE THE BUILT UP AREA OF 45% TO WHICH THE CO OWNERS ARE ENTITLED ON THE DATE OF DEVELOPMENT AGRE EMENT IS I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 6 NONEXISTENT THEREFORE EXCHANGE AS A MODE OF TRANSF ER ALSO FAILS. ACCORDING TO HIM THE TRANSACTION DOES NOT FALL WI THIN THE AMBIT OF SECTION 2(47)(I)(II)(III) AND (IV) OF THE IT ACT 1 961. 11. FURTHER HE SUBMITTED THAT THE OTHER SECTION WH ICH IS TO BE LOOKED INTO IS SECTION 2(47)(V) OF THE IT ACT 1961. HE SUBMITTED THAT THE DEVELOPMENT AGREEMENT DOES NOT FALL UNDER THE TRANS ACTION OF ALLOWING POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR IN PART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT. THE REASONS BEING DEVELO PMENT AGREEMENT IS NOT AN AGREEMENT FOR A SALE BECAUSE IT IS AN EX ECUTOR CONTRACT WITH THE DEVELOPERS AND NOT THE INTENDED PURCHASER. THU S IT IS ESSENTIALLY A BUSINESS AGREEMENT. THUS A DEVELOPMENT AGREEMENT B ASICALLY POSTULATES COMING TOGETHER OF TWO PARTIES I.E. THE OWNERS AND DEVELOPERS. THE OWNER OWNS THE LAND BUT HAS NO FIN ANCE TO DEVELOP THE PROPERTY AND THE DEVELOPER WHO DOES NOT HAVE TH E LAND HAS THE NECESSARY FINANCE. THUS COMING TOGETHER OF LAND AN D FINANCE FOR PROJECT DEVELOPMENT IS NECESSARILY A BUSINESS AGREE MENT WHEREBY THE LANDLORD ALLOWS THE DEVELOPERS TO ENTER THE LAND FO R THE LIMITED PURPOSE OF DEVELOPER RETAINING HIS SHARE AS HIS AWARD. A L OOK INTO THE PROVISIONS OF TRANSFER PROPERTY ACT 1882 CLEARLY SH OWS THAT ALLOWING POSSESSION IS TO BE TAKEN OR RETAINED IN PART PERFO RMANCE OF THE CONTRACT ALONE COULD BE CONSIDERED AS TRANSFER AND NOT PERMISSIVE POSSESSION OR ANY OTHER KIND POSSESSION. HE RELIED ON THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF N. KARU NA AND ANOTHER V. APPROPRIATE AUTHORITY AND OTHERS (251 ITR 230) WHER E IN HELD AS UNDER: A PERUSAL OF THE ABOVE REFERRED PROVISION SHOWS TH AT ALLOWING OF POSSESSION TO BE TAKEN OR RETAINED IN P ART PERFORMANCE OF THE CONTRACT OF THE NATURE REFERRED TO SECTION 53 OF THE TP ACT ALONE COULD BE CONSIDERED AS TRANSFER AND NOT A PERMISSIVE POSSESSION OR ANY OTH ER KIND OF POSSESSION DELIVERED BY THE SELLER TO THE PURCHASER. I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 7 12. HE SUBMITTED THAT THOUGH THE ABOVE JUDGEMENT O F THE JURISDICTIONAL HC WAS RENDERED IN THE CONTEXT OF CH APTER XXC OF THE IT ACT 1961 AND INTERPRETATION OF SECTION 269(U) (A)(F ) OF THE IT ACT 1961 EXPLANATION TO SECTION 2(47) EMBEDDED THESE PROVIS IONS. THIS DECISION THROWS LIGHT OF THE CONCEPT AND NATURE OF DEVELOPMENT AGREEMENT WHICH IS NOT REFERRED TO BY ANY OF THE AU THORITIES. THEREFORE IT IS THE APPELLANTS VIEW THAT THE PROVISIONS OF SE CTION 2(47)(V) IS NOT APPLICABLE TO THE FACTS OF THE CASE. FURTHER HE D REW OUR ATTENTION TO THE DECISIONS OF THE CALCUTTA HIGH COURT REPORTED I N BAISAKHI BHATTACHARJEE VS. SHAYAMAL BOSE & ORS. [2002 (4) C HN 115] WHEREIN THE CALCUTTA HIGH COURT HAS HELD THAT DEVELOPMENT AGREEMENT COMES OUT OF THE SCOPE OF TH E AMBIT OF SECTION 53A OF THE TRANSFER OF PROPERTY AC T. THEREFORE SECTION 53A OF THE TP ACT HAS NO MANNER OF APPLICATION TO A DEVELOPMENT AGREEMENT. 13. HE SUBMITTED THAT THE ABOVE JUDGEMENT WAS ALSO NOT CONSIDERED BY ANY OF THE JUDGEMENTS DELIVERED ON THE SUBJECT. THEREFORE THE MARCH OF LAW ON THE SUBJECT WHEREBY THE PROVISIONS OF SECTION 53A OF THE TP ACT WAS HELD NOT APPLICABLE TO DEVELOPMENT A GREEMENTS. 14. ACCORDING TO THE AR SECTION 2(47)(VI) OF THE IT ACT IS ALSO NOT APPLICABLE AS IT HAS NO EFFECT OF TRANSFER NOR ENAB LING OF ANY ENJOYMENT BY EITHER OF THE PARTIES ON THE DATE OF EXECUTION O F DEVELOPMENT AGREEMENT AS THE OWNERS CONTINUE TO OWN THE LAND AN D THE DEVELOPERS HAVE NO ENJOYMENT WHATSOEVER AS IT IS ONLY THE EXEC UTION OF A PROJECT IN ACCORDANCE WITH THE TERMS OF DEVELOPMENT AGREEMENT IN THE NATURE OF TOIL AND LABOUR RATHER THAN ENJOYMENT. THERE CLAUS E (VI) OF SECTION 2(47) IS ALSO NOT APPLICABLE TO THE FACTS OF THE CA SE. IT WOULD BE OF BENEFIT TO SEE WHAT WAS THE LAW PREVAILING BEFORE T HE INTRODUCTION OF SECTION 2(47)(V) AND 2(47)(VI) AND WHAT WAS THE MIS CHIEF THAT WAS SOUGHT TO BE REMEDIED BY LEGISLATIVE INTERFERENCE. THE PROVISIONS OF SECTION 2(47) (V) & (VI) WERE INTRODUCTION BY WAY O F AMENDMENT W.E.F. I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 8 1.4.1988. THE OBJECT AND ANALYSIS OF SECTION 2(47) (V) & (VI) ON ITS INTRODUCTION WAS TO INCLUDE TRANSACTIONS THAT CLOSE LY RESEMBLES TRANSFERS BUT ARE NOT TREATED AS SUCH UNDER THE GEN ERAL LAW. AN AGREEMENT OF SALE BY ITSELF DOES NOT CREATE ANY RIG HT OR INTEREST IN OR NEAR IMMOVABLE PROPERTY U/S 54 OF THE TRANSFER OF P ROPERTY ACT. JUDICIAL PRECEDENTS UNDER THE IT ACT TOOK THE VIEW UNTIL A SALE DEED WAS EXECUTED NO TRANSFER COULD TAKE PLACE. THE MIS CHIEF THAT WAS SOUGHT TO BE REMEDIED WAS TO INCLUDE UNDER TRANSFER PURCHASERS WHO BECAME MEMBERS OR BY ACQUIRING SHARES IN A COOPERAT IVE SOCIETY COMPANY ETC. OR BY WAY OF ANY AGREEMENT OR ARRANGE MENT. THUS THE AMENDMENTS DID NOT COVER TRANSACTIONS BY WAY OF DEV ELOPMENT AGREEMENT AS THEY ARE PURELY COMMERCIAL TRANSACTION S NOT INVOLVING TRANSFER UNTIL THE HAPPENING OF THE EVENT BY WHICH THE DEVELOPERS HAD OVER A BUILT UP AREA TO THE OWNERS IN LIEU OF THE D EVELOPERS RETAINING THEIR SHARE IN THE DEVELOPMENT OF THE PROPERTY. TH US THE MISCHIEF WHEREBY MONEY TRANSACTIONS OF SALE WERE ENTERED INT O FULL CONSIDERATION WAS RECEIVED WAS NOT REGARDED AS TRAN SFER UNTIL THEY WERE REGISTERED. IN THE SAME MANNER WHERE POSSESSI ON OF IMMOVABLE PROPERTY WAS GIVEN FULL CONSIDERATION WAS RECEIVED AND TRANSFER OF PROPERTIES WERE UNDERTAKEN UNDER POWER OF ATTORNEYS AND WHERE CONSIDERATION WAS RECEIVED FULL WERE ALL ESCAPING T HE AMBIT OF CAPITAL GAINS TAX AND TO REMEDY THIS MISCHIEF THE PROVISIO NS OF SECTION 2(47) (V) & (VI) WERE BROUGHT FORTH IN THE STATUTE. EVEN THE LAW BEFORE THE AFORESAID ENACTMENTS WERE EXPLAINED BY THE PATNA H IGH COURT IN THE CASE OF SMT. RAJ RANI DEVI RAMANA VS. CIT (201 ITR 1032) WHEREIN IT WAS HELD AS UNDER: IN THE ABSENCE OF ANY PROVISION TO THE CONTRARY T HE CONCEPT OF SALE OF AN IMMOVABLE PROPERTY WHICH IS INCLUDED IN THE EXPRESSION CAPITAL ASSET AS DEFIN ED U/S 2(14) OF THE IT ACT 1961 HAS TO BE GATHERED FROM S ECTION 54 OF THE TRANSFER OF PROPERTY ACT 1882. PROPERTI ES DO NOT NECESSARILY PASS AS SOON AS THE INSTRUMENT IS REGISTERED FOR THE TRUE TEST IS THE PROOF OF AN OP ERATIVE I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 9 TRANSFER IF THERE IS A CONDITION PRECEDENT AS TO T HE PAYMENT OF CONSIDERATION OR DELIVERY OF THE DEED. THUS THE SELLER MAY RETAIN THE DEED PENDING PAYMEN T OF PRICE AND IN THAT CASE THERE IS NO TRANSFER UNTIL T HE PRICE IS PAID AND THE DEED IS DELIVERED. THE TRANSFER U/S 2 (47) MUST MEAN AN EFFECTIVE CONVEYANCE OF THE CAPITAL AS SETS TO THE TRANSFEREE. HELD THAT IN THE INSTANT CASE IT WAS APPARENT THAT THE PARTIES HAD CLEARLY INTENDED THAT DESPITE THE EXECUTION AND REGISTRATION OF SALE DEED S TRANSFER BY WAY OF SALE WOULD BECOME EFFECTIVE ONLY ON PAYMENT OF THE ENTIRE SALE CONSIDERATION AND IN THI S BACKGROUND OF FACTS IT HAD TO BE HELD THAT THERE W AS NO TRANSFER OF LAND CONFERRED BY THE THREE SALE DEEDS IN QUESTION DURING THE PERIOD UNDER CONSIDERATION MAKI NG THE ASSESSEE LIABLE FOR CAPITAL GAINS TAX U/S 45. 15. HE SUBMITTED THAT EVEN UNDER THE LAW PRIOR TO THE AMENDMENT FROM 1.4.1998 THE LAW RELATING TO SALE STATED THAT EVEN IF THE PROPERTY WAS REGISTERED AND UNTIL THE ENTIRE PRICE WAS PAID NO TRANSFER TOOK PLACE THOUGH REGISTERED. THIS WAS ON THE PRINCIPLE THAT TRANSFER TAKES PLACE ONLY ON THE HAPPENING OF EVENTS. THE SUBSEQUENT AM ENDMENT FROM 1.4.1988 HAS NOT CHANGED THIS LEGAL POSITION. IF A TRANSFER TAKES PLACE AND IT IS COUPLED WITH CERTAIN CONDITIONS AND EVENT S TAKING PLACE IN FUTURE THE TRANSFER WOULD TAKE PLACE ONLY ON THE HA PPENING OF THE EVENT AND NOT EARLIER. 16. HE SUBMITTED THAT CAPITAL GAINS UNDER DEVELOPM ENT AGREEMENT AS A MODE OF TRANSFER ARISES MAINLY ON ACCOUNT OF E XCHANGE ONLY WHEN THE DEVELOPER HANDING OVER THE BUILT UP AREA TO THE OWNERS. IT IS AT THIS POINT OF TIME EXCHANGE AS A MODE OF TRANSFER BLOSSO MS TRIGGERING A CHANGE OF CAPITAL GAINS. 17. HE SUBMITTED WITHOUT ADMITTING TRANSFER DOES TAKE PLACE ON EXECUTION OF DEVELOPMENT AGREEMENT YET THE QUESTION THAT HAS TO BE ANSWERED IS HOW IS THE CAPITAL GAINS IS TO BE COMPU TED HAVING REGARD I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 10 TO THE PROVISIONS OF SECTION 48 OF THE IT ACT 1961 . SEC. 48 OF THE ACT STATES THAT: THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAIN S SHALL BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS : I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER II) THE COST OF ACQUISITION OF THE ASSET AND THE CO ST OF ANY IMPROVEMENT THERETO. 18. ACCORDING TO HIM WHAT IS THE CONSIDERATION THA T ACCRUES TO THE ASSESSEE DEPENDS ON THE FACTS OF THE CASE ON THE DA TE OF EXECUTION OF DEVELOPMENT AGREEMENT. THE CONSTRUCTED AREA OF THE PROJECT IS NOT IN EXISTENCE AND THAT THIS IS SUBJECT TO SO MANY FACTO RS LIKE NON SANCTION OF MUNICIPAL APPLICATION DISPUTES ESCALATION COST NON AVAILABILITY OF MEN AND MATERIAL ON ACCOUNT OF STATUTORY PROHIBITIO NS ETC. THUS THE ENTIRE CONSIDERATION IS THE WOMB OF UNCERTAINTY. T HE CONSIDERATION IS NOT CAPABLE OF BEING ASCERTAINED. THE CONSIDERATIO N IN MONEYS WORTH I.E. BUILT UP AREA OF THE IMMOVABLE PROPERTY WHICH IS TO COME INTO EXISTENCE AFTER A PERIOD OF TIME CANNOT EVEN BE EST IMATED. THEREFORE ACCRUAL OF INCOME ITSELF FAILS. CAPITAL GAIN IS AL SO A MODE OF INCOME AND UNLESS THERE IS A ACCRUAL OF INCOME BY WAY OF C APITAL GAINS THE CHARGING SECTION U/S 48 FAILS. THEREFORE THE QUES TION OF COMPUTING AND LEVY OF ANY CAPITAL GAINS ON THE DATE OF EXECUTION OF DEVELOPMENT AGREEMENT ON THE BASIS AND ASSUMPTION OF CONSIDERAT ION WHICH IS TO ACCRUE AFTER A PERIOD OF TIME AND ON THE HAPPENING OF AN EVENT OF THE DEVELOPER HANDING OVER THE BUILT UP AREA TO THE OWN ER WHICH IS NON EXISTENT AND THEREFORE THE CHARGING SECTION AND COM PUTATION PROVISIONS FAIL. 19. HE SUBMITTED THAT WHEN THE DEVELOPMENT AGREEME NT WAS ENTERED INTO ON 11.5.2005 THE VALUE OF 45% OF THE B UILT UP AREA WHICH I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 11 WAS TO BE RECEIVED BY THE ASSESSEES IS NOT KNOWN. THIS CANNOT BE DETERMINED AS THEY ARE NON EXISTENT ON THE DATE OF ENTRY INTO DEVELOPMENT AGREEMENT. THE ENTIRE CONSIDERATION WH ICH IS AN EVENT OF THE FUTURE CANNOT BE PREDICTED FOR VARIOUS REASONS LIKE HIGH FLUCTUATION COSTS SANCTION NOT BEING RECEIVED PROJECT BEING A BANDONED OR TEMPORARILY SUSPENDED ETC. AS ON DATE THE ENTIRE D EVELOPMENT OF THE PROJECT UNDERTAKEN BY THE ASSESSEES AND THE DEVELOP ERS IS ON A STANDSTILL. THUS WHETHER A CHARGE PER SE COULD RES ULT IN CAPITAL GAIN AND FASTENS A LIABILITY IN THE SAID YEAR WHEN CONSI DERATION IS NEITHER KNOWN NOR ASCERTAINABLE? IN THIS REGARD THE ASSESS ING OFFICER HAS TOTALLY LOST SIGHT OF THE PRINCIPLE LAID DOWN BY TH E HONBLE SUPREME COURT IN THE CASE OF CIT V. BC SRINIVASA SETTY [128 ITR 294 (SC)]. THE COURT HAS EVOLVED A VERY CRUCIAL PRINCIPAL OF UNIVE RSAL APPLICATION REGARDING THE YEAR OF ASSESSABILITY. IT WAS HELD T HAT THE CHARGING SECTION AND THE COMPUTATION PROVISIONS TOGETHER CON STITUTE AN INTEGRATED CODE. WHEN THERE IS A CASE TO WHICH THE COMPUTATION PROVISIONS CANNOT APPLY AT ALL IT IS EVIDENT THAT SUCH A CASE WAS NOT INTENDED TO FALL WITHIN THE CHARGING SECTION. ALL TRANSACTION ENCOMPASSED BY S.45 MUST FALL UNDER THE GOVERNANCE OF ITS COMPUTATION PROVISIONS. A TRANSACTION TO WHICH THO SE APPLIED MUST BE REGARDED AS NEVER INTENDED BY S. 45 TO BE THE SUBJE CT OF THE CHARGE. THIS VITAL PRINCIPLE HAS NOT BEEN CONSIDERED BY THE ASSESSING OFFICER IN THE ORDER. IN THE CASE OF THE ASSESSEE THE MONEY CONSIDERED COULD NOT BE ASCERTAINED WITH REASONABLE CERTAINTY ON THE DATE OF ENTERING INTO THE DEVELOPMENT AGREEMENT. ALTHOUGH THE CONS IDERATION FOR TRANSFER OF LAND WAS SPECIFIED IN THE AGREEMENT IN TERMS OF CONSTRUCTED AREA (45:55) THE SAME CANNOT BE TRANSLATED INTO MON EY ON THE DATE OF ENTERING INTO THE AGREEMENT AS RECEIPT OF CONSIDERA TION WAS DEPENDANT ON MANY FACTORS VIZ. A) GIVING FULL EFFECT TO THE AGREEMENT I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 12 B) SANCTION OF THE LAY OUT PLAN BY REGULATORY AUTHO RISED AND POSSIBILITY OF NON RECEIPT OF APPROVALS FROM THEM C) CANCELLATION OF AGREEMENT D) FAILURE TO CONSTRUCT HOUSE AS PER SPECIFICATION ON WHICH EVENT THE CONSIDERATION WOULD VARY AND THE LAND OWNER CAN ENFORCE SPECIFIC PERFORMANCE ETC. THESE ARE ALL UNANTICIPA TED EVENTS WHICH WOULD INFLUENCE THE CONSIDERATION. THERE MAY BE A CASE WHERE THE AGREEMENT MAY BE ABROGATED/TERMINATED FOR VARIOUS REASONS WHICH ARE QUITE COMMON IN CASE OF ANY AGREE MENT. IN SUCH EVENT FASTENING A LIABILITY ON THE LAND OWNER WHO HAS NOT RECEIVED ANY CONSIDERATION WHICH IS UNCERTAIN IS AG AINST THE BASIC TENETS OF TAXATION EQUITY AND FAIR PLAY. IF THE PRINCIPLE ENUNCIATED IN THE CASE IS ACCEPTED AND DATE OF AGRE EMENT IS ADOPTED AS DATE/YEAR OF CHARGE FASTENING A LIABILIT Y THIS WOULD LEAD TO AN ANOMALOUS SITUATION. THERE COULD BE CAS E WHERE THE AGREEMENT MAY NOT BE CARRIED OUT BUT THE DEPARTMEN T WOULD FASTEN THE LIABILITY BASING ON THE AGREEMENT. IT I S SUBMITTED THAT WHAT IS TO BE TAXED IS THE CONSIDERATION AND WHEN N O CONSIDERATION HAS BEEN RECEIVED MERELY BECAUSE THE RE IS A CHARGE HOW CAN THERE BE LEVY? 20. HE FURTHER SUBMITTED THAT TAXATION OF CAPITAL GAIN ON THE POINT OF CREATION OF CHARGE IN THE YEAR OF ENTERING INTO THE AGREEMENT AS ADVANCED BY THE ASSESSING OFFICER IS DEPENDENT ON THE FACTORS PREVALENT ON THE DATE OF AGREEMENT BY NOT ON FACTOR S WHICH WOULD EMERGE IN FUTURE. THEREFORE WHEN THE CONSIDERATIO N COULD NOT BE ASCERTAINED ON THE DATE OF AGREEMENT THE QUESTION WHICH ARISES FOR CONSIDERATION IS WHETHER MERELY BECAUSE THERE IS A CHANGE WOULD BE SCHEME BE WORKABLE TO COMPUTE THE CAPITAL GAIN? TH E ANSWER IS IN NEGATIVE. FOR THIS PROPOSITION HE RELIED ON THE O RDER OF THIS TRIBUNAL IN THE CASE OF SRI RAGHURAMI REDDY ITO IN ITA NO.296/H /2003 DATED 30- 7-2004 WHICH IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 13 HE SUBMITTED THOUGH THIS CASE LAW WAS BROUGHT TO TH E KNOWLEDGE OF THE ASSESSING OFFICER IT WAS NOT CONSIDERED. 21. HE SUBMITTED THAT WHILE WORKING OUT THE CONSID ERATION THE ASSESSING OFFICER HAS ESTIMATED THE CONSIDERATION T O BE RECEIVED ON A FUTURE DATE I.E. UPON COMPLETION OF CONSTRUCTION. FOR THE PURPOSE THE ASSESSING OFFICER HAS WORKED OUT THE CONSIDERATION ON THE BASIS OF ESTIMATED COST TO BE INCURRED BY THE BUILDER IN FUT URE FOR COMPLETION OF THE VENTURE. THIS METHOD OF RELATING BACK THE COST OF CONSIDERATION TO THE DEVELOPER AS CONSIDERATION IS FALLACIOUS FOR TH E FOLLOWING REASONS: (A) IN THE CASE OF THE ASSESSEE THE CONSIDERATION FIXED UNDER THE AGREEMENT IS IN TERMS OF CONSTRUCTED AREA ON THE DA TE OF EXECUTION OF THE DOCUMENT. THE SAME CANNOT BE QUAN TIFIED IN MONETARY TERMS WITH REASONABLE CERTAINTY FOR WORKIN G OUT THE CAPITAL GAIN. IT IS ONLY WHEN THE CONSTRUCTIONS IS COMPLETED AND COST OF CONSTRUCTION IN THE HANDS OF THE BUILDER IS KNOWN THE SAME CAN BE ADOPTED TO WORK OUT FULL VALUE OF CONSI DERATION ACCRUING TO THE LAND OWNER IN RESPECT OF THE CONSTR UCTED AREA FALLING TO HIS SHARE. THE PROJECT IS AT A STANDSTI LL. IN THE CASE OF THE ASSESSEE THE CONSTRUCTION WAS COMPLETED DURING FINANCIAL YEAR 2009-2010 RELEVANT TO ASSESSMENT YEAR 2010-11. THEREFORE THE COST IN THE HANDS OF THE BUILDER COU LD BE ASCERTAINED WITH REASONABLE CERTAINTY SO AS TO COMP UTE THE CAPITAL GAIN IN THE ASSESSMENT YEAR 2010-11 ONLY BU T NOT EARLIER TO THE SAME. (B) ON THE DATE OF EXECUTION OF THE AGREEMENT IT M AY NOT BE CORRECT TO WORK OUT THE FULL VALUE OF CONSIDERATION OF THE CONSTRUCTED AREA WITH REFERENCE TO ESTIMATED MARKET VALUE FOR T HE PURPOSES OF SUBJECTING THE TRANSACTION TO TAX. FULL VALUE O F CONSIDERATION U/S 48 CANNOT BE EQUATED WITH MARKET VALUE OF THE C APITAL ASSET I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 14 AS ON THE DATE OF TRANSFER BUT IT SHALL MEAN THE PR ICE BARGAINED FOR BY THE PARTIES RELATES TO CONSTRUCTED AREA. TH E DEVELOPER IS OBLIGATED TO HAND OVER THE CONSTRUCTED AREA CONFIRM ING TO SPECIFICATION WITHOUT ANY DEVIATION. IN SUCH A SIT UATION A FUTURE EVENT CANNOT BE ANTICIPATED TO WORK OUT THE FULL VA LUE OF CONSIDERATION ON THE DATE OF EXECUTION OF THE DEVEL OPMENT AGREEMENT. THEREFORE THE MARKET VALUE ON THE DATE OF ENTERING INTO THE AGREEMENT CANNOT BE ADOPTED AS FULL VALUE OF CONSIDERATION. HE RELIED ON THE FOLLOWING JUDGEMEN TS: I. CIT VS. GEORGE HENDERSON AND CO. LTD. (66 ITR 62 2) (SC) II. CIT VS. GILLANDERS ARBUTHNOT AND CO. (87 ITR 40 7) (SC). 22. HE SUBMITTED THAT WHEN ONE VIEW THE FACTS OF T HE CASE FROM THE PERSPECTIVE FULL VALUE OF CONSIDERATION FOR TRANSF ER OF A CAPITAL ASSET UNDER A DEVELOPMENT AGREEMENT IS WHAT THE TRANSFER ACTUALLY RECEIVES IN LIEU OF THE CAPITAL ASSET HE PARTS WITH WHICH CA N BE TRANSLATED INTO MONEY WITH REASONABLE CERTAINTY AFTER COMPLETION OF CONSTRUCTION. 22.1 IN THE CASE OF DEVELOPMENT AGREEMENT IT CAN NOT BE SAID THAT FULL VALUE OF CONSIDERATION ACCRUED BEFORE COMMENCEMENT OF CONSTRUCTION I.E. ON THE DATE OF EXECUTION OF THE AGREEMENT. FU TURE COURSE OF EVENTS HAVING A BEARING ON QUANTIFICATION OF CONSIDERATION CANNOT BE FORESEEN AT THE INITIAL STAGE WITH REASONABLE CERTAINTY. FA CTORS SUCH AS EXTENT OF CONSTRUCTED AREA QUALITY OF CONSTRUCTION EXACT AR EA FALLING TO THE SHARE OF LAND OWNER POSSIBILITY OF BREACH OF AGREEMENT A ND NON APPROVAL OF THE PROJECT BY REGULATORY AUTHORITIES RESULTING IN SCRAPING OF THE PROJECT ALTOGETHER ARE SOME OF THE FUTURE EVENTS WHICH INT RODUCES AN ELEMENT OF UNCERTAINTY RENDERING THE WORKING OF CONSIDERATI ON AN IMPOSSIBILITY ON THE DATE OF ENTERING INTO THE AGREEMENT. THEREF ORE THE CONSIDERATION THOUGH SPECIFIED IN THE AGREEMENT BY WAY OF CERTAIN I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 15 PERCENTAGE OF THE CONSTRUCTED AREA THE SAME CANNOT BE CONVERTED INTO MONEYS WORTH OR WORKED OUT WITH CERTAINTY TO WORK OUT FULL VALUE OF CONSIDERATION EITHER BY OBTAINING THE ESTIMATED EXP ENDITURE FROM THE BUILDER OR ON THE BASIS OF FAIR MARKET VALUE. 22.2. ANY ATTEMPT TO LEVY TAX IN SUCH CASES BY INV ENTING SOME NOTIONAL METHOD TO WORK OUT FULL VALUE OF CONSIDERATION WOUL D MILITATE AGAINST THE THEORY OF REAL INCOME. IT IS BECAUSE OF INDETERMIN ATE NATURE OF VARIOUS FACTORS AND ELEMENT OF UNCERTAINTY THAT INFLUENCES A CONTRACT UNDER A DEVELOPMENT AGREEMENT. INCOME TAX IS A LEVY ON INC OME EITHER AT THE STAGE OF ACCRUAL OR ITS RECEIPT BUT SUBSTANCE OF TH E MATTER IS THE INCOME. WHERE THE INCOME CAN BE SAID TO BE NOT TO HAVE RESULTED AT ALL THERE IS NEITHER RECEIPT NOR ACCRUAL. THUS A NY HYPOTHETICAL METHOD TO WORK OUT CONSIDERATION ON THE DATE OF ENTERING I NTO THE AGREEMENT WOULD NEGATE THIS BASIC CONCEPT OF REAL INCOME. NO POWER IS VESTED ON THE ASSESSING OFFICER TO TAX AN INCOME THAT WOULD A CCRUE OR ARISE IN A SUBSEQUENT YEAR IN AN EARLIER YEAR ON THE GROUND TH AT THE SAID INCOME AROSE OUT OF AN EARLIER TRANSACTION. HE RELIED ON THE JUDGEMENT IN THE CASE OF CIT VS. GANAPATHY NAIDU (53 ITR 114) (SC) A ND IN THE CASE OF CIT VS. SHOORJI VALLABHDAS & CO. (46 ITR 144) (SC). FURTHER HE DREW OUR ATTENTION TO THE FINDINGS IN THE CASE OF CIT VS . ASHOKBHAI CHIMANBHAI 56 ITR 42 SC WHEREIN IT WAS HELD AS UND ER: THE WORDS ACCRUE AND ARISE ARE USED TO CONTRADISTINGUISH THE WORD RECEIVE. INCOME IS SA ID TO BE RECEIVED WHEN IT REACHES THE ASSESSEE WHEN THE RIG HT TO RECEIVE THE INCOME VESTED IN THE ASSESSEE IT IS SA ID TO ACCRUE OR ARISE. INCOME BECOMES TAXABLE ON THE FOO TING OF ACCRUAL ONLY AFTER THE RIGHT OF THE TAXPAYER TO THE INCOME ACCRUES OR ARISES AND IN THE CASE OF AN AGREEMENT WHICH MAKES PROFITS RECEIVABLE AT OR ON T HE HAPPENING OF A CONTINGENCY THE FACT THAT THE PROFI TS ARE THE RESULT OF TRANSACTIONS SPREAD OVER A PERIOD WHI CH COVERS A PERIOD PRECEDING THE HAPPENING OF THAT CONTINGENCY WOULD NOT MAKE THE RECEIPT LIABLE TO BE PAID TO PERSONS OTHER THAN THOSE WHO ARE ENTITLED TO REC EIVE IT I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 16 ON THE DATE ON WHICH IT IS ACTUALLY RECEIVED OR BEC AME RECEIVABLE. 23. HE SUBMITTED THAT ON THE BASIS OF RATIO OF THE ABOVE DECISION IT CAN BE SAFELY HELD THAT NO INCOME HAS ACCRUED TO TH E ASSESSEE ON THE DATE OF EXECUTION OF THE AGREEMENT ON THE BASIS OF ACCRUAL. IT WOULD BE DEFERRED TO A FUTURE DATE WHEN CONSTRUCTED AREA IS HANDED OVER TO THE LAND OWNER RESULTING IN GIVING FULL EFFECT TO THE AGREEMENT. AS ON DATE IT IS PENDING. 24. FURTHER THE LEARNED AR RELIED ON THE ORDER OF THE TRIBUNAL DATED 30.7.2004 IN THE CASE OF S. RAGHURAMI REDDY IN ITA NO. 296/H/2003 WHEREIN THE TRIBUNAL HELD THAT WHEN IT IS NOT POSSI BLE TO ESTIMATE THE CONSIDERATION WITH REASONABLE ACCURACY ON THE DATE OF SIGNING OF THE DEVELOPMENT AGREEMENT IT IS JUST LIKE COUNTING THE CHICKENS BEFORE THEY ARE HATCHED AND THE YEAR OF TAXABILITY CAN BE ONLY THE ASSESSMENT YEAR IN WHICH THE FLATS ARE HANDED OVER BY THE BUIL DER TO THE ASSESSEE AND NOT THE YEAR IN WHICH THE JOINT VENTURE OR DEVE LOPMENT AGREEMENT WAS ENTERED INTO. FURTHER HE SUBMITTED THAT THE OR DER OF THE TRIBUNAL IN THE CASE OF DR. MAYA SHENOYS VS. ACIT (124 TTJ 69 2) (HYD.) IS NOT APPLICABLE TO THE FACTS OF THE CASE. SIMILARLY HE SUBMITTED THAT IN THE CASE OF DR.T. ACHYUT RAO VS. ACIT (106 ITD 388) (HYD.) WHEREIN THE TRIBUNAL HELD THAT THERE IS A TRANSFER U/S 2(47)(V) OF THE IT ACT. SINCE THE CONDITION LAID DOWN IN SECTION 53A OF TRANSFER OF PROPERTY ACT 1882 HAS BEEN SATISFIED. HOWEVER IN THE PRESENT CASE THE CONDITION LAID DOWN U/S 53A OF THE ACT HAS NOT BEEN SATISFIED. HE NCE IT CANNOT BE SAID THAT THERE IS A TRANSFER IN THE PRESENT CASE A S ENVISAGED U/S 2(47) (V) OF THE IT ACT. 25. HE SUBMITTED THAT THE RELIANCE PLACED BY THE A SSESSING OFFICER IN THE CASE OF CHATURBHUJ DWARAKADAS V. CIT (260 I TR 491) (BOM) AND THE DECISION IN THE CASE OF SRI JASBIR SINGH SA KARIA (AAR 724 OF I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 17 2006) ON THE ISSUE OF TAXABILITY ON THE DATE OF DEV ELOPMENT AGREEMENT IS MISPLACED. 26. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSES SEE THE DECISION IN THE CASE OF SHRI T. ACHUTA RAO AND DR. MAYA SHEN OY SUPRA ENUNCIATES THE PRINCIPLE THAT THE TAXABLE EVENT OCC URS ON THE DATE OF ENTERING INTO THE DEVELOPMENT AGREEMENT AND FOR THE PURPOSE CONSIDERATION CAN BE ESTIMATED. IN THIS REGARD HE HAS SUBMITTED AS FOLLOWS: I) THE EVENT OF CAPITAL GAIN I.E. THE DATE OF TRANS FER WAS NOT QUESTION IN MAYA SHENOYS CASE. II) EVEN ACCEPTING THAT A CHARGE WAS CREATED ON THE DATE OF ENTERING INTO THE AGREEMENT NO COMPUTATION OF FULL VALUE OF CONSIDERATION IS POSSIBLE FOR THE DETAILED REASONS. THIS ASPECT HAS BEEN CONCEDED IN MAYA SHENOYS CASE. III) THE DECISION OF APEX COURT IN THE CASE OF BC SRINIVASA SETTY ON A VITAL ASPECT WAS NOT POINTED OUT BEFORE THE TRIBUNAL AND CONSIDERED RENDERING THE DECISIONS PER INCURIUM. THEREFORE THERE COULD BE NO PRECEDENT VA LUE IN THE ABOVE TWO DECISIONS. IV) THE TRIBUNAL DID NOT CONSIDER THE CONCEPT OF FU LL VALUE OF CONSIDERATION AS CONTAINED IN SECTION 45 AS DISTING UISHED FROM MARKET VALUE OR AN ESTIMATED VALUE AS THE SAME WAS NOT CANVASSED BEFORE IT. V) WHILE COMING TO A CONCLUSION THAT FULL VALUE OF CONSIDERATION CAN BE ESTIMATED CERTAIN VITAL ASPECTS WERE NOT CO NSIDERED. THE ASSESSEE SUBMITTED THAT THE ESTIMATED FULL VALU E OF CONSIDERATION IN THE GIVEN FACTS OF THE CASE IS NOT AUTHORISED BY THE STATUTE AS DISCUSSED ABOVE. WHEREAS AN ESTI MATED VALUE INTRODUCES A MENTAL ELEMENT A GUESS WORK FU LL VALUE I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 18 OF CONSIDERATION IS WHAT IS BARGAINED FOR AND PAID. THIS VITAL ASPECT WAS NOT BROUGHT TO THE NOTICE OF THE BENCH. VI) THE PRINCIPLE ENUNCIATED BY THE APEX COURT IN T HE CASE OF KP VARGHESE VS. ITO (131 ITR 597) (SC) WAS NOT BROUGHT TO THE NOTICE OF THE TRIBUNAL. THE APEX COURT LAID DOWN T HAT IT IS NOT VERY FICTIONAL ACCRUAL OR RECEIPT OF INCOME WHICH H AS NEVER ACCRUED NOR NEVER RECEIVED WHICH COULD BE BROUGHT TO TAX FOR THE PURPOSE OF TAXATION OF CAPITAL GAIN. THE PROVISIONS SEEK TO BRING WITHIN THE NET OF TAXATION ONLY THAT INCOME WHICH HAS ACCRUED OR IS RECEIVED BY THE ASSESSEE AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. VII) THE THEORY OF REAL INCOME WAS NOT ADVANCED BEF ORE THE TRIBUNAL AND NOT CONSIDERED. 27. HE SUBMITTED THAT ON THE OTHER HAND IN THE C ASE OF S. RAGHURAM REDDY (SUPRA) ALL THE ABOVE ASPECTS WERE CONSIDERED AND THE DECISION WAS RENDERED. IT WAS WHOLESOME DECISI ON AND IT IS TO BE FOLLOWED. HE ALSO RELIED ON THE JUDGEMENT OF CALCU TTA HIGH COURT IN THE CASE OF MADGUL UDYOG VS. CIT (184 ITR 484) (CAL.). 28. REGARDING THE DOCTRINE OF BINDING PRECEDENT H E SUBMITTED AS FOLLOWS: I) ALL THE DECISIONS WERE RENDERED BY TWO CO-EQUAL BENCHES OF THE JURISDICTIONAL TRIBUNAL. THEREFORE A LATER DECISIO N RENDERED BY A COEQUAL BENCH CANNOT OVERRIDE THE FORMER. II) IT IS SETTLED PRINCIPLE THAT THE AUTHORITIES A RE NOT BOUND TO FOLLOW A DECISION WHICH CAME AT A LATER POINT OF TIME BUT MAY FOLLOW ONE WHICH ACCORDING TO IT IS BETTER IN POINT OF LAW AND FACT. III) EVEN IN A CASE WHERE THERE IS DIRECT CONFLICT BETWEEN THE DECISIONS OF COEQUAL BENCHES THE AUTHORITIES ARE T O FOLLOW I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 19 THE JUDGEMENT WHICH STATES THE LAW MORE ELABORATELY AND IN CONFORMITY WITH THE SCHEME OF THE ACT. IV) JUDGED IN THE CONTEXT OF THE ABOVE PRINCIPLE I T WOULD APPEAR THAT THE ORDER IN THE CASE OF RAGHURAM REDDY (SUPRA) IS PREFERABLE FOR THE FOLLOWING REASONS: A. THE CASE WAS FULLY ARGUED BY BOTH PARTIES B. THE DECISION WAS REACHED AFTER FULL CONSIDERATIO N OF ALL ASPECTS OF LAW AND FACT. C. THERE IS NOTHING TO INDICATE THAT THE DECISION C ONFLICTS WITH WELL ESTABLISHED PRINCIPLES OR FAILS TO GO WITH A D EFINITE STREAM OF AUTHORITY. D. THE DECISION WAS NOT PERVERSE OR MANIFESTLY WRON G ON ANY ISSUE. E. THERE IS NOTHING TO INDICATE THAT THE PREVIOUS D ECISION WAS MANIFESTLY AGAINST THE SCHEME OF THE ACT. IT I S NOT AN ERRONEOUS DECISION OR A VAGUE ONE TOUCHING UPON INTERPRETATION WHICH HAS GIVEN RISE TO PUBLIC INCONVENIENCE OR HARDSHIP. ON THE OTHER HAND BY T HE PUTTING POSITION OF LAW STRAIGHT THE DECISION LEAN S TOWARDS AVOIDING LITIGATION. THIS DECISION HAS NOT ENCOURA GED THE IMPOSITION OF TAX BURDEN OR OTHER LIABILITY UPON TA X PAYER ON ERRONEOUS INTERPRETATION OF LAW. 29. ACCORDING TO THE LEARNED AR IN SUCH A SCENARI O THE MATTER OF FOLLOWING THE LATER DECISION WHICH WITH UTMOST RES PECT LEFT MANY QUESTIONS UNANSWERED BECAUSE THE SAME WERE NOT BE A PPROPRIATE. THE PREFERENCE IN SUCH A SITUATION LEANS TOWARDS FO LLOWING THE EARLIER DECISIONS AS THE SAME WAS A WHOLESOME DECISION ADDR ESSING TO ALL ISSUES FOLLOWING VARIOUS JUDICIAL PRECEDENTS ON THE SUBJECT AND THE POSITION OF LAW. I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 20 30. ACCORDING TO THE AR THE ASSESSING OFFICER HAS WRONGLY RELIED ON THE JUDGEMENT IN THE CASE OF CHATURBHUJ DWARAKADAS V. CIT (260 ITR 491) (BOM) AND JUDGEMENT IN THE CASE OF SRI JASBIR SINGH SAKARIA (AAR 724 OF 2006). THESE TWO CASES ARE DISTINGUISH ABLE ON FACTS. IN THE CASE OF CHATURBHUJ DWARAKADAS BOTH THE CHARGE A ND CONSIDERATION IN MONETARY TERMS WERE ASCERTAINABLE ON THE DATE OF ENTERING INTO THE DEVELOPMENT AGREEMENT. THESE TWO FACTORS INFLUENCE THE COURT TO COME TO A CONCLUSION THAT THE GAIN WAS ASSESSABLE I N THE YEAR OF DEVELOPMENT AGREEMENT. IN THE CASE OF SRI JASBIR S INGH SAKARIA ALSO THE CONSIDERATION WAS ASCERTAINABLE WITH REASONABLE CERTAINTY. THEREFORE THESE TWO DECISIONS ARE NOT APPLICABLE T O THE CASE OF THE ASSESSEE. 31. IT IS SUBMITTED BY THE AR THAT THE ASSESSING O FFICER HAS NOT FULLY APPRECIATED THE FACTS OF THE CASE WHILE APPLYING TH E RATIO OF THE ABOVE JUDGEMENTS. ON THESE FACTS THE DECISION IN THE CA SE OF RAGHURAMI REDDY IS MORE APT AND APPLICABLE TO THE FACTS OF TH E CASE OF THE ASSESSEES. 32. IT IS ALSO SUBMITTED THAT IN THE DECISION IN THE CASE OF MAYA SHENOY AND ACHUTA RAO FULL FACTS OF THE TRANSACTIO N AND DECISIONS OF THE APEX COURT IN THE CASES CITED ABOVE WERE NOT B ROUGHT TO THE NOTICE OF THE TRIBUNAL MAKING THE DECISION PER IN CURIUM I N THE CASE OF MAYA SHENOY AND ACHUTA RAO. 33. IT IS SUBMITTED THAT THE ENTIRE PROJECT IS ON A STANDSTILL AS ON DATE. THE ASSESSEES HAVE NOT BEEN HANDED OVER THE BUILT U P AREA AS A DATE. THE CONSIDERATION ACCRUING OR ARISING IS THE VALUE OF 45% OF BUILT UP AREA AS ALLOWABLE TO THE ASSESSEES. HE RELIED ON T HE ORDER OF THE TRIBUNAL IN THE CASE OF DDIT VS. G. RAGHURAM (134 T TJ 87) (HYD) WHEREIN IT WAS HELD THAT I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 21 THE CONSIDERATION ACCRUING OR ARISING IS THE COST OF CONSTRUCTION OF THE PROJECT BY THE DEVELOPER. THIS IS UNKNOWN AND CANNOT BE ESTIMATED EVEN UNDER THE BEST PRINCIPLES OF ACCOUNTANCY AS IT IS NON EXISTENT ON 11.5.2005. 34. IF THIS IS SO ON THE FACTS OF THE CASE OF THE ASSES SEE THE ENTIRE PROJECT IS ON A STANDSTILL AND THE ASSESSEE AS OWNE RS HAVE NOT RECEIVED ANY OF THE BUILT UP AREA TO WHICH THEY ARE ENTITLED . THEREFORE NO INCOME BE SAID TO ACCRUE AS LAID DOWN IN SECTION 48. HE SUBMITTED THAT 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. HO WEVER OUT OF THIS A SUM OF RS.50 LAKHS WAS REFUNDED BY THE LANDLORD T O THE DEVELOPER ON 5.3.2009. THE PROJECT HAS NOT BEEN COMPLETED TILL DATE DUE TO VERY BAD MARKET CONDITIONS AND HENCE THE POSSESSION OF THE CONSTRUCTED FLATS HAS NOT BEEN HANDED OVER TO MR. K. SRINIVASA RAO & FAMILY. 35. WITH PREJUDICE TO THE ABOVE IT IS SUBMITTED BY THE AR THAT THE CONSIDERATION ACCRUING CANNOT BE EVALUATED AS THE S UBJECT MATTER IS NOT IN EXISTENCE AND THEREFORE CANNOT BE DISCOUNTED AS ON THE DATE OF TRANSFER AS IT WOULD AMOUNT TO CALCULATION OF DISCO UNT FIGURES ON AN UNKNOWN FIGURE FOR A NON EXISTING ASSET AND THEREFO RE INCAPABLE OF BEING DETERMINED. THEREFORE WITHOUT PREJUDICE TO A NY OF THE AFORESAID SUBMISSIONS IT IS SUBMITTED THAT THE COMPUTATION PR OVISIONS CANNOT BE INVOLVED AND THEREFORE THE CHANGE TO CAPITAL GAINS FAILS. IN THIS CONNECTION HE RELIED ON THE JUDGEMENT OF SUPREME CO URT IN THE CASE OF CIT VS. BC SRINIVASA SETTY (128 ITR 294). 36. HE SUBMITTED THAT YET ANOTHER DECISION WHICH H AS ESCAPED THE ATTENTION OF THE ADJUDICATORS IN THE PREVIOUS JUDGE MENTS IS THAT OF THE CALCUTTA HIGH COURT IN THE CASE OF MAHA SOCIETY VS. UOI (78 TAXMANN 401). HE DREW OUR ATTENTION SPECIFICALLY TO PARA 2 2 OF THE JUDGEMENT WHEREIN THEIR LORDSHIPS OF THE CALCUTTA HIGH COURT HELD AS UNDER: I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 22 22. THE LAST LEGAL OBJECTION RAISED BY MR. BAGCHI IS THAT THE PROVISIONS OF CHAPTER XXC ARE NOT ALSO OTHERWIS E OPERATIVE IN A TRANSFER WHERE THE CONSIDERATION IS IN FUTURE SPECIE WHICH CANNOT BE RENDERED IN PRESENT MONETARY TERMS. THE COST OF THE STRUCTURE TO COME UP IN A D ISTANT FUTURE AND ALSO THE COST OF FUTURE SERVICES TO BE R ENDERED ARE NOT ACCORDING TO HIM REDUCIBLE TO ANY MONETARY EQUIVALENT TO PRAESENTI BECAUSE THE MONETARY EQUIVA LENT IS AN IMPONDERABLE. THEREFORE ACCORDING TO HIM T HE MACHINERY OF COMPUTATION OF THE COMPENSATION FAILS. THAT BEING THE CASE THE PROVISIONS HAVE TO BE CALL ED TO A HALT. IN THIS CONNECTION HE REFERRED THE DECISION OF THE SUPREME COURT IN CIT V. B.C. SRINIVASA SETTY (1981) 128 ITR 294 TO IMPRESS THAT THE CHARGING SECTION AND TH E COMPUTATION PROVISIONS TOGETHER CONSTITUTE AN INTEG RATED PART. WHEN THERE IS A CASE TO WHICH THE COMPUTATIO N PROVISION CANNOT APPLY AT ALL IT IS EVIDENT THAT S UCH A CASE WAS NOT INTENDED TO FALL WITHIN THE CHARGING SECTIO N. 37. THE LEARNED AR SUBMITTED THUS THERE ARE AN ANA LOGOUS SITUATION AND THEREFORE THE COMPUTATION MACHINERY AS LAID DO WN IN B.C. SRINIVASA SETTYS CASE (SUPRA) FAILS. HE FURTHER SUBMITTED THAT BOTH ON FACTS AND IN LAW NO TRANSFER TOOK PLACE ONLY ON 11. 5.2005. THE COMPUTATION MACHINERY FAILS FOR DETERMINING THE CON SIDERATION FOR THE ASSESSMENT YEAR 2006-07. 38. ON THE OTHER HAND THE LEARNED DR RELIED ON TH E ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND SUBMITTED THAT PROVISIONS OF SECTION 2(47) (V) OF THE IT ACT IS AN INTRUSIVE DEF INITION AND RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF TAHER ALIMOHAM MED POONAWALA VS. ADDL. CIT (124 TTJ) (PUNE) AND THE ORDER OF THE TRIBUNAL IN THE CASE OF DR. MAYA SHENOY VS. ACIT (124 TTJ 692) (HYD .) AND JUDGMENT OF HON'BLE BOMBAY HIGH COURT'S IN THE CASE OF CHATU RBHUJ DWARKADAS KAPADIA V. CIT (260 ITR 491) 39. WE HAVE HEARD THE RIVAL CONTENTIONS AT CONSIDER ABLE LENGTH. WE HAVE ALSO PERUSED THE MATERIAL ON RECORD AND DULY C ONSIDERED FACTUAL I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 23 MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POS ITION. LEARNED REPRESENTATIVES HAVE ADDRESSED US ON DIFFERENT ASPE CTS OF THE MATTER AND ALSO FILED WRITTEN SUBMISSIONS ALONG WITH THE J UDICIAL PRECEDENTS WHICH ARE PLACED ON RECORD. 40. AS REVENUE HAS PLACED HEAVY RELIANCE ON THE JU DGMENT OF HON'BLE BOMBAY HIGH COURT'S IN THE CASE OF CHATURBH UJ DWARKADAS KAPADIA V. CIT (SUPRA) AND IT IS BASED ON THIS JUD GMENT THAT THE IMPUGNED ADDITION HAS BEEN MADE BY THE AO AND SUST AINED BY THE CIT(A) IT IS NECESSARY TO FIRST APPRECIATE WHAT TH IS JUDGMENT LAYS DOWN AND PERHAPS EVEN MORE IMPORTANT THAT THAT WHAT IT DOES NOT LAY DOWN. 41. THEIR LORDSHIPS OF HON'BLE BOMBAY HIGH COURT WE RE EXAMINING THE SCOPE AND IMPORT OF SECTION 2(47)(V) WHICH WAS INTR ODUCED W.E.F. 1ST APRIL 1988. THIS PROVISION WHICH COVERS ONE OF. T HE MODES OF DEEMED 'TRANSFER' LAYS DOWN THAT THE SCOPE OF EXPRESSION 'TRANSFER' INCLUDES 'ANY TRANSACTION INVOLVING THE ALLOWING OF THE POS SESSION OF ANY IMMOVABLE PROPERTY (AS DEFINED) TO BE TAKEN OR RETA INED IN PART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT'. ELABORATING UPON THE SCOPE OF SECTION 2(47)(V) THEIR LORDSHIPS OBSERVED AS FOLLOWS: UNDER SECTION 2(47)(V) ANY TRANSACTION INVOLVING ALLOWING OF POSSESSION TO BE TAKEN OR RETAINED IN P ART PERFORMANCE OF THE CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT WOULD C OME WITHIN THE AMBIT OF SECTION 2(47)(V). THAT IN ORDE R TO ATTRACT SECTION 53A THE FOLLOWING CONDITIONS NEED TO BE FULFILLED. THERE SHOULD BE CONTRACT FOR CONSIDERATI ON; IT SHOULD BE IN WRITING; IT SHOULD BE SIGNED BY THE TR ANSFEROR; IT SHOULD PERTAIN TO THE TRANSFER OF IMMOVABLE PROP ERTY; THE TRANSFEREE SHOULD HAVE TAKEN POSSESSION OF PROP ERTY; LASTLY TRANSFEREE SHOULD BE READY AND WILLING TO P ERFORM THE CONTRACT. THAT EVEN ARRANGEMENTS CONFIRMING PRIVILEGES OF OWNERSHIP WITHOUT TRANSFER OF TITLE COULD FALL UNDER SECTION 2(47)(V). 42. THEIR LORDSHIPS HAVING MADE THE ABOVE OBSERVAT IONS TOOK NOTE OF THE FACT THAT SECTION 2(47)(V) WAS INTRODUCED IN TH E ACT W.E.F. ASST. YR. 1988-89 BECAUSE PRIOR THERETO IN MOST CASES IT WA S ARGUED ON BEHALF I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 24 OF THE ASSESSEE THAT NO TRANSFER TOOK PLACE TILL EX ECUTION OF CONVEYANCE. IT WAS ALSO NOTED BY THEIR LORDSHIPS TH AT IN THIS SCENARIO ASSESSEE USED TO ENTER INTO AGREEMENTS FOR DEVELOPI NG PROPERTIES WITH THE BUILDERS AND UNDER ARRANGEMENT WITH THE BUILDER S THEY USED TO CONFER PRIVILEGES OF OWNERSHIP WITHOUT EXECUTING CO NVEYANCE AND TO PLUG THAT LOOPHOLE SECTION 2(47)(V) CAME TO BE INT RODUCED IN THE ACT. 43. THERE WAS NO DISPUTE ON WHETHER OR NOT THE CO NDITIONS OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT WERE SA TISFIED ON THE FACTS OF THE CASE BEFORE THE HON'BLE BOMBAY HIGH COURT. I T WAS IN THIS CONTEXT AND AFTER ELABORATE ANALYSIS OF THE FACTS OF THE CASE BEFORE THEIR LORDSHIPS THEIR LORDSHIPS ALSO OBSERVED AS F OLLOWS: IF ON A BARE READING OF A CONTRACT IN ITS ENTIRETY AN AO COMES TO THE CONCLUSION THAT IN THE GUISE OF AGREEM ENT FOR SALE A DEVELOPMENT AGREEMENT IS CONTEMPLATED UNDER WHICH THE DEVELOPER APPLIES FOR PERMISSION FR OM VARIOUS AUTHORITIES EITHER UNDER POWER OF ATTORNEY OR OTHERWISE AND IN THE NAME OF THE ASSESSEE THE AO I S ENTITLED TO TAKE THE DATE OF CONTRACT AS THE DATE O F THE TRANSFER UNDER SECTION 2(47)(V). 44. IT IS IMPORTANT TO BEAR IN MIND THAT SECTION 2( 47)(V) REFERS TO 'POSSESSION TO BE TAKEN OR RETAINED IN PART PERFORM ANCE OF THE CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRA NSFER OF PROPERTY ACT' AND IN THE CASE BEFORE HON'BLE BOMBAY HIGH COURT T HERE WAS NO DISPUTE THAT THE CONDITIONS OF SECTION 53A WERE SAT ISFIED. IN OTHER WORDS THE PROPOSITION LAID DOWN BY THEIR LORDSHIPS CAN AT BEST BE INFERRED AS THAT WHEN CONDITIONS UNDER SECTION 53A ARE SATISFIED AND WHEN THE ASSESSEE ENTERS INTO A CONTRACT WHICH IS A DEVELOPMENT AGREEMENT IN THE GARB OF AGREEMENT OF SALE IT IS THE DATE OF THIS DEVELOPMENT AGREEMENT WHICH IS MATERIAL DATE TO DEC IDE THE DATE OF TRANSFER. HOWEVER BY NO STRETCH OF LOGIC THIS LEG AL PRECEDENT CAN SUPPORT THE PROPOSITION THAT ALL DEVELOPMENT AGREEM ENTS IN ALL SITUATIONS SATISFY THE CONDITIONS OF SECTION 53A W HICH IS A SINE QUA NON FOR INVOKING SECTION 2(47)(V). 45. IN ORDER TO INVOKE THE PRINCIPLES LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CHATURBHUJ DWARKADAS KAPA DIA (SUPRA) IT IS I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 25 THEREFORE NECESSARY TO DEMONSTRATE THAT THE CONDIT IONS UNDER SECTION 53A OF THE TRANSFER OF PROPERTY ACT ARE SATISFIED. THIS SECTION IS REPRODUCED BELOW FOR READY REFERENCE: SECTION 53A : PART PERFORMANCE-WHERE ANY PERSON CONTRACTS TO TRANSFER FOR CONSIDERATION ANY IMMOVAB LE PROPERTY BY WRITING SIGNED BY HIM OR ON HIS BEHALF FROM WHICH THE TERMS NECESSARY TO CONSTITUTE TRANSFER CA N BE ASCERTAINED WITH REASONABLE CERTAINTY AND THE TRANSFEREE HAS IN PART PERFORMANCE OF THE CONTRACT TAKEN POSSESSION OF THE PROPERTY OR. ANY PART THEREOF OR THE TRANSFEREE BEING ALREADY IN POSSES SION CONTINUES IN POSSESSION IN PART PERFORMANCE OF THE CONTRACT AND HAS DONE SOME ACT IN FURTHERANCE OF TH E CONTRACT AND THE TRANSFEREE HAS PERFORMED OR IS WILLING TO PERFORM HIS PART OF THE CONTRACT THEN NOTWITHSTANDING THAT THE CONTRACT THOUGH RE QUIRED TO BE REGISTERED HAS NOT BEEN REGISTERED OR WHER E THERE IS AN INSTRUMENT OF TRANSFER THAT THE TRANSFER HAS NOT BEEN COMPLETED IN THE MANNER PRESCRIBED THEREOF BY THE L AW FOR THE TIME BEING IN FORCE THE TRANSFEROR OR ANY PERS ON CLAIMING UNDER HIM SHALL BE DEBARRED FROM ENFORCING AGAINST THE TRANSFEREE AND PERSONS CLAIMING UNDER HIM ANY RIGHT IN RESPECT OF THE PROPERTY OF WHICH THE T RANSFEREE HAS TAKEN OR CONTINUED IN POSSESSION OTHER THAN TH E RIGHT SPECIFICALLY PROVIDED BY THE TERMS OF THE CONTRACT; PROVIDED THAT NOTHING IN THIS SECTION SHALL AFFECT THE RIGHTS OF A TRANSFEREE FOR CONSIDERATION WHO HAS NO NOTICE OF THE CONTRACT OR OF THE PART PERFORMANCE THEREOF. (EMPHASIS ITALICIZED IN PRINT SUPPLIED BY US NOW) 46. A PLAIN READING OF THE SECTION 53A OF THE TRANS FER OF PROPERTY ACT SHOWS THAT IN ORDER THAT A CONTRACT CAN BE TERMED T O BE 'OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPE RTY ACT' IT IS ONE OF THE NECESSARY PRECONDITIONS THAT TRANSFEREE SHOULD HAVE OR IS WILLING TO PERFORM HIS PART OF THE CONTRACT. THIS ASPECT HAS B EEN DULY TAKEN NOTE OF BY THE HON'BLE BOMBAY HIGH WHEN THEIR LORDSHIPS OBSERVED AS FOLLOWS: I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 26 THAT IN ORDER TO ATTRACT SECTION 53A THE FOLLOWI NG CONDITIONS NEED TO BE FULFILLED. (A) THERE SHOULD BE CONTRACT FOR CONSIDERATION; (B) IT SHOULD BE IN WRITING; (C) IT SHOULD BE SIGNED BY THE TRANSFEROR; (D) IT SHOULD PERTAIN TO THE TRANSFER OF IMMOVABLE PROPERTY; (E) THE TRANSFEREE SHOULD HAVE TAKEN POSSESSION OF PROPERTY; (F) LASTLY TRANSFEREE SHOULD BE READY AND WILLING TO PERFORM THE CONTRACT. 47. ELABORATING UPON THE SCOPE OF EXPRESSION 'HAS P ERFORMED OR IS WILLING TO PERFORM' THE OFT QUOTED COMMENTARY 'MUL LA-THE TRANSFER OF PROPERTY ACT' (9TH EDN. : PUBLISHED BY BUTTERWORTHS INDIA) AT P. 448 OBSERVES THAT: THE DOCTRINE OF READINESS AND WILLINGNESS IS AN EM PHATIC WAY OF EXPRESSION TO ESTABLISH THAT THE TRANSFEREE ALWAYS ABIDES BY THE TERMS OF THE AGREEMENT AND IS WILLING TO PERFORM HIS PART OF THE CONTRACT. PART PERFORMANCE AS A STATUTORY RIGHT IS CONDITIONED UPON THE TRANSFEREE 'S WILLINGNESS TO PERFORM HIS PART OF THE CONTRACT IN TERMS COVENANTED THERE UNDER. WILLINGNESS TO PERFORM THE ROLES ASCRIBED TO A PART Y IN A CONTRACT IS PRIMARILY A MENTAL DISPOSITION. HOWEVER SUCH WI LLINGNESS IN THE CONTEXT OF SECTION 53A OF THE ACT HAS TO BE ABS OLUTE AND UNCONDITIONAL. IF WILLINGNESS IS STUDDED WITH A CON DITION IT IS IN FACT NO MORE THAN AN OFFER AND CANNOT BE TERMED AS WILLINGNESS. WHEN THE VENDEE COMPANY EXPRESSES ITS WILLINGNESS T O PAY THE AMOUNT PROVIDED THE (VENDOR) CLEARS HIS INCOME TAX ARREARS THERE IS NO COMPLETE WILLINGNESS BUT A CONDITIONAL WILLINGNESS OR PARTIAL WILLINGNESS WHICH IS NOT SUFFICIENT. IN JUDGING THE WILLINGNESS TO PERFORM THE COURT MU ST CONSIDER THE OBLIGATIONS OF THE PARTIES AND THE SEQUENCE IN WHIC H THESE ARE TO BE PERFORMED.. I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 27 48. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS S O EXPRESSED IN THIS COMMENTARY ON THE PROVISIONS OF THE TRANSFER O F PROPERTY ACT. IT IS THUS CLEAR THAT 'WILLINGNESS TO PERFORM' FOR THE PU RPOSES 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 W ILLING TO PERFORM ITS OBLIGATIONS UNDER THE CONTRACT AND IN THE SAME SEQ UENCE IN WHICH THESE ARE TO BE PERFORMED IT CANNOT BE SAID THAT T HE PROVISIONS OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT WILL CO ME INTO PLAY ON THE FACTS OF THAT CASE. IT IS ONLY ELEMENTARY THAT UNL ESS PROVISIONS OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT ARE SAT ISFIED ON THE FACTS OF A CASE THE TRANSACTION IN QUESTION CANNOT FALL WIT HIN THE SCOPE OF DEEMED TRANSFER UNDER SECTION 2(47)(V) OF THE IT AC T. LET US THEREFORE CONSIDER WHETHER THE TRANSFEREE ON THE FACTS OF TH E 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 TH E CASE WOULD SHOW THAT THE TRANSFEREE HAD NEITHER PERFORMED NOR WAS I T WILLING TO PERFORM ITS OBLIGATION UNDER THE AGREEMENT IN THE ASSESSMEN T 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. TH E TRANSFEREE ORIGINALLY MADE A PAYMENT OF RS.10 LAKHS ON 11.5.20 05 AND ANOTHER PAYMENT OF RS.90 LAKHS ON THE SAME DAY AS REFUNDABL E SECURITY DEPOSIT. HOWEVER OUT OF THIS A SUM OF RS.50 LAKHS WAS SAID TO BE REFUNDED BY THE LANDLORD TO THE DEVELOPER ON 5.3.20 09. AS SUCH THE ASSESSEE HAS RECEIVED ONLY A MEAGER AMOUNT AS REFUN DABLE SECURITY DEPOSIT WHICH CANNOT BE CONSTRUED AS RECEIPT OF PAR T OF SALE CONSIDERATION. ADMITTEDLY THERE IS NO PROGRESS IN THE DEVELOPMENT AGREEMENT IN THE ASSESSMENT YEAR UNDER CONSIDERATIO N. THE MUNICIPAL SANCTION FOR DEVELOPMENT WAS OBTAINED NOT IN THIS A SSESSMENT YEAR AND IT WAS OBTAINED ONLY ON 17.09.2006 FROM THE HYD ERABAD URBAN DEVELOPMENT AUTHORITY. THE SANCTION OF THE BUILDIN G PLAN IS UTMOST IMPORTANT FOR THE IMPLEMENTATION OF THE AGREEMENT E NTERED BETWEEN THE PARTIES. WITHOUT SANCTION OF THE BUILDING PLAN TH E VERY GENESIS OF THE I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 28 AGREEMENT FAILS. TO ENABLE THE EXECUTION OF THE AG REEMENT FIRSTLY PLAN IS TO BE APPROVED BY THE COMPETENT AUTHORITY. IN FACT THE BUILDING PLAN WAS NOT GOT APPROVED BY THE BUILDER IN THE ASSESSME NT YEAR UNDER CONSIDERATION. UNTIL PERMISSION IS GRANTED A DEVEL OPER 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 ASSESSMENT YEAR UNDER CONSIDERATIO N. NOTHING IS BROUGHT ON RECORD BY AUTHORITIES TO SHOW THAT THER E WAS DEVELOPMENT ACTIVITY IN THE PROJECT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION AND COST OF CONSTRUCTION WAS INCURRED BY THE BUILDE R/DEVELOPER. HENCE IT IS TO BE INFERRED THAT NO AMOUNT OF INVESTMENT B Y THE DEVELOPER IN THE CONSTRUCTION ACTIVITY DURING THE ASSESSMENT YEAR IN THIS PROJECT AND IT WOULD AMOUNT TO NON-INCURRING OF REQUIRED COST OF A CQUISITION BY THE DEVELOPER. IN THE ASSESSMENT YEAR UNDER CONSIDERAT ION IT IS NOT POSSIBLE TO SAY WHETHER THE DEVELOPER PREPARED TO C ARRY OUT THOSE PARTS OF THE AGREEMENT TO THEIR LOGICAL END. THE DEVELOP ER IN THIS ASSESSMENT YEAR HAD NOT SHOWN ITS READINESS OR HAVI NG MADE PREPARATION FOR THE COMPLIANCE OF THE AGREEMENT. T HE DEVELOPER HAS NOT TAKEN STEPS TO MAKE IT ELIGIBLE TO UNDERTAKE TH E PERFORMANCE OF THE AGREEMENT WHICH ARE THE PRIMARY INGREDIENT THAT MAK E 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 RE LATIONSHIP ESTABLISHED BY THE DEVELOPMENT AGREEMENT. BEING S O IT WAS CLEAR THAT IN THE YEAR UNDER CONSIDERATION THERE WAS NO TRANSFER OF NOT ONLY THE FLATS AS SUPERSTRUCTURE BUT ALSO THE PROPORTION ATE LAND BY THE ASSESSEE UNDER THE JOINT DEVELOPMENT AGREEMENT. AS PER CLAUSE NO. 12.11 AND 19.1 OF DEVELOPMENT AGREEMENT-CUM POWER O F ATTORNEY TIME IS THE ESSENCE OF THE CONTRACT AND AS PER CLAU SE NO.12.11 THE SAID PROPERTY IS TO BE DEVELOPED AND HAND OVER THE POSSE SSION OF THE OWNERS ALLOCATION TO THE OWNERS AND OR THEIR NOMI NEES WITHIN 24 MONTHS FROM THE DATE OF RECEIVING THE SANCTION OF T HE PLAN FROM HUDA AND MUNICIPALITY/GRAM PANCHAYAT WITH A FURTHER GRAC E PERIOD OF 3 MONTHS. BUT THE FACT REMAINS THAT THE TRANSFEREE W AS NOT ONLY FAILED TO PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT BUT AL SO UNWILLING TO I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 29 PERFORM ITS OBLIGATIONS IN THE ASSESSMENT YEAR UNDE R CONSIDERATION. EVEN OTHERWISE THE ASSESSING AUTHORITIES HAS NOT B ROUGHT ON RECORD THE ACTUAL POSITION OF THE PROJECT EVEN AS ON THE D ATE OF ASSESSMENT OR HE HAS NOT RECORDED THE FINDINGS WHETHER THE DEVELO PER 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 T HE DEVELOPER IN PART PERFORMANCE OF THE DEVELOPMENT AGREEMENT-CUM-GENERA L 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 TH E 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 AR E 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 I N THIS ASSESSMENT YEAR. ONCE WE COME TO THE CONCLUSION THAT THE TRANS FEREE WAS NOT 'WILLING TO PERFORM' AS STIPULATED BY AND WITHIN M EANINGS ASSIGNED TO THIS EXPRESSION UNDER SECTION 53A OF THE TRANSFER O F PROPERTY ACT ITS CONTRACTUAL OBLIGATIONS IN THIS PREVIOUS YEAR RELEV ANT TO THE PRESENT ASSESSMENT YEAR IT IS ONLY A COROLLARY TO THIS FI NDING 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 NAT URE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT' AND A CCORDINGLY PROVISIONS OF SECTION 2(47)(V) CANNOT BE INVOKED ON THE FACTS OF THIS CASE CHATURBHUJ DWARKADAS KAPADIA V. CIT'S CASE (SU PRA) UNDOUBTEDLY LAYS DOWN A PROPOSITION WHICH MORE OFT EN THAT NOT FAVOURS THE REVENUE BUT ON THE FACTS OF THIS CASE THE SAID JUDGMENT I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 30 SUPPORTS THE CASE OF THE ASSESSEE INASMUCH AS 'WILL INGNESS TO PERFORM' HAS BEEN SPECIFICALLY RECOGNIZED AS ONE OF THE ESSE NTIAL INGREDIENTS TO COVER A TRANSACTION BY THE SCOPE OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT. REVENUE DOES NOT GET ANY ASSISTANCE F ROM 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 HA VE BEEN INVOKED ON THE FACTS OF THE PRESENT CASE AND FOR THE ASSESS MENT YEAR IN DISPUTE BEFORE US. IN THE PRESENT CASE THE SITUATION IS TH AT THE ASSESSEE HAS RECEIVED ONLY A MEAGER AMOUNT' OUT OF TOTAL CONSID ERATION THE TRANSFEREE IS AVOIDING ADHERING TO THE AGREEMENT AN D THERE IS NO EVIDENCE BROUGHT ON RECORD BY THE REVENUE AUTHORITI ES TO SHOW THAT THERE WAS ACTUAL CONSTRUCTION HAS BEEN TAKEN PLACE AT THE IMPUGNED PROPERTY IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND ALSO THERE IS NO EVIDENCE TO SHOW THAT THE RIGHT TO RECEIVE THE S ALE CONSIDERATION WAS ACTUALLY ACCRUED TO THE ASSESSEE. WITHOUT ACCRU AL OF THE CONSIDERATION TO THE ASSESSEE THE ASSESSEE IS NOT EXPECTED TO PAY CAPITAL GAINS ON THE ENTIRE AGREED SALES CONSIDERAT ION. WHEN TIME IS ESSENCE OF THE CONTRACT AND THE TIME SCHEDULE IS N OT ADHERED TO IT CANNOT BE SAID THAT SUCH A CONTRACT CONFERS ANY RIG HTS 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 TH E PROVISIONS OF SECTION 2(47)(V) WILL APPLY IN THE SITUATION BEFORE US. CO NSIDERING THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AS DISCUSSED ABOV E WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE DESERVES TO SUCCE ED ON REASON THAT THE CAPITAL GAINS COULD NOT HAVE BEEN TAXED I N THE IN THIS ASSESSMENT YEAR IN APPEAL BEFORE US. THE OTHER GR OUNDS RAISED BY THE ASSESSEES IN THEIR APPEALS HAVE BECOME IRRELEVA NT AT THIS POINT OF TIME AS WE HAVE HELD THAT PROVISIONS OF SECTION 2(4 7)(V) WILL NOT APPLY TO THE ASSESSEES IN THE ASSESSMENT YEAR UNDER CONSIDE RATION. CONSEQUENTLY THE APPEAL FILED BY THE REVENUE IN IT A NO.328 TO 331/HYD/2011 HAVE BECOME INFRUCTUOUS AND DISMISSED ACCORDINGLY. I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 31 51. NOW WE WILL TAKE UP ITA NO.416 417 & 418/HYD/ 2011 OF THE REVENUE APPEALS. IN THESE APPEALS THE GRIEVANCE OF THE REVENUE IS WITH REGARD TO TREATING THE GAIN ARISING OUT OF THE TRANSACTION IN SALE OF LAND AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME. BRIEF FACTS OF THE ISSUE ARE THAT CONSEQUENT TO A SEARCH OPERATION IN THE CASE OF SRI K. SRINIVASA RAO NOTICES U/S 153C OF THE IT ACT WERE ISSUED TO THE ASSESSEE IN RESPONSE TO WHICH THE ASSESSEE FILED RE TURNS OF INCOME FOR THE ASSESSMENT YEARS UNDER CONSIDERATION ADMITTIN G TOTAL INCOME AS BELOW: ASSESSMENT YEAR INCOME RETURNED AGRICULTURAL INCOME 2002-03 RS.2 52 593/- RS.1 88 145 2003-045 RS.6 31 709/- NIL 2004-05 RS.11 33 261/- NIL 52. IN THE ASSESSMENTS MADE THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS THE OWNER OF VARIOUS LANDED PROPERT IES SITUATED AT VATTINAGULAPALLI VILLAGE KOKAPET VILLAGE NANAKRAM GUDA VILLAGE AND MUSAPET VILLAGE AND SOLD DIFFERENT LANDED PROPERTIE S AND CLAIMED EXEMPTION OF CAPITAL GAIN STATING THEY WERE ALL AGR ICULTURAL LANDS. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE WAS IN VOLVED IN THE BUSINESS OF REAL ESTATE ACTIVITY OF PURCHASE AND SA LE OF AGRICULTURAL LANDS. HE THEREFORE ASSESSED THE INCOME RETURNED A ND CLAIMED AS EXEMPT U/S 2(14) OF THE IT ACT BY THE ASSESSEE UNDE R THE HEAD CAPITAL GAINS AS INCOME UNDER THE HEAD PROFITS AND GAINS O F BUSINESS TREATING ASSESSEES EARNINGS FOR THE ABOVE YEARS AS ADVENTUR E IN NATURE OF TRADE. THE ASSESSING OFFICER MADE THE ADDITIONS OF RS.15 45 000/- RS.23 92 812/- AND RS.4 56 45 000/- FOR THE ASSESS MENT YEARS 2002- 03 2003-04 AND 2004-05 RESPECTIVELY. THE TOTAL IN COME WAS THUS ASSESSED AT RS 30 23 520/- RS.17 97 590/- AND RS. 4 67 78 260/- FOR THE ASSESSMENT YEARS 2002-03 2003-04 RESPECTIVEL Y AND TAX I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 32 DEMANDS OF RS.9 33 633/- RS.15 05 016/- AND RS.2 55 83 243 RESPECTIVELY WERE RAISED. ON APPEAL THE CIT(A) DE CIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOR THESE ASSESSMENT YEARS. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. 53. THE DR RELIED ON THE ORDER OF THE ASSESSING OF FICER. ON THE OTHER HAND THE AR RELIED ON THE ORDER OF THE CIT(A ). 54. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FOR THE PURPOSE OF BETTER UNDE RSTANDING WE WILL GO THROUGH THE DETAILS OF COMPLETE SALE AND PURCHASE O F PROPERTIES. TABLE:1 DATE OF PURCHASE PURCHASE VALUE EXTENT (ACRES/ GUNTAS) DATE OF SALE SALE VALUE (RS.) NET GAIN (RS.) LOCATION ASSESSMENT YEAR 2002-03 10.3.2000 3 71 500 A6-G17 13.7.01 9 64 000 5 92 50 0 SY NO.242 VATTI- NAGULAPALLI VILLAGE 31.5.2000 4 25 000 A4-G10 1) 13.8.01 3 75 000 (A1-10G) SY NO.102P KOKAPET VILLAGE 2) 19.12.01 1 55 000 (A0-20G) THE ENTIRE LAND WAS DIVIDED IN TO 5 PORTIONS AND SOLD TO FIVE DIFFERENT CUSTOMERS 3) 19.12.01 1 55 000 (A0-G20) 4) 13.08.01 2 85 000 (A0- G38) 5) 13.08.01 1 57 500 (A0- G21) 21.6.2001 1 25 000 A2-G20 13.07.01 3 75 000 2 50 0 00 SY NO.248 OF VATTINAGULAPALLI VILLAGE TOTAL GAIN OUT OF THE ABOVE SAID TRANSACTIONS: 1 5 45 000 ASSESSMENT 2003-04 30.10.95 4 03 188 A10-G18 1) 28.06.02 2) 28.06.02 3) 01.07.02 1 31 250 A0-G35 3 93 750 A2-G25 9 00 000 A6 TOTAL 14 25 000 10 21 812 SURVEY NO.233 OF VATTINAGULAPALLI VILL OUT OF AC.10-18 GTS. THE ASSESSEE HAS SOLD AC.9.20 GTS TO THREE DIFFERENT CUSTOMERS 18.7.2002 1 35 500 A2G07 21.2.03 3 26 500 1 89 000 SURVEY NO.234 OF VATTINAGULLAPALLI VIL. 26.7.2000 4 50 000 A8-G14. 30.4.02 10 03 500 11 82 000 THE ASSESSEE HAS PURCHASED AC.8-22 GTS. AT SY.NO.88 KOKAPET VILLAGE ON 3.1.2003 3 75 000 A0-G08. 30.4.02 10 03 500 I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 33 TWO DIFFERENT DATES. THE SAME WAS SOLD THROUGH TWO DIFFERENT SALE DEED EACH ADMEASURING AC.4-11 GTS. ON 30.4.02 TOTAL GAIN/PROFIT EARNED OUT OF THE TRANSACTION : RS .23 92 812/- ASSESSMENT YEAR 2004-05 1.9.1996 .. A8-G0 23.2.04 1 36 00 000 1 36 00 000 THE ASSESSEE HAS PURCHASED THE LANDS SITUATED AT SY.NO.228 AND 229 VATTINAGULA-PALLY VILLAGE IN THE NAME OF Y. PRATIMA D/O Y. RAVINDRA BABU ON 1.9.96. IT WAS NOTHING BUT A BENAMI PURCHASE. THOSE LANDS ONLY SOLD SUBSEQUENTLY AND SHE HAS CREDITED THE GAIN INTO HER CAPITAL ACCOUNT. HENCE NO BENEFIT OF COST WAS GIVEN TO HER. 1.9.1996 A6-G9 23.2.04 1 05 82 500 1 05 82 500 1.9.1996 .. A12-G25. 23.2.04 1 12 62 500 (A6-G25.) 1 02 00 000 (A6-G0) 1 12 62 500 1 02 00 000 IN THIS CASE ALSO THE ASSESSEE HAS PURCHASED LANDED PROPERTY SITUATED AT SY.NO.193 (AC.4-16 GTS.) AND IN 12-25 GTS.) IN THE NAME OF Y.PRATIMA ON 1.9.96. IT WAS ALSO NOTHING BUT A BENAMI PURCHASE. HOWEVER THE SALE CONSIDERATION WAS CREDITED INTO HER CAPITAL ACCOUNT. HENCE NO BENEFIT OF COST WAS GIVEN TO HER. OUT OF AC.17- 01 GTS. SHE HAS STILL OWN AC.4-16 GTS SITUATED AT SY. NO.193. TOTAL GAIN OUT OF BENAMI PURCHASE AND SALE RS.4 56 4 5 000/- 23.9.2002 6 35 000 A6-G14. 27.8.03 6 35 000 NIL SY. NO.176 OF VATTINAGULAPALLY VILLAGE. ASSESSMENT YEAR 2006-07 I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 34 18.7.2002 1 83 000 A2-G36. 19.7.04 49 00 000 47 17 000 AC. 4-06 GTS. OF SY. NO. 244 VATTINAGULA- PALLY VILLAGE WAS PURCHASED AND REGISTERED IN THE NAME OF HUSBAND AND WIFE AND SOLD JOINTLY FOR RS.70 05 000/-. OUT OF THIS ASSESSEES SHARE WAS RS.49 00 000/-. 27.11.2002 (IN THE NAME OF SRINIVASA RAO) 79 000 A1-G10. . . .. TABLE SHOWING THE REASON FOR SALE OF LAND BY ASSE SEE DURING VARIOUS YEARS VILLAGE/ SURVEY NO. YEAR OF ACQUISITION AREA (ACRES/ GUNTAS) YEAR OF SALE REMARKS/REASONS VATTINAGULAPALLI S. NO. 242 1999-00 (10.3.2000) A6- G12 2001-02 (13-07-01) THIS LAND WAS FALLING IN BIO- CONSERVATION ZONE/GREEN BELT. THIS FACT WAS NOT WITHIN THE KNOWLEDGE OF THE APPELLANT. ALTHOUGH PURCHASED TO RETAIN THE SAME IT WAS SOLD UNDER COMPELLING CIRCUMSTANCES TO REALISE THE INVESTMENT TO AVOID ANY FUTURE DISPUTE. S. NO. 248 2001-02 (21-06-2001) A2- G20 2001-02 (13-07-2001) THIS LAND WAS FALLING IN BIO- CONSERVATION ZONE/GREEN BELT A FACT NOT KNOWN TO THE APPELLANT. THE LAND WAS PURCHASED FOR RETAINING THE SAME IT WAS SOLD UNDER COMPELLING CIRCUMSTANCES TO REALISE THE INVESTMENT AND TO AVOID ANY FUTURE DISPUTE. BECAUSE OF RESTRICTION IN EXPLOITATION OF THE LAND THE APPELLANT SOLD THE LAND TO THE SAME PARTY AS MENTIONED ABOVE. KOKAPET LAND S. NO. 102 (P) 2000-01 (31-05-2000) A3- G29 2001-02 (13-8-01 & 19.12.01) ON COMING TO KNOW ABOUT IMPEDING ACQUISITION BY GOVT. THE LAND WAS SOLD TO AVOID FURTHER LITIGATION. AFTER SALE ACQUISITION NOTICE SERVED SOLD TO ONE PARTY WITHOUT ANY PLOTTING. REGISTERED FOR THEIR CONVENIENCE IN DIFFERENT NAMES. VATTINAGULAPALLI S. NOS. 233 & 234 1995-96 (30.10.95) A10- G18 28.6.2002 & 1.7.2002 THIS LAND WAS FALLING IN BIO- CONSERVATION ZONE/GREEN BELT. THIS FACT WAS NOT WITHIN THE KNOWLEDGE OF THE APPELLANT. ALTHOUGH PURCHASED TO RETAIN THE SAME IT WAS SOLD UNDER COMPELLING CIRCUMSTANCES TO REALIZE THE INVESTMENT TO AVOID ANY FUTURE DISPUTE. SOLD TO ONE PARTY WITHOUT ANY PLOTTING. REGISTERED IN VARIOUS NAMES AS PER CONVENIENCE OF THE PARTY. KOKAPET S. NO. 88 2001-01 (26.07.2000) A18- G14` 2002-03 (30.04.2002) THE LAND WAS PURCHASED AS AN INVESTMENT. THE APPELLANT RECEIVED LEGAL NOTICE FROM FAMILY I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 35 MEMBERS OF VENDORS ON 28.8.01 AND A CASE WAS FILED IN OS. 113 BEFORE ADDL. DIST. JUDGE L.B. NAGAR REMAND REPORT DIST. TO AVOID FUTURE COMPLICATION THE LAND WAS SOLD. VATTINAGULAPALLI S. NO. 229 & 228 1996 A26- G31 2003-04 THIS LAND WAS FALLING IN BIO- CONSERVATION ZONE/GREEN BELT. THIS FACT WAS NOT WITHIN THE KNOWLEDGE OF THE APPELLANT. ALTHOUGH PURCHASED TO RETAIN THE SAME IT WAS SOLD UNDER COMPELLING CIRCUMSTANCES TO REALISE THE INVESTMENT TO AVOID ANY FUTURE DISPUTE. THIS WAS ACQUIRED IN THE NAME OF NIECE OF APPELLANT'S HUSBAND AND DECLARED IN VDIS. VATTINAGULAPALLI S. NO. 244 2002-03 A2- G36 2004-05 (19.7.2004) THIS IS A CONTIGUOUS LAND TO THE ABOVE LAND. SOLD TO THE SAME PARTY. 55. AS SEEN FROM THE ABOVE TABLES THE ASSESSEE HA S BEEN ACQUIRING THE LAND FROM THE YEAR 1995 WHICH HAS BEEN SOLD IN THE SUBSEQUENT YEARS. IT IS ALSO FACT THAT THE ASSESSEE WAS SHOWI NG INCOME FROM THE SAID LAND HOLDING AS AGRICULTURAL INCOME. AS PER T HE TABLE THE LAND WHICH WAS ACQUIRED IN SEPT. 1996 WAS SOLD DURING TH E FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2004 -05 WHICH ME ANS THE LAND HAS BEEN HELD BY THE ASSESSEE AS AN INVESTMENT NOT AS A STOCK IN TRADE BEFORE REALISING THE SAME. HAD BEEN THE ASSESSEE I N REAL ESTATE BUSINESS SHE WOULD NOT HAVE KEPT THE LAND FOR SUCH A LONG PERIOD. THE CONTENTION OF THE DEPARTMENT IS THAT THE ASSESSEE S OLD THE LAND WITHIN A YEAR OF ACQUISITION. WE HAVE GONE THROUGH THE FACT S OF THE CASE. THE CERTAIN LAND ACQUIRED BY THE ASSESSEE HAS BEEN SOLD BY THE ASSESSEE WITHIN SHORT TIME ON ACCOUNT OF COMPELLING CIRCUMST ANCES. IT WAS EXPLAINED TO US BY THE AR THAT CERTAIN LAND AS ENUM ERATED IN THE TABLE IS FALLING UNDER BIO CONSERVATION ZONE/GREEN BELT W HICH SHE WAS NOT AWARE OF IT. THUS THE LAND WAS SOLD UNDER COMPELL ING CIRCUMSTANCES TO REALISE THE INVESTMENT AND TO AVOID ANY FUTURE D ISPUTE. SIMILARLY IN CASE OF CERTAIN LAND THERE WAS IMPENDING ACQUISITI ON BY THE GOVT. AND TO AVOID FUTURE LITIGATION THE ASSESSEE WAS COMPELL ED TO SELL THEM. SIMILARLY IN THE CASE OF LAND SITUATED AT KOKAPET VILLAGE THE ASSESSEE I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 36 HAD RECEIVED A LEGAL NOTICE FROM THE FAMILY MEMBERS OF THE VENDORS AND IN FACT A CASE WAS FILED IN OS NO.113 BEFORE TH E ADDL. DISTRICT JUDGE LB NAGAR. HENCE TO AVOID ANY FUTURE COMPLI CATIONS THE SAID LAND WAS SOLD. CONSIDERING THE ABOVE FACTS WE CAN NOT HOLD THAT THE ASSESSEE ENGAGED IN THE REAL ESTATE BUSINESS. IT IS ALSO FACT THAT THE ASSESSEE HAS BEEN OFFERED CAPITAL GAIN IN SUBSEQUEN T YEARS WHICH HAS NOT BEEN DISTURBED BY THE ASSESSING OFFICER. FOR EXAMPLE FOR THE ASSESSMENT YEAR 2006-07 THE ASSESSEE HAD SHOWN IN HER RETURN LONG TERM CAPITAL GAIN IN RESPECT OF SALE OF LAND MEASU RING 4 ACRES 89 GUNTAS AND NO ADVERSE VIEW HAS BEEN TAKEN BY THE AS SESSING OFFICER ON THIS. IF THE REVENUE AUTHORITIES WERE OF THE OP INION THAT THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE THE ASS ESSING OFFICER WOULD HAVE TAKEN A CONSISTENT STAND IN RESPECT OF ALL THE TRANSACTIONS. IT IS ALSO ADMITTED FACT THAT THERE IS NO REGULAR ACTIVIT Y OF PURCHASING AND SELLING OF LAND AND THERE IS NOTHING ON RECORD TO S HOW THAT THE LAND WAS PURCHASED FOR THE PURPOSE OF SELLING THE SAME. EVE N IF THE LAND WAS DEVELOPED AND WAS SOLD AFTER CONVERTING INTO PLOTS WITH A VIEW TO SECURE THE BETTER PRICE IT CANNOT COME WITHIN THE P URVIEW OF ADVENTURE IN THE NATURE OF TRADE AND BUSINESS. FURTHER IT I S ADMITTED FACT THAT THE LAND IN DISPUTE HEREIN IS AN AGRICULTURAL LAND AND ASSESSED TO LAND REVENUE. THE EARNING ON SALE OF THE LAND WAS IN THE NATURE OF CAPITAL GAIN AND THEREFORE NOT ASSESSABLE AS INCOME FROM B USINESS. ACCORDINGLY WE ARE ENTIRELY AGREEMENT WITH THE FIN DINGS GIVEN BY THE CIT(A) IN HIS ORDER AND THE SAME IS CONFIRMED. THE GROUNDS RAISED BY THE REVENUE ARE REJECTED. I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 37 56. IN THE RESULT THE ASSESSEES APPEALS ARE PARTL Y ALLOWED AND THAT OF REVENUE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9.9. 2011. SD/- SD/- D G.C. GUPTA VICE PRESIDENT S CHANDRA POOJARI ACCOUNTANT MEMBER HYDERABAD DATED THE 9 TH AUGUST 2011 NP/ TPRAO COPY FORWARDED TO: 1. MS. K. RADHIKA C/O. M/S. PRASAD & PRASAD CAS 301 III FLOOR M.J. TOWERS ROAD NO. 12 BANJARA HILLS HYDERABAD- 500 034. 2. MR. K. SRINIVASA RAO 3. MS. K. VENKAYAMMA 4. MS. K. HEMALATHA 5. THE DCIT CENTRAL CIRCLE-2 HYDERABAD. 6. THE CIT(A)-I HYDERABAD. 7. THE CIT (CENTRAL) HYDERABAD. 8. THE DR A BENCH ITAT HYDERABAD I.T.A. NOS. 208 TO 211; 328 TO 331 & 416 TO 418/HYD/2011 SMT. K. RADHIKA & OTHERS ============================ 38