Ms. K. Radhika v. Deputy Commissioner of Income-tax, Central Circle-2, Hyderabad

ORDER

Chandra Poojari, Accountant Member. - The appeals by different assessees and cross appeals by the Revenue are directed against the separate orders of the CIT(A)-I, Hyderabad.

2. First we will take up the assessees' appeals in ITA Nos. 208 to 211/Hyd./2011 and Revenue appeals 328 to 331/Hyd./2011 wherein the issue involved are inter-related.

3. Brief facts of the case are that Mr. K. Srinivasa Rao and remaining three co-owners referred to above had specified shares in immovable property land admeasuring 11 acres 33 guntas vide Sy. No. 1, 2, 3, 9(P), 10(P), 11, 12, 13, 14 in Pokkalwada Village, Ranga Reddy District, Hyderabad which was the subject-matter of the Development Agreement. The extent of owner share in land as enumerated in the table given below:

4. There was a search and seizure operations under section 132 of the Income-tax Act, 1961 was carried out on 9-10-2007 at the residential premises of the co-owners. In response to notice under section 153A of the Income-tax Act, 1961, the co-owners submitted returns of income as submitted originally. The co-owners did not disclose any income prior to the date of search as the Development Agreement to develop the property was executed on 11-5-2005. Therefore, the Development Agreement became the subject-matter of post search proceedings to examine the liability of the capital gains of the co-owners.

5. The Development Agreement which was entered into on 11-5-2005 for development of the land admeasuring 11 acres 33 guntas with M/s. Ambience Properties Ltd. The co-owners were to get 45 per cent of the property for surrendering the property and the balance of 55 per cent of the land was in favour of the developers. The developers had to develop the land as well as construct dwelling units on the land. The terms of the Development Agreement was governed by what had been stated in the Development Agreement executed on 11-5-2005. The Assessing Officer held that the entire capital gain accrues on the date of execution of Development Agreement i.e., 11-5-2005, although he noted that the permission from HUDA was obtained on 17-9-2006. The Assessing Officer computed the capital gains on transfer of the land and also the future receipt of constructed portion. However, the CIT(A) restricted the same to value of the built up area and developed land to which the assessees were entitled. The Assessing Officer at para 1.12(1) held that the consideration for plot No. 56 admeasuring 688 sq. yards was Rs. 55,04,000 which was Rs. 8,000 per square yard. Since the area of land to which the assessees were entitled to was 15,106 sq.y. the consideration was computed by the Assessing Officer at Rs. 12,08,48,000 (15,106 × Rs. 8,000). The assessees were entitled to 31 flats admeasuring about 1,13,295 sq. ft. The Assessing Officer adopted the cost of construction at Rs. 1,162 per sq. ft. and computed the consideration at Rs. 13,16,48,790. The Assessing Officer in coming to conclusion that the date of transfer is 11-5-2005 when the Development Agreement was executed relied on the decision of ITAT, Hyderabad "A" Bench in the case of Smt. Shantha Vidya Sagar Annam v. ITO in I.T. Appeal No. 885/Hyd./2003 wherein it was categorically held that the date of Development Agreement is the date of transfer for computing capital gain of the transfer of property.

6. Further, the Assessing Officer computed the capital gain in respect of the transfer of 12 acres of land which would be received by the assessee by way of net plotable area of 15,106 sq. yard and 31 flats measuring 1,13,295 sq.ft. i.e. 45 per cent of constructed area as consideration to these assessees. He arrived at the capital gains as follows:

7. On the basis of the percentage of shares of each person in the land, the capital gain is computed as follows:

8. On appeal, the CIT(A) confirmed the transfer of property under section 2(47)(v) of the Income-tax Act as the assessees herein by signing the development agreement have given possession of the land for the purpose of development of property to M/s. Ambience Properties Pvt. Ltd. However, he changed the consideration computed by the Assessing Officer and re-determined the capital gain, as follows:

9. Against the confirmation of transfer of property under section 2(47)(v) of the Income-tax Act and thereupon determination of capital gain, the assessees are in appeal in ITA No. 208 to 211/Hyd./2011 and the Revenue is in appeal before us in ITA Nos. 328 to 331/Hyd./2011 against the re-computation of consideration by changing the cost of construction and cost of development determined by the Assessing Officer.

10. The learned AR submitted that section 2(47) of the Income-tax Act, 1961 which deals with the definition of the Transfer clearly states that Transfer includes a sale, an exchange, a relinquishment of the asset and extinguishment of any rights therein or the compulsory acquisition under the law. The learned AR submitted that, firstly, there is no sale because the sale is governed by section 54 of the Transfer of Property Act, 1982 whereby the prime factor is receipt of monetary consideration. There is no monetary consideration whatsoever in the Development Agreement entered into by the assessees. Therefore, sale is a mode of Transfer, fails. The transaction of development agreement is not on account of any relinquishment of any asset as the rights in the property continued to belong to the owner neither is there any extinguishment of right nor any compulsory acquisition under law. Therefore the definition of section 2(47) in relation to capital asset either a sale, relinquishment, extinguishment or compulsory acquisition fails. The only other mode which has to be seen is exchange. In this regard, he submitted that on the date of execution of the development agreement, exchange as a mode of transfer also fails because under section 118 of the Transfer of Property Act both the properties which is the subject of exchange must exist on the date of transfer. Any right of the Appellants existing on the date of Development Agreement is only land owned by the Appellants. As regards the consideration which accrues or is receivable, it is only when the project is completed which as on date is pending and since the built up area of 45 per cent to which the co-owners are entitled on the date of development agreement, is non-existent, therefore exchange as a mode of transfer also fails. According to him, the transaction does not fall within the ambit of section 2(47)(i)( ii)(iii) and (iv) of the Income-tax Act, 1961.

11. Further he submitted that the other section which is to be looked into is section 2(47)(v) of the Income-tax Act, 1961. He submitted that the development agreement does not fall under the transaction of allowing possession of any immovable property to be taken or in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. The reasons being development agreement is not an agreement for a sale, because it is an executor contract with the developers and not the intended purchaser. Thus it is essentially a business agreement. Thus a development agreement basically postulates coming together of two parties i.e. the owners and developers. The owner owns the land but has no finance to develop the property and the developer who does not have the land has the necessary finance. Thus coming together of land and finance for project development is necessarily a business agreement whereby the landlord allows the developers to enter the land for the limited purpose of developer retaining his share as his award. A look into the provisions of Transfer Property Act, 1882 clearly shows that allowing possession is to be taken or retained in part performance of the contract alone could be considered as transfer and not permissive possession or any other kind possession. He relied on the judgment of jurisdictional High Court in the case of N. Karuna v. Appropriate Authority [2001] 251 ITR 230/ 118 Taxman 401 (AP) where in held as under:

"A perusal of the above referred provision shows that allowing of possession to be taken or retained in part performance of the contract of the nature referred to section 53 of the TP Act, alone could be considered as transfer and not a permissive possession or any other kind of possession delivered by the seller to the purchaser".

12. He submitted that though the above judgment of the jurisdictional High Court was rendered in the context of Chapter XXC of the Income-tax Act 1961 and interpretation of section 269(u )(a)( f) of the Income-tax Act, 1961, Explanation to section 2(47) embedded these provisions. This decision throws light of the concept and nature of development agreement which is not referred to by any of the authorities. Therefore, it is the Appellants view that the provisions of section 2(47)( v) is not applicable to the facts of the case. Further, he drew our attention to the decisions of the Calcutta High Court in Baisakhi Bhattacharjee v. Shayamal Bose 2002 (4) CHN 115 wherein the Calcutta High Court has held that

"Development agreement comes out of the scope of the ambit of section 53A of the Transfer of Property Act. Therefore, section 53A of the TP Act, has no manner of application to a development agreement."

13. He submitted that the above judgment was also not considered by any of the judgments delivered on the subject. Therefore, the March of Law on the subject whereby the provisions of section 53A of the TP Act was held not applicable to development agreements.

14. According to the AR, section 2(47)(vi ) of the Income-tax Act is also not applicable as it has no effect of transfer nor enabling of any enjoyment by either of the parties on the date of execution of development agreement as the owners continue to own the land and the developers have no enjoyment whatsoever as it is only the execution of a project in accordance with the terms of development agreement in the nature of toil and labour rather than enjoyment. There clause (vi ) of section 2(47) is also not applicable to the facts of the case. It would be of benefit to see what was the Law prevailing before the introduction of section 2(47)( v) and 2(47)( vi) and what was the mischief that was sought to be remedied by legislative interference. The provisions of section 2(47)( v) & (vi ) were introduction by way of amendment with effect from 1-4-1988. The object and analysis of section 2(47)( v) & (vi ) on its introduction was to include transactions that closely resembles transfers but are not treated as such under the general law. An agreement of sale by itself does not create any right or interest in or near immovable property under section 54 of the Transfer of Property Act. Judicial precedents under the Income-tax Act took the view until a sale deed was executed no transfer could take place. The mischief that was sought to be remedied was to include under transfer purchasers who became members or by acquiring shares in a cooperative society, company, etc. or by way of any agreement or arrangement. Thus the amendments did not cover transactions by way of development agreement as they are purely commercial transactions not involving transfer until the happening of the event by which the developers had over a built up area to the owners in lieu of the developers retaining their share in the development of the property. Thus, the mischief whereby money transactions of sale were entered into, full consideration was received was not regarded as transfer until they were registered. In the same manner where possession of immovable property was given, full consideration was received and transfer of properties were undertaken under power of attorneys and where consideration was received full were all escaping the ambit of capital gains tax and to remedy this mischief, the provisions of section 2(47)( v) & (vi) were brought forth in the statute. Even the law before the aforesaid enactments, were explained by the Patna High Court in the case of Smt. Raj Rani Devi Ramana v. CIT [1993] 201 ITR 1032 wherein it was held as under:

"In the absence of any provision to the contrary, the concept of sale of an immovable property which is included in the expression 'capital asset' as defined under section 2(14) of the Income-tax Act, 1961 has to be gathered from section 54 of the Transfer of Property Act, 1882. Properties do not necessarily pass as soon as the instrument is registered, for the true test is the proof of an operative transfer, if there is a condition precedent as to the payment of consideration or delivery of the deed."

Thus, the seller may retain the deed pending payment of price and in that case there is no transfer until the price is paid and the deed is delivered. The transfer under section 2(47) must mean an effective conveyance of the capital assets to the transferee. Held, that, in the instant case, it was apparent that the parties had clearly intended that, despite the execution and registration of sale deeds, transfer by way of sale would become effective only on payment of the entire sale consideration and in this background of facts, it had to be held that there was no transfer of land conferred by the three sale deeds in question during the period under consideration making the assessee liable for capital gains tax under section 45."

15. He submitted that even under the law prior to the amendment from 1-4-1998 the law relating to sale stated that even if the property was registered and until the entire price was paid no transfer took place though registered. This was on the principle that transfer takes place only on the happening of events. The subsequent amendment from 1-4-1988 has not changed this legal position. If a transfer takes place and it is coupled with certain conditions and events taking place in future the transfer would take place only on the happening of the event and not earlier.

16. He submitted that capital gains under development agreement as a mode of transfer arises mainly on account of exchange only when the developer handing over the built up area to the owners. It is at this point of time exchange as a mode of transfer blossoms triggering a change of capital gains.

17. He submitted without admitting transfer does take place on execution of development agreement yet the question that has to be answered is how is the capital gains is to be computed having regard to the provisions of section 48 of the Income-tax Act, 1961. Section 48 of the Act states that:

"The income chargeable under the head 'capital gains' shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts:

(i) Expenditure incurred wholly and exclusively in connection with such transfer
(ii) The cost of acquisition of the asset and the cost of any improvement thereto."

18. According to him, what is the consideration that accrues to the assessee depends on the facts of the case on the date of execution of development agreement. The constructed area of the project is not in existence and that this is subject to so many factors like non-sanction of municipal application, disputes, escalation cost, non-availability of men and material on account of statutory prohibitions etc. Thus, the entire consideration is the womb of uncertainty. The consideration is not capable of being ascertained. The consideration in moneys worth i.e. built up area of the immovable property which is to come into existence after a period of time cannot even be estimated. Therefore, accrual of income itself fails. Capital gain is also a mode of income and unless there is an accrual of income by way of capital gains, the charging section under section 48 fails. Therefore, the question of computing and levy of any capital gains on the date of execution of development agreement on the basis and assumption of consideration which is to accrue after a period of time and on the happening of an event of the developer handing over the built up area to the owner which is non-existent and therefore the charging section and computation provisions fail.

19. He submitted that when the development agreement was entered into on 11-5-2005 the value of 45 per cent of the built up area which was to be received by the assessees is not known. This cannot be determined as they are non-existent on the date of entry into development agreement. The entire consideration which is an event of the future cannot be predicted for various reasons like high fluctuation costs, sanction not being received, project being abandoned or temporarily suspended etc. As on date the entire development of the project undertaken by the assessees and the developers is on a standstill. Thus whether a charge per se could result in capital gain and fastens a liability in the said year when consideration is neither known nor ascertainable? In this regard, the Assessing Officer has totally lost sight of the principle laid down by the Hon'ble Supreme Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 . The Court has evolved a very crucial principal of universal application regarding the year of assessability. It was held that the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. All transaction encompassed by section 45 must fall under the governance of its computation provisions. A transaction to which those applied must be regarded as never intended by section 45 to be the subject of the charge. This vital principle has not been considered by the Assessing Officer in the order. In the case of the assessee, the money considered could not be ascertained with reasonable certainty on the date of entering into the development agreement. Although, the consideration for transfer of land was specified in the agreement in terms of constructed area (45:55) the same cannot be translated into money on the date of entering into the agreement as receipt of consideration was dependant on many factors viz.,

(a) Giving full effect to the agreement
(b) Sanction of the lay out plan by regulatory authorised and possibility of non-receipt of approvals from them
(c) Cancellation of agreement
(d) Failure to construct house as per specification on which event the consideration would vary and the land owner can enforce specific performance etc. These are all unanticipated events which would influence the consideration. There may be a case, where the agreement may be abrogated/terminated for various reasons which are quite common in case of any agreement. In such event, fastening a liability on the land owner who has not received any consideration which is uncertain is against the basic tenets of taxation, equity and fair play. If the principle enunciated in the case is accepted and date of agreement is adopted as date/year of charge fastening a liability, this would lead to an anomalous situation. There could be case where the agreement may not be carried out, but the department would fasten the liability basing on the agreement. It is submitted that what is to be taxed is the consideration and when no consideration has been received, merely because there is a charge, how can there be levy?

20. He further submitted that taxation of capital gain on the point of creation of charge in the year of entering into the agreement as advanced by the Assessing Officer, is dependent on the factors prevalent on the date of agreement by not on factors which would emerge in future. Therefore, when the consideration could not be ascertained on the date of agreement, the question which arises for consideration is whether, merely because there is a change, would be scheme be workable to compute the capital gain? The answer is in negative. For this proposition, he relied on the order of this Tribunal in the case of Raghurami Reddy v. ITO in IT Appeal No. 296/H/2003 dated 30-7-2004 which is squarely applicable to the facts of the present case. He submitted though this case law was brought to the knowledge of the Assessing Officer it was not considered.

21. He submitted that while working out the consideration, the Assessing Officer has estimated the consideration to be received on a future date i.e. upon completion of construction. For the purpose, the Assessing Officer has worked out the consideration on the basis of estimated cost to be incurred by the builder in future for completion of the venture. This method of relating back the cost of consideration to the developer as consideration is fallacious for the following reasons:

(a) In the case of the assessee, the consideration fixed under the agreement is in terms of constructed area on the date of execution of the document. The same cannot be quantified in monetary terms with reasonable certainty for working out the capital gain. It is only when the constructions is completed and cost of construction in the hands of the builder is known, the same can be adopted to work out full value of consideration accruing to the land owner in respect of the constructed area falling to his share. The project is at a standstill. In the case of the assessee, the construction was completed during financial year 2009-10 relevant to assessment year 2010-11. Therefore, the cost in the hands of the builder could be ascertained with reasonable certainty so as to compute the capital gain in the assessment year 2010-11 only but not earlier to the same.
(b) On the date of execution of the agreement, it may not be correct to work out the full value of consideration of the constructed area with reference to estimated market value for the purposes of subjecting the transaction to tax. Full value of consideration under section 48 cannot be equated with market value of the capital asset as on the date of transfer but it shall mean the price bargained for by the parties relates to constructed area. The developer is obligated to hand over the constructed area confirming to specification without any deviation. In such a situation, a future event cannot be anticipated to work out the full value of consideration on the date of execution of the development agreement. Therefore, the market value on the date of entering into the agreement cannot be adopted as full value of consideration. He relied on the following judgments:

i. CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622 (SC)
ii. CIT v. Gillanders Arbuthnot & Co. [1973] 87 ITR 407 (SC).

22. He submitted that when one view the facts of the case from the perspective, full value of consideration for transfer of a capital asset under a development agreement is what the transfer actually receives in lieu of the capital asset he parts with which can be translated into money with reasonable certainty after completion of construction.

22.1 In the case of development agreement, it cannot be said that full value of consideration accrued before commencement of construction i.e. on the date of execution of the agreement. Future course of events having a bearing on quantification of consideration cannot be foreseen at the initial stage with reasonable certainty. Factors such as extent of constructed area, quality of construction, exact area falling to the share of land owner, possibility of breach of agreement and non-approval of the project by regulatory authorities resulting in scraping of the project altogether, are some of the future events which introduces an element of uncertainty rendering the working of consideration an impossibility on the date of entering into the agreement. Therefore, the consideration though specified in the agreement by way of certain percentage of the constructed area, the same cannot be converted into money's worth or worked out with certainty to work out full value of consideration either by obtaining the estimated expenditure from the builder or on the basis of fair market value.

22.2 Any attempt to levy tax in such cases by inventing some notional method to work out full value of consideration would militate against the theory of real income. It is because of indeterminate nature of various factors and element of uncertainty that influences a contract under a development agreement. Income-tax is a levy on income either at the stage of accrual or its receipt but substance of the matter is the income. Where the income can be said to be not to have resulted at all, there is neither receipt nor accrual. Thus, any hypothetical method to work out consideration on the date of entering into the agreement would negate this basic concept of real income. No power is vested on the Assessing Officer to tax an income that would accrue or arise in a subsequent year in an earlier year on the ground that the said income arose out of an earlier transaction. He relied on the judgment in the case of Commissioner Of Income Tax, Madras. v. A. Gajapathy Naidu, Madras [1964] 53 ITR 114 (SC) and in the case of CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC) . Further he drew our attention to the findings in the case of Commissioner Of Income Tax, Gujarat v. Ashokbhai Chimanbhai [1965] 56 ITR 42 (SC) wherein it was held as under:

"The words 'accrue' and 'arise' are used to contradistinguish the word 'receive'. Income is said to be received when it reaches the assessee, when the right to receive the income vested in the assessee, it is said to accrue or arise. Income becomes taxable on the footing of accrual only after the right of the taxpayer to the income accrues or arises, and in the case of an agreement which makes profits receivable at or on the happening of a contingency, the fact that the profits are the result of transactions spread over a period which covers a period preceding the happening of that contingency would not make the receipt liable to be paid to persons other than those who are entitled to receive it on the date on which it is actually received or became receivable."

23. He submitted that on the basis of ratio of the above decision, it can be safely held that no income has accrued to the assessee on the date of execution of the agreement on the basis of accrual. It would be deferred to a future date when constructed area is handed over to the land owner, resulting in giving full effect to the agreement. As on date it is pending.

24. Further the learned AR relied on the order of the Tribunal dated 30-7-2004 in the case of Raghurami Reddy (supra) wherein the Tribunal held that when it is not possible to estimate the consideration with reasonable accuracy on the date of signing of the development agreement, it is just like counting the chickens before they are hatched and the year of taxability can be only the assessment year in which the flats are handed over by the builder to the assessee and not the year in which the joint venture or development agreement was entered into. Further he submitted that the order of the Tribunal in the case of Dr. Maya Shenoy v. Asstt. CIT [2009] 124 TTJ 692 (Hyd.) is not applicable to the facts of the case. Similarly, he submitted that in the case of Dr. T. Achyutha Rao v. Asstt. CIT [2007] 106 ITD 388 (Hyd.) , wherein the Tribunal held that there is a transfer under section 2(47)(v) of the Income-tax Act, since the condition laid down in section 53A of Transfer of Property Act, 1882 has been satisfied. However, in the present case, the condition laid down under section 53A of the Act has not been satisfied. Hence, it cannot be said that there is a transfer in the present case as envisaged under section 2(47)(v ) of the Income-tax Act.

25. He submitted that the reliance placed by the Assessing Officer in the case of Chaturbhuj Dwarakadas Kapadia of Bombay v. CIT [2003] 260 ITR 491 (Bom.) and the decision in the case of Jasbir Singh Sakaria, In re [2007] 164 Taxman 108 (AAR - New Delhi) on the issue of taxability on the date of development agreement is misplaced.

26. According to the learned counsel for the assessee the decision in the case of Dr. T. Achutha Rao (supra) and Dr. Maya Shenoy (supra) enunciates the principle that the taxable event occurs on the date of entering into the development agreement and for the purpose consideration can be estimated. In this regard he has submitted as follows:

(i) The event of capital gain i.e. the date of transfer was not question in Dr. Maya Shenoy's case ( supra)
(ii) Even accepting that a charge was created on the date of entering into the agreement, no computation of full value of consideration is possible for the detailed reasons. This aspect has been conceded in Dr. Maya Shenoy's case ( supra).
(iii) The decision of Apex Court in the case of B.C. Srinivasa Setty ( supra) on a vital aspect was not pointed out before the Tribunal and considered rendering the decisions per incurium. Therefore there could be no precedent value in the above two decisions.
(iv) The Tribunal did not consider the concept of full value of consideration as contained in section 45 as distinguished from market value or an estimated value as the same was not canvassed before it.
(v) While coming to a conclusion that full value of consideration can be estimated, certain vital aspects were not considered. The assessee submitted that the estimated full value of consideration in the given facts of the case is not authorised by the statute as discussed above. Whereas an estimated value introduces a mental element, a guess work, full value of consideration is what is bargained for and paid. This vital aspect was not brought to the notice of the bench.
(vi) The principle enunciated by the Apex Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 / 7 Taxman 13 was not brought to the notice of the Tribunal. The Apex Court laid down that it is not very fictional accrual or receipt of income which has never accrued nor never received, which could be brought to tax for the purpose of taxation of capital gain. The provisions seek to bring within the net of taxation only that income which has accrued or is received by the assessee as a result of the transfer of the capital asset.
(vii) The theory of real income was not advanced before the Tribunal and not considered.

27. He submitted that, on the other hand, in the case of Raghuram Reddy (supra) all the above aspects were considered and the decision was rendered. It was wholesome decision and it is to be followed. He also relied on the judgment of Calcutta High Court in the case of Madgul Udyog v. Commissioner Of Income-Tax. [1990] 184 ITR 484/[1991] 54 Taxman 34 .

28. Regarding the doctrine of binding precedent, he submitted as follows:

(i) All the decisions were rendered by two co-equal benches of the jurisdictional Tribunal. Therefore a later decision rendered by a coequal bench cannot override the former.
(ii) It is settled principle that the authorities are not bound to follow a decision which came at a later point of time but may follow one which according to it is better in point of law and fact.
(iii) Even in a case where there is direct conflict between the decisions of co-equal benches, the authorities are to follow the judgment which states the law more elaborately and in conformity with the scheme of the Act.
(iv) Judged in the context of the above principle, it would appear that the order in the case of Raghuram Reddy ( supra) is preferable for the following reasons:

a. The case was fully argued by both parties
b. The decision was reached after full consideration of all aspects of law and fact.
c. There is nothing to indicate that the decision conflicts with well established principles or fails to go with a definite stream of authority.
d. The decision was not perverse or manifestly wrong on any issue.
e. There is nothing to indicate that the previous decision was manifestly against the scheme of the Act. It is not an erroneous decision or a vague one touching upon interpretation which has given rise to public inconvenience or hardship. On the other hand, by the putting position of law straight, the decision leans towards avoiding litigation. This decision has not encouraged the imposition of tax burden or other liability upon taxpayer on erroneous interpretation of law.

29. According to the learned AR, in such a scenario, the matter of following the later decision, which with utmost respect left many questions unanswered because the same were not be appropriate. The preference in such a situation leans towards following the earlier decisions as the same was a wholesome decision addressing to all issues following various judicial precedents on the subject and the position of law.

30. According to the AR the Assessing Officer has wrongly relied on the judgment in the case of Chaturbhuj Dwarakadas Kapadia of Bombay (supra) and judgment in the case of Jasbir Singh Sakaria (supra). These two cases are distinguishable on facts. In the case of Chaturbhuj Dwarakadas Kapadia of Bombay both the charge and consideration in monetary terms were ascertainable on the date of entering into the development agreement. These two factors influence the court to come to a conclusion that the gain was assessable in the year of development agreement. In the case of Jasbir Singh Sakaria (supra) also the consideration was ascertainable with reasonable certainty. Therefore, these two decisions are not applicable to the case of the assessee.

31. It is submitted by the AR that the Assessing Officer has not fully appreciated the facts of the case while applying the ratio of the above judgments. On these facts, the decision in the case of Raghurami Reddy (supra) is more apt and applicable to the facts of the case of the assessees.

32. It is also submitted that in the decision in the case of Dr. Maya Shenoy (supra) and T. Achutha Rao (supra), full facts of the transaction and decisions of the Apex Court in the cases cited above were not brought to the notice of the Tribunal making the decision per incurium in the case of Dr. Maya Shenoy (supra) and T. Achuta Rao (supra).

33. It is submitted that the entire project is on a standstill as on date. The assessees have not been handed over the built up area as a date. The consideration accruing or arising is the value of 45 per cent of built up area as allowable to the assessees. He relied on the order of the Tribunal in the case of Dy.DIT v. G. Raghuram [2010] 134 TTJ 87 / 39 SOT 406 (Hyd.) wherein it was held that:

"The consideration accruing or arising is the cost of construction of the project by the developer. This is unknown and cannot be estimated even under the best principles of accountancy as it is non-existent on 11-5-2005."

34. If this is so on the facts of the case of the assessee the entire project is on a standstill and the assessee as owners have not received any of the built up area to which they are entitled. Therefore no income be said to accrue as laid down in section 48. He submitted that the transferee originally made a payment of Rs. 10 lakhs on 11-5-2005 and another payment of Rs. 90 lakhs on the same day. However, out of this a sum of Rs. 50 lakhs was refunded by the landlord to the developer on 5-3-2009. The project has not been completed till date due to very bad market conditions and hence the possession of the constructed flats has not been handed over to Mr. K. Srinivasa Rao & Family.

35. With prejudice to the above it is submitted by the AR that the consideration accruing cannot be evaluated as the subject-matter is not in existence and therefore cannot be discounted as on the date of transfer as it would amount to calculation of discount figures on an unknown figure for a non-existing asset and therefore incapable of being determined. Therefore without prejudice to any of the aforesaid submissions it is submitted that the computation provisions cannot be involved and therefore the change to capital gains fails. In this connection he relied on the judgment of Supreme Court in the case of B.C. Srinivasa Setty (supra).

36. He submitted that yet another decision which has escaped the attention of the adjudicators in the previous judgments is that of the Calcutta High Court in the case of Mohabodhi Society of India v. Union of India [1995] 78 Taxman 401 . He drew our attention specifically to para 22 of the judgment wherein their Lordships of the Calcutta High Court held as under:

"22. The last legal objection raised by Mr. Bagchi is that the provisions of Chapter XXC are not also otherwise operative in a transfer where the consideration is in future specie which cannot be rendered in present monetary terms. The cost of the structure to come up in a distant future and also the cost of future services to be rendered are not according to him reducible to any monetary equivalent to praesenti because the monetary equivalent is an imponderable. Therefore, according to him, the machinery of computation of the compensation fails. That being the case, the provisions have to be called to a halt. In this connection, he referred the decision of the Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 to impress that the charging section and the computation provisions together constitute an integrated part. When there is a case to which the computation provision cannot apply at all, it is evident that such a case was not intended to fall within the charging section."

37. The learned AR submitted thus there are an analogous situation and therefore, the computation machinery as laid down in B.C. Srinivasa Setty's case (supra) fails. He further submitted that both on facts and in law no Transfer took place only on 11-5-2005. The computation machinery fails for determining the consideration for the assessment year 2006-07.

38. On the other hand, the learned DR relied on the orders of the Assessing Officer and the CIT(A) and submitted that provisions of section 2(47)(v) of the IT Act is an intrusive definition and relied on the order of the Tribunal in the case of Taher Alimohammed Poonawala v. Addl. CIT [2009] 124 TTJ 387 (Pune) and the order of the Tribunal in the case of Dr. Maya Shenoy (supra) and judgment of Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay (supra).

39. We have heard the rival contentions at considerable length. We have also perused the material on record and duly considered factual matrix of the case as also the applicable legal position. Learned representatives have addressed us on different aspects of the matter and also filed written submissions along with the judicial precedents which are placed on record.

40. As Revenue has placed heavy reliance on the judgment of Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay (supra), and it is based on this judgment that the impugned addition has been made by the Assessing Officer, and sustained by the CIT(A), it is necessary to first appreciate what this judgment lays down, and perhaps even more important that that, what it does not lay down.

41. Their Lordships of Hon'ble Bombay High Court were examining the scope and import of section 2(47)(v) which was introduced with effect from 1-4-1988. This provision, which covers one of the modes of deemed 'transfer', lays down that the scope of expression 'transfer' includes 'any transaction involving the allowing of the possession of any immovable property (as defined) to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act'. Elaborating upon the scope of section 2(47)(v), their Lordships observed as follows:

"Under section 2(47)(v), any transaction involving allowing of possession to be taken or retained in part performance of the contract of the nature referred to in section 53A of the Transfer of Property Act would come within the ambit of section 2(47)(v). That, in order to attract section 53A, the following conditions need to be fulfilled. There should be contract for consideration; it should be in writing; it should be signed by the transferor; it should pertain to the transfer of immovable property; the transferee should have taken possession of property; lastly, transferee should be ready and willing to perform the contract. That even arrangements confirming privileges of ownership, without transfer of title, could fall under section 2(47)(v)".

42. Their Lordships, having made the above observations, took note of the fact that section 2(47)(v) was introduced in the Act with effect from assessment year 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of conveyance. It was also noted by their Lordships that, in this scenario, assessee used to enter into agreements for developing properties with the builders and under arrangement with the builders, they used to confer privileges of ownership without executing conveyance, and to plug that loophole, section 2(47)(v ) came to be introduced in the Act.

43. There was no dispute on whether or not the conditions of section 53A of the Transfer of Property Act were satisfied on the facts of the case before the Hon'ble Bombay High Court. It was in this context, and after elaborate analysis of the facts of the case before their Lordships, their Lordships also observed as follows:

"If on a bare reading of a contract in its entirety, an Assessing Officer comes to the conclusion that in the guise of agreement for sale, a development agreement is contemplated, under which the developer applies for permission from various authorities, either under power of attorney or otherwise and in the name of the assessee, the Assessing Officer is entitled to take the date of contract as the date of the transfer under section 2(47)(v)."

44. It is important to bear in mind that section 2(47)(v) refers to "possession to be taken or retained in part performance of the contract of the nature referred to in section 53A of the Transfer of Property Act" and in the case before Hon'ble Bombay High Court, there was no dispute that the conditions of section 53A were satisfied. In other words, the proposition laid down by their Lordships can at best be inferred as that when conditions under section 53A are satisfied, and when the assessee enters into a contract which is a development agreement, in the garb of agreement of sale, it is the date of this development agreement which is material date to decide the date of transfer. However, by no stretch of logic, this legal precedent can support the proposition that all development agreements, in all situations, satisfy the conditions of section 53A which is a sine qua non for invoking section 2(47)(v).

45. In order to invoke the principles laid down by the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay (supra), it is, therefore, necessary to demonstrate that the conditions under section 53A of the Transfer of Property Act are satisfied. This section is reproduced below for ready reference:

Section 53A : Part performance-Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute 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 thereof 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 the right specifically 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.

46. A plain reading of 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 when 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".

47. 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 thereunder.

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…….."

48. 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.

49. Even a cursory look at the admitted facts of the case would show that the transferee had neither performed nor was it willing to perform its obligation under the agreement in the assessment year under consideration. The agreement based on which capital gains are sought to be taxed in the present case is agreement dated 11-5-2005 but this agreement was not adhered to by the transferee. The transferee originally made a payment of Rs. 10 lakhs on 11-5-2005 and another payment of Rs. 90 lakhs on the same day as refundable security deposit. However, out of this a sum of Rs. 50 lakhs was said to be refunded by the landlord to the developer on 5-3-2009. As such, the assessee has received only a meagre amount as refundable security deposit which cannot be construed as receipt of part of sale consideration. Admittedly, there is no progress in the development agreement in the assessment year under consideration. The Municipal sanction for development was obtained not in this assessment year and it was obtained only on 17-9-2006 from the Hyderabad Urban Development Authority. The sanction of the building plan is utmost important for the implementation of the agreement entered between the parties. Without sanction of the building plan, the very genesis of the agreement fails. To enable the execution of the agreement, firstly, plan is to be approved by the competent authority. In fact, the building plan was not got approved by the builder in the assessment year under consideration. Until permission is granted, a developer cannot undertake construction. As a result of this lapse by the transferee, the construction was not taken place in the assessment year under consideration. There is a breach and break down of development agreement in the assessment year under consideration. Nothing is brought on record by authorities to show that there was development activity in the project during the assessment year under consideration and cost of construction was incurred by the builder/developer. Hence it is to be inferred that no amount of investment by the developer in the construction activity during the assessment year in this project and it would amount to non-incurring of required cost of acquisition by the developer. In the assessment year under consideration, it is not possible to say whether the developer prepared to carry out those parts of the agreement to their logical end. The developer in this assessment year had not shown its readiness or having made preparation for the compliance of the agreement. The developer has not taken steps to make it eligible to undertake the performance of the agreement which are the primary ingredient that make a person eligible and entitled to make the construction. The act and conduct of the developer in this assessment year shows that it had violated essential terms of the agreement which tend to subvert the relationship established by the development agreement. Being so, it was clear that in the year under consideration, there was no transfer of not only the flats as superstructure but also the proportionate land by the assessee under the joint development agreement. As per clause Nos. 12.11 and 19.1 of Development Agreement-cum -Power of Attorney, time is the essence of the contract and as per clause No. 12.11 the said property is to be developed and hand over the possession of the owners' allocation to the owners' and or their nominees within 24 months from the date of receiving the sanction of the plan from HUDA and Municipality/Gram Panchayat with a further grace period of 3 months. But the fact remains that the transferee was not only failed to perform its obligations under the agreement, but also unwilling to perform its obligations in the assessment year under consideration. Even otherwise, the assessing authorities has not brought on record the actual position of the project even as on the date of assessment or he has not recorded the findings whether the developer started the construction work at any time during the assessment year under consideration or any development has taken place in the project in the relevant period. He went on to proceed on the sole issue with regard to handing over the possession of the property to the developer in part performance of the Development Agreement-cum-General power of Attorney. In our opinion, the handing over of the possession of the property is only one of the condition under section 53A of the Transfer of Property Act but it is not the sole and isolated condition. It is necessary to go into whether or not the transferee was 'willing to perform' its obligation under these consent terms. When transferee, by its conduct and by its deeds, demonstrates that it is unwilling to perform its obligations under the agreement in this assessment year, the date of agreement ceases to be relevant. In such a situation, it is only the actual performance of transferee's obligations which can give rise to the situation envisaged in section 53A of the Transfer of Property Act. On these facts, it is not possible to hold that the transferee was willing to perform its obligations in the financial year in which the capital gains are sought to be taxed by the Revenue. We hold that this condition laid down under section 53A of the Transfer of Property Act was not satisfied in this assessment year. Once we come to the conclusion that the transferee was not 'willing to perform', as stipulated by and within meanings assigned to this expression under section 53A of the Transfer of Property Act, its contractual obligations in this previous year relevant to the present assessment year, it is only a corollary to this finding that the development agreement dated 11-5-2005 based on which the impugned taxability of capital gain is imposed by the Assessing Officer and upheld by the CIT(A), cannot be said to be a "contract of the nature referred to in section 53A of the Transfer of Property Act" and, accordingly, provisions of section 2(47)(v) cannot be invoked on the facts of this case Chaturbhuj Dwarkadas Kapadia of Bombay (supra) undoubtedly lays down a proposition which, more often that not, favours the Revenue, but, on the facts of this case, the said judgment supports the case of the assessee inasmuch as 'willingness to perform' has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of section 53A of the Transfer of Property Act. Revenue does not get any assistance from this judicial precedent. The very foundation of Revenue's case is thus devoid of legally sustainable basis.

50. That is clearly an erroneous assumption, and the provisions of deemed transfer under section 2(47)(v) could not have been invoked on the facts of the present case and for the assessment year in dispute before us. In the present case, the situation is that the assessee has received only a 'meagre amount' out of total consideration, the transferee is avoiding adhering to the agreement and there is no evidence brought on record by the revenue authorities to show that there was actual construction has been taken place at the impugned property in the assessment year under consideration and also there is no evidence to show that the right to receive the sale consideration was actually accrued to the assessee. 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. This agreement cannot, therefore, be said to be in the nature of a contract referred to in section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on reason that the capital gains could not have been taxed in this assessment year in appeal before us. The other grounds raised by the assessees in their appeals have become irrelevant at this point of time as we have held that provisions of section 2(47)(v ) will not apply to the assessees in the assessment year under consideration. Consequently, the appeal filed by the revenue in ITA Nos. 328 to 331/Hyd./2011 have become infructuous and dismissed accordingly.

51. Now we will take up ITA Nos. 416, 417 & 418/Hyd./2011 of the Revenue Appeals. In these appeals the grievance of the Revenue is with regard to treating the gain arising out of the transaction in sale of land as capital gain instead of business income. Brief facts of the issue are that consequent to a search operation in the case of Sri K. Srinivasa Rao, notices under section 153C of the IT Act were issued to the assessee in response to which the assessee filed returns of income for the assessment years under consideration admitting total income as below:

52. In the assessments made, the Assessing Officer observed that the assessee is the owner of various landed properties situated at Vattinagulapalli village, Kokapet Village, Nanakramguda village and Musapet village and sold different landed properties and claimed exemption of capital gain stating they were all agricultural lands. The Assessing Officer observed that the assessee was involved in the business of real estate activity of purchase and sale of agricultural lands. He therefore assessed the income returned and claimed as exempt under section 2(14) of the IT Act by the assessee under the head 'capital gains', as income under the head 'profits and gains of business' treating assessee's earnings for the above years as adventure in nature of trade. The Assessing Officer made the additions of Rs. 15,45,000, Rs. 23,92,812, and Rs. 4,56,45,000 for the assessment years 2002-03, 2003-04 and 2004-05 respectively. The total income was thus assessed at Rs. 30,23,520, Rs. 17,97,590 and Rs. 4,67,78,260 for the assessment years 2002-03, 2003-04 respectively and tax demands of Rs. 9,33,633, Rs. 15,05,016 and Rs. 2,55,83,243 respectively were raised. On appeal, the CIT(A) decided the issue in favour of the assessee for these assessment years. Against this, the revenue is in appeal before us.

53. The DR relied on the order of the Assessing Officer. On the other hand, the AR relied on the order of the CIT(A).

54. We have heard both the parties and perused the materials available on record. For the purpose of better understanding, we will go through the details of complete sale and purchase of properties.

TABLE:1

Total gain out of the above said transactions: 15,45,000

Assessment year 2003-04

Total gain/profit earned out of the transaction : Rs. 23,92,812

Assessment year 2004-05

Total gain out of benami purchase and sale Rs. 4,56,45,000

Assessment year 2006-07

Table showing the reason for sale of land by assessee during various years

55. As seen from the above tables, the assessee has been acquiring the land from the year 1995 which has been sold in the subsequent years. It is also fact that the assessee was showing income from the said land holding as agricultural income. As per the table, the land which was acquired in September 1996 was sold during the financial year relevant to the assessment year 2004-05 which means the land has been held by the assessee as an investment not as a stock-in-trade before realising the same. Had been the assessee in real estate business she would not have kept the land for such a long period. The contention of the department is that the assessee sold the land within a year of acquisition. We have gone through the facts of the case. The certain land acquired by the assessee has been sold by the assessee within short time on account of compelling circumstances. It was explained to us by the AR that certain land as enumerated in the table is falling under Bio conservation zone/green belt which she was not aware of it. Thus, the land was sold under compelling circumstances to realise the investment and to avoid any future dispute. Similarly, in case of certain land, there was impending acquisition by the Govt. and to avoid future litigation the assessee was compelled to sell them. Similarly, in the case of land situated at Kokapet village, the assessee had received a legal notice from the family members of the vendors and in fact a case was filed in OS No. 113 before the Addl. District Judge, LB Nagar. Hence, to avoid any future complications, the said land was sold. Considering the above facts, we cannot hold that the assessee engaged in the real estate business. It is also fact that the assessee has been offered capital gain in subsequent years which has not been disturbed by the Assessing Officer. For example, for the assessment year 2006-07 the assessee had shown in her return long-term capital gain in respect of sale of land, measuring 4 acres 89 guntas and no adverse view has been taken by the Assessing Officer on this. If the revenue authorities were of the opinion that the assessee is in the business of real estate, the Assessing Officer would have taken a consistent stand in respect of all the transactions. It is also admitted fact that there is no regular activity of purchasing and selling of land and there is nothing on record to show that the land was purchased for the purpose of selling the same. Even if the land was developed and was sold after converting into plots with a view to secure the better price it cannot come within the purview of adventure in the nature of trade and business. Further, it is admitted fact that the land in dispute herein is an agricultural land and assessed to land revenue. The earning on sale of the land was in the nature of capital gain and therefore, not assessable as income from business. Accordingly, we are entirely agreement with the findings given by the CIT(A) in his order and the same is confirmed. The grounds raised by the revenue are rejected.

56. In the result, the assessees' appeals are partly allowed and that of Revenue appeals are dismissed.