Case Law Details
Adinarayana Reddy Kummeta Vs ACIT (ITAT Hyderabad)
As far as the issue of bringing to tax the capital gains during the year, it was the contention of assessee that possession was not given and assessee retained possession of the property thereby the capital gains arises in the year in which the new flats were handed over. Ld. Counsel in his arguments, elaborately read out various portions of the agreement to substantiate assessee’s claim, whereas the Ld.DR relied on various other clauses to state that possession was handed over. As far as the development agreement is concerned, it is noticed that assessee did permit M/s. Diamond Infra to enter into the premises, do all the necessary things for construction of apartments. It is the common agreement by many people, who has purchased lands/plots in the developed area. It is also noticed that the said assessee went to construct the apartments and hand over the flats as per the schedule to the respective persons, including assessee. Some of the agreement holders also sold the flats in semi-finished condition or in fully developed condition, whereas few like assessee retained the flats as such. Therefore, I am of the opinion that assessee did hand over the possession and provisions of Section 2(47) regarding transfer certainly get attracted. Since there is part performance of the contract in the nature referred to in Section 53 of Transfer of Property Act, 1882, Clause(v) of Section 2(47) is clearly attracted. Therefore, I agree with the stand of AO that the capital gains did arise during the year under consideration as the agreement was entered on 12-05- 2008. Accordingly, the issue of bringing to tax the capital gains during the year is to be upheld. Even though Ld. Counsel tried to distinguish the jurisdictional High Court judgment in the case of Sri Potla Nageswara Rao Vs. DCIT (supra) that it applies to a case, where there is no sale consideration and the issue is on non-receipt of sale consideration. I do not agree with that as the issue of transfer in the case of development agreement and consequent levy of capital gain in the year of entering into development agreement has been crystalised by the said judgment of the jurisdictional High Court in the case of Sri Potla Nageswara Rao Vs. DCIT (supra). Accordingly, I agree with the order of the CIT(A), confirming the capital gains during the year.
FULL TEXT OF THE ITAT JUDGMENT
These are four appeals by different assessees against the order(s) of the Commissioner of Income Tax (Appeals)-5, Hyderabad, for the AY. 2009-10. Since common issues are involved in all these appeals, these are heard together and decided by this common order. For the purpose of convenience, the facts in ITA No. 1714/Hyd/2016 in the case of Shri M. Bali Reddy are considered here under:
2. Briefly stated, assessee is a salaried employee, has filed his return of income for the AY. 2009-10 on 29-07-2009 admitting the total income at Rs. 8,62,770/-. The return was processed u/s. 143(1) of the Income Tax Act [Act]. Subsequently, on 17-12-20 13, a notice u/s. 148 was issued by the Assessing Officer (AO) for the year under consideration. Assessment u/s. 143(3) r.w.s. 148 was made on 10-03-20 15 on a total income of Rs. 34,04,239/- in which an addition of Rs. 25,41,474/- was made under the head Short Term Capital Gains in respect of Development agreement – cum – GPA entered into by assessee with M/s. Diamond Infra relating to assessee’s land of 267 Sq. Yds., bearing Plot No. 20, situated in Survey No. 145/2, Hydernagar Village, Bala Nagar Mandal, Ranga Reddy District, which was registered on 12-05-2008.
3. Before the Ld.CIT(A), assessee raised various grounds, mainly contesting the reopening of assessment and also bringing to tax the Short Term Capital Gain during the year consideration. Ld.CIT(A) after analyzing the legal position, noticed that the return was processed u/s. 143(1) of the Act only and since development agreement has come to the knowledge of the AO, assessment was property reopened, following the principles laid down by the Hon’ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers (P) , [291 ITR 500] (SC). Ld.CIT(A) rejected the contentions that there was a change of opinion and also the contention that there was no tangible material. Ld.CIT(A) noted that the information has come to the knowledge of the AO as there were survey operations u/s. 133A of the Act in the case of M/s. Diamond Infra, from whom the details of the development agreement and sale of various properties has come to the knowledge. Both on facts and on law, Ld.CIT(A) analysed the issue and upheld the reopening of assessment.
3.1. Coming to the issue of computation of Short Term Capital Gain, Ld.CIT(A) did not accept assessee’s contention and distinguished various case law relied upon and after analyzing the provisions of the Act, upheld the assessment as such thereby dismissing the appeal filed by assessee. In coming to the conclusions Ld.CIT(A) also relied on the jurisdictional High Court decision in the case of Potla Nageswara Rao Vs. DCIT [365 ITR 249] (AP). Aggrieved, assessee is in appeal before us.
4. Before us, Ld. Counsel for assessee argued that the Ld.CIT(A) erred in upholding the re-assessment made u/s. 147 of the Act without there being any new material on record. The Ld.CIT(A) ought to have appreciated the fact that it is a settled position of law that no re-assessment can be made merely on change of opinion without there being any new tangible material on record. The addition is made merely on the basis of development agreement entered by assessee. However, nothing is happened in the year of entering development agreement, even no permission was obtained from GHMC to start construction. Hence, there is no transfer of property which was effected in the year under consideration and tere was escapement of income to reopen the case. Ld. Counsel argued that re-assessment made by AO is not valid and upholding of such assessment by Ld.CIT(A) is not correct. In this regard Ld. Counsel placed reliance on the following case law:
i. Hon’ble Supreme Court in the case of CIT, Delhi Vs. Kelvinator of India Ltd., [187 Taxmann 312 (SC)];
ii. Decision of Hon’ble ITAT, Hyderabad in the case of Sri S. Ranjith Reddy Vs. DCIT, Circle-6(1) [ITA No. 292/Hyd/2012];
iii. Decision of Hon’ble ITAT, Hyderabad in the case of Sri P. Prathap Reddy, Hyderabad Vs. DCIT, Circle-16(3), Hyderabad [ITA No. 693/Hyd/2013];
iv. Decision of Hon’ble ITAT, Hyderabad in the case of M/s. Gayatri Sugars Limited Vs. ACIT, Circle-2(3), Hyderabad [ITA No. 1728 to 1731/Hyd/2011];
4.1. Ld. Counsel also argued that in the present case, the possession in the property under consideration has not been transferred to the developer and the possession of the impugned land was continuously enjoyed by assessee. Therefore, no capital gain arises in the year under consideration. In support of this contention, Ld. Counsel further relied on the following case law:
i. Decision of ITAT ‘B’ Bench, Hyderabad in the case of Sri Suresh Kumar D. Shah Vs. DCIT, Central Circle-2, Hyderabad in ITA No. 81/Hyd/2016 dt. 10-08-20 16;
ii. ACIT, Central Circle-5, Hyderabad Vs. R. Srinivasa Rao [2014] 50 com178 (Hyderabad- Trib.);
iii. Fibars Infratech (P.) Ltd Vs. ITO, ward-1(2), Hyderabad [2014] 46 com313 (Hyderabad-Trib;);
iv. Bhavya Anant Udeshi Vs. ITO, (International Taxation)-1, Hyderabad [2014] 51 taxmann.com415 (Hyderabad-Trib.);
v. Suraj Lamp and Industries Pvt. Ltd Vs. State of Haryana & Anr dated 11-10-2011 in Special Leave Petition (C) bearing No.13917 of 2009 (Supreme Court);
vi. Mr. Parbodh Chander Bali Vs. Rakesh Singh and Others in SLP(C) No. 139 17/2009 dated 12-08-20 14 (Supreme Court);
4.2. Ld. Counsel also contended that judgment of Hon’ble Jurisdictional High Court in the case of Potla Nageswara Rao Vs. DCIT (supra) is distinguishable. He argued that the facts of the case of the assessee are completely different than that of the facts of case of Sri Potla Nageswara Rao Vs. DCIT (supra). In the case of Sri Potla Nageswara Rao Vs. DCIT (supra), the Hon’ble High Court was only dealing with the question in respect of incidence of capital gains basing on passing of consideration. In the case of Sri Potla Nageswara Rao Vs. DCIT (supra), on the issue of transfer of possession of land and performance of contract there were no disputes. The judgment of the Hon’ble High Court was only restricted in respect of consideration in case of JDA. However, in the present case, the dispute is with respect to transfer of possession of property and performance of the contract. Therefore, the reliance placed by the authorities on the judgment of Hon’ble High Court is completely misplaced.
4.3. Ld. Counsel further contended that in view of the amended provisions of Section 45(5A) by the Finance Act, 2017, the taxation of capital gain in case of Joint development agreement arises in the year in which the land owner receives his share of property from the builder and same is applicable retrospectively. Hence, there is no capital gain arise to assessee in the year under consideration as there is nothing received from the builder. In this regard Ld. Counsel placed reliance on the case law of Ansal Land Mark Township (P.) Ltd vide [2015] 61 taxmann.com 45 (Delhi).
5. Ld.DR, however, submitted that assessee has given possession of the property also during the year and by which, the developer has taken possession, obtained permissions and constructed the flats also, therefore, there is no merit in the contentions now raised.
5.1. With reference to new provisions introduced in Section 45(5A), it was the submission that the provision is applicable w.e.f. 01-04-2018. Therefore, the same cannot be made applicable for the impugned assessment year as it was not clarificatory provision but a substantive provision introduced for the first time.
5.2. Question was raised with reference to period of holding – It was the submission that assessee has originally entered into agreement and paid advances to the father of seller of the property. But due to internal adjustments between the family, the property was ultimately sold by the Son, Shri Srikanth and the recitals clearly indicate the above nature. It was submitted that advances were paid to Shri Bala Swamy originally and therefore, AO was not correct in holding the period from the date of actual registration, whereas assessee was in possession of the property much before. It was fairly admitted that these aspects were not examined by the AO. Further, it was also contended that the valuation adopted on the basis of the development at the time of completion cannot be considered as value for bringing to tax the capital gain at the time of entering JDA and on transfer of 50% of land, it was also contended that AO wrongly considered the entire value rather than 50% share of the land.
6. I have considered the rival contentions and perused the material placed on record and case law relied on. While completing the assessment, AO considered the period of holding of the property to be less than 36 months and the gains arose in this transaction was considered as short term only. Further, while valuing the property transferred, the AO has considered the entire 267 Sq. Yds., entered into agreement by assessee, ignoring the fact that only 50% of the above was transferred, whereas assessee retained the balance of 50%. To that extent, the order of AO is to be modified.
6.1. Coming to the valuation also, the valuation taken by the AO at the date of his survey and at the time of completion of project cannot be basis for considering the sale consideration on the date of development agreement. These aspects will be considered at a later point of time.
6.2. Coming to the issue of reopening contested by assessee, that is not valid, it is noticed that assessee filed return of income without admitting any capital gain nor there is any mention in the return about the development agreement entered by assessee. The information has come to the knowledge of the AO consequent to the survey proceedings in M/s. Diamond Infra which led to the reopening of assessment u/s. 147 not only in assessee’s case but also in other cases, where all the owners have entered into development agreement with the said party. After examining the facts, I am of the opinion that the AO correctly invoked the provisions of Section 147 and therefore, the proceedings are valid in law. I fully agree with the opinion of the Ld.CIT(A) who elaborately discussed the issue based on various case law also.Consequently, the grounds raised on reopening are rejected.
6.3. As far as the issue of bringing to tax the capital gains during the year, it was the contention of assessee that possession was not given and assessee retained possession of the property thereby the capital gains arises in the year in which the new flats were handed over. Ld. Counsel in his arguments, elaborately read out various portions of the agreement to substantiate assessee’s claim, whereas the Ld.DR relied on various other clauses to state that possession was handed over. As far as the development agreement is concerned, it is noticed that assessee did permit M/s. Diamond Infra to enter into the premises, do all the necessary things for construction of apartments. It is the common agreement by many people, who has purchased lands/plots in the developed area. It is also noticed that the said assessee went to construct the apartments and hand over the flats as per the schedule to the respective persons, including assessee. Some of the agreement holders also sold the flats in semi-finished condition or in fully developed condition, whereas few like assessee retained the flats as such. Therefore, I am of the opinion that assessee did hand over the possession and provisions of Section 2(47) regarding transfer certainly get attracted. Since there is part performance of the contract in the nature referred to in Section 53 of Transfer of Property Act, 1882, Clause(v) of Section 2(47) is clearly attracted. Therefore, I agree with the stand of AO that the capital gains did arise during the year under consideration as the agreement was entered on 12-05- 2008. Accordingly, the issue of bringing to tax the capital gains during the year is to be upheld. Even though Ld. Counsel tried to distinguish the jurisdictional High Court judgment in the case of Sri Potla Nageswara Rao Vs. DCIT (supra) that it applies to a case, where there is no sale consideration and the issue is on non-receipt of sale consideration. I do not agree with that as the issue of transfer in the case of development agreement and consequent levy of capital gain in the year of entering into development agreement has been crystalised by the said judgment of the jurisdictional High Court in the case of Sri Potla Nageswara Rao Vs. DCIT (supra). Accordingly, I agree with the order of the CIT(A), confirming the capital gains during the year.
6.4. One of the arguments raised by the Ld. Counsel is that new Section 45(5A) has been introduced which defers the capital gains to the year of completion of the project by the Finance Act, 2017. This being substantive provision, I am of the opinion that this cannot be applied to the development agreement entered into earlier, in which 2(47)(v) would certainly get attracted. In view of that, I reject the contention and uphold the taxability of the capital gains in the year under consideration.
6.5. However, the matter does not end there. There are two issues which require further consideration. One is that whether property is held for sufficient period so as to attract Short Term Capital Gain or Long Term Capital Gain. The other is the valuation of the full value of consideration. As far as the holding period of the impugned property is concerned, it is the contention of assessee that they have paid advances much earlier and took possession also whereas registration was completed on 10-08-2005. It is not correct on the part of AO to consider the date of registration alone as the date of obtaining the property. There are various judicial principles supporting the contentions that registration is only a conclusive evidence but ownership can be obtained much earlier also. As seen from the purchase deed also, there are recitals that Shri Bala Swamy, father of vendor has himself developed the property and then obtained permissions but later on made four gift settlements to his son and after obtaining HUDA permissions, has registered the property on that date. Even though the receipt of sale consideration date-wise has not mentioned, it is the contention that assessees have paid the amounts much earlier also. This aspect has not been examined by the AO at all. Therefore, in the interest of justice, I am of the opinion that the issue of having possession of the property at the time of purchase of property by assessee, before registration is to be examined in the light of the payments made by assessee, permissions obtained from HUDA etc., so that the issue can be finally concluded on facts whether the property has to be considered as long term capital asset or short term capital asset. Therefore, this issue is restored to the file of AO to examine, after giving due opportunity to assessee.
6.6. Next issue to be considered is the full value of consideration, for computation of capital gains. As per the agreement, assessee has parted with only 50% of the impugned property. However, AO has taken the cost of construction of the properties which are given in lieu at the time of completion of the project and gave certain discount so that the value is fixed at 1097 per Sft. This is not a correct method. Since the agreement was entered into in May, 2008 either the cost of the land [at 50% of 266.66 Sq. Yds.,] should have been considered for sale consideration or the probable value of the cost of construction on that date has to be considered. It is not proper on the part of the AO to consider the subsequent cost which may involve escalation of cost from 2008 to 2013. Therefore, I direct the AO to consider the probable cost of construction as on May 2008 or the SRO Value of the land-in-question on the date of agreement should be considered as full value of consideration for the purpose of computation of capital gains on the transfer of 50% of the land holding for development. Therefore, while upholding the reopening of assessment and also bringing to tax the capital gains in the impugned year, the issue whether the land is short term capital asset or long term capital asset and the value for considering the capital gains computation is restored to the file of AO for fresh examination. Needless to say that assessee should be given due opportunity. For this purpose, the order of AO and CIT(A) on the above issues are set aside to the re-done as per the facts and law. In case the property was held to be long term capital asset, assessee may be eligible for consequent benefit u/s. 54/54F of the Act, which should be considered on the facts of the case. Assessee is free to raise necessary arguments in this regard before the AO. Grounds of assessee are considered partly allowed for statistical purposes.
6.7. In the result, appeal in ITA No. 1714/Hyd/2016 in the case of Shri Bali Reddy is considered partly allowed for statistical purposes.
ITA No. 1712/Hyd/2016:
7. In this appeal, assessee, Shri Adinarayana Reddy Kummeta, is an NRI and his father Shri Bali Reddy represented him. The assessment was reopened u/s. 147 of the Act and incomes were assessed on the deemed transfer of site of 267 Sq. Yds., by the development agreement dt 12-05-2008 which is common along with Shri Bali Reddy and others. AO has passed similar order as in the case of Shri Bali Reddy, determined the capital gain computation. Ld.CIT(A) has also passed a similar order confirming the reopening u/s. 147 of the Act as well as computation of capital gains during the year under consideration. Similar arguments were raised in the case of Shri Adinarayana Reddy also as in the case of Shri Bali Reddy discussed above. For the detailed discussions made in the above appeal in the case Sri Balireddy, I agree with the Ld.CIT(A) to the extent of confirming the reopening of assessment and computation of capital gains during the year under consideration, whereas the issue of capital asset being short term or long term and issue of full value of consideration for the purpose of computation are restored to the file of AO. Needless to say that assessee should be given due opportunity. For this purpose, the order of AO and CIT(A) on the above issues are set aside to the re-done as per the facts and law. In case the property was held to be long term capital asset, assessee may be eligible for consequent benefit u/s. 54/54F of the Act, which should be considered on the facts of the case. Assessee is free to raise necessary arguments in this regard before the AO. Grounds of assessee are considered partly allowed for statistical purposes.
7.1. In the result, appeal in ITA No. 1712/Hyd/2016 in the case of Shri Adinarayana Reddy is considered partly allowed for statistical purposes.
ITA Nos. 458/Hyd/2017 & 459/Hyd/2017:
8. These two assessees Shri B. Vijaya Bhaskar Reddy and Smt. B. Indira being husband and wife have acquired the properties similarly and also entered into development agreement with the said M/s. Diamond Infra by the agreement 28-07-2018. The AO like in the other cases has considered the date of registration of the property to the date of agreement as short term capital asset and re-computed the Short Term Capital Gain in both the hands taking the value of apartments to be received at 1097 Sq. ft. AO thus, determined the Short Term Capital Gain. Assessee has contested on both the issues- of reopening u/s. 147 as well as bringing to tax during the year under consideration. The ground being similar to the grounds raised in the case of Shri Bali Reddy discussed in detail above, there is no need to separately consider the issues. In these cases assessees however, have placed on record the payment receipts also made earlier to Shri Bala Swamy and subsequent registration of property by Shri Srikanth. For the detailed discussions made in the above appeals, I agree with the Ld.CIT(A) to the extent of confirming the reopening of assessment and computation of capital gains during the year under consideration, whereas the issue of capital asset being short term or long term and issue of full value consideration for the purpose of computation are restored to the file of AO in these cases as well. Needless to say that assessees should be given due opportunity. For this purpose, the orders of AO and CIT(A) on the above issues are set aside to the re-done as per the facts and law. In case the property was held to be long term capital asset, assessees may be eligible for consequent benefit u/s. 54/54F of the Act which should be considered on the facts of the case. Assessees are free to raise necessary arguments in this regard before the AO. Grounds of assessees are considered partly allowed for statistical purposes.
8.1. In the result, appeals in ITA Nos. 458 & 459/Hyd/20 17 are considered partly allowed for statistical purposes.
9. To sum-up all the appeals are considered partly allowed for statistical purposes.
Order pronounced in the open court on 28th February, 2018
