Case Law Details
ITAT HYDERABAD BENCH ‘A’
Smt. P. Prathima Reddy
v/s.
Income-tax Officer, Ward-6(4)
IT Appeal No. 1393 (Hyd.) of 2010
[Assessment year 2007-08]
September 14, 2012
ORDER
Chandra Poojari, Accountant Member
This appeal by the assessee is directed against the order of the CIT(A)-IV, Hyderabad dated 9.8.2010 for assessment year 2007-08.
2. The assessee raised the following grounds of appeal:
1. The order of the Learned Commissioner of Income Tax (Appeals) is against law, weight of evidence and probabilities of the case.
2. The learned Commissioner of Income Tax (Appeals) erred in confirming assessment of capital gain for Asst. Year 2007-08 in the case of the appellant.
3. The learned Commissioner of Income tax (Appeals) erred in holding that the provisions of Sec. 2(47)(v) are applicable in the case of the appellant whereas deemed transfer as contemplated in the said provision applies only to cases where possession is given in connection with a contract to transfer for consideration as contemplated under section 53A of Transfer of Property Act and not otherwise.
4. The learned Commissioner of Income-tax(Appeals) ought to have noted that on a proper appreciation of the terms of the Joint development agreement or the Supplementary agreement, no event resulting in transfer of property took place in the previous year relevant to Asst. Year 2007-08 and consequently he ought to have deleted the Capital gains assessed in the impugned order.
5. he learned Commissioner of Income tax(Appeals) grossly erred in sustaining the assessment of capital gains income on unsustainable findings of fact and law which are also diagonally opposite with the AO’s findings – the AO holding that the first stage of capital gains arose because the builder handed over possession of seven flats and the CIT(A) holding that possession of flats was not taken by assessee and yet sustaining assessment holding that possession of land was given by the assessee.
6. Without prejudice to the grounds raised above, having held that capital gains is assessable in AY 2007-08, the commissioner of Income Tax (Appeals) erred in upholding the cost of construction at Rs. 925/- per sq. ft determined arbitrarily by the Assessing Officer.
7. Without prejudice to the grounds raised above, the learned CIT(A), having held that capital gain is assessable in AY 2007-08, ought to have directed allowance of the sum of Rs. 5,00,000/- paid, through DD No. 754761 dated 3-9-04 drawn on Vijaya Bank Bangalore, by the appellant to the seller at the time of purchase of the land towards bore well, gate with compound wall etc.
8. Without prejudice to the grounds raised above, the learned CIT(A), having held that capital gain is assessable in AY 2007-08, ought to have directed allowance of the sum of Rs. 1,61,300/- incurred by the appellant as development charges for making payment to labourers towards cutting of trees, shrubs, bushes and levelling of land purchased by her.
9. For the above grounds and such other grounds that may be urged at the time of hearing, the appellant prays that the appeal be allowed. The appellant craves leave to ad to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary.
3. Brief facts of the case are that the assessee has purchased plot of land admeasuring 4848 square feet (sft) sft on 3.9.2004 for a consideration of Rs. 18,34,075. The property was given for joint development for construction of residential flats to one Mr. C. Janardhana Reddy vide Joint Development Agreement (JDA) dated 21.12.2005. Later supplementary agreement was also entered between these two parties on 3.4.2006 as per which assessee’s share worked out to 7 flats in lieu of transfer of 57% undivided right over the land. The lower authorities were of the opinion that the assessee’s right to receive consideration was determined by Supplementary Agreemenht dated 3.4.2006 and in view of the order of the Tribunal, Chennai Bench in the case of R. Kalanidhi v. ITO (122 TTJ 405) it was held that the assessee is liable for tax on capital gain in the assessment year 2007-08. Against this finding of the lower authorities, the assessee is in appeal before us.
4. The assessee also has a grievance with regard to non allowing deduction towards payment of Rs. 5 lakhs by DD No. 754761 dated 3.9.2004 drawn on Vijaya Bank, Bangalore to the seller at the time of purchase of land towards bore-well, gate with compound well, etc. The assessee also has a grievance with regard to non allowing deduction towards Rs. 1,61,300 incurred by the assessee as development charges for masking payment to labourers towards cutting of trees, shrubs, bushes and levelling of land. Further, the assessee’s grievance is that the CIT(A) erred in holding the cost of construction at Rs. 925 per sft on the basis of cost of construction to the builder.
5. The learned AR submitted that the assessee filed return for A.Y. 2007-08 declaring Nil income. The assessee’s contention that the development agreement itself did not result in a transfer was not accepted by the Assessing Officer. The Assessing Officer did not also accept the contention of the assessee that if at all capital gain were to be assessed on the premise that the development agreement resulted in transfer, the assessment should be for A.Y. 2006-07 and not 2007-08. Apart from pleading that the development agreement did not result in transfer of any capital asset nor even “deemed transfer” envisaged in Sec. 2(47) of the I.T Act, the assessee also invited attention of the Assessing Officer to the fact that it was specifically agreed between the assessee and the developer, in clause 11 of the joint development agreement that making the property available to the developer for construction of the residential apartments shall not be construed as delivery of possession. The Assessing Officer, however, proposed to assess capital gain in the A.Y. 2007-08 by treating the cost of construction of the 7 flats falling to the share of the assessee as full value of consideration. He proposed to adopt the cost of construction at Rs. 925 per sft which was stated to be the cost to the builder as per information in the builder’ return of income. The Assessing Officer was of the view that Capital gain arose on account of relinquishment of assessee’s right in 57% of land in favour of the developer, Sri C. Janardhan Reddy.
6. The AR submitted that the transaction between the assessee and the developer may not be treated as resulting in relinquishment of assessee’s right. The assessee pointed out that sale, exchange and relinquishment are included in clause (i) of sec. 2(47) which inclusively defines transfer. However, sale, exchange or relinquishment require a registered deed because these modes of transfer are not included in “deemed transfer” defined in Sec. 2(47)(v). In the absence of such a deed of relinquishment, the assessee cannot be taxed by treating the transaction as relinquishment. The assessee pleaded that no event which resulted in transfer of capital asset occurred in the previous year relevant to assessment year 2007-08. The assessee filed a letter dated 4-11-2009 from the builder as per which the builder stated that the cost of construction was Rs. 650.
7. The AR submitted that the Assessing Officer treated the transaction as one of relinquishment and assessed the assessee to short term capital gain. In para (b) on page 4 of the assessment order, he relied on the decisions of the Hon’ble ITAT in the assessee’s case of Sri S. Raghuram Reddy v ITO in ITA No. 296/Hyd/2003 dated 30-07-2004 decided by Hyderabad bench of the ITAT and the case of Smt. Vasavi Pratap Chand v. DCIT 89 ITR 73(DEL) and held that the facts of the assessee’s case are in pari materia with the facts in the above mentioned cases.
8. The AR submitted that the Assessing Officer held that in cases of development agreement, capital gain arose in two stages, the first stage being on receiving possession of constructed space by the land lord and the second stage on sale of the constructed space. He assessed short term capital gain by treating the cost of construction as full value of consideration. The Assessing Officer did not allow the claim of the assessee that an amount of Rs. 1,61,300 spent on cutting trees, clearing bushes and levelling of land stating that there was no sufficient evidence. He ignored the claim of the assessee that even as per the builder’s letter dated 4-11-2009 filed before the Assessing Officer the cost of construction was Rs. 650/- per sft. Total income was determined at Rs. 63,26,293 adopting the cost of construction at Rs. 925 per sft. Aggrieved, the assessee filed appeal before Commissioner of Income tax (Appeals). The learned CIT(Appeals) relied on several cases decided by various Courts and the ITAT. On the basis of these decisions, he held that the consideration to be received by the assessee was finally determined only in the subsequent supplementary agreement dated 3-4-2006. The CIT (Appeals) failed to appreciate that clause 3 of the JDA already fixed the ratio of built-up area falling to the share of the assessee at 43% of the total built-up area. The supplementary agreement merely facilitated demarcation of the individual flats failing to the share of owner and developer by identifying the flats by the flat numbers which became available by then. The CIT(A) negated the assessee’s claim that no event resulting in transfer took place in the previous year relevant to A.Y. 2007-08.
9. The AR further submitted that in confirming the addition made by the Assessing Officer, the CIT(A) ought to have appreciated the submission of the assessee that the supplementary agreement did not result in any fresh determination of consideration but merely facilitated identification of the flats falling to the share of the assessee to the extent of 43% of total built-up area even as agreed to in the joint development agreement dated 21-12-2005. He confirmed the assessment on an entirely different ground viz., that the development agreement resulted in transfer. He also confirmed the assessability of the gain in A.Y. 2007-08 on the premise that the consideration was determined by the supplementary agreement.
10. The AR further submitted that in the case of S. Raghuram Reddy relied upon by the Assessing Officer, it was pleaded on behalf of the assessee that the Assessing Officer and CIT(A) erred in holding that possession of land was handed over. It was pleaded that there is no question of handing over possession of the entire land as the developer was entitled only for a percentage of undivided share which cannot not be identified. It was also pleaded that it was not possible to identify which part of the land would go to the developer and which part would belong to the landlord. After considering detailed submissions the ITAT held that in the said case also, only a temporary permission to enter and construct was given to the builder. It was also held that it was also not a case of exchange because as per Sec. 118 of Transfer of Property Act, an exchange presupposes existence of two assets at the same time. It was held that transfer took place only on fulfilment of the terms of contract. It has been held that mere handing over of possession does not amount to transfer. The application of Sec. 2(47)(v) requires “allowing” of the possession of an immovable property to be taken or retained in part performance of a contract of the nature referred to in Sec. 53A of the Transfer of Property Act, 1882 Sec. 53A of the Transfer of Property Act applies where the transferee has, in part performance of the contract taken possession of the property or any part thereof. The ITAT held that signing of all agreement to build or develop cannot be considered a part performance of the contract as contemplated under Sec. 53A of the Transfer of Property Act. The ITAT held in that case that the year of transfer, on the facts and circumstances of the case is to be held as the previous year 1991-92 relevant to the A.Y. 1992-93 i.e., the year in which the builder hands over possession of flats to the owner.
11. The learned AR submitted that in the other case relied on by the Assessing Officer, viz., Smt. Vasavi Pratap Chand v. DCIT (89 ITD 73) (Del), the ITAT rejected the contention of the assessee that land was transferred on the date of collaboration agreement. The Assessing Officer having noticed the decision in the case of S. Raghuram Reddy and Smt. Vasavi Pratap Chand (supra) and having admitted that the facts of the assessee’s case are in pari materia with the facts of the said cases, the Assessing Officer ought to have followed the ratio of the said decisions of the ITAT. The CIT(A) ought to have held that the assessment as made by the Assessing Officer is unsustainable.
12. The AR further submitted that in the case of Dr. Usha Mohandas v. ITO (ITA No. 595/Hyd/2010 dated 12.11.2010) the assessee entered into an agreement of sale-cum-GPA on 7.9.2001 for sale of 5 acres of dry agricultural land for a total consideration of Rs. 60 lakhs. She received a sum of Rs. 1 lakh as advance money. As per the terms of the agreement, the assessee authorised the vendee to carry out such development works as the vendee may deem fit till such time the property sold out in part or in full and till that date the vendor and vendee would in joint possession of the land The possession letter was given on 15-09-2004 which specifically states that the vendee has made full and final payment as per the terms of the agreement dated 7-9-201 and possession of the said dry agricultural land was handed over to the vendee absolutely. The assessee declared capital gain in the A.Y. 2005-06. The ITAT Hyderabad held that merely because the vendor has allowed the vendee to carry out development works, as he deemed fit, on the basis of the agreement dated 7-9-2001, it cannot be said that “transfer” is completion on the date of agreement itself. On the date of agreement, the assessee received only a sum of Rs. l lakh as advance money out of the total consideration of Rs. 60 lakhs and the balance consideration of Rs. 59 lakhs was agreed to be paid within two years from the date of entering into the agreement and handing over absolute possession was also linked to the full and final settlement of the consideration as per the agreement. On the date of agreement, absolute possession was not handed over to the vendee to the exclusion of the assessee vendor. What was given by the assessee vendor at the time of entering into the agreement to the vendee is only a permissive possession, to the limited extent enabling the vendee to carry out development works as he deemed fit so as to make the land saleable one either in its entirety or in parts. On the facts of the case, the ITAT held that it had no hesitation in holding that “transfer” took place on 15-09-2004 when absolute possession was handed over by the assessee to the vendee upon receiving full and final payment of consideration as per the terms of the agreement and consequently, the assessee is liable to capital gains tax only in the assessment year 2005-06.
13. The AR submitted that the assessee and the vendor have specifically agreed, as per clause 11 of the JDA, that the making available of the property to the developer shall not be construed as delivery of possession. It is also submitted that the assessee has not received any advance or part payment consequent to the entering of joint development agreement. It is submitted that on the facts of the assessee’s case, the ratio of the decision of the ITAT in the case of Dr, Usha Mohandas (supra) applies to the assessee’s case. Consequently the order of the CIT(A) upholding the assessment of capital gain in the A.Y. 2007-08 is erroneous and the assessment may be directed to be quashed.
14. The AR further submitted that in the case of DCIT v. G. Raghuram (39 SOT 406) (Hyd), the Tribunal took support from the decision of Delhi bench of ITAT in the case of Smt. Vasavi Pratap Chand (Supra) in coming to a conclusion about the full value of consideration. The ITAT also rejected the submission of the assessee that the decision of the Tribunal, Hyderabad Bench in the case of Smt. Shanta Vidya Sagar Annan in ITA No. 885/Hyd/2003 dated 9-6-2006 favours him. The said decision relates to exigibility of capital gain on handing over of possession in the case of development agreement. The aforesaid decision also supports the assessee case.
15. The AR submitted that in the light of the facts and the decisions of the ITAT narrated in the preceding paras, the CIT(A) erred in upholding the order of the Assessing Officer in levying tax on capital gain for the A.Y. 2007-08. The CIT(A) also erred in holding that the consideration to be received by the assessee was determined only in the supplementary agreement. The Tribunal may kindly pass appropriate orders holding that transfer did not take place in A.Y. 2007-08. The AR further submits that there are other decisions holding that transfer as per sec. 2(47)(v) occurs in the year of entering into development agreement. In most of these cases it was held that possession was given to the developer in the year of development agreement. The AR submitted that in the case of the assessee as already submitted, the execution of joint development agreement and GPA did not result. In any event giving rise to deemed transfer under sec. 2(47)(v) of the IT Act. The AR submitted that in cases where there are decisions favouring the assessee and also favouring the respondent-Department, the Tribunal may hold in favour of the assessee on the strength of well accepted principles of jurisprudence. The AR also prayed that in case the ITAT cannot persuade itself to accept the assessee’s plea that there no taxable event occurred in the previous year relevant to A.Y. 2007-08, it is most humbly prayed that the question whether the joint development agreement entered into between the assessee and the developer on 21-12-2005 gave rise to liability to capital gains assessable in the hands of the Assessee for the A.Y. 2007-08, may kindly be referred to a special bench of the Tribunal u/s. 255(3) of the I.T Act.
16. The DR submitted that submitted that the definition of the term “transfer” has been specifically extended in sub-clause (v) of section 2(47) as under:
“any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in sec. 53 A of the Transfer of Property Act, 1882.”
17. The DR further submitted that the relevant conditions for a transfer under sec. 53 of the Transfer of Property Act are as under:
♦ That there should be a contract for consideration.
♦ That the contract should be in writing
♦ That the contract should be signed by the transferor.
♦ That the contract should pertain to transfer of immovable property.
♦ That the transferee should take the possession of the property and the transferee should be ready and willing to perform his part of contract.
18. The DR submitted that it was in the light of the above provisions that the Authority for Advance Ruling in the case of JS Sarkaria (294 ITR 196) had opined in respect of an Irrevocable Power of attorney also that a transfer is to be deemed as taken place in consequence of a transaction which has direct and immediate bearing on allowing the possession to be taken in part performance of the contract. Hon’ble Delhi High Court in the case of Ashok Kapoor HUF (213 CTR 241) opined that transfer takes place when the assessee enters into development agreement. It has further been held by the Hon’ble Supreme Court in the case of Ajay Jagati (215 CTR 316) that possession is the crux of the matter in deciding whether there is a transfer or not. Even the Pune bench of the ITAT in the case of Mulik (98 TTJ 179) have opined that transfer takes place once a GPA is given to the developer. Further, the Hon’ble Chennai Bench of the ITAT in the case of R. Kalanidhi v. ITO (122 TTJ 405) have opined that if total consideration is agreed and possession is handed over, provisions of sec. 2(47)(v) would be attracted. The decision of the Delhi Bench of ITAT in the case of Satyavathi Verma (123 TTJ 97) goes further to propound that for invoking the provisions of sec 2(47)(v) , it is a must that the transferee has no part left to perform in the contract and that the transferor has performed or is willing to perform the contract. It is only in the cases where the transfer has a right to revoke the power of attorney and the possession is not complete that it can be said that a license was given and there was no transfer, as held in the case of Asian Distributors (70 TTJ 88) by the Mumbai ITAT.
19. The DR further submitted that if we analyse the case of the assessee in the light of the ratio of case laws mentioned above, it is clear that the assessee had indeed given her plot for development to Sri Janardhan Reddy by way of a development agreement. Admittedly, the assessee also allowed the possession of the said plot for construction and thereby performed all that was to be done by her under the contract and left no part unperformed. In pursuance of the said contract, the transferor also performed all that was required by way of the said agreement and was even to willing to perform the same in the times to come. Since the Development agreement so signed by both the parties has been duly acted upon, in the light of the case laws discussed above, it cannot be denied that there was indeed a transfer.
20. The DR also submitted the contention of the assessee that the transfer should be considered as having taken place in the asst year 2006-07 and not 2007-08, as the original agreement was signed on 21.12.2005, it is clear that the supplementary agreement was entered into 3.4.2006, wherein the assessee’s share of 7 flats (43% share in land) was finally determined, whereas the developer was to get 9 flats (57% in land). Therefore, it is clear that the consideration to be received by the assessee was determined only in the subsequent supplementary agreement dt 3.4.2006 and the said consideration was to be the final consideration to be received for the transfer. In view of the decision of the Hon’ble Chennai Bench of ITAT in the case of Kalanidhi (Supra) , the total consideration having been agreed upon and possession also having been given, there was a transfer liable to capital gains in view of the agreement dated 3.4.2006. He submitted that there is no infirmity in the view of the assessing officer that transfer in this case has to be considered as having taken place in the financial year 2006-07 relevant to asst year 2007-08.
21. The DR further submitted that the Bangalore Bench of the ITAT in the case of Vemanna Reddy (114 TTJ 246) have opined that transfer u/s. 2 (47)(v) takes place when possession of vacant land is given and not well constructed flats are given. A similar view has been taken by the jurisdictional ITAT, Hyderabad in the case of Dr. T. Achyut Rao v. ACIT (106 ITD 388). The jurisdictional ITAT in the said case were concerned with a sale cum development agreement dt 22.8.1997. The said agreement however, was modified by a supplementary agreement on 15.10.1997, wherein the earlier agreed consideration was reduced. Since in the said case the possession of the land had been handed over in the relevant asst year, the ITAT opined that there was no right left to the transferor other than the right to receive the consideration in the manner laid down in the agreement, the transaction entered into by the parties through the agreements in the F.Y. 1997-98 was a transaction envisaged u/s. 53A of the Transfer of Property Act. They held that the assessee was not right in contending that the capital gain would arise in the asst year 2001-02 on the account that the possession of built up area was given to him only during the said asst year. They held that the transfer had taken place in the year when the agreement was entered into and the possession of vacant land was given by the assessee and not when the constructed flats were given by the assessee. The ITAT noted that it was not a case of transfer by sale or exchange, in so far as the consideration was mentioned in the agreement and receiving possession the stipulated built up area was only a mode of receiving that consideration, in addition to the right to have alternative accommodation during the period.
22. The DR submitted that in the case of Dr Maya Shenoy (23 DTR 140), Jurisdictional ITAT, Hyderabad have opined that there was a transfer u/s. 2(47)(v), as the agreement gave absolute rights to the builder. They even clarified that the consideration may be futuristic, as held by the Supreme Court in the case reported in AIR 1955 Supreme Court 376. The effective date of transfer therefore, was held to be the date when the possession was handed over. It was held that even if the assessee receives a right to receive the consideration, though it may be quantified or receive it later, the said factors will not retard/stall the accrual of capital gains. In the case of the present assessee it is clear that the right to receive the consideration had been finally quantified in the shape of 7 flats. Besides, the assessee had also given the required possession of the land. Accordingly, he submitted that there is no reason to interfere with the findings of the CIT(A) that there was transfer liable to capital gains in the Asst year 2007-08.
23. We have heard both the parties and perused the material on record. The Revenue has placed heavy reliance on the JDA dated 21.12.2005 and the Supplementary Agreement dated 3.4.2006. According to the Revenue, the share of the assessee in the constructed flats was determined vide Supplementary Agreement dated 3.4.2006. According to the DR in the A.Y. 2006-07 there is no fulfilment of conditions laid down u/s. 53A of the Transfer of Property Act and the conditions of section 53A of the Transfer of Property Act are fulfilled only in A.Y. 2007-08 and it has to be taxed accordingly. For clarity, we will reproduce the section 53A of the Transfer of Property Act.
“53A. 1[ Part performance.- Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.]”
24. A plain reading of the Section 53A of the Transfer of Property Act shows that in order that a contract can be termed to be “of the nature referred to in Section 53A of the Transfer of Property Act” it is one of the necessary preconditions that transferee should have or is willing to perform his part of the contract. This aspect has been duly taken note of by the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT (260 ITR 491) (Bom) wherein their Lordships observed as follows:
“That, in order to attract Section 53A, the following conditions need to be fulfilled.
(a) There should be contract for consideration;
(b) It should be in writing;
(c) It should be signed by the transferor;
(d) It should pertain to the transfer of immovable property;
(e) The transferee should have taken possession of property;
(f) Lastly, transferee should be ready and willing to perform the contract”.
25. Elaborating upon the scope of expression “has performed or is willing to perform”, the oft quoted commentary “Mulla-The Transfer of Property Act” (9th Edn.: Published by Butterworths India), at p. 448, observes that:
“The doctrine of readiness and willingness is an emphatic way of expression to establish that the transferee always abides by the terms of the agreement and is willing to perform his part of the contract. Part performance, as a statutory right, is conditioned upon the transferee’s willingness to perform his part of the contract in terms covenanted there under.”
Willingness to perform the roles ascribed to a party, in a contract is primarily a mental disposition. However, such willingness in the context of Section 53A of the Act has to be absolute and unconditional. If willingness is studded with a condition, it is in fact no more than an offer and cannot be termed as willingness. When the vendee company expresses its willingness to pay the amount, provided the (vendor) clears his income tax arrears, there is no complete willingness but a conditional willingness or partial willingness which is not sufficient…….
In judging the willingness to perform, the Court must consider the obligations of the parties and the sequence in which these are to be performed……..”
26. We are in considered agreement with the views so expressed in this commentary on the provisions of the Transfer of Property Act. It is thus clear that ‘willingness to perform’ for the purposes of Section 53A is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of Section 53A of the Transfer of Property Act will come into play on the facts of that case. It is only elementary that, unless provisions of Section 53A of the Transfer of Property Act are satisfied on the facts of a case, the transaction in question cannot fall within the scope of deemed transfer under Section 2(47)(v) of the IT Act. Let us therefore consider whether the transferee, on the facts of the present case, can be said to have ‘performed or is willing to perform’ its obligations under the agreement.
27. In the light of the above provisions section 53A of the Transfer of Property Act, if we examine the JDA dated 21.12.2005 and the Supplementary Agreement dated 3.4.2006 the undisputed fact is that the assessee given possession of the property vide clause No. 6. However, the consideration receivable by the assessee in the form of flats is specifically determined by the Supplementary Agreement dated 3rd April, 2006. Being so, there is no progress pursuant to the Development Agreement in the A.Y. 2006-07 and nothing has been brought on record by the assessee to show that the development activities and determination of the consideration in A.Y. 2006-07 and no material is brought on record regarding the construction cost incurred in the year 2006-07. Hence it is to be inferred that no investment was made by the developer in construction activities during the A.Y. 2006-07 and the incurring of the cost of construction by the developer shows that activities are taken place through supplementary agreement dated 3.4.2006 and consequent to the supplementary agreement the transfer has taken place. In the A.Y. 2006-07 it is not possible to say whether the developer prepared to carry out that part of the agreement to its logical end. The developer in the A.Y. 2006-07 had not shown his readiness or having made preparation for compliance of the agreement. Unless the developer taken a step for performance of the agreement which are primary ingredients that make a person eligible and entitled to make a construction. We have to see the act and conduct of the parties in performing the agreement. Being so, in A.Y. 2006-07 we cannot hold that there is a transfer. On the contrary, the consideration was decided by supplementary agreement dated 3.4.2006 and the assessee’s share in the constructed area of residential flats has been earmarked specifically. When we see the JDA along with the Supplementary Agreement it has to be inferred that the builders willingness to perform his obligation under the agreement is to be acted upon through Supplementary Agreement dated 3.4.2006. In such a situation it is only the actual performance of transferees obligation which can give rise to the situation envisaged in section 53A of the Transfer of Property Act. As it is not possible to hold that the transferee is willing to perform his obligation in the A.Y. 2006-07 though the JDA was entered on 21.12.2005. In our opinion, as the conditions laid down in section 53A of Transfer of Property Act were satisfied in A.Y. 2007-08, capital gain has to be taxed in A.Y. 2007-08 only. As the willingness to perform the contract has been specifically recognised vide Supplementary Agreement dated 3.4.2006. In our opinion, only on fulfilment of the conditions laid down u/s. 53A of the Transfer of Property Act the capital gain has to be charged. In our opinion the Revenue authority justified in bringing the transaction into capital gain in A.Y. 2007-08 and the same is confirmed.
28. The next ground is with regard to determination of cost of construction at Rs. 925 per sft while determining the consideration with regard to transfer of long term capital asset. The lower authorities considered the cost of construction incurred by the builder at Rs. 925 per sft for determining the value of consideration of 850 sft relating to assessee’s share in residential flats. This is based on the cost of construction admitted by the builder in his return of income.
29. We have heard both the parties and perused the material on record. Similar issue came before this Tribunal in the case of B. Narasimha Reddy & Ors. in ITA Nos. 535-540/Hyd/2011 and 410/Hyd/2011, the Tribunal vide order dated 5.7.2012 held as follows:
“11. In our opinion, this is a settled issue. In the case of Hyderabad Co-operative Central Trading Society Ltd., Hyderabad v. ACIT, in ITA No. 15/Hyd/2008 for assessment year 2001-02, the co-ordinate Bench of the Tribunal vide order dated 30.5.2008 held as follows:
“12. We have duly considered the rival contentions and the material on record. The first issue to be resolved is as to what would be the proper approach to adopt the sales consideration. According to the learned counsel it should be the sales price of 23000 sft adopted in the developer’s case minus the element of profit and cost of land. According to the Assessing Officer it should be the cost of construction adopted in the developer’s case minus the cost of land. In our view, adopting either of the approaches may cause injustice to either. The sales consideration ‘in the case of developer’s case cannot be adopted because while selling the properties, the developer may have considered several factors like the floor on which a particular premises is situated, personal relationship between the buyer and the developer and so on. In fact, in such transactions, what the assessee is receiving in consideration of transferring the land is some constructed property. If the assessee itself had constructed the property, it can be presumed that the assessee also must have incurred, by and large, the same cost. Thus, by saving this cost, the assessee is getting the property of equal value in lieu of the land transferred. Therefore, we are of the view that it is the actual cost of construction only which should be, adopted as the sales consideration in the case of the assessee. The same approach was adopted in the case of Prabandham Prakash decided by the Hyderabad Bench of the Tribunal and reported (2008) 22 SOT 58. Accordingly, we do not accept the approach suggested by the learned counsel.
13. However, the cost of construction as determined in the case of the developer and adopted by the Assessing Officer cannot be accepted. This is because, the book results in the case of the developer are rejected and the profit in his case has been worked out on the basis of the value of the portion retained by him. As per the total cost of construction at Rs. 5,28,87,503 adopted by the Assessing Officer, the cost per sft works out to Rs. 912 per sft. Considering the fact that the book results in the case of the developer are rejected and also considering the fact that there may have been certain overheads debited to the said cost which may not have a bearing on the portion received by the assessee, it would be fair to adopt the cost at Rs. 850 per sft for the purpose of sales consideration in the case of the assessee. We direct accordingly.”
12. Accordingly, we direct the Assessing Officer to consider the above order and also price inflation for each assessment year from 2001-02 to 2008-09 and determine the cost of construction per flat to be received by the assessee. In other words, the Assessing Officer is directed to consider the base index as per the order of the Tribunal (cited supra) and thereafter he has to work out the price inflation index and determine the value of the flats to be received by the assessee as consideration and decide thereupon after giving reasonable opportunity of hearing to the assessee. Assessee’s appeals as well as Revenue appeal are allowed for statistical purposes.”
30. In view of the above order of the Tribunal, we remit the issue back to the file of the Assessing Officer on similar direction. However, while determining the value of consideration it shall not go above Rs. 925 per sft. This ground is partly allowed for statistical purposes.
31. The next ground is with regard to disallowance of expenditure of Rs. 5 lakhs and Rs. 1,61,300 paid to labourers for arriving the cost of acquisition. No details have been produced before the lower authorities regarding this expenditure. As such it was disallowed. Before us also the assessee was not able t o lead any evidence to show incurring of this expenditure towards cost of acquisition. In the absence of any evidence in support of the expenditure, we are inclined to dismiss this ground.
32. In the result, appeal of the assessee is partly allowed for statistical purposes.
