Sri P Umabala., Visakhapatnam v. The ACIT, Circle-1(1)., Visakhapatnam

ITA 51/VIZ/2007 | 1998-1999
Pronouncement Date: 05-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 5125314 RSA 2007
Assessee PAN AHJPP1406R
Bench Visakhapatnam
Appeal Number ITA 51/VIZ/2007
Duration Of Justice 3 year(s) 1 month(s) 30 day(s)
Appellant Sri P Umabala., Visakhapatnam
Respondent The ACIT, Circle-1(1)., Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 05-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 05-05-2010
Assessment Year 1998-1999
Appeal Filed On 06-03-2007
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SRI B.R. BASKARAN ACCOUNTANT MEMBER I.T.A. NO 51/VIZAG/2007 ASSESSMENT YEAR : 1998-99 P. UMA BALA VISAKHAPATNAM VS. ACIT CIRCLE-1(1) VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO. AHJPP 1406 R APPELLANT BY : SHRI A. SARVESWARA RAO ADVOCATE RESPONDENT BY : SHRI SUBRATA SARKAR CIT)-DR O R D E R PER B.R. BASKARAN ACCOUNTANT MEMBER : THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 05-01-2007 PASSED BY LD CIT(A)-I VISAKHAPATNAM AND IT RELATES TO THE ASSESSMENT YEAR 1998-99. 2. THE CONCISE GROUNDS OF APPEAL FILED BY THE ASS ESSEE READ AS UNDER:- 1. THE ORDER OF THE CIT (A)-I IS CONTRARY TO LAW WEIGHT OF EVIDENCE AND PROBABILITIES OF THE CASE. 2. THE CIT (A) IS NOT JUSTIFIED AND OTHERWISE GROSS LY ERRED IN ASSESSING THE WHOLE OF THE CAPITAL GAINS IN THE HAN DS OF THE APPELLANT IN THE CASE OF GETTING CONVERTED THE HOUS E PROPERTY IN QUESTION INTO MULTI STORIED SEMI RESIDENTIAL COMPLE X IN PURSUANCE OF THE REGISTERED DEVELOPMENT AGREEMENT DT. 25/11/1 997 JOINTLY ENTERED INTO BY THE APPELLANT AND HER THREE CHILDRE N AS JOINT OWNERS AND TITLE-HOLDERS OF THE PROPERTY WITH BUILD ER ON THE ASSUMPTION THAT THE SAID DEVELOPMENT AGREEMENT RESU LTED IN TRANSFER OF THE HOUSE PROPERTY UNDER SEC 2(47) IT A CT. 2 3. THE CIT (A) IS MANIFESTLY WRONG IN HOLDING THAT THE MEMORANDUM OF AGREEMENT DT. 05/08/1997 ENTERED INTO BETWEEN THE APPELLANT AS LIFE-ESTATE HOLDER AD HER THREE CH ILDREN AS VESTED REMINDER HOLDER OF THE HOUSE PROPERTY IN QUESTION A ND WHICH WAS RECEIVED UNDER THE WILL DT.26/05/1998 AS NULL AND V OID OR ILLEGAL OR ABINITIO VOID AND AS A CONSEQUENCE OF IT THE ENTIRE CAPITAL GAINS ARE ASSESSABLE IN THE HANDS OF THE APPELLANT ALONE. 4. THE CIT (A) OUGHT TO HAVE HELD IN FAVOUR OF THE APPELLANT THAT THERE IS NO TRANSFER AS CONTEMPLATED U/S 2(47)(V) A ND THAT THE INGREDIENTS OF SEC 53(A) OF THE TRANSFER OF PROPERT Y ACT ARE NOT SATISFIED IN THE CASE ON HAND. 5. THE CIT (A) IS NOT JUSTIFIED IN ESTIMATING THE V ALUE OF THE CONSTRUCTED AREA TO THE SHARE OF THE APPELLANT AT R S.34 68 270/-. ON THE OTHER HAND HE OUGHT TO HAVE ACCEPTED THE EST IMATE OF THE VALUE OF CONSTRUCTED AREA AT RS.22 16 130/- AS SUGG ESTED BY THE APPELLANT. IN THE ALTERNATIVE THE CIT (A) OUGHT TO HAVE ACCEPTED THE APPELLANTS CLAIM THAT THE SRO VALUE OF THE LAND AGREED TO BE GIVEN TO THE BUILDER AS CONSIDERATION. 6. THE CIT (A) IS NOT JUSTIFIED AND NOT WARRANTED U NDER LAW IN DISMISSING THE CLAIM OF THE APPELLANT FOR EXEMPTION U/S 54 AND THE REASONING ADOPTED IN SO DOING IS FALLACIOUS. THE CI T (A) OUGHT TO HAVE SEEN THAT AS PER THE EXISTING BUILDING RULES B Y THEN THE 4 TH AND 5 TH FLOORS SHOULD CONSIST OF RESIDENTIAL ACCOMMODATION AND IN COMPLIANCE OF THOSE RULES ONLY PERMISSION WAS GRANT ED FOR CONSTRUCTION OF RESIDENTIAL ACCOMMODATION WAS GRANT ED AND CONSTRUCTIONS ARE MADE AS PER THE PLAN GRANTED. 7. THE APPELLANT PRAYS THAT THE PROCEEDINGS OF THE CIT (A) IN HOLDING THAT THERE IS TRANSFER OF PROPERTY IN TERMS OF DEVELOPMENT AGREEMENT ENTERED INTO BY THE APPELLANT DURING THE YEAR AND THE APPELLANT ALONE IS LIABLE FOR ASSESSMENT OF ALL THO SE CAPITAL GAINS MAY BE DECLARED AS INVALID. ALTERNATIVELY THE APPEL LANT PRAYS THAT THE CONSIDERATION FOR THE LAND PROPOSED TO BE GIVEN TO THE DEVELOPER MAY BE TAKEN AS EQUIVALENT TO THE MARKET VALUE OF THE SAID LAND AND THE APPELLANT MAY BE GRANTED EXEMPTIO N U/S 54 IN RESPECT OF SUCH VALUE ATTRIBUTABLE TO THE FOURTH FL OOR OF THE BUILDING. OR NECESSARY DIRECTIONS MAY BE GIVEN TO R EDUCE THE ELEMENT OF BUILDERS PROFIT IN THE SRO RATE SINCE I T IS THE MARKET PRICE. 3 3. AS SUBMITTED BY THE ASSESSEE IN HER WRITTEN SUBMISSIONS THE GROUNDS OF APPEAL STATED ABOVE GIVE RISE TO THE FOLLOWING QUES TIONS. 1) WHETHER THE TRANSACTION COVERED BY THE DEVELOPM ENT AGREEMENT DT. 5-11-1997 AMOUNTS TO A TRANSFER CO NTEMPLATED U/S 2(47)(I)(IV) OF THE INCOME-TAX ACT AND TO BE M ORE PRECISE WHETHER TRANSFER OF PROPERTY TOOK PLACE UNDER THE D EVELOPMENT AGREEMENT DT. 5-11-1997 IN COMPLIANCE OF SEC.2(47)( V). 2. WHETHER THE RELEVANT ASSESSMENT YEAR IS 1998-99 AS ASSESSED BY THE AUTHORITIES OR 2000-01 AS CONTENDED BY THE A PPELLANT. 3. WHETHER THE APPELLANT IS LIABLE TO PAY TAX AGAIN ST HER SHARE OF ALLEGED CAPITAL GAIN OR IS LIABLE TO PAY TAX ON THE ENTIRE ALLEGED CAPITAL GAIN? 4. WHETHER THE VALUATION OF THE ALLEGED TRANSFERRED ASSET IS TO BE DERIVED BASING O THE SROS VALUE OF THE PROPERTY ST ATED TO BE TRANSFERRED OR ON ESTIMATION OF CONSTRUCTION VALUE IN RESPECT OF THE PORTION OF THE CONSTRUCTED AREA RETAINED BY THE APP ELLANT? 5. WHETHER THE LOWER AUTHORITIES ARE JUSTIFIED TO D ENY THE BENEFIT OF EXEMPTION CLAIMED BY THE APPELLANT U/S 54? 4. THE FACTS RELATING TO THE ISSUES ARE STATED IN BRIEF. THE ASSESSEE FILED HER RETURN OF INCOME FOR THE ASSESSMENT YEAR 1998-99 ON 30-11-1998 DISCLOSING AN INCOME OF RS.2 28 020/-. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS RELATING TO THE ASSESSMENT YEAR 2002-03 THE AO NOTICED THAT THE ASSESSEE HAD OFFERED 25% OF TOTAL RENTAL INCOME RECEIVED FROM A PROPERTY LOCATED AT DWARAKA NAGAR VISAKHAPATNAM. ON ENQUIRY IT WAS NOTICED THAT THE ASSESSEE HAD ACQUIRED THE SAID PROPERTY THROUGH A WILL DATED 26.5.1988 OF HER FATHER WHO HAD BEQUEATHED THE SAID PROPERTY TO THE APPELLANT FOR LIFE WITHOUT RIGHTS OF ALIENATION AND ON HER DEMISE THE PROPERTY WAS TO DEVOLVE ON HER THREE CHI LDREN WITH ABSOLUTE RIGHTS. AFTER THE DEMISE OF THE FATHER OF THE ASSESSEE ON 2 9.1.1997 THE ASSESSEE ENTERED INTO A MEMORANDUM OF AGREEMENT ON 05-8-1997 WITH HER THREE CHILDREN BY VIRTUE OF WHICH THE ASSESSEE AND THREE CHILDREN AGREED TO SHARE THE IMPUGNED PROPERTY EQUALLY WITH ABSOLUTE RIGHTS. THUS THE AS SESSEE HAS CLAIMED TO HAVE ACQUIRED 25% SHARE IN THAT PROPERTY. THERE AFTER A LL THE FOUR PERSONS ENTERED INTO A DEVELOPMENT AGREEMENT ON 05.11.1997 WITH A B UILDER NAMED M/S ESWAR 4 NIRMAN VISAKHAPATNAM FOR CONVERSION OF THE HOUSE P ROPERTY EXISTING AT THE RELEVANT POINT OF TIME INTO A MULTI STOREYED SEMI-R ESIDENTIAL COMPLEX. ACCORDING TO THE AO THE MEMORANDUM OF AGREEMENT ENTERED BETW EEN THE ASSESSEE AND HER CHILDREN WAS NOT VALID IN THE EYES OF LAW AND H ENCE THE AO HELD THAT THE ENTIRE RENTAL INCOME WAS ASSESSABLE IN THE HANDS OF THE ASSESSEE. 4.1 THE AO WAS OF THE VIEW THAT THE DEVELOPMENT AGREEMENT ENTERED ON 05- 11-1997 HAS RESULTED IN TRANSFER OF PROPERTY WHI CH GAVE RISE TO LONG TERM CAPITAL GAINS. SINCE THE ASSESSEE DID NOT DISCLOSE THE SAID LONG TERM CAPITAL GAIN IN HER RETURN OF INCOME RELATING TO THE ASSESSMENT YEAR 1998-99 THE AO REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 O F THE ACT WHICH WAS SERVED ON THE ASSESSEE ON 30.3.2005. THEREAFTER THE AO C OMPLETED THE ASSESSMENT BY MAKING ADDITION OF RS.59 66 958/- TOWARDS LONG TERM CAPITAL GAINS. THE APPEAL FILED BY THE ASSESSEE BEFORE LD CIT(A) WAS PARTLY A LLOWED. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE FIRST ISSUE IS WHETHER THE DEVELOPMENT A GREEMENT ENTERED ON 05.11.1997 RESULTED IN TRANSFER OF PROPERTY OR NOT. AS PER THE DEVELOPMENT AGREEMENT THE BUILDER WAS PERMITTED TO DEVELOP THE PROPERTY COMPRISING OF 513 SQ.YARDS OF LAND AND IN RETURN THE ASSESSEE ALONG WITH HER THREE CHILDREN WAS ENTITLED TO RECEIVE FOLLOWING CONSTRUCTED AREAS ALO NG WITH UNDIVIDED SHARE OF 150 SQ. YARDS OF LAND. FLOOR APPROX. AREA (INCLUDING COMMON AREAS) BUILDER OWNER CELLAR (PARKING FACILITY ONLY) 50% 50% GROUND 6500 SFT. SOUTH TO NORTH (50% EASTERN SIDE) SOUTH TO NORTH (50% WESTERN SIDE) FIRST 6500 SFT. EAST TO WEST (50% NORTHERN SIDE) EAST TO WEST (50% SOUTHERN ROAD SIDE PORTION) SECOND 6500 SFT. NIL 100% THIRD 6500 SFT 100% NIL FOURTH 3250 SFT NIL 100% 5 SINCE THE AO HAD ALREADY HELD THAT THE ENTIRE RENTA L INCOME RECEIVED IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2002-03 IS ASSESSAB LE IN THE HANDS OF THE ASSESSEE HE ASSESSED THE ENTIRE CAPITAL GAIN OF RS .59.66 LAKHS COMPUTED BY HIM IN THE HANDS OF THE ASSESSEE. 5.1 THUS AS PER THE DEVELOPMENT AGREEMENT BY R ELINQUISHING THE RIGHT OVER 513 SQ.YARDS OF LAND THE ASSESSEE AND HER CHILDREN GOT THE RIGHT TO RECEIVE THE CONSTRUCTED AREA AND UNDIVIDED SHARE IN LAND AS DET AILED ABOVE. NOW THE DISPUTE IS; WHETHER BY VIRTUE OF DEVELOPMENT AGREEMENT DAT E 5-11-1997 ANY TRANSFER OF PROPERTY HAS TAKEN PLACE DURING THE YEAR RELEVANT T O THE ASSESSMENT YEAR 1998- 99. ACCORDING TO AO THE DEVELOPMENT AGREEMENT IS COVERED BY THE PROVISIONS OF SECTION 2(47(V) OF THE ACT WHICH DEFINES THE TE RM TRANSFER FOR THE PURPOSES OF INCOME TAX ACT. THE SAID SECTION READS AS UNDER :- 2(47) TRANSFER IN RELATION TO A CAPITAL ASSET I NCLUDES (I) THE SALE EXCHANGE OR RELINQUISHMENT OR THE ASSET OR (II)(IV) . OR (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A O F THE TRANSFER OF PROPERTY ACT 1882 (4 OF 1882) OR (VI) THE AO ALSO HELD THAT THE ASSESSEE HAS RECEIVED THE CONSTRUCTED AREA DESCRIBED ABOVE IN EXCHANGE OF LAND. 5.2 THE ARGUMENT OF THE ASSESSEE IS THAT THE PR OVISIONS OF SECTION 53A OF THE TRANSFER OF PROPERTY OF ACT SHALL APPLY ONLY IF (A) THE POSSESSION OF THE PROPERTY IS HANDED OVER TO THE TRANSFEREE AND (B) THE CONSIDERA TION AGREED FOR THE TRANSFER WAS PAID TO THE TRANSFEROR BY THE TRANSFEREE PERFOR MING HIS PART OF CONTRACT. ACCORDING TO THE ASSESSEE NEITHER THE POSSESSION W AS HANDED OVER TO THE TRANSFEREE ON THE DATE OF ENTERING OF DEVELOPMENT A GREEMENT NOR DID THE 6 ASSESSEE RECEIVE ANY CONSIDERATION ON THAT DATE AND HENCE THE PROVISIONS OF SECTION 53A SHALL NOT APPLY. SINCE THE EXCHANGE OF PROPERTIES HAD NOT TAKEN PLACE DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 1998-99 NO CAPITAL GAIN IS ASSESSABLE IN THAT YEAR. THUS ACCORDING TO THE ASSESSEE THE EXCHANGE AND TRANSFER HAS TAKEN PLACE SOME TIME IN NOVEMBER 199 9 AND HENCE THE CAPITAL GAINS IF ANY IS ASSESSABLE ONLY IN THE ASSESSMENT YEAR 2000-01 ONLY. THE ASSESSEE HAS RELIED UPON FOLLOWING CASE LAW IN SUPP ORT OF HER CONTENTIONS. (A) K.VENKATA RAO & OTHERS VS. SUNKARA VENKATA R AO (1998) 6 ALT 40(AP) (B) CIT V G.SAROJA (2008) 301 ITR 124 (MAD) (C) MOTOR AND GENERAL STORES (PVT) LTD. V CIT ( AP AIR 1965 AP 342(V52C83) (D) CIT V MOTOR AND GENERAL STORES (AIR 1968 SC 200(V 55 C 50) (E) AJAY KUMAR SHA JAGATI V ITO (55 ITD 348 (DEL )) (F) DCIT V ASIAN DISTRIBUTORS LTD. (70 TTJ 88) (G) CHATURBHUJ DWARKADAS KAPADIA V CIT (260 ITR 491 (BOM)) 5.3 HOWEVER LD CIT(A) BY PLACING RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CHATURBHUJ DWARAKA DAS KAPADIA SUPRA HELD THAT THE DEVELOPMENT AGREEMENT HAS RESULTED IN TRAN SFER OF PROPERTY AND HENCE THE CAPITAL GAIN IS ASSESSABLE IN THE INSTANT ASSES SMENT YEAR. 5.4 WE NOTICE THAT THE CASE LAW LISTED AS SERIA L NO.(A) TO (E)IN PARA 5.2 SUPRA DEAL WITH THE ISSUES WITH REGARD TO THE INTERPRETAT ION OF TERMS SUCH AS SALE EXCHANGE AND SECTION 53A OF THE TRANSFER OF PROPERT Y ACT. IN THE CASE OF ASIAN DISTRIBUTORS LTD WHICH IS LISTED AS SERIAL NUMBER (F) SUPRA ON WHICH THE ASSESSEE HAS PLACED HEAVY RELIANCE THE POSSESSION OF THE PROPERTY WAS AGREED TO BE GIVEN TO THE DEVELOPERS ONLY UPON PAYMENT OF LAST INSTALLMENT AND TILL SUCH TIME THE ASSESSEE HAD A RIGHT TO REVOKE CONTRACT IN CERTAIN EVENTUALITIES. THEREFORE IN THAT CASE THE TRIBUNAL HELD THAT NEI THER IN TERMS OF SECTION 2(47(V) NOR IN TERMS OF SECTION 53A OF THE TRANSFER OF PROP ERTY ACT THE TRANSACTION THEREIN COULD BE CLASSIFIED AS TRANSFER OF CAPITA L ASSET. 7 5.5 WE HAVE CAREFULLY GONE THROUGH THE TERMS AN D CONDITIONS OF THE DEVELOPMENT AGREEMENT DATED 05-11-1997. WE NOTICE THAT THERE IS NO PROVISION FOR CANCELLATION OF AGREEMENT BY EITHER OF THE PART IES. ACCORDING TO THE AGREEMENT THE BUILDER HAS TO BEAR ALL THE EXPENSES RIGHT FROM THE STAGE OF PREPARING ARCHITECTURAL PLANS. THE ONLY CONDITION S TIPULATED IS THAT THE CONSTRUCTION SHOULD BE COMPLETED WITHIN 18 MONTHS F ROM THE DATE OF HANDING OVER OF THE VACANT POSSESSION OF THE PROPERTY. IN CASE OF FAILURE THE BUILDER SHALL PAY DAMAGES AT RS.50 000/- PER MONTH FOR THE PERIOD OF DELAY. THUS THE DEVELOPMENT AGREEMENT IS AN ABSOLUTE ONE WITH OUT A NY RIGHT OF CANCELLATION THEREOF. THERE WAS NO TRANSFER OF MONEY IN THE FOR M OF CASH BETWEEN THE PARTIES. THE OWNER OF THE PROPERTY SHALL RELINQUIS H THE RIGHT OVER THE PROPERTY AND IN RETURN THE OWNER SHALL RECEIVE UNDIVIDED SH ARE OF LAND AND A PORTION OF THE TOTAL CONSTRUCTED AREA. THE BUILDER SHALL INVES T HIS OWN MONEY FOR CONSTRUCTION OF THE MULTI STOREYED COMPLEX AND IN R ETURN HE IS ENTITLED TO RECEIVE A PORTION OF THE CONSTRUCTED AREA WHICH HE IS ENTI TLED TO DEAL WITH IN HIS OWN RIGHT. 5.6 NOW THE QUESTION IS WHETHER THE IMPUGNED DE VELOPMENT AGREEMENT WILL FALL UNDER THE MISCHIEF OF SECTION 2(47(V) OF THE A CT. THE LEGAL POSITION OF DEVELOPMENT AGREEMENT VIS--VIS SECTION 2(47(V) OF THE ACT WAS CONSIDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CHATUR BHUJ DWARKADAS KAPADIA CITED SUPRA. THE RELEVANT OBSERVATIONS OF THE HIG H COURT IN THAT CASE ARE EXTRACTED BELOW: IT WAS ARGUED ON BEHALF OF THE ASSESSEE THAT THER E WAS NO EFFECTIVE TRANSFER TILL GRANT OF IRREVOCABLE LICENSE. IN THI S CONNECTION THE JUDGMENTS OF THE SUPREME COURT WERE CITED ON BEHALF OF THE ASSESSEE BUT ALL THOSE JUDGMENTS WERE PRIOR TO INT RODUCTION OF THE CONCEPT OF DEEMED TRANSFER UNDER SECTION 2(47)(V). IN THIS MATTER THE AGREEMENT IN QUESTION IS A DEVELOPMENT AGREEMEN T . 8 SUCH DEVELOPMENT AGREEMENTS DO NOT CONSTITUTE TRANS FER IN GENERAL LAW. THEY ARE SPREAD OVER A PERIOD OF TIME. THEY CONTEMPLATE VARIOUS STAGES. THE BOMBAY HIGH COURT IN VARIOUS J UDGMENTS HAS TAKEN THE VIEW IN SEVERAL MATTERS THAT THE OBJECT O F ENTERING INTO A DEVELOPMENT AGREEMENT IS TO ENABLE A PROFESSIONAL BUILDER/CONTRACTOR TO MAKE PROFITS BY COMPLETING TH E BUILDING AND SELLING THE FLATS AT A PROFIT. THAT THE AIM OF THESE PROFESSIONAL CONTRACTORS WAS ONLY TO MAKE PROFITS BY COMPLETING THE BUILDING AND THEREFORE NO INTEREST IN THE LAND ST ANDS CREATED IN THEIR FAVOUR UNDER SUCH AGREEMENTS THAT SUCH AGREEMENTS ARE ONLY A MODE OF REMUNERATING THE BUIL DER FOR HIS SERVICES OF CONSTRUCTING THE BUILDING (SEE GURUDEV DEVELOPERS V KURLA KONKAN NIWAS CO-OPERATIVE HOUSIN G SOCIETY (2000) 3 MAH LJ 131). IT IS PRECISELY FOR THIS REAS ON THAT THE LEGISLATURE HAS INTRODUCED SECTION 2(47(V) READ WIT H SECTION 45 WHICH INDICATES THAT CAPITAL GAINS IS TAXABLE IN TH E YEAR IN WHICH SUCH TRANSACTIONS ARE ENTERED INTO EVEN IF THE TRAN SFER OF IMMOVABLE PROPERTY IS NOT EFFECTIVE OR COMPLETE UNDER THE GEN ERAL LAW. IN THIS CASE THAT TEST HAS NOT BEEN APPLIED BY THE DEPARTME NT. NO REASON HAS BEEN GIVEN WHY THAT TEST HAS NOT BEEN APPLIED PARTICULARLY WHEN THE AGREEMENT IN QUESTION READ AS A WHOLE SH OWS THAT IT IS A DEVELOPMENT AGREEMENT. THERE IS A DIFFERENCE BETWEEN THE CONTRACT ON ONE HAND AND THE PERFORMANCE ON THE OTH ER HAND . IN THIS CASE THE TRIBUNAL AS WELL AS THE DEPART MENT HAVE COME TO THE CONCLUSION THAT THE TRANSFER TOOK PLACE DURING THE ACCOUNTING YEAR ENDING 31.3.1996 AS SUBSTANTIAL PA YMENTS WERE EFFECTED DURING THAT YEAR AND SUBSTANTIAL PERMISSIO NS WERE OBTAINED. IN SUCH CASES OF DEVELOPMENT AGREEMENT ONE CANNOT GO BY SUBSTANTIAL PERFORMANCE OF A CONTRACT. IN SUCH CAS ES THE YEAR OF CHARGEABILITY IS THE YEAR IN WHICH THE CONT RACT IS EXECUTED. THIS IS IN VIEW OF SECTION 2(47(V) OF TH E ACT. 9 .. IN THIS CASE THE AGREEMENT IS A DEVELOPMENT AGREEMENT AND IN OUR VIEW THE TEST TO BE APPLIED TO DECIDE THE Y EAR OF CHARGEABILITY IS THE YEAR IN WHICH THE TRANSACTION WAS ENTERED INTO . WE HAVE TAKEN THIS VIEW FOR THE REASON THAT THE DEVELOPMENT AGREEMENT DOES NOT TRANSFER THE INTERES T IN THE PROPERTY TO THE DEVELOPER IN GENERAL LAW AND THERE FORE SECTION 2(47)(V) HAS BEEN ENACTED AND IN SUCH CASES EVEN E NTERING INTO SUCH A CONTRACT COULD AMOUNT TO TRANSFER FROM THE D ATE OF AGREEMENT ITSELF. . THEREFORE IF ON A BARE READI NG OF A CONTRACT IN ITS ENTIRETY AN ASSESSING OFFICER COMES TO THE CONC LUSION THAT IN THE GUISE OF AGREEMENT FOR SALE A DEVELOPMENT AGREEMEN T IS CONTEMPLATED UNDER WHICH THE DEVELOPER APPLIES FOR PERMISSIONS FROM VARIOUS AUTHORITIES EITHER UNDER POWER OF ATT ORNEY OR OTHERWISE AND IN THE NAME OF THE ASSESSEE THEN THE ASSESSING OFFICER IS ENTITLED TO TAKE THE DATE OF CONTRACT AS THE DATE OF TRANSFER IN VIEW OF SECTION 2(47(V).. WE DO NOT FIND MERIT IN THE ARGUMENT OF THE ASSESSEE THAT THE COURT SHOULD GO O NLY BY THE DATE OF ACTUAL POSSESSION AND THAT IN THIS PARTICULAR CASE THE COURT SHOULD GO BY THE DATE ON WHICH IRREVOCABLE LI CENSE WAS GIVEN. 5.7 WE FEEL IT NECESSARY TO DISCUSS ABOUT THE F ACTS OF THE CASE OF CHARUBHUJ DWARKADAS KAPADIA REFERRED SUPRA IN ORDER TO UNDER STAND THE LEGAL PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH COURT. IN THA T CASE THE ASSESSEE ENTERED INTO AN AGREEMENT ON 18.8.1994 TO SELL THE PROPERTY TO A BUILDER FOR A CONSIDERATION OF RS.1.85 CRORES WITH A RIGHT TO THE BUILDER TO DEVELOP THE PROPERTY IN ACCORDANCE WITH THE RELEVANT RULES. THE ASSESSE E SHALL GRANT AN IRREVOCABLE LICENSE TO ENTER UPON THE ASSESSEES SHARE OF THE P ROPERTY UPON RECEIPT OF NECESSARY PERMISSIONS AND APPROVALS AND ALSO THE NO C UNDER CHAPTER XXC OF THE INCOME TAX ACT. BY 31.3.1996 THE BUILDER OBTAINED MOST OF THE APPROVALS AND ALSO PAID MAJOR PORTION OF THE CONSIDERATION. THE P OWER OF ATTORNEY WAS EXECUTED 10 IN FAVOUR OF THE BUILDER ON 12.3.1999. THE ASSESSE E OFFERED THE CAPITAL GAINS IN THE ASSESSMENT YEAR 1999-2000 SINCE THE LICENSE AN D POWER OF ATTORNEY WERE GIVEN IN THE FINANCIAL YEAR 1998-99. THE AO AND IT AT HELD THAT THE CAPITAL GAINS IS ASSESSABLE IN THE ASSESSMENT YEAR 1996-97 SINCE SUBSTANTIAL COMPLIANCE OF TERMS OF AGREEMENT HAS TAKEN PLACE BEFORE 31.3.1996 . HOWEVER THE HIGH COURT HELD THAT THE IMPUGNED SALE AGREEMENT IS ONLY A DE VELOPMENT AGREEMENT AND HENCE THE CAPITAL GAIN IS ASSESSABLE IN THE YEAR IN WHICH THE SAID AGREEMENT WAS ENTERED INTO. THUS THE CONTENTIONS OF BOTH THE ASSE SSEE AS WELL AS THAT OF THE REVENUE WITH REGARD TO THE YEAR OF CHARGEABILITY WE RE REJECTED. 5.8 THUS AS PER THE LEGAL PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE ABOVE CITED CASE THE FACTORS SUCH AS DATE OF POSSESSION SUBSTANTIAL COMPLIANCE OF THE CONTRACT ETC. ARE NOT RELEVANT I N THE CASE OF DEVELOPMENT AGREEMENTS. THE HIGH COURT HAS OBSERVED THAT THE A IM OF THE BUILDER UNDER THE DEVELOPMENT AGREEMENT WAS TO MAKE PROFITS BY COMPLE TING THE BUILDING AND THEREFORE NO INTEREST IN THE LAND STANDS CREATED I N THEIR FAVOUR UNDER SUCH AGREEMENTS. THUS THE SAID AGREEMENTS ARE ONLY A MO DE OF REMUNERATING THE BUILDER FOR HIS SERVICES OF CONSTRUCTING THE BUILDI NG. THE HIGH COURT HAS NOTICED THAT THE ASSESSEES WERE ENTERING INTO DEVELOPMENT A GREEMENTS WITH THE BUILDERS BY CONFERRING PRIVILEGES OF OWNERSHIP TO THEM AND W ERE CLAIMING THAT THE CAPITAL GAINS WOULD ARISE ONLY AFTER REGISTERING THE CONVEY ANCE DEED. ACCORDINGLY THE HIGH COURT HELD THAT THE SECTION 2(47(V) WAS BROUGH T INTO THE STATUTE TO PLUG THIS KIND OF LOOP HOLE. THUS BY CONSIDERING THE OBJECT OF THE DEVELOPMENT AGREEMENTS AND ALSO THE PURPOSE OF INTRODUCTION OF SECTION 2(47(V) OF THE ACT THE HONBLE HIGH COURT HAS FINALLY HELD THAT THE YE AR OF CHARGEABILITY IN THE CASE OF DEVELOPMENT AGREEMENTS IS THE YEAR IN WHICH THE CONTRACT WAS EXECUTED. 11 5.9. NOW COMING TO THE FACTS OF THE CASE THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE IMPUGNED AGREEMENT ENTERED INTO BETWE EN THE ASSESSEE AND THE BUILDER IS A DEVELOPMENT AGREEMENT. AS STATED EA RLIER THE SAID AGREEMENT IS AN ABSOLUTE ONE WITH NO RIGHT TO REVOKE THE AGREEME NT. AS PER THE PROPOSITIONS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT THE ISS UES SUCH AS HANDING OVER THE POSSESSION OF LAND SUBSTANTIAL COMPLIANCE OF T ERMS OF AGREEMENT ETC. ARE NOT RELEVANT IN THE CASE OF DEVELOPMENT AGREEMENTS. HE NCE THE DEVELOPMENT AGREEMENTS RESULT IN TRANSFER OF CAPITAL ASSET AN D THE YEAR OF CHARGEABILITY IS THE YEAR IN WHICH THE SAID CONTRACT WAS EXECUTED. IN THE INSTANT CASE THE DEVELOPMENT AGREEMENT WAS ENTERED ON 05.11.1997 AND HENCE THE YEAR OF CHARGEABILITY OF CAPITAL GAIN IS THE ASSESSMENT YEA R 1998-99. IN VIEW OF THE FOREGOING DISCUSSIONS WE ARE OF THE VIEW THAT THE TAX AUTHORITIES ARE RIGHT IN LAW IN HOLDING THAT THE CAPITAL GAIN IS ASSESSABLE IN A SSESSMENT YEAR 1998-99. THE ABOVE DISCUSSIONS ANSWERS THE FIRST TWO QUESTIONS R EFERRED IN PARA 3 SUPRA. 6. THE THIRD QUESTION IS WHETHER THE ASSESSEE I S LIABLE TO PAY TAX ON THE ENTIRE CAPITAL GAINS OR ONLY ON HER SHARE OF 25%. AS STAT ED EARLIER THE AO DID NOT RECOGNIZE THE MEMORANDUM OF AGREEMENT ENTERED BETWE EN THE ASSESSEE AND HER CHILDREN AS ACCORDING TO HIM IT WAS NOT A VALID AG REEMENT UNDER THE LAW. ACCORDINGLY THE AO ASSESSED ENTIRE CAPITAL GAINS IN THE HANDS OF THE ASSESSEE. IN THE APPEAL PREFERRED BY THE ASSESSEE LD CIT(A) AFF IRMED THE ACTION OF THE AO BY FOLLOWING HIS ORDER DATED 05.10.2005 RELATING TO TH E ASSESSMENT YEAR 2002-03 PASSED IN THE HANDS OF THE ASSESSEE IN APPEAL NO.49 /ACIT/C-I(1)/05-06. IT MAY NOTED THAT IN THAT ASSESSMENT YEAR THE RENTAL INCO ME DERIVED FROM THE IMPUGNED PROPERTY WAS ASSESSED IN THE HANDS OF THE ASSESSEE FULLY WHERE AS THE ASSESSEE CLAIMED THAT ONLY 25% THERE OF WAS ASSESSABLE IN HE R HANDS. 6.1 AGAINST THE ORDER OF LD CIT(A) DATED 05-10- 2005 RELATING TO THE ASSESSMENT YEAR 2002-03 CITED ABOVE THE ASSESSEE W ENT ON APPEAL BEFORE THE ITAT. THE TRIBUNAL SET ASIDE THE ORDER OF LD CIT(A ) AND REMITTED BACK THE ISSUE OF ASSESSMENT OF RENT TO THE FILE OF THE AO FOR FRE SH CONSIDERATION IN THE LIGHT OF 12 THE PROVISIONS OF SECTION 14(1) OF THE HINDU SUCCES SION ACT 1956. IN THE REASSESSMENT PROCEEDINGS THE AO AGAIN HELD THAT TH E ENTIRE RENTAL INCOME IS ASSESSABLE IN THE HANDS OF THE ASSESSEE. IN THE AP PEAL PREFERRED BY THE ASSESSEE THE LD CIT(A) VIDE HIS ORDER DATED 11.09 .2008 HAS CHANGED THE STAND TAKEN IN HIS EARLIER ORDER AND HELD THAT THE RENTAL INCOME FROM THE IMPUGNED PROPERTY IS TO BE ASSESSED SEPARATELY IN THE HANDS OF THE ASSESSEE AND HER THREE CHILDREN. BY PLACING RELIANCE ON THE SAID ORDER T HE LD AR CONTENDED THAT THE ASSESSEE IS LIABLE TO PAY TAX ON HER SHARE OF CAPIT AL GAINS ONLY I.E. 25%. 6.2 SINCE THE LD CIT(A) HAS CHANGED HIS STAND AN D HAS TAKEN A DIFFERENT VIEW IN THE ASSESSEES OWN CASE WITH REGARD TO THE ASSES SABILITY OF THE RENTAL INCOME WE THINK IT PROPER TO SET ASIDE THE PRESENT ISSUE V IZ. WHETHER THE ASSESSEE IS LIABLE TO PAY TAX ON ENTIRE CAPITAL GAINS OR ONLY O N 25% OF CAPITAL GAINS TO THE FILE OF THE LD CIT(A) FOR FRESH CONSIDERATION. ACCORDIN GLY THE ORDER OF LD CIT(A) IS SET ASIDE AND THE MATTER IS RESTORED BACK TO HIS FI LE FOR FRESH CONSIDERATION AFTER GIVING NECESSARY OPPORTUNITY OF BEING HEARD. 7. THE NEXT QUESTION RELATES TO THE DETERMINATI ON OF THE CONSIDERATION FOR THE TRANSFER. WHILE THE AO DETERMINED THE CONSIDERATIO N AT RS.68.87 LAKHS THE LD CIT(A) DETERMINED THE CONSIDERATION AT RS.34.68 LAK HS. THE COST OF CONSTRUCTION RELATING TO THE AREA TO WHICH THE ASSESSEE IS ENTIT LED TO WAS TAKEN AS THE CONSIDERATION FOR THE TRANSFER BY BOTH THE TAX AUTH ORITIES. HOWEVER THERE WAS DIFFERENCE BETWEEN THE TAX AUTHORITIES BOTH WITH RE GARD TO THE AREA OF CONSTRUCTION AND ALSO THE PER SQUARE FOOT RATE OF C ONSTRUCTION. WHILE THE AO TOOK THE AREA OF CONSTRUCTION TO WHICH THE ASSESSEE IS ENTITLED TO AT 23 110 SQ. FT. THE LD CIT(A) ARRIVED AT THE CONSTRUCTED AREA AT 19 860 SQ.FT. AFTER CONSIDERING THE AGREEMENT BETWEEN THE PARTIES AFFI DAVITS GIVEN BY THE BUILDER ETC. SINCE BOTH THE PARTIES HAVE NOT CHALLENGED T HE DECISION OF LD CIT(A) WITH REGARD TO THE AREA OF CONSTRUCTION THE EXTENT DETE RMINED BY THE LD CIT(A) I.E. 19 860 SQ.FT. HAS REACHED FINALITY. 13 7.1 WITH REGARD TO THE COST OF CONSTRUCTION TH E AO HAS ADOPTED THE CPWD RATES. THE ASSESSEE CONTENDED THAT ONLY SUB REGIST RAR RATES (SRO) RELATING TO THE LAND SHOULD BE TAKEN INTO ACCOUNT FOR ARRIVING AT THE COST OF CONSTRUCTION. ALTERNATIVELY THE ASSESSEE CONTENDED THAT THERE SHO ULD BE REDUCTION TOWARDS UNFINISHED CONSTRUCTION AND CONTRACTORS PROFIT. THE LD CIT(A) HELD THAT THE SRO RATES APPLICABLE TO THE CONSTRUCTED AREAS OF A PROP ERTY SHOULD BE ADOPTED FOR THE PURPOSE OF ARRIVING AT THE COST OF CONSTRUCTION. S INCE THE CONSTRUCTION WAS NOT FULLY COMPLETED THE LD CIT(A) GAVE A DEDUCTION OF 35% FOR CELLAR PORTION AND 20% FOR THE PORTIONS IN GROUND FLOOR TO FOURTH FLOO R TOWARDS UNFINISHED CONSTRUCTION FROM THE SRO RATES. 7.2 IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS RECEIVED CONSTRUCTED PORTION TO THE EXTENT OF 19 860 SQ. FT. UNDER THE DEVELOPMENT AGREEMENT. IN THE ABSENCE OF SPECIFIC VALUE FOR THE TRANSFER IN OUR OPINION THE COST OF CONSTRUCTION OF THE 19860 SQ.FT. SHOULD BE TAKEN AS THE CONSIDERATION F OR THE TRANSFER. THE LD CIT(A) HAS ADOPTED THE SRO RATES APPLICABLE FOR THE CONSTRUCTED AREA AND HAS ALSO GIVEN DEDUCTION TOWARDS UNFINISHED WORKS. WE FIND THE CALCULATION MADE BY THE LD CIT(A) TO BE REASONABLE AND IN OUR OPINION THE LD CIT(A) HAS MADE A FAIR CALCULATION OF THE COST OF CONSTRUCTION. IN V IEW OF THE ABOVE WE DO WISH TO INTERFERE WITH HIS DECISION ON THIS ISSUE. 8. THE NEXT QUESTION RELATES TO THE ELIGIBILITY OF THE ASSESSEE TO CLAIM EXEMPTION U/S 54 OF THE ACT. AN ASSESSEE IS ENTIT LED TO CLAIM EXEMPTION U/S 54 OF THE ACT IF THE LONG TERM CAPITAL GAIN ARISING ON TRANSFER OF A RESIDENTIAL PROPERTY IS INVESTED WITHIN A CERTAIN PERIOD EITHER IN PURCH ASE OR CONSTRUCTION OF ANOTHER RESIDENTIAL PROPERTY. THE UNDISPUTED FACTS ARE THA T THE ENTIRE BUILDING WAS LET OUT BY THE ASSESSEE FOR COMMERCIAL PURPOSES. ACCORDING LY THE LD CIT(A) HELD THAT THOUGH THE MUNICIPAL APPROVAL RELATING TO THE THIRD AND FOURTH FLOORS ARE MEANT FOR RESIDENTIAL PURPOSES YET SINCE THE PROPERTY H AS BEEN LET OUT FOR COMMERCIAL PURPOSE THE CHARACTER OF THE PROPERTY WOULD REMAIN AS COMMERCIAL PROPERTY ONLY. ACCORDINGLY HE REJECTED THE CLAIM OF EXEMPTI ON U/S 54 OF THE ACT. WE DO 14 NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) SINCE THE PROPERTY HAS BEEN LET OUT FOR COMMERCIAL PURPOSES. ACCORDINGLY WE UPHOLD THE ORDER OF LD CIT(A) ON THIS ISSUE. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 5 TH MAY 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 05-05-2010 A COPY OF THIS ORDER IS FORWARDED TO : 01 SMT. P. UMA BALA 11-18-13 PLOT NO. 103 DASAPA LLA LAYOUT VISAKHAPATNAM 02 THE ACIT CIRCLE-1(1) VISAKHAPATNAM 03 THE CIT (A)-IVISAKHAPATNAM 04 THE CIT VISAKHAPATNAM 05 THE DR ITAT VISAKHAPAATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT VISAKHAPATNAM BENCH