Anil Chaturvedi, A.M.:— This appeal of the assessee is emanating out of the order of Commissioner of Income Tax (A)—12, Pune, dated 20.01.2015 for the assessment year 2012–13.
2. The relevant facts as culled out from the material on record are as under:—
2.1 Assessee is a partnership firm stated to be engaged in the business of Promoters and Developers and the nature of activities involved the purchase of land, development rights of land, construction and sale of flats. Assessee filed its return of income for A.Y. 2012–13 on 28.09.2012 declaring total income of Rs. 86,03,49,430/-. The case was selected for scrutiny and thereafter the assessment was framed u/s 143(3) and the total income was determined at Rs. 106,03,49,430/-. Aggrieved by the order of AO, assessee carried the matter before ld. CIT(A), who vide order dt. 20.01.2015 in Appeal No. (PN/CIT(A)-12/DCIT Cent Cir 2(2)/308/2013–14) dismissed the appeal of the assessee. Aggrieved by the order of ld. CIT(A), assessee is now in appeal before us and has raised the following grounds:
“1. The learned CIT(A) erred in confirming the addition of Rs. 20 Crs. to the total income of the appellant.
2. The learned CIT(A) failed to appreciate that—
a. As per the MOU and the sale deed of land by the appellant to Symbiosis, a sum of Rs. 20 Crs. was payable to the appellant only after certain events like obtaining Preliminary plan sanction and also for obtaining the final plan sanction with FAR of 1.5 and thus, till then, the above sum of Rs. 20 Crs. did not accrue to the appellant as income.
b. Till the end of this year, only the sale deed was executed by the appellant with Symbiosis for sale of land and both the Preliminary and final sanction of building plan with 1.5 FAR was not received and therefore, the additional consideration of Rs. 20 Crs. As per the MOU and the sale deed had not accrued to the appellant and thus, it was not taxable in this year.
c. Simply because, the appellant had executed the sale deed and granted possession of the land to Symbiosis in this year it could not be concluded that this sum of Rs. 20 Crs. had accrued to the appellant during this year as income when the appellant had not obtained the right to receive this sum from Symbiosis till the end of this year.
3. The learned CIT(A) was not justified in holding that as the transfer of land has been completed during the year, the entire consideration accrued to the appellant during the year without realizing that part consideration of Rs. 20 Crs. was dependent on certain obligations on the appellant which were not discharged in this year and therefore, a sum of Rs. 20 Crs. did not constitute income of the appellant for A.Y. 2012–13.
4. The appellant requests for admission of additional evidences if any required, in support of the above grounds of appeal.
5. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”
3. Before us, at the outset, ld.A.R. submitted that though assessee has raised various grounds but the sole controversy which is to be decided is the taxability of Rs. 20 crore which has been offered by the assessee in subsequent years.
4. During the course of assessment proceedings and on perusing the details furnished by the assessee, AO noticed that assessee had sold an immovable property to Symboisis on 02.02.2012 for sale consideration of Rs. 120 crores but in the Profit and Loss account, assessee had offered only Rs. 100 crores for taxation. The assessee was asked to show cause as to why the balance amount of Rs. 20 crores was not offered to tax. The assessee inter-alia submitted that the sale consideration agreed to be paid by purchaser (Symboisis) was inclusive of transfer of land, construction cost and other development expenses for educational purpose. It was further submitted that generally the F.A.R. available is 1 but for educational building the same is 1.5. It was submitted that it was necessary to transfer the land in the name of Institute to have the FAR of 1.5 as was committed by the assessee. It was further submitted that as per M.O.U. the consideration of Rs. 120 crores was to be paid as under:
1) Rs. 80 crores on execution of sale deed,
2) Rs. 20 crores after 7/12 extract in the name of purchaser
3) Rs. 9 crores after preliminary plans are sanctioned.
4) Rs. 11 crores after final plan sanction with full utilization of F.A.R. i.e., 1.5.
It was further submitted that since the preliminary plan and final plan with F.A.R. of 1.5 could not be completed, the assessee did not had a right for receipt of Rs. 20 crores and therefore the same was not recognized as revenue in the year under consideration. The submission of the assessee was not found acceptable to the AO as he was of the view that in the present case, transfer of the Capital Asset was completed as per the provisions of Sec. 2(47) of the Act and since the sale deed has been registered on 02.02.2012 and therefore absolute rights have been transferred by the assessee and therefore the profit arising out of the transfer was taxable for the year under consideration. He accordingly brought to tax at Rs. 20 crores. Aggrieved by the order of AO, assessee carried the matter before ld. CIT(A) who upheld the order of AO by holding as under:
“2.1.7 I have carefully considered the facts and the arguments of the Appellant. The Appellant has stated that it has not only purchased the land but has also purchased building along with the land. The consideration for which, has been decided @ Rs. 4,200 per sq ft. This has been stipulated in the MOU. It was stated that, sale deed and MOU should be read together and sale deed should not be read in the isolation as done by the learned AO. Therefore, the balance amount of Rs. 20 cr is not accrued to it in absence of the achievement of milestones as provided in the MOU. The Appellant also argued that, land sold by it is not a capital asset as erroneously considered by the learned AO. For the Appellant, land is stock-in-trade. Accordingly, the Appellant has correctly offered Rs. 100 cr to tax during the year under consideration.
2.1.8 I do not agree with the Appellant. Even if MOU is read with sale deed, the fact does not change that according to the sale deed, the Appellant has received consideration of Rs. 120 cr for transferring land to Symboisis. I have no dispute with the Appellant's agreement with Symboisis on purchase of building @ Rs. 4,200 per sq ft. as laid down in the MOU. However, the Appellant has not drafted its registered sale deed for attributing consideration of Rs. 120 cr to different assets, building and rights, which would become due to the Appellant on completion of different milestones as provided in the sale deed.
2.1.9 Perusal of sale deed shows that the Appellant has not bifurcated any of the considerations towards building or any other assets. On the contrary. the entire consideration is payable only for transfer of land. The relevant parts of the sale deed support the above conclusion. These parts of the agreement are reproduced as under:
“The Purchaser herein was in search of the land for expansion of its educational institutesl establish separate academic streams near, Lohagaon and received information as to Vendor No. 2 herein has obtained development rights along with the rights to sell the said entire land and has also obtained sanction to the layout for the Said Entire Land and shown interest to purchase Plot No. II admeasuring area about 01 HECTARE 95 Ares i.e. 19500 Sq. Mtrs. which is inclusive of open space admeasuring area about 2000 sq. Mtrs. as shown in the plan annexed hereto as Annexure-5, and after negotiation at length and the Purchaser herein offered to the Developer to purchase Plot No. II of ownership of Vendor No. I and in possession of Vendor No. 2 for consideration of Rs. 120,00,00,000/- (Rupees One Hundred Twenty Crores Only) and which aforesaid plot No. 11 is more particularly in the Schedule-III written hereunder and herein after is referred as the “SAID PROPERTY”.
1. PAYMENT OF CONSIDERATION:— As stated in preamble paragraph No. ‘J’ hereinabove written. the agreed consideration of the Said Property agreed between the Vendor No. 2 on one hand and Purchaser herein on other hand, is Rs. 120,00,00,000/- (Rupees One Hundred Twenty Crores Only) and which is paid by the Purchaser to the Vendor No. 2 by Cheque No. 782601 dated 6/2/2012 for amount of Rs. 80,00,00,000/- (Rupees Eighty Crores only), Cheque No. 782603 dated 18/04/2012 for amount of Rs. 20,00,00,000/- (Rupees Twenty Crores only), Cheque No. 782604 dated 18/07/2012 for amount of Rs. 9,00,00,000/- (Rupees Nine Crores only) and Cheque No. 782606 dated 13110/2012 for amount of Rs. 11,00,00,000/- (Rupees Eleven Crores only) all cheques drawn on Bank of Maharashtra, Balbharti Branch. Subject to the realization of the above mentioned cheques on due dates, receipt of Rs. 120,00,00,000/- (Rupees One Hundred Twenty Crores Only) the Vendor No. 2 herein doth hereby admit, accept and acknowledge and of and from the same every part thereof forever acquit, release and discharge to the Purchaser and its nominee, assignee.
The consideration as mentioned above includes the consideration payable for perpetual Easementary Rights in nature of right of way for the benefit of the Purchaser, its students, staff visitor, faculty etc., from the said Property to a building of the Purchaser situated at property bearing Survey No:228/4, Lohgaon, Pune and which property is adjacent to the said Property.
The consideration of Rs. 20,00,00,000/- [Rs. Twenty Crore] as mentioned above, shall be payable on inclusion of the name of the Purchaser in the 7/12 extract and upon the deletion ofconcemed entries with the Office of Registrar of Co-operative Societies, which shows the said property as property of Vendor No. I.
4. CONVEYANCE OF THE SAID PROPERTY:— In pursuance of the consideration paid by the Purchaser to the Vendor No. 1 and Vendor No. 2 as stated in clause no 1 hereinabove written in respect of the Said Property, the Vendor No. 1 and Vendor No. 2 herein doth hereby release, grant, convey, sell, assign, and assure unto the Purchaser herein forever all that the Said Property and TO HAVE AND TO HOLD the same unto and to the use of the Purchaser absolutely and forever.
7. PURCHASER'S RIGHT TO HAVE AND HOLD THE SAID PROPERTY:— Hereinafter the Purchaser herein has right to have and to hold absolutely and forever all and singular the Said Property, hereditaments and all other appurtenances and thereto hereby granted, released, conveyed and assured or expressed so to be with its appurtenances unto and to the use of the Purchaser, their executors, administrators, assigns forever. Irrespective of the deferred payment the sale deed executed herein shall be absolute.
10. DELIVERY OF POSSESSION:— At the time of execution these presents the Vendor No. 1 and Vendor No. 2 have handed over vacant and peaceful possession of the Said Property to the Purchaser herein and by executing these present confirms delivery of possession of the Said Property in favour of the Purchaser herein. The Purchaser herein declares that, it has received the possession of the Said Property.”
2.1.10 The above clauses in addition to the clauses reproduced by the learned AO in the assessment order, leave no doubt that the Appellant would receive Rs. 120 cr on transfer of land. The Appellant wishes that the MOU also be referred as it provides payments to be made on achievement of milestones.. However, according to me, MOU, transfer of the property has taken place, provides payment of 120 cr only for for transfer of land. Therefore, for considering taxability of Rs. 120 cr, it is to be seen as to whether entire amount has accrued to the Appellant or not during the year under consideration.
2.1.11 The Appellant has stated that it has not transferred capital asset, hence defmrtion of transfer as provided in section 2(47) which is, meant for capital assets is irrelevant. I agree with the Appellant that the Appellant has transferred stock-in-trade. However, the fact remains that the Appellant has sold its stock-in-trade during the yearunder consideration and stock-in-trade being immovable property-land-was required to be registered under Registration Act, for completion of transfer under Transfer of Properties Act, 1853. According to Transfer of Property Act, 1853 sale is complete with the registration of land as held by the honorable Supreme Court in the case of Narandas Karsondas v. SA Kamtam (1977) 3 SCC 247. Accordingly, amount of sale consideration has accrued to the Appellant and the Appellant is required to offer entire
2.1.12 In other words, if the Appellant's stock-in-trade was to be commodities, the sale consideration would normally accrue to the Appellant on raising of invoice. However, as stated, this being land, right to receive entire sale consideration is vested in Appellant on completion of sale deed. In this connection, how parties have agreed upon themselves to pay the sale consideration is irrelevant. Parties to the agreement may have decided to pay the consideration according to their understanding and according to fulfillment of mutual liabilities. However, it does not alter the position of the law on accrual of income, according to which, entire consideration has become due or accrued to the Appellant on sale of land. As stated, according to the mercantile system of accounting, the Appellant has to offer income to tax, which has accrued to it.
2.1.13 In view of the above discussion, I agree with the learned AO that Rs. 20 Cr has accrued to the Appellant during the assessment year under consideration. Accordingly, I confirm the addition of Rs. 20 Cr made by the learned AO.”
4. Aggrieved by the order of ld. CIT(A), assessee is now in appeal before us.
5. Before us, ld.A.R. reiterated the submissions made before AO and ld. CIT(A) and further submitted that first and foremost the land which has been sold by the assessee is not a capital asset of the assessee but it is stock-in-trade. He further submitted that assessee had entered into a M.O.U. on 02.02.2012 with Symboisis, wherein it was agreed that property situated at plot No. 11 having area of around 19,500 sq.mtrs. out of the sanction lay-out of Survey No. 227 situated at Village Lohegan, Taluka Haveli District, Pune was agreed to be sold to Symboisis @ 4200 per sq.ft subject to the maximum area of construction of the said plot was at 1.5 F.A.R. The agreed rate and total consideration to be paid by the purchaser was inclusive of transfer of land, the construction cost and other development expenses. Further the understanding between the parties was to sell the land along with building for educational purpose. It was submitted that generally the FAR available for educational building was 1.5. For using the FAR 1.5 it was necessary to transfer the land in the name of Institute. Assessee had entered into registered sale deed on 02.02.2012 in part performance of M.O.U. The M.O.U. which was an integral part duly provided with the sale consideration of Rs. 120 crores and was to be paid as per the terms stipulated in M.O.U. He further submitted that the conditions pertaining to the execution of sale deed and the transfer the name of purchaser by 7/12 extract was completed prior to 01.12.2012 and therefore assessee had received Rs. 100 crores and the same was offered as income. Since the assessee could not get the preliminary plan sanctioned with full utilization of F.A.R. of 1.5, the stipulated conditions were not fulfilled and therefore Rs. 20 crores did not become due to the assessee and therefore it was not recognized as Revenue. He further submitted that the preliminary plans were sanctioned during the financial year 2013–14 i.e., the assessment year 2014–15. He further pointed to the various clauses of M.O.U. which are placed in the paper book and submitted that the sale agreement has to be seen along with M.O.U. and construction agreement. He further pointed to the copy of sale deed and pointed to the specific clause, wherein it was stated that the sale deed was executed as part performance in M.O.U. dt. 02.02.2012. He further submitted that it is not the case of Revenue though the M.O.U. has been filed and entered by the assessee but it was an afterthought for avoidance of tax. He further submitted that since the right to receive Rs. 20 crores did not accrue to the assessee as it was stated to be due after compliance of certain conditions, Rs. 20 crore which was not received by the assessee cannot be considered as income of the assessee. He placed reliance on the decision of CIT v. Excel Industries Ltd., 358 ITR 295 (SC) for the proposition that the income accrues to the assessee when it is accompanied by a corresponding liability of the other party to pay the amount. He further submitted that “income arisen or accruing” describes a right to receive the profits and that there must be a debt owed by somebody. He submitted that unless and until a debt due by somebody is created in favour of assessee, it cannot be said that assessee has acquired rights to receive the income or income has accrued to him and for this proposition he relied on the decision of Hon'ble Apex Court in the course of E.D. Sassoon Company v. CIT, 26 ITR 27 (SC). He further submitted that though the M.O.U. was not registered but the non-registration of M.O.U. cannot be considered to be important for the purpose of taxation and for this proposition he relied on the decision of Hon'ble Apex Court in the case of Thakur Raghunath Ji Maharaj v. Ramesh Chandra in Appeal (Civil) 6972 of 1999 order dt. 11.05.2001. He further submitted that since assessee had not completed its part of obligation, Symboisis could not have been forced to pay the amount as per M.O.U. and therefore the amount of Rs. 20 crores did not accrue to the assessee. He further submitted that since the assessee has offered Rs. 20 crores in subsequent years and if the Revenue's contention of taxing the amount of Rs. 20 crores in the year under consideration is accepted, it would amount to taxation the same income twice which is not permissible. He therefore submitted that the addition of Rs. 20 crores be deleted. Ld. D.R. on the other hand supported the order of AO and ld. CIT(A) and submitted that as per the Transfer of Property Act, on registration of sale, the amount accrued to the assessee. He therefore submitted that the AO has rightly made the addition. He thus supported the order of AO.
6. We have heard the rival submissions and perused the material on record. The short issue in the present case is whether the amount of Rs. 20 crores which admittedly has not been received by the assessee during the year under consideration is taxable in the year under consideration as accrued receipt. It is an undisputed fact that as per the MOU dt. 02.02.2012 assessee had agreed to sell land having area of 19,500 sq.mtrs along with constructed educational building by consuming maximum permissible FAR. The consideration that was agreed to be paid to the assessee was inclusive of the land cost, construction cost and all other development expenses and for which it was agreed that assessee would be paid Rs. 120 crores of which 80 crores was to be paid at the time of execution of sale deed, Rs. 20 crores to be paid after reopening the 7/12 extract in the name of purchaser, Rs. 9 crores to be paid after preliminary plan sanctioned and Rs. 11 crores to be paid after final plan sanctioned with utilization of full 1.5 F.A.R. It is also an undisputed fact that on 02.02.2012 assessee had entered into a sale deed with the purchaser. Thus, as per the M.O.U. the consideration of Rs. 20 crores was payable to assessee on inclusion of the name of the purchaser in 7/12 extract and upon deletion of concerned entries in assessee's name in the records with the office of Registrar of Co-operative Societies. It is assessee's case that since it could not complete its portion of responsibility prior to 31.03.2012 the amount of Rs. 20,00,00,000/- not received by assessee did not accrue to him and therefore it has not been offered as income.
7. Before us it is not the case of Revenue that assessee has completed the activities which it was required to complete before 31.03.2012. Revenue is considering the provisions of Sec. 2(47) to contend that since assessee has entered into sale deed, the entire amount is due to the assessee. We find that Sec. 2(47) of the Act is with reference to capital asset. It is the case of the assessee that the land that has been sold by it is not a capital asset but it is a stock-in-trade. Before us Revenue has not placed any material on record to demonstrate the part of duties and activities that the assessee was required to perform as per the M.O.U. entered by it with Symbiosis had been completed by assessee and therefore the right to receive Rs. 20,00,00,000/- accrued to the assessee. We find that Hon'ble Apex Court in the case of CIT v. Excel Industries Ltd. (supra) has held that income tax cannot be levied on hypothetical income and after relying on the decision of Hon'ble Apex Court in the case of CIT v. Shoorji Vallabdas & Co., 46 ITR 144 (SC) and Morvi Industries Ltd. v. CIT, 82 ITR 835 (SC) has held that income accrues when it becomes due and it must also be accompanied by corresponding liability of the other party to pay the amount and only then it can be said that for the purpose of taxability that the income is not hypothetical and has really accrued to the assessee. Considering the totality of the aforesaid facts and relying on the aforesaid decisions, we are of the view that the assessee did not get the right to receive Rs. 20 crores in the year under consideration and therefore it cannot be considered as income for the year. Further it is assessee's submission that the amount of Rs. 20 crores has been offered to tax in subsequent years. The aforesaid factual submission of the assessee has not been controverted by the Revenue. If that be the case, then the taxation of Rs. 20 crore in the year under consideration and in subsequent years would amount to double taxation of the same amount. Before us Revenue has also not placed any material on record to demonstrate that the M.O.U. that has been entered into by the assessee is an afterthought for the purpose of avoidance/deferment of tax. Considering the totality of the facts and after relying on the aforesaid decisions, we are of the view that in the present case the amount of Rs. 20 crores which has not been received by or accrued to the assessee cannot be brought to tax in the year under consideration. We are therefore set aside the addition made by the AO and thus the grounds of assessee are allowed.
8. In the result, the appeal of the assessee is allowed.