ITAT explains Provisions of Deemed transfer in case of JDA under Section 2(47)(v)

DCIT Vs Hema Mohanlal Divyasree (ITAT Cochin)

We have carefully perused the JDA entered between the assessee and the developer. As per the JDA (in page 3 para 4), the construction should have completed and the share of build up area marked for the assessee ought to have been handed over within 36 months of obtaining necessary sanction. The developer could not complete the construction as per the JDA due to their internal problems and working capital issues and 20,000 sq. ft. of buildup area was handed over to the assessee only on 12.04.2016 after a gap of seven years. The closure agreement dated 12^th April, 2016 evidencing the handing over is enclosed from page 16 of the paper book.  As per page 3 para 5 of the JDA, it is stated  that “the sale deeds the developer executes with the prospective buyers or other investors, shall be without prejudice to the complete ownership of land to the land owner until the owner’s part of the built-up area is finished and handed over”. Hence the builder did not have the right to sell the land without the signature / thumb impression of the assessee / the owner. Further, as per 1^st para page No.4  of the JDA, it is stated that “if the developer fails to complete the project within 36 months from the date of signing the agreement, the Land Owner will have the right to mortgage or alienate the land as absolute owner and use the money for completing the project and developer shall have no right to object or obstruct the process of construction in the aforesaid property”. Therefore, the assessee has given the possession of the property for limited purpose of construction as per the JDA and the assessee continue to retain the ownership of the property. In other words, the assessee has the right to take back or reclaim property at any time, if the 20,000 sq.ft. built-up area is not handed over to the assessee in time.

The provisions of deemed transfer u/s 2(47)(v) cannot be invoked in the assessee’s case since she did not receive any consideration and also no construction actually took place during the Asst.Year 2009-2010. The permission from Trivandrum Corporation to construct the building was issued only during the next financial year on 08.06.2009. Copy of permission to construct the building is enclosed at page 19 of the paper book filed by the assessee.

The Power of Attorney was given to the developer only to represent the land owner and to sign on behalf of the land owner as per the instruction given by her since she is handicapped and living abroad at the time of execution of power of attorney. Nowhere in the power of attorney, handing over of the complete possession of the property to M/s.Artech Realtors (P) Ltd. was mentioned. Copy of the Power of Attorney is enclosed at page 21 of the paper book. As  per the Power of Attorney and the JDA, flat can be transferred to a buyer only with the signature of the land owner and no power is given to the developer for selling the land. The developer had waited for 7 years (i.e. up to 12^th April, 2016) for handing over the built-up area to the land owner to get the first sale deed registered with the signature of the land owner assessee. Before the date of handing over on 12^th April, 2016 no land right was transferred to the flat owners. (Copy of the first sale deed is enclosed from page 25 of the paper book). It is made clear in the JDA that “the land owner hereby agrees to give the right to sell the undivided share of interest in the aforesaid property to the developer in lieu of construction and handing over of 20,000 sq.ft. of super built-up area of service apartments”.

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 right on the vendor / landlord to seek redressal under Section 53A of the Transfer of Property Act. This agreement cannot be said to be in the nature of a contract referred to in section 53A of the Transfer of Property Act. The provisions of section 2(47)(v) will not apply in such a situation. It was held in the case of Sri ABVS Prakash, Hyderabad v. The ACIT, Central Circle-1, Hyderabad (2014) 8 TaxCorp (A.T.) 35688 that “The provisions of deemed transfer under section 2(47)(v) could not have been invoked. 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 not adhered to, 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. The agreement cannot be said to be in the nature of a contract referred to in section 53A of the Transfer of Property Act. It cannot be said that the provisions of section 2(47)(v) will apply in the situation. Thus, the capital gains could not have been taxed”.

Please become a Premium member. If you are already a Premium member, login here to access the full content.