Case Law Details
Coming to the facts of the present case, the assessee entered into Development Agreement with MAK Projects Pvt. Ltd. with reference to the land measuring 79 acres 2.5 guntas situated at Sy. Nos. 260 and 262 at Tummaloor village, Ranga Reddy District. At the time of entering into development agreement on 15th December, 2006, the land was in the promoter’s name. The assessee was under incorporation. The same agreement was presented for registration on 29th December, 2006. Later the assessee-company was incorporated on 4th January, 2007. On the basis of this agreement, the AO taxed the capital gain on the transaction treating that there was a transfer in terms of section 2(47)(v) of the Act. Through this is a Development Agreement cum GPA the assessee has not received any monetary benefit. Being so, there is no receipt of any part of the sale consideration. Further, we cannot say that there is any sale in terms of section 2(47)(i), (ii) or (iii) of the Act so as to say that there is sale, relinquishment, extinguishment or compulsory acquisition.
Now we will proceed with reference to the exchange as mentioned in section 2(47)(i) of the IT Act, 1961. To say that there is an exchange u/s. 2(47)(i) of the Act, both the properties which are subject matter of the exchange in the transaction are to be in existence at the time of entering into the transaction. It is to be noted that at the time of entering into development agreement as on 15.12.2006, only the property i.e., land pertaining to the assessee is in existence. There is no quantification of consideration or other property in exchange of which the assessee has to get for handing over the assessee’s property for development. The contention of the DR is that the consideration accrued to the assessee in the form of 16 villas comprising of developed land of 9602 sq. yards and built up area of 58606 sft which the assessee has to get on completion of the project. In our opinion, there was no progress in the development work in the assessment year under consideration as the project is only in conception stage and it is not appropriate to tax the assessee on imaginary reasons. Admittedly, there is no progress in the development of the project.
Even a cursory look at the admitted facts of the case would show that the transferee had neither performed nor was it willing to perform its obligation under the agreement in the previous year relevant to assessment year under consideration. The agreement based on which capital gains are sought to be taxed in the present case is agreement dated 15.12.2006 but no consideration was passed between the parties. As such, the assessee has received no consideration. Admittedly, there is no progress in the Development Agreement in the assessment year under consideration. It is submitted that the Director of Town and Country Planning approved the plan submitted by the assessee company only on 06.03.2007. The assessee submitted that there is no development activity until the end of the previous year relevant to the assessment year 2007-08. Commencement of building construction had not been initiated as the building approval was granted only on 06.03.2007. Therefore, no income be said to have accrued, as laid down in section 48, in A.Y. 2007-08. More so, building/villas has to be constructed as per the approved plan within 36 months from the date of agreement. The construction was not taken place in the assessment year under consideration. The sanction of the building plan is utmost important for the implementation of the agreement entered between the parties which was granted only in the last month of the year i.e., on 6.3.2007. Without sanction of the building plan, the very genesis of the agreement fails. To enable the execution of the agreement, firstly, plan is to be approved by the competent authority. Since there was no amount of investment by the developer in the construction activity during the previous year relevant to the assessment year in this project, it would amount to non-incurring of required cost of acquisition by the developer. Hence no consideration can be attributed to the AY 07-08. Nothing is brought on record by authorities to show that there was development activity in the project during the assessment year under consideration and cost of construction was incurred by the builder/developer. Hence, it is to be inferred that there was no amount of investment by the developer in the construction activity during the assessment year in this project and it would amount to non-incurring of required cost of acquisition by the developer. In the assessment year under consideration, it is not possible to say whether the developer prepared to carry out those parts of the agreement to their logical end. The developer in this assessment year had not shown its readiness or having made preparation for the compliance of the agreement. The developer has not taken steps to make it eligible to undertake the performance of the agreement which are the primary ingredient that make a person eligible and entitled to make the construction. The act and conduct of the developer in this assessment year has to be seen to decide the taxability on transfer. Being so, it was clear that in the year under consideration, there was no transfer of not only the villas as superstructure but also the proportionate land by the assessee under the joint Development Agreement. But the fact remains that the transferee has not performed its obligations under the agreement, in the assessment year under consideration. Even otherwise, the assessing authority has not brought on record the actual position of the project even as on the date of assessment or he has not recorded the findings whether the developer started the construction work at any time during the assessment year under consideration or any development has taken place in the project in the relevant period. He went on to proceed on the sole issue with regard to handing over the possession of the property to the developer in part performance of the Development Agreement-cum-General power of Attorney. In our opinion, the handing over of the possession of the property is only one of the condition u/s 53A of the Transfer of Property Act, but it is not the sole and isolated condition. It is necessary to go into whether or not the transferee was ‘willing to perform’ its obligation under these consent terms. When transferee, by its conduct and by its deeds, demonstrates that it is unwilling to perform its obligations under the agreement in this assessment year, the date of agreement ceases to be relevant. In such a situation, it is only the actual performance of transferee’s obligations which can give rise to the situation envisaged in Section 53A of the Transfer of Property Act.
On these facts, it is not possible to hold that the transferee was willing to perform its obligations in the financial year in which the capital gains are sought to be taxed by the Revenue. We hold that this condition laid down under Section 53A of the Transfer of Property Act was not satisfied in this assessment year. Once we come to the conclusion that the transferee’s ‘willing to perform’ the contract is ascertainable in the assessment year, as stipulated by and within the meanings assigned to this expression under Section 53A of the Transfer of Property Act, its contractual obligations in this previous year relevant to the present assessment year, it is only a corollary to this finding that the Development Agreement dt. 15.12.2006, based on which the impugned taxability of capital gain is imposed by the AO and upheld by the CIT(A), cannot be said to be a “contract of the nature referred to in Section 53A of the Transfer of Property Act” and, accordingly, provisions of Section 2(47)(v) cannot be invoked on the facts of this case. The judgement in the case of Chaturbhuj Dwarkadas Kapadia v. CIT (supra) undoubtedly lays down a proposition which, more often that not, favours the Revenue, but, on the facts of this case, the said judgment supports the case of the assessee inasmuch as ‘willingness to perform’ has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of Section 53A of the Transfer of Property Act. The Revenue does not get any assistance from this judicial precedent. The very foundation of Revenue’s case is thus devoid of legally sustainable basis.
That is clearly an erroneous assumption, as the provisions of deemed transfer under Section 2(47)(v) could not have been invoked on the facts of the present case and for the assessment year in dispute before us. In the present case, the situation is that the assessee has not received any consideration, and there is no evidence brought on record by the Revenue authorities to show that there was actual construction taken place at the impugned property in the previous year relevant to the assessment year under consideration and also there is no evidence to show that the right to receive the sale consideration was actually accrued to the assessee. Without accrual of the consideration to the assessee, the assessee is not expected to pay capital gains on the entire agreed sales consideration. When time is essence of the contract, and the time schedule is 30 months to complete construction with additional grace period of 6 months, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in Section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of Section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on the reason that the capital gains could not have been taxed in the in this assessment year in appeal before us.
The other grounds raised by the assessee in this appeal had become irrelevant at this point of time as we have held that provisions of section 2(47)(v) will not apply to the assessee in the assessment year under consideration. However, we make it clear that the AO is at liberty to examine the taxability of capital gain in any other assessment year when substantial consideration has passed to the assessee with reference to the Development Agreement.
Even otherwise, we cannot say that the assessee carried on the adventure in the nature of trade so as to bring the income under the head ‘income from business’. This is so, because the assessee has not sold any undivided share in the landed property to the developer in the year under consideration. The assessee remains to be the owner of the said property and the land was put for development for the mutual benefit. In our opinion, we find merit in the argument of the assessee’s counsel. Even if we consider the transaction as business transaction, then it would be taxed only when the undivided share in the land is transferred.
