Smt. Vani Shree Vs ITO (ITAT Bangalore)
Conclusion: Assessee had given permissive possession and not ‘legal possession’, as contemplated within the meaning of section 53A of the Transfer of Property Act. Therefore, the provisions of section 53A of the Transfer of Property Act, were not applicable to the impugned Joint Development Agreement and the conditions laid down in section 2(47)(v), could not be invoked, so as to bring the capital gains into tax in the assessment year 2012-2013.
Held: During the assessment proceedings, assessee contended that the long term capital gains of Rs.2,16,39,500/- was to be assessed in A.Y. 2012-13 as the JDA was entered into on 05/12/2011. AO held that the assessee had changed her stand that the capital gains was assessable in A.Y. 2015-16 with the intention to escape the restrictive provisions of the amended section 54F since she was due to receive more than one residential apartment from the developer. Accordingly, AO rejected the assessee’s contention seeking to withdraw/delete/remove the long term capital gains from the income declared in the return filed for A.Y. 2015-16. He then added back the exemption claimed u/s 54F amounting to Rs.1,99,07,549/- to the assessee’s returned income. Aggrieved by the order of AO, assessee preferred appeal before CIT(A). Assessee primarily alleged that permission might be granted to assessee to withdraw the offer of capital gain in the year 2015 which was made by assessee in its return of income and the capital gains may be taxed for A.Y. 2012-13. Assessee also alleged against denying the claim of exemption on the ground that assessee had not taken the possession of any residential apartment during the year under consideration. It was held that provisions of section 53A of the Transfer of property Act would show that, the transferee should have taken possession in part performance of the contract and had done some act in furtherance of the contract. In the instant case, development agreement clearly specified that the possession of the property was not given, and what was given was only license to enter the property. In the instant case assessee had given permissive possession and not ‘legal possession’, as contemplated within the meaning of section 53A of the Transfer of Property Act. Hence, it is held that, the provisions of section 53A of the Transfer of Property Act, were not applicable to the impugned Joint Development Agreement. Therefore, the conditions laid down in section 2(47)(v), could not be invoked, so as to bring the capital gains into tax in the assessment year 2012-2013.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
Present appeal is filed by the assessee against order dated 05.12.2018 passed by the Ld.CIT(A)-6, Bangalore for A.Y. 2015-16 on following grounds of appeal:
“1. The order of the learned Commissioner of Income-tax (Appeals), Bengaluru, passed under section 250 of the Act in so far as it is against the Appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant’s case.
2. The appellant denies herself to be liable to be assessed to total income of Rs.2,16,39,499/- on the facts and circumstances of the case.
3. The learned Commissioner of Income Tax (Appeals) is not justified in law in confirming the disallowance of exemption a sum of Rs. 1,99,07,549/- claimed by the appellant u/s 54F of the Act on the facts and circumstances of the case.
4. The learned Commissioner of Income-tax (Appeals) is not justified in law in confirming the addition of Rs. 1,99,07,549/- long term capital gains on the facts and circumstances of the case.
5. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant is eligible for exemption under section 54F of the Act for the entire capital gains that arouse on the JDA on the facts and circumstances of the case.
6. The learned Commissioner of Income-tax (Appeals) erred in law in holding that the capital gain is chargeable in the assessment year 2015-16 as against assessment year 20 2- 13 on the facts and circumstances of the case.
7. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the capital gain is liable to be taxed for AY 2012-13 on the facts and circumstances of the case.
8. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the transfer of the property takes place upon execution of JDA and handing over of the property and hence the capital gains is to be charged in assessment year 20 12 – 13 on the facts and circumstances of the case.
9. The learned Commissioner of Income-tax (Appeals) is not justified in law in not admitting additional evidence under Rule 46A of Income Tax Rules, 1962 on the facts and circumstances of the case.
10. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the appellant was prevented by sufficient cause in not furnishing the additional evidences before the Assessing Officer on the facts and circumstances of the case.
11. The learned Commissioner of Income Tax (Appeals) failed to appreciate that consent cannot confer jurisdiction on the facts and circumstances of the case.
12. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant is entitled to point out the mistake in the assessment proceedings and claim that the long term capital gains is required to be charged to tax in AY 2012-13 as against declared by the appellant in AY 2015-16 on the facts and circumstances of the case.
13. The appellant denies itself liable to be charged interest under section 234A and 234B of the Act on the facts and circumstances of the case.
14. Without prejudice, the learned Commissioher of Income Tax (Appeals) failed to appreciate that the capital gain is required to be charged to tax for AY 2012-13 and correspondingly, the appellant is entitled to exemption u/s 54F of the Act for 201213 on the facts and circumstances of the case.
15. The Appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal.
16. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered.”
2. Brief facts of the case are as under:
2.1 The assessee filed her return of income for A.Y. 2015-16 on 10/01/2017declaring an income of Rs.17,31,950/-. The case was selected for scrutiny for verifying the large exemption claimed u/s 54F. Notices u/s 143(2) and 142(1) of the Act dated 20/09/2017 were served on the assessee. Reminder letter dated 3/10/2017 was sent to the assessee as there was no response to the above notices. On 02/11/2017, the assessee’s AR furnished details of the property transferred, date of plan sanction, etc. The assessee along with Sri M.Krishnappa, Sri Yogendra Babu and Sri Hemanth Kumar jointly owned land measuring 2 acres 19 gunta bearing Sy. No.12, Siddapura Village, Varthur hobli, Bangalore .South Taluk.
The assessee’s share was one-fourth of the property or 26,953 sft. of undivided share in the land.
2.2 The assessee and the other owners of the property entered into a Joint Development Agreement on 05/02/2011 with M/s Vishnupriya group of builders and developers for development of the land for construction of a residential apartment complex. As per the terms of the agreement, the assessee was entitled to receive 45% share of the super built-up area in consideration for transferring 55% of undivided share in the land equal to 14824 sft. (55% of 26,953 sft.). This translated into an unspecified’ cumber of residential apartments together with 9,000 sft. of commercial space in proposed residential complex.
2.3 Before the Ld.AO, the assessee submitted that the developer obtained sanction plan for construction of the apartment complex on 18/07/2014 and accordingly, construction had commenced after that date. The assessee took the stand that since 18/07/2014 was the date on which the developer took possession of the property, the transfer of the asset as defined under the provisions of section 2(47)(v)of the Act r.w.s. 53A of the Transfer of Property Act took place on that date and hence the capital gains arising from the JDA was to be assessed in A.Y. 201516. The AO accepted this submission of the assessee as declared in the return of income.
2.4 In the return, the assessee had shown full value of consideration received as Rs.2,17,91,298/- from which she deducted the indexed cost of acquistion of Rs.1,51,798/- to arrive at the long term capital gains of Rs.2,16,39,500/-. From this amount, the assessee deducted an amount of Rs.1,99,07,549/- claimed as exemption u/s 54F and offered an amount of Rs.17,31,951/- as taxable capital gains. The value of the consideration was taken by multiplying the assessee’s share of the land transferred i.e. 14.824 sft. by Rs.1,470/- being the guidance value adopted for the purpose of payment of stamp duty.
2.5 The assessee claimed that she had invested the net consideration in a residential house referring to her share of the super built-up area that she was entitled to remove after completion of construction by the developer. The assessee contended that even if she received more than one residential apartment, it should be considered as ore residential house and hence she was entitled to exemption u/s 54F.
2.6 However, the AO held that since the residential apartment complex was still under construction by the developer, the assessee had not taken possession of any residential apartment during the year and hence the reinvestment of the net consideration in the new asset do not take place during the year. Hence the assessee was not entitled to exemption u/s. 54F. The AO further held that since the assessee was due to receive more than one apartment as consideration as per the JDA, she was not entitled to exemption u/s 54F.
2.7 During the assessment proceedings the assessee contended that the long term capital gains of Rs.2,16,39,500/- is to be assessed in A.Y. 2012-13 as the JDA was entered into on 05/12/2011. The AO held that the assessee had changed her stand that the capital gains was assessable in A.Y. 2015-16 with the intention to escape the restrictive provisions of the amended section 54F since she was due to receive more than one residential apartment from the developer. Accordingly, the AO rejected the assessee’s contention seeking to withdraw/delete/remove the long term capital gains from the income declared in the return filed for A.Y. 2015-16. He then added back the exemption claimed u/s 54F amounting to Rs.1,99,07,549/- to the assessee’s returned income. 2.8 Aggrieved by the order of Ld.AO, assessee preferred appeal before Ld.CIT(A).
2.9 Before the Ld.CIT(A), assessee primarily alleged that permission may be granted to assessee to withdraw the offer of capital gain in the year 2015 which was made by the assessee in its return of income and the capital gains may be taxed for A.Y. 2012-13. The assessee also alleged against denying the claim of exemption on the ground that assessee has not taken the possession of any residential apartment during the year under consideration.
3. The assessee had filed additional evidence wherein a subsequent building plan taken 01.03.2012 was placed before the first appellate authority. Assessee relying on the decision of Hon’ble Karnataka High Court in case of CIT v. Dr T.K Dayalu ITA No 3165/2005 (Kar) case argued that the building approval plan was dated 01.03.2012 and assessee had transferred the entire right title and interest in the land to the developer by the JDA entered into between the assessee and the developer dated 05.02.2011. The above submission was rejected by the Ld.CIT(A) by observing as under:
“4.3.3 From the facts of the present case, it is apparent that the date of the sanctioned plan has been taken both by the AO and the appellant as the date of transfer of the capital asset. However, it is also pertinent to ascertain whether construction commenced immediately after the sanctioned plan as that would establish that the possession had in fact been handed over to the developer and the transfer of the capital asset had taken place. Certain portions of the JDA are relevant in this regard. Para 5 a) of the JDA dated 05.12.2011 which details the manner of development is reproduced below:
“5. MANNER OF DEVELOPMENT AND DEVELOPMENT RIGHTS OF THE DEVELOPER: –
a) The Developer shall commence construction on the schedule property after the refundable security deposit more fully explained in clause 13 hereunder is paid in full to the Owner by the Developer and after obtaining the sanctioned plan from the competent authorities.”
Further, para 9(a) reproduced below states that:
“9. COMPLETION OF CONSTRUCTION:
a) The Developer shall commence construction immediately after obtaining Conversion from the concerned authorities and plan approval for the competent authority as envisaged in Clause I and 2 above.”
The developer was also required to commence construction within 9 months of the date of signing of the JDA as specified in para 13(d) reproduced below:
“13 d) The Developer shall commence construction only after obtaining the applicable sanction plan, drawings, designs, licenses, permission etc, from the competent authority for developing the schedule property in accordance with the development scheme envisaged under this agreement within 9 months from this day as envisaged in Clause 1 and 2 above.”
Thus from the above portions of the JDA, it emerges that it is only after the developer had obtained the conversion and the sanctioned plan that it could commence construction. This implies that the fact of possession of the property by the developer and consequently the transfer of the asset would have to be established with reference to the date of commencement of construction. Neither during the assessment proceedings nor during appellate proceedings has the appellant submitted any proof that the construction had commenced during F.Y. 2011-12. In light of the same, the appellant’s contention that the income from capital gains is taxable in A.Y. 2012-13 cannot be upheld. The grounds of appeal nos.2 and 4 are accordingly dismissed.
4.4 Ground of appeal no.3 relates to the denial of exemption u/s 54F to the appellant.
The AO had rejected the appellant’s claim for exemption u/s 54F on the grounds that the construction was still in progress during F.Y. 2014-15 and hence the appellant had not got possession of the new asset. Neither during assessment proceedings nor during the appellate proceedings has the appellant adduced any evidence that construction of her share of the super built-up area was complete and that she had received possession of the flats pursuant to the JDA. Further, the AO held that as per the terms of the JDA, the appellant was to get an unspecified number of flats and also commercial space hence in view of the ‘provisions of the- amended section 54F, the appellant could not claim the benefit of such exemption. W.e.f. 01/04/2015, section 54F stipulates that the capital gains is to be invested in one residential house. The relevant provision is reproduced below:
54F. Capital gain transfer of certain capital assets not to be charged in case of investment in residential house.
(1) (Subject to the provisions of sub-section (4) where, in the case of an assessee being an individual or a Hindu undivided family), the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or (two years) after the date on which the transfer took place purchase or has within a period of three years after that date ( constructed, one residential house in India) (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section,
From a reading of the above, it is clear that the appellant would not be entitled to claim exemption under the amended provisions since she was due to receive more than one apartment in lieu of transferring her share of the land as per the JDA. Accordingly, it is held that the AO was justified in denying the appellant’s claim for exemption u/s 54F. This ground of appeal is therefore dismissed.”
4. Aggrieved by the order of Ld.CIT(A), assessee is in appeal before this
5. Before us the Ld.AR submitted that assessee wrongly offered capital gains to tax for the year under consideration based on the sanction plan dated 18.07.2014 obtained by the developer whereas subsequently, by way of additional evidence assessee tried to adduce a building plan approved on 01.03.2012 wherein the entire right title and interest in the land stood transferred to the developer by virtue of clause (i) (c) of the agreement dated 05.12.2011. He placed reliance on the following clauses that reads as under:
“c) The Owner hereby irrevocably permits and authorizes the Developer to enter upon the Schedule Property and to develop the same with state of the art amenities in accordance with the approved sanction plan to be sanctioned by the competent authorities or any other appropriate and competent authority.”
6. The Ld.AR relying on the decision of Hon’ble Karnataka High Court in case of CIT v. Dr T.K Dayalu (supra), argued that the JDA was not mere permission to enter but was a transfer as per section 53A of the Transfer of Property Act r.w.s. 2(47) of IT Act.
7. In support of his arguments, he placed reliance on following decisions.
