Case Law Details
N. G. Chandra Reddy (HUF) Vs DCIT (Karnataka High Court)
The Karnataka High Court held that a Joint Development Agreement (JDA) can constitute a “transfer” under Section 2(47)(v), especially when read along with a contemporaneous GPA conferring substantial rights to the developer.
However, the Court granted relief to the assessee on a crucial principle – the same income cannot be taxed twice. It noted that the assessee had already offered capital gains in subsequent years (AY 2007–08 & 2008–09) and taxes had been accepted by the department.
The Court observed that although technically the transfer may relate to an earlier year (AY 2005–06), taxing it again would be revenue-neutral and cause unnecessary hardship, especially after a long lapse of time.
Accordingly, it directed that if the same consideration has already been taxed in later years, it should not be taxed again in the earlier year, subject to verification by the AO.
Result: Transfer under JDA upheld in principle, but addition deleted to avoid double taxation; appeal partly allowed.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
This appeal is filed by the assessee challenging the order passed in ITA No.390/Bang/2015 dated 20.07.2016 for the Assessment Year 2005–06.
2. The above appeal is admitted to consider the following substantial questions of law:
“35. Whether the Tribunal was justified in law in holding that there has been transfer within the meaning of section 2(47) of the Income Tax act read with section 53A of the Transfer of Property Act, 1882 on the facts of the case.
36. Whether the Tribunal was justified in law in not holding that the mandatory conditions for reopening the assessment did not exist and consequently the entire assessment is bad in law and liable to be set aside on the facts of the case.
38. Whether the Tribunal failed to appreciate that the notice under section 148 issued is bad in law and not in accordance with law and consequently the entire proceedings are unsustainable in law on the facts and circumstance of the case.
39. Whether the Tribunal erred in law in not holding that no capital gains can be quantified as the very computation provision fails on the facts of the case.
40. Whether the Tribunal erred in law in not following the co ordinate bench decision in regard to quantification of consideration on the facts and circumstance of the case.
41. Whether the Tribunal is justified in law in directing the Assessing Officer to take the market value of the asset to be received by the assessee as consideration for transfer on the facts and circumstance of the case.
42. Whether the Tribunal was justified in law in not adjudicating the issue of levy of interest under section 234A, 234B and 234C of the Act, 1961 on the facts and circumstance of the case.”
3. The brief facts are that the assessee, a Hindu Undivided Family (HUF), filed its return of income for the Assessment Year 2005–06. In the said return, the assessee did not disclose the capital gains arising from the transfer of an asset pursuant to a Joint Development Agreement (for short, “JDA”) dated 12.05.2004.
3.1 The Assessing Officer was of the view that under the JDA there was a transfer of land, which constituted a “transfer” within the meaning of Section 2(47)(v) of the Income-tax Act, 1961 (for short, “the IT Act”). As possession of the property had been handed over to the developer in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 (for short, “the TP Act”), the Assessing Officer reopened the assessment by issuing notice under Section 148 of the IT Act.
3.2 Upon conclusion of the reassessment proceedings, the Assessing Officer held that the assessee had handed over possession of the land to the builder for the purpose of construction of flats. It was further held that the assessee had executed a registered General Power of Attorney (GPA) in favour of the builder on the date of the JDA. According to the Assessing Officer, the execution of the GPA itself established that possession of the property had been delivered to the builder, thereby amounting to a transfer under Section 2(47)(v) of the IT Act. Accordingly, capital gains were computed.
3.3 Aggrieved thereby, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) (for short, “CIT(A)”). By order dated 13.02.2015, the CIT(A) dismissed the appeal insofar as it related to the levy of capital gains. On further appeal by the assessee, the Tribunal, placing reliance on the judgment of this Court in Commissioner of Income-tax, Bangalore v. Dr. T.K. Dayalu, reported in [2011] 14 taxmann.com 120 (Kar.), held that, under the JDA, the assessee had handed over possession of the land to the developer and that, in view of the aforesaid decision, constituted as a transfer of immovable property under Section 2(47)(v) of the IT Act. Accordingly, the assessee’s appeal was dismissed.
4. Sri A. Shankar, learned Senior Counsel appearing for the appellant, submits that the JDA clearly stipulates that possession of the land was granted only by way of licence to enable the developer to put up construction and not in the nature of possession contemplated under Section 53A of the TP Act. It is contended that the developer acted merely as an exclusive contractor for the purchasers of the flats.
4.1 Learned Senior Counsel further submits that the assessee retained all rights over the undivided share in the land, which was to be conveyed subsequently, upon construction of the built-up area falling to the share of the assessee. It is also contended that the agreement specifically provided that the permission granted to enter the property shall not be construed as delivery of possession within the meaning of Section 53A of the TP Act.
4.2 It is further submitted that the transfer of the undivided interest in the land was effected in the Assessment Years 2007–08 and 2008–09, and that the taxes thereon have already been paid. Therefore, if the very same consideration is subjected to tax in the present Assessment Year 2005–06, it would result in a double levy on the same income, which is impermissible in law.
4.3 Insofar as the substantial questions of law relating to the validity of the reopening of the assessment are concerned, learned Senior Counsel submits that the said questions are not pressed in the present appeal.
5. Per contra, Sri E. I. Samathi, learned Senior Standing Counsel appearing for the respondent–Revenue, submits that the JDA was executed contemporaneously with the General Power of Attorney (GPA). It is contended that the developer was granted irrevocable licence and possession over the land, thereby satisfying the requirements of Section 2(47)(v) the IT Act.
5.1 It is further submitted that the mere recital in the JDA stating that the possession delivered shall not be construed as possession in part performance under Section 53A of the TP Act would not dilute the applicability of Section 2(47)(v) of the IT Act. According to learned Senior Standing Counsel, the JDA and the GPA must be read conjointly and in a purposive manner to ascertain their true intent and legal effect. It is submitted that the Assessing Officer, upon a detailed consideration of the recitals contained in the JDA read with the terms of the GPA, has rightly concluded that there was an irrevocable transfer of rights in the land, amounting to a “transfer” within the meaning of Section 2(47)(v) of the IT Act.
5.2 Learned counsel further submits that the assessee had agreed to convey 68% of the undivided interest in the land to the developer and had authorised the developer to enter into agreements for sale in respect of the saleable share of the undivided interest in the land along with the corresponding built-up area. Though the JDA provides that the owner would execute conveyance deeds in favour of the persons identified or nominated by the developer, for that very purpose the GPA was executed, thereby transferring complete control and rights over the developer’s share.
5.3 In the aforesaid circumstances, it is contended that the concurrent findings recorded by all the three authorities, holding that the JDA resulted in a transfer under Section 2(47)(v) of the IT Act, do not warrant interference.
6. We have considered the submissions of learned counsel for the parties and perused the appeal papers.
7. The assessee entered into a JDA dated 12.05.2004, relevant to the Assessment Year 2005–06. It is also on record that, on the very same day, the assessee executed a GPA in favour of the developer. According to the assessee, no possession of the land was delivered to the developer in terms of Section 53A of the TP Act. It is contended that the JDA was in the nature of a construction agreement and that all proprietary rights continued to vest with the assessee. The developer was granted only a licence and permission to enter upon the property for the limited purpose of construction of the proposed residential apartments. The rights in the undivided share of the land, it is urged, remained with the assessee and were to be conveyed subsequently to the developer or its nominee. Hence, it is contended that the JDA did not result in a “transfer” within the meaning of Section 2(47)(v) of the IT Act.
7.1 It is further stated that upon transfer of the flats to the developer or its nominee, the assessee offered the income to capital gains tax in the subsequent Assessment Years 2007– 08 and 2008–09. The material on record indicates that capital gains were indeed offered to tax in the said subsequent assessment years. However, the Assessing Officer, the CIT(A), and the Tribunal proceeded to hold that a transfer had taken place in the Assessment Year 2005–06 by applying the judgment of this Court in Dr. T.K. Dayalu (supra). It is to be noted that subsequent to the said decision, the legal position has undergone significant development in view of the pronouncements of the Hon’ble Supreme Court in Commissioner of Income-tax v. Balbir Singh Maini, reported in (2017) 398 ITR 531 (SC), and Seshasayee Steels (P.) Ltd. v. Assistant Commissioner of Income-tax, Company Circle VI(2), Chennai, reported in (2020) 421 ITR 46 (SC).
8. A comprehensive reading of the JDA prima facie indicates that there was a transfer within the meaning of Section 2(47)(v) of the IT Act. The Assessing Officer has placed reliance on the GPA executed contemporaneously with the JDA. However, the said GPA has not been placed before this Court. In the absence of the GPA, we have no occasion to independently examine the applicability of Section 2(47)(v) of the IT Act in its entirety.
8.1 Though the JDA contains a clause stating that the possession delivered shall not be construed as possession within the meaning of Section 53A of the TP Act, there are other clauses which confer irrevocable licence and permission upon the developer to enter upon the land and put up construction pursuant to the JDA. The agreement also confers rights upon the developer to deal with 68% of the undivided interest in the land. It is a settled principle of law that an agreement must be read as a whole and that isolated clauses cannot be relied upon to determine its true nature and effect.
9. Upon an overall reading of the JDA in its entirety, we are of the considered view that the concurrent findings recorded by the Assessing Officer, the CIT(A), and the Tribunal cannot be said to be perverse or erroneous. Although we uphold the finding of the three authorities that a transfer of land took place in the Assessment Year 2005–06, we propose to interfere with the impugned orders for reasons distinct from those assigned by the authorities, as stated hereinbelow.
9.1 The assessee offered the income arising from the transfer of the undivided interest in the land conveyed to the developer or its nominees as capital gains in the Assessment Years 2007–08 and 2008–09. In the return filed for the Assessment Year 2008–09, the assessee claimed the benefit of Section 54 of the IT Act, which was granted by the Assessing Officer in the scrutiny assessment completed under Section 143(3) of the IT Act. The remaining portion of the consideration was also offered to capital gains in the Assessment Year 2007– 08.
9.2 Subsequently, the assessment for the Assessment Year 2005–06 was reopened to bring the very same consideration to tax as capital gains on the ground that the transfer was taxable in that year. The contention of the assessee is that the return of income for the Assessment Year 2008–09, wherein the benefit under Section 54 of the IT Act was claimed, has been accepted, and taxes have been duly paid on the balance consideration in the Assessment Years 2007–08 and 2008–09. Therefore, subjecting the same consideration once again to tax in the Assessment Year 2005– 06 would, in effect, be revenue neutral.
9.3 It is a settled position of law that tax is to be levied on income in the relevant assessment year and in the hands of the correct assessee. The mere fact that income has been offered to tax in another year does not, by itself, determine its taxability in the proper year. However, in the facts of the present case, if the consideration arising from the transfer of land is brought to tax in the Assessment Year 2005–06, the taxes already paid for the Assessment Years 2007–08 and 2008–09 would necessarily require adjustment.
9.4 On an overall consideration, we find that there is no substantial variation in the ultimate tax liability so as to result in any undue benefit to the Revenue or any unwarranted advantage to the assessee. At this distant point of time—nearly two decades later—bringing the sale consideration to tax in the Assessment Year 2005–06 and correspondingly rectifying the concluded assessments for the Assessment Years 2007–08 and 2008–09 would serve no meaningful purpose, except causing avoidable inconvenience to both the assessee and the Revenue.
10. In the light of the foregoing discussion, we hold that if the entire sale consideration brought to tax in the reassessment for the Assessment Year 2005–06 has already been subjected to tax in the Assessment Years 2007–08 and 2008–09, the same shall not be taxed again for the Assessment Year 2005–06. Subject to verification of the aforesaid aspect by the Assessing Officer, the addition made towards capital gains for the Assessment Year 2005–06 stands set aside.
11. The first substantial question of law is accordingly answered subject to the observations made hereinabove. The other substantial questions of law are not answered as the same are not pressed.
12. The appeal is disposed of in the above terms.
Author Bio
