Panyam Cements and Mineral Industries Ltd. v. Addl. Commissioner of Income-tax, Kurnool Range, Kurnool
[Citation -2016-LL-0928-153]

Citation 2016-LL-0928-153
Appellant Name Panyam Cements and Mineral Industries Ltd.
Respondent Name Addl. Commissioner of Income-tax, Kurnool Range, Kurnool
Court ITAT-Hyderabad
Relevant Act Income-tax
Date of Order 28/09/2016
Assessment Year 2008-09
Judgment View Judgment
Keyword Tags transfer of capital asset • long-term capital gain • construction activity • quantum of deduction • registered sale deed • cost of construction • transfer of property • residential complex • cost of acquisition • cost of improvement • allowable deduction • actual performance • breach of contract • sale consideration • extension of time • accrual of income • vacant possession
Bot Summary: As per the agreement, assessee was entitled to 28 of the constructed area and a further sum of Rs. 10 crores as refundable interest free deposit, of which, a sum of Rs. 4 crores was paid to the assessee vide cheque dated 21/04/05. Under the JDA - I, assessee entered into a development agreement of the land into a residential-cum-commercial complex in which assessee was entitled to receive 28 of the commercial area and 30 of the residential area and a further sum of Rs. 10 crores as interest free refundable security deposit, of which, Rs. 4 crores was already received. Assessee entered into a supplemental joint development agreement dated 30/01/2006, under which, it was agreed that the entire land would be developed as a residential complex only and the assessee would be entitled to receive 20 of the constructed area. Assessee entered into second supplemental joint development agreement dated 03/11/2006 with the same developer SPPL, whereby, assessee s share in the constructed area was reduced to 13.5. Assessee simultaneously entered into a supplemental agreement dated 03/11/2006 whereby SPPL agreed to pay a further sum of Rs. 21.7 crores, in addition to the sum of Rs. 22 crores already paid to the assessee over and above the constructed area decided as per the agreement dated 03/11/2006 in pursuance of JDA I, SJDA I II. 6. Estimated value of constructed area Rs.26,62,09,200 Total Rs.80,72,09,200 The Assessing Officer observed that the assessee was entitled to receive 11.655 of the built up area, amounting to 3,32,034 sft along with 1164 sft of terrace area, and that approximate sale price as per the sale agreements entered into by the assessee for its share of the constructed area was Rs.1500/- per sft. In the present case, the situation is that the assessee has received only a meager 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.


IN INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH , HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No. 694/Hyd/2013 Assessment Year: 2008-09 Panyam Cements and Mineral vs. Addl. Commissioner of Industries Ltd., Cement Nagar, Income-tax, Kurnool Range, Kurnool. Kurnool. PAN AABCP 2298 M (Assessee) (Respondent) Assessee by : Shri D.V. Anjaneyulu Revenue by : Shri Mohan Kumar Singhania Date of hearing 28-07-2016 Date of pronouncement 28-09-2016 O RDE R PER S. RIFAUR RAHMAN, A.M.: This appeal is preferred by assessee against order of learned Commissioner of Income-tax(A) - IV, Hyderabad for AY 2008-09. 2. Briefly facts of case are that assessee company is engaged in manufacture and sale of cement, filed its return of income for AY 2008-09 on 29/09/2008 declaring total income of Rs. 36,00,051,214/-. And after set off of brought forward losses returned NIL income., return was processed u/s 143(1). Subsequently, notices u/s 143(2) and 142(1) were issued converting case into scrutiny. 2.1 In brief, assessee has entered into joint development agreement with M/s Bhimshankar Realtors Pvt. Ltd., (BRPL) for 2 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. development of land owned by it. Assessee has modified joint development agreements several times. details are as below: 1. assessee had first entered into development agreement with M/s Salarpuria Properties Pvt. Ltd. (SPPL) (it is sister concern of BRPL) on 21/04/05 for development of land measuring 20 acres 18 guntas owned by it. As per agreement, assessee was entitled to 28% of constructed area and further sum of Rs. 10 crores as refundable interest free deposit, of which, sum of Rs. 4 crores was paid to assessee vide cheque dated 21/04/05. 2. Subsequently, assessee entered into another joint development agreement on 15/10/05 (hereinafter referred to as JDA-1) with same developer SPPL. JDA I superseded understanding reached under agreement dated 21/04/05. Under JDA - I, assessee entered into development agreement of land into residential-cum-commercial complex in which assessee was entitled to receive 28% of commercial area and 30% of residential area and further sum of Rs. 10 crores as interest free refundable security deposit, of which, Rs. 4 crores was already received. Under agreement dated 21/04/05, assessee also executed power of attorney in favour of SPPL, empowering developer to take all actions on its behalf in pursuance of JDA. 3. Assessee entered into supplemental joint development agreement dated 30/01/2006, under which, it was agreed that entire land would be developed as residential complex only and assessee would be entitled to receive 20% of constructed area. In return, SPPL agreed to pay 22 crores to assessee. assessee also executed power of attorney in favour of SPPL empowering developer to take all actions on its behalf in pursuance of supplement joint development agreement (SJDA I) and also enabling developer to enter into necessary agreements etc. for its share of constructed area. 3 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. 4. Assessee entered into second supplemental joint development agreement dated 03/11/2006 (referred to as SJDA II) with same developer SPPL, whereby, assessee s share in constructed area was reduced to 13.5%. Assessee also executed power of attorney in favour of SPPL empowering developer to take all actions on its behalf in pursuance of SJDA II 5. Assessee simultaneously entered into supplemental agreement dated 03/11/2006 (referred to as SA II) whereby SPPL agreed to pay further sum of Rs. 21.7 crores, in addition to sum of Rs. 22 crores already paid to assessee over and above constructed area decided as per agreement dated 03/11/2006 in pursuance of JDA I, SJDA I & II. 6. On 04/11/2006, assessee sold two plots of land, one admeasuring 1 acre 38 guntas and another is admeasuring 15 guntas through registered sale deed to SPPL, for which stamp value was considered at Rs. 1,43,09,400 and Rs. 18,75,000/- respectively. Sale deed also specified that consideration was to be paid in terms of JDA I. Assessee along with SPPL, then, entered into joint development agreement on 18/12/2007 (hereafter referred to as JDA II) with BRPL. As per JDA II, SPPL had been subject to internal restructuring between group companies and accordingly, rights title and interest obligation under JDA I, SJDA I & II had been transferred to BRPL. It was agreed that developer would deliver to assessee 11.655% of residential development undertaken in land. Assessee also executed power of attorney in favour of BRPL to enable it to take all actions in pursuance to JDA II. Simultaneously, assessee revoked power of attorney executed infavour of SPPL. 7. Assessee also entered into supplemental agreement dated 18/12/2007 (hereafter referred to as SA III ), whereby 4 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. BRPL agreed to pay additional sum of Rs. 11 crores in addition to sums of Rs. 22 crores and Rs. 21.7 crores already paid over and above constructed area agreed to be delivered under agreement dated 18/12/2007. 2.2 said agreements are in tabular form as under: S.No. Nature of document Date Parties (other than assessee 1. Joint Development Agreement 15/10/05 SPPL (JDA I) 2. Power of Attorney (POA I) 15/10/05 SPPL 3. Supplemental JDA (SJDA I) 30/01/06 SPPL 4. Power of Attorney (POA II) 30/01/06 SPPL 5. Supplemental Agreement (SA- I) 30/01/06 SPPL 6. Second Supplemental JDA 03/11/06 SPPL (SJDA III) 7. Power of Attorney ( POA III) 03/11/06 SPPL 8. Supplemental Agreement(SA- II) 03/11/06 SPPL 9. Joint Development agreement 18/12/07 Assessee (JDA II) & SPPL with BRPL 10. Power of Attorney (POA IV) 18/12/07 Assessee & SPPL to BRPL 11. Instrument of Revocation of PA 18/12/07 Assessee 12. Supplemental Agreement (SA- 18/12/07 SPPL, III) BRPL 3. Assessee had admitted capital gain on transfer of land for sum of Rs. 22 crores received under JDA I for AY 2006-07. It did not admit any capital gain arising from subsequent SJDAs and JDA II. AO has held that JDA II had overwritten all prior JDAs and SJDAs executed with SPPL and, therefore, did not taken cognizance of these earlier agreements. 4. Based on above, AO has brought to tax following as sale consideration. 4.1 As per supplement agreement dated 18/12/2007, developer has paid/agreed to pay following amounts to assessee in 5 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. addition to share in saleable area to extent of 11.655% of built up area, which works out to Rs. 3,32,034 sq.ft and 1164 sq.ft. in terrace along with non-refundable deposit of Rs. 54.1 crores. AO arrived valuation of 11.655% saleable area taking average rate of 1500/- per sq.ft and assumed Rs. 800/- as cost of construction. Therefore, consideration received/receivable in terms of money from developers and prospective buyers in respect of this project for purpose of capital gains is arrived at Rs. 88,72,09,200/-. AO treated above transaction as long term capital gains. 5. Aggrieved with above order of AO, assessee preferred appeal before CIT(A). 6. After considering submissions of assessee, CIT(A) has concluded as under: 12.0 To conclude, I hold that a. development agreement(s) entered into by assessee led to transfer of land chargeable to capital gains. b. development agreements were not independent of each other and mutually exclusive. They were to be read in conjunction with each other. c. asset transferred under these development agreements was land. d. possession of asset was handed over to developer on date of JDA-I, i.e. on 15.10.2005. e. Accordingly, transfer took place on 15.10.2005, i.e. during A.Y. 2006-07, u/s 2(47)(v) of Income tax Act read with sec.53A of Transfer of Property Act. appeal is, therefore, partly allowed with regard to first ground of appeal. Assessing Officer is directed to bring long-term capital gain on this transaction to tax in A.Y. 2006- 07 in accordance with and subject to provisions of sec.150 read with section 153. In its third ground of appeal, assessee has objected to charging of capital gains on assessee's share of constructed area, asset not in existence, existence of 6 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. which was pre-requisite u/s 2(47)(v). assessee has relied on following decisions: l. Ajay Kumar Shah Jagati v CIT 168 Taxmann 53(SC) ll. Marybong & Kyle Tea Industries Ltd. v CIT 224 ITR 589 (SC) 13.2 Assessing Officer had held that consideration for transfer was received in two parts: i. Cash consideration, computed at Rs.54,10,00,000 ii. Estimated value of constructed area Rs.26,62,09,200 Total Rs.80,72,09,200 Assessing Officer observed that assessee was entitled to receive 11.655% of built up area, amounting to 3,32,034 sft along with 1164 sft of terrace area, and that approximate sale price as per sale agreements entered into by assessee for its share of constructed area was Rs.1500/- per sft. She estimated cost of construction at Rs.800/- per sft for saleable area and Rs.500/- per sft for terrace area and computed consideration receivable in kind (assessee's share of constructed area and terrace area) at Rs.26,62,09,200. total consideration was computed at Rs.80,72,09,200/-. 13.3 There is no doubt that assessee has received consideration for transfer of land to developer both in cash and in kind. cash component of consideration was Rs.54.10 crores. value of consideration received in kind also necessarily needs to be included in computation of capital gains. This view is also in conformity with judicial view on issue as seen from decisions in various cases which have been relied upon earlier in this order. 13.4 It is irrelevant that consideration in kind, i.e constructed area, was not in existence at time of transfer. What is of relevance is that there was agreement with regard to this consideration and developer was willing to perform its part of contract. Indeed, subsequent events have shown that developer has indeed, performed its part of contract and handed over assessee's share of constructed area to it. 13.5 In case of Ajay Kumar Shah Jagati, relied on by AR, Supreme Court had remitted matter to ITAT since facts of case, relevant to decision, had not fully been brought on record. No conclusions, either in favour or against assessee, can be drawn on basis of this decision. 7 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. 13.6 In case of Marybong and Kyel Tea Industries Ltd., assets belonging to assessee were destroyed by fire, and it received compensation from insurers under policies of fire insurance, insurers taking away salvaged property. court held that there was no transfer of property for purpose of capital gains under section 45 of Income-tax Act, 1961, and excess of compensation over cost of assets in question could not be brought to tax as capital gains. facts and issue in appeal in this case are entirely different and have no relevance with issue in present appeal, viz. inclusion of value of constructed area in consideration for transfer of asset. 13. 7 However, I find that Assessing Officer has adopted value of constructed area on estimate basis. Assessing Officer is directed to obtain actual cost of construction to developer for project and adopt proportionate cost as value of assessee's share of constructed area. This ground is partly allowed. 7. Aggrieved by order of CIT(A), assessee is in appeal before us raising following grounds of appeal: Order of learned appellate authority in so far as sustaining disallowance of amount paid as per Arbitration award to previous buyer and also determining taxability of capital gains in Y 2006-07 is erroneous in law, contrary to facts, probabilities of case and against principles of equity and natural justice. 02. learned CIT(A) erred in law by not considering payment of Rs. 8.5 crores (10 Crores - Rs 1.75 crores) paid to litigants of property under sec. 30 & 31 of Arbitration Award awarded by Arbitrator which is nothing but in nature of expenses paid to previous. buyer to hand over vacant and peaceful possession of property to Developer which payment shall be considered as expenses in relation to transfer as per Sec 48 (i) or as cost of improvement of asset and accordingly eligible for indexation as per explanation (iv) to sec. 48 . 03. CIT (A) further erred in law determining long term capital gains in A Y 2006-07 ignoring that agreements entered is with purpose of obtaining license I permission which doesn't come under definition of transfer u/s 2 (47) read with section 53A of Transfer of Property Act. 8 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. 04. Subject to above ground no 3 even if at all capital gains are to be taxed it shall be assessed in A Y 2006-07, Y 2007-08 and Y 2008-09 as agreements are similar in nature and relinquishment and extinguishment took place on basis of such agreements. 05. assessee crave to submit that all facts, contentions and case laws mentioned in Statement of facts accompanied these grounds shall be treated as part and parcel of these grounds and shall be dealt with. 06. For these and other Grounds that may be urged at time of hearing, assessee prays Honorable Income Tax Appellate Tribunal to kindly allow appeal. 8. Before us, ld. AR submitted that AO relying on unregistered sale agreement entered with prospective buyers directly by assessee in year 2005-06, 2006-07 levied capital gains invoking provisions of section 2(47)(v) r.w.s 53A of Transfer of property Act, based on advance amounts received Rs. 36,68,50,000/- instead of Rs. 40.80 crores as per books of accounts. By these sale agreements entered, land is characterized as industrial land evidenced by JDA's and also according to registered sale agreements schedules. 8.1 Further, ld. AR submitted that no possession was handed over to JDA's and prospective buyers which is primary condition to invoke provisions of section 53A of transfer of property which fails. 8.2 Ld. AR submitted that assessee offered capital gains in year in which possession was handed over through sale deeds. Refer Page No.2 of Volume No.3 and Annexure-3 of these submissions. For AY 2013-14, AO dt. 31/03/2016 made addition of 37,22, 99,688/- as long term capital gains based on annual report submitted by company. 8.3 Ld. AR submitted that plans were sanctioned by appropriate authorities in later year and thereafter assessee handed over permissive right to entry through JDA's to develop 9 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. property as per terms and conditions. So far as prospective buyers, there is no handing over of possession or permissive right to entry due to absence of asset and as such section 53A will not be applicable. 8.4 Ld. AR submitted that assessee offered to tax when possession was handed over to agreement holders/ buyers according to sale deed. He relied on following case laws: a) CIT Vs Eastern Ceramics Limited (Bom) b) Fibars Infratech Pvt. Ltd Vs ITO (Hyderabad) in ITA No. 477/Hyd/2013, dt. 03/01/2014 - AY 2007-08 c) Sudha Giri Vs ITO in ITA No. 1578/HYO/2014 Dt. 31/07/2015 Y 2005-06 d) Sham Kumar Vs DIT in ITA No. 1604/Hyd/2014 AY 2006-07 dt. 20/03/2015 e) DCIT Vs Shapoorji Pallonji Biotech Park{P) Ltd- (2011)138 TIJ (Hyd) (UO) 62 f) CS Atwal & Ors. Vs. CIT & Anr., [2015] 123 DTR 49 (P&H) g) Dhheraj Amin Vs. ACIT, [2015] 123 DTR 10 (Bang.) h) Chemosyn Ltd. Vs. ACIT, [2012] 139 ITD 68 (Mum.) i) Bin Jusaria Properties (P) Ltd. Vs. ACIT, [2014] 106 DTR 321 (Hyd.) j) DCIT Vs. Shapoorji Biotech Park (P) Ltd., [2011] 138 TTJ 148 (Hyd.) 8.5 Ld. AR submitted that disallowance of expenditure claimed u/s 48(i) being payment made to previous agreement holder D. Kupender reddy as per arbitration award Dt. 14/07/2005 against MOU's entered on 23/06/2003 and 23/09/2003 of subject property entered with JDA. This issue has not come up before AO as assessee contested that there will be no capital gains for AY 2008-09. He brought to our knowledge Arbitration Award ( Refer pages 127 to 134 of Paper book Volume I. ) 10 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. 8.6 Ld. AR submitted that before CIT(A), in case amount in three different years are taxable, these amounts are to be considered as expenditure U/s 48(i) as same is paid to provide vacant and peaceful possession and marketable title. CIT(A) rejected plea relying on case laws (2005) 275 ITR 231, 227 ITR 222 \SC) and 227 ITR 240(SC) which is entirely with different set of facts i.e obligation of discharge of mortgage debt created. assessee relies on case laws already referred and also in case of CIT Vs. Kuldeep Singh [2014] 270 CTR Pg 561 (Del) 8.7. summary of arguments of assessee are as follows: a) assessee concede to assess full consideration received through surrendering/extinguishment/relinquishment of rights through three JDA's in year of receipt as per case laws relied upon. b) Since, there is no handing over of even symbolic possession, no existence of asset as stated supra, possession handed over through sale deeds liable for tax in year in which sale deeds are executed and in fact assessee offered tax whenever sale deeds are executed i.e for AY 2013-14 and 2014-15. c) Amount paid to previous agreement holder for handing over of vacant and peaceful possession of land, to developer, should be allowed as expense u/s 48(i). 9. Ld. DR, on other hand, relied upon orders of CIT(A) and submitted that CIT(A) has applied his mind on this issue thoroughly and given findings. He further submitted that assessee has accepted and paid capital gains on initial transaction of Rs. 22 crores but failed to follow same in subsequent transactions. 9.1 On settlement amount of Rs. 10 crores to previous agreement holder, he relied heavily on decision of CIT(A). 10. Considered submissions of both counsels and perused material facts on record. In present case, assessee had initially entered into JDA with SPPL on 21/04/2005 to develop land admeasuring acres 20 and 18 guntas. As per this initial 11 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. agreement, assessee was entitled to receive 28% of constructed area with refundable interest free deposit of Rs. 10 crores. Subsequent to this agreement, assessee had entered into several supplemental JDAs with SPPL and finally entered into SJDA II with BRPL, which is related concern of SPPL. As per tripartite agreement and with final understanding, assessee had agreed to receive 11.655% of constructed area from developer and received sum of Rs. 54.1 crores in consideration of such rearrangement. AO considered JDA II , which had overwritten all previous JDAs executed by assessee with developer and considered terms as per JDA II as final development agreement and since assessee had entered into JDA, he treated same as transfer of land u/s 2(47)(v) r.w.s. 53A of Transfer of Property Act and accordingly arrived sale consideration of land as below: Cash consideration Rs. 54.1 crores Estimated constructed area of 11.655% as Rs. 26.62 crores 10.1 Aggrieved with above order, assessee preferred appeal before CIT(A), in which, CIT(A) had taken contrary view that assessee has initially entered into JDA on 21/04/2005, transfer also has taken place in that year 2005-06. Accordingly, he gave directions to AO to determine sale consideration for AY 2006-07 by observing that there was agreement with regard to consideration and developer was willing to perform its part of contract. He gave directions to AO to determine sale consideration on actual basis instead of making estimation. 10.2 After considering above two views of AO and CIT(A) as well as facts on record, we are of view that no doubt assessee had entered into JDA on 21/04/2005 but subsequently made several supplemental JDAs by relinquishing some of shares in constructed area and final supplemental JDA was entered on 18/12/2007 which is final as of now. supplemental agreements which were made subsequent to making of initial JDA are mere 12 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. rearrangements and finally they agreed on terms of SJDA II, which is entered on 18/12/2007. This is classic case, which shows that there could be changes in development agreements entered into between owner and developer. If we consider findings of CIT(A), then, tax incidence will occur in year of first JDA i.e. on 21/04/2005, which falls under AY 2006-07, but, terms of agreements were changed from time to time and it may so happen that there are chances of cancelling agreement. If such events happen what will be status of tax liability. 10.3 In case of M/s Binjusaria Properties Pvt. Ltd. ITA No. 157/Hyd/2011, coordinate bench of this Tribunal referring to case of Smt. Radhika and others dated 09/08/2011 in ITA No. 208/Hyd/2011 and Fibres Infratech Pvt. Ltd. Vs. ITO (ITA No. 477/Hyd/2013, dated 03/01/2014, observed as under: 9. We heard both sides and perused orders of Revenue authorities and other material on record. short dispute arising for consideration in this case relates to year of assessability of capital gains arising on property, which was subject matter of development agreement, i.e. whether it is assessable in year in which development agreement was entered into, as done by Assessing Officer, or in relevant subsequent year in which area duly developed and constructed coming to share of assessee-owner has been handed over to assessee. Though it was initially held by various benches of Tribunal that capital gains are to be assessed in year in which development agreement has been entered into between owner and developer, considering fact that in many cases, development agreement was not acted upon by developer, different views have to be expressed, as to year of assessability, based on facts and circumstances of each case. This position has been examined at length in light of case-law on point, in case of Smt. K.Radhika and others (supra) and it was ultimately held by coordinate bench of this Tribunal as follows- 48. We are in considered agreement with views so expressed in this commentary on provisions of Transfer of Property Act. It is thus clear that 'willingness to perform' for purposes of Section 53A is something more than statement of intent; it is unqualified and unconditional willingness on part of vendee to perform its obligations. Unless party has performed or is willing to perform its obligations under contract, and in same sequence in which these are to be performed, it cannot be said that provisions of Section 53A of Transfer of Property Act will come into play on facts of that case. It is only elementary that, unless provisions of Section 53A of Transfer of Property Act are satisfied on facts of case, transaction in question cannot fall within scope of deemed transfer under Section 2(47)(v) of IT Act. Let us therefore consider whether transferee, on facts of 13 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. present case, can be said to have 'performed or is willing to perform' its obligations under agreement. 49. Even cursory look at admitted facts of case would show that transferee had neither performed nor was it willing to perform its obligation under agreement in assessment year under consideration. agreement based on which capital gains are sought to be taxed in present case is agreement dated 11.05.2005 but this agreement was not adhered to by transferee. transferee originally made payment of Rs.10 lakhs on 11.5.2005 and another payment of Rs.90 lakhs on same day as refundable security deposit. However, out of this sum of Rs.50 lakhs was said to be refunded by landlord to developer on 5.3.2009. As such, assessee has received only meager amount as refundable security deposit which cannot be construed as receipt of part of sale consideration. Admittedly, there is no progress in development agreement in assessment year under consideration. Municipal sanction for development was obtained not in this assessment year and it was obtained only on 17.09.2006 from Hyderabad Urban Development Authority. sanction of building plan is utmost important for implementation of agreement entered between parties. Without sanction of building plan, very genesis of agreement fails. To enable execution of agreement, firstly, plan is to be approved by competent authority. In fact, building plan was not got approved by builder in assessment year under consideration. Until permission is granted, developer cannot undertake construction. As result of this lapse by transferee, construction was not taken place in assessment year under consideration. There is breach and break down of development agreement in assessment year under consideration. Nothing is brought on record by authorities to show that there was development activity in project during assessment year under consideration and cost of construction was incurred by builder/developer. Hence it is to be inferred that no amount of investment by developer in construction activity during assessment year in this project and it would amount to non-incurring of required cost of acquisition by developer. In assessment year under consideration, it is not possible to say whether developer prepared to carry out those parts of agreement to their logical end. developer in this assessment year had not shown its readiness or having made preparation for compliance of agreement. developer has not taken steps to make it eligible to undertake performance of agreement which are primary ingredient that make person eligible and entitled to make construction. act and conduct of developer in this assessment year shows that it had violated essential terms of agreement which tend to subvert relationship established by development agreement. Being so, it was clear that in year under consideration, there was no transfer of not only flats as superstructure but also proportionate land by assessee under joint development agreement. As per clause no. 12.11 and 19.1 of Development Agreement-cum Power of Attorney, time is essence of contract and as per clause No.12.11 said property is to be developed and hand over possession of owners allocation to owners and or their nominees within 24 months from date of receiving sanction of plan from HUDA and Municipality/Gram Panchayat with further grace period of 3 months. But fact remains that transferee was not only failed to perform its obligations under agreement, but also unwilling to perform its obligations in assessment year under consideration. Even otherwise, assessing authorities has not brought on record actual position of project even as on date of assessment or he has not recorded findings whether developer started construction work at any time during assessment year under consideration or any development has taken place in 14 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. project in relevant period. He went on to proceed on sole issue with regard to handing over possession of property to developer in part performance of Development Agreement-cum-General power of Attorney. In our opinion, handing over of possession of property is only one of condition u/s 53A of Transfer of Property Act but it is not sole and isolated condition. It is necessary to go into whether or not 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 agreement in this assessment year, date of agreement ceases to be relevant. In such situation, it is only actual performance of transferee's obligations which can give rise to situation envisaged in Section 53A of Transfer of Property Act. On these facts, it is not possible to hold that transferee was willing to perform its obligations in financial year in which capital gains are sought to be taxed by Revenue. We hold that this condition laid down under Section 53A of Transfer of Property Act was not satisfied in this assessment year. Once we come to conclusion that transferee was not 'willing to perform', as stipulated by and within meanings assigned to this expression under Section 53A of Transfer of Property Act, its contractual obligations in this previous year relevant to present assessment year, it is only corollary to this finding that development agreement dt. 11.5.2005 based on which impugned taxability of capital gain is imposed by AO and upheld by CIT(A), cannot be said to be "contract of nature referred to in Section 53A of Transfer of Property Act" and, accordingly, provisions of Section 2(47)(v) cannot be invoked on facts of this case Chaturbhuj Dwarkadas Kapadia v. CIT's case (supra) undoubtedly lays down proposition which, more often than not, favours Revenue, but, on facts of this case, said judgment supports case of assessee inasmuch as 'willingness to perform' has been specifically recognized as one of essential ingredients to cover transaction by scope of Section 53A of Transfer of Property Act. Revenue does not get any assistance from this judicial precedent. very foundation of Revenue's case is thus devoid of legally sustainable basis. 50. That is clearly erroneous assumption, and the provisions of deemed transfer under Section 2(47)(v) could not have been invoked on facts of present case and for assessment year in dispute before us. In present case, situation is that assessee has received only meager amount' out of total consideration, transferee is avoiding adhering to agreement and there is no evidence brought on record by revenue authorities to show that there was actual construction has been taken place at impugned property in assessment year under consideration and also there is no evidence to show that right to receive sale consideration was actually accrued to assessee. Without accrual of consideration to assessee, assessee is not expected to pay capital gains on entire agreed sales consideration. When time is essence of contract, and time schedule is not adhered to, it cannot be said that such contract confers any rights on vendor/landlord to seek redressal under Section 53A of Transfer of Property Act. This agreement cannot, therefore, be said to be in nature of contract referred to in Section 53A of Transfer of Property Act. It cannot, therefore, be said that provisions of Section 2(47)(v) will apply in situation before us. Considering facts and circumstances of present case as discussed above, we are of considered view that assessee deserves to succeed on reason that capital gains could not have been taxed in in this assessment year in appeal before us. other grounds raised by 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 assessees in assessment year under consideration. . 15 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. 10. In present case, admittedly, what has been executed by assessee is Development Agreement-cum-General Power of Attorney . reading of said agreement indicates that what was handed over by assessee to developer is only permissive possession . Clause 5 of said agreement dated 2nd February, 2006, on page 3 thereof, specifically provides that First party on signing of this agreement has permitted developer to develop scheduled land (emphasis added). As per Clause 9 of said agreement, consideration receivable by assessee from developer is 38% of residential part of developed area (which was later reduced to 33%, by virtue of supplementary agreement executed on 18.10.2007). That being so, it is only upon receipt of such consideration in form of developed area by assessee in terms of development agreement, capital gains becomes assessable in hands of assessee. We are supported in this behalf by decision of Third Member Bench of Tribunal in case of Vijaya Productions Pvt. Ltd. V/s. Addl. CIT (134 ITD 19) . 11. Even though assessee in terms of recital on page 2 of supplementary agreement dated 3rd February, 2006, was to receive refundable deposit of Rs.2,00,00,016, through two cheques, said deposit was to be refunded on complete handing over of area falling to share of first party, viz. assessee; and in event of failure on part of assessee in refunding such deposit, same shall be adjusted at time of final delivery, by developer against area to be handed over to assessee applying mutually agreeable rate. Considering these specific clauses and peculiar facts and circumstances of case, we are of considered view that capital gains in case on hand, are liable to be taxed only in year, in which developed area, coming to share of assessee, has been handed over to assessee, in terms of development agreement. In present case, as undisputed facts on record reveal, developer has not undertaken any developmental activity to execute construction work even today, even though in final supplemental agreement dated 18th October, 2007 provided extension of time for execution of construction, by stating that construction activity should be completed and developed area coming to share of assessee should be handed over within further time of 48 months from date of that supplemental agreement. 12. It is undisputed fact that as on date, there was no developmental activity on land which is subject matter of development agreement. process of construction has not been even initiated and no approval for construction of building is obtained. Thus, sale consideration in form of developed area has not been received. Mere receipt of refundable deposit cannot be termed as receipt of consideration. Further, as submitted , Assessing Officer calculated capital gain on entire land, even though assessee has retained 38% share to itself. valuation was also disputed. There is, therefore, no accrual of income in favour of assessee as per S.48 of Act. Due to lapse on part of transferee, construction has not taken place in year under consideration, and it has not commenced even now. In facts and circumstances of present case, wherein while assessee has fulfilled its part of obligation under development agreement, developer has not done anything to discharge obligations cast on it under develop agreement, capital gains cannot be brought to tax in year under appeal, merely on basis of signing of development agreement during this year. We are supported in this behalf by decision of Tribunal dated 3rd January, 2014 in case of Fibars Infratech Pvt. Ltd. (supra), wherein it was held as follows- 16 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. 59. On these facts, it is not possible to hold that transferee was willing to perform its obligations in financial year in which capital gains are sought to be taxed by Revenue. We hold that this condition laid down under Section 53A of Transfer of Property Act was not satisfied in this assessment year. Once we come to conclusion that transferee's 'willing to perform' contract is ascertainable in assessment year, as stipulated by and within meanings assigned to this expression under Section 53A of Transfer of Property Act, its contractual obligations in this previous year relevant to present assessment year, it is only corollary to this finding that Development Agreement dt. 15.12.2006, based on which impugned taxability of capital gain is imposed by AO and upheld by CIT(A), cannot be said to be "contract of nature referred to in Section 53A of Transfer of Property Act" and, accordingly, provisions of Section 2(47)(v) cannot be invoked on facts of this case. judgement in case of Chaturbhuj Dwarkadas Kapadia v. CIT (supra) undoubtedly lays down proposition which, more often that not, favours Revenue, but, on facts of this case, said judgment supports case of assessee inasmuch as 'willingness to perform' has been specifically recognized as one of essential ingredients to cover transaction by scope of Section 53A of Transfer of Property Act. Revenue does not get any assistance from this judicial precedent. very foundation of Revenue's case is thus devoid of legally sustainable basis. 60. That is clearly erroneous assumption, as provisions of deemed transfer under Section 2(47)(v) could not have been invoked on facts of present case and for assessment year in dispute before us. In present case, situation is that assessee has not received any consideration, and there is no evidence brought on record by Revenue authorities to show that there was actual construction taken place at impugned property in previous year relevant to assessment year under consideration and also there is no evidence to show that right to receive sale consideration was actually accrued to assessee. Without accrual of consideration to assessee, assessee is not expected to pay capital gains on entire agreed sales consideration. When time is essence of contract, and time schedule is 30 months to complete construction with additional grace period of 6 months, it cannot be said that such contract confers any rights on vendor/landlord to seek redressal under Section 53A of Transfer of Property Act. This agreement cannot, therefore, be said to be in nature of contract referred to in Section 53A of Transfer of Property Act. It cannot, therefore, be said that provisions of Section 2(47)(v) will apply in situation before us. Considering facts and circumstances of present case as discussed above, we are of considered view that assessee deserves to succeed on reason that capital gains could not have been taxed in in this assessment year in appeal before us. 13. In light of foregoing discussion, we set aside impugned orders of Revenue authorities and hold that capital gains on property in question cannot be brought to tax in year under appeal, and consequently delete addition made by Assessing Officer and sustained by CIT(A). Assessee s grounds on this issue are allowed. 14. In view of our decision on merits of issue involved, viz. assessability of capital gains in year under appeal, we are not inclined to go into grounds raised in this appeal on legality of initiation or proceedings under S.153C of Act, as they have become only of academic interest. They are as such, rejected. 17 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. 10.4 In case of ACIT Vs. R. Srinivasa Rao, 152 ITD 887 (Hyd. Trib), coordinate bench of this Tribunal referring to cases of M/s Binjusaria Properties Pvt. Ltd. ITA No. 157/Hyd/2011, Smt. Radhika and others dated 09/08/2011 in ITA No. 208/Hyd/2011 and Fibres Infratech Pvt. Ltd. Vs. ITO (ITA No. 477/Hyd/2013, dated 03/01/2014, observed as under: 13. On going through aforesaid decisions of coordinate bench, ratio which emerges is unless there is willingness on part of developer to perform his part of contract, there cannot be transfer of capital asset as envisaged u/s 2(47)(v) read with section 53A of TP Act. ratio laid down as above squarely applies to facts of present case as department has failed to controvert finding of learned CIT(A) by bringing material on record to show that developer has taken any steps towards development activity. Further, we may observe, though AO referring to development agreement has inferred that possession of property was handed over to developer, however, on going through pleadings and prayer of plaintiffs in plaint filed in Civil Court, copy of which is at page 51 of assessee s paper book, it appears assessee along with others are still having physical possession over property. Be that as it may, after careful consideration of facts and materials on record, we are of view, CIT(A) s order being well founded and well reasoned needs to be upheld. Another crucial aspect which needs to be commented upon is CIT(A) has also held that transaction will not attract capital gain as asset transferred being agricultural land is not capital asset as defined u/s 2(14) of Act. This finding of learned CIT(A) remains unchallenged and uncontroverted by Department. For this reason also, short term capital gain computed by AO cannot be sustained. In view of aforesaid, we do not find any reason to interfere with order of CIT(A). 14. So far as ground raised by department challenging view of CIT(A) to effect that there cannot be any capital gain in absence of value of consideration received or accrued, we are of view, same is not required to be adjudicated as it is of mere academic interest in view of our finding that there is no transfer of capital asset by assessee in impugned assessment year. Accordingly, we uphold order of CIT(A) by dismissing grounds raised. 15. Before parting we thought it necessary to clarify, issue whether there is transfer of capital asset under development agreement, as contemplated u/s 2(47)(v) read with section 53A of T.P. Act, has to be decided keeping in view facts involved in each case. Ratio laid down in particular case cannot be applied uniformly to all cases without considering factual aspect. 10.5 From above case laws, ratio laid down is that mere willingness to perform is not enough. There has to be performance of terms in relation to agreement, which is more important. In present case, developer has got permission from relevant 18 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. authorities only on 22/07/2008. As per terms of agreement, as per clause 2.5, commencement of development work and other amenities, developer shall commence work on schedule property within 90 days of plan being sanctioned. As per this clause, developer can commence work only after getting approval from respective authorities, only then, part performance of developer, which leads to acquiring right to enter into land to construct property, only till then, developer has no right, hence, mere willingness to perform is not enough. Willing to perform and performance as per terms of agreement is relevant. It is relevant to note that at time of SJDA-II, there was no performance/any action relating to getting any permission to commence development of property. It clearly shows that several modifications to JDAs are mere re-alignments. 10.6 As per above discussion, developer has performed his duty only by getting plan approval on 22/07/2008. This is part performance of developer. W ith regard to land owner, it has to make available land free from any encumbrances and making vacant land available for developer for development after obtaining plan approval is part performance of land owner. Hence, both events of willingness to perform is occurred in AY 2009-10. In our considered view, all JDAs are not registered and provisions of section 53A will not apply in this case. Even though part performances were performed by respective parties in subsequent AY. It is important to note that assessee is conceding to pay tax as and when it receives consideration for relinquishment of right, but, there is no right in those three AYs as developer has not got final approval to construct property until 22/07/2008 and also no development activity was carried on. Since there is no right as such, there cannot be relinquishment of right. It is only rearrangement of terms of agreement between land lord/owner and developer. As per above discussion, we are of view that tax incidence on transfer of property will not arise for this AY 19 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. 2008-09. As developer has not shown any willingness to perform until AY 2009-10, in our considered view, transfer has not taken place as per provisions of section 2(47)(v) r.w.s. 53A of Transfer of Properties Act during AY 2008-09. Accordingly, addition on account of capital gains in AY 2008-09 is deleted. 11. As regards assessee s claim of Rs. 10,00,00,000/- paid to litigants of property u/s. 30 & 31 of Arbitration Award claimed to be in nature of cost of improvement of land eligible for indexation under Explanation (iv) to sec. 48. assessee had entered into agreement With Sri D. Krupender Reddy & Others to sell portion of land Vide MOU dtd. 23.6.2003 and 23.09.2003. Subsequently, in view of non performance of contract, Sri Krupender Reddy & Others filed petition before Arbitration Tribunal and two parties arrived at compromise Under which assessee agreed to pay sum of Rs. 10 crores to Sri Krupender Reddy and others. Arbitration Court passed orders on 14.7.2005 accepting compromise petition. In remand report dtd. 5.5.2011 Assessing Officer submitted that payment made by assessee was in nature of compensation for breach of Contract and that there was no nexus between MOUs with Sri Krupender Reddy & Others on one hand and transactions with developers (whether SPPL or BRPL) on other hand and therefore, payment could not be taken into consideration as cost of improvement. 11.2 In response to Assessing Officer's observations AR submitted that payment had been made to ensure that Property was free from any encumbrance and for obtaining vacant Position and therefore was allowable deduction while computing capital gains. AR also relied on following decisions: I, Nita Patel Vs. ITO 128 ITR 24 (Mum) ii. Naozar Chenoy Vs. CIT 234 ITR 95 (AP) iii. CIT Vs. Abrar Alvi 247 ITR 312 (Bom] iv. CIT v Bradford Trading Co. P. Ltd. (2003) 261 ITR 222(Mad) 20 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. 11.3 In his submission dated 28.1. 2013, Assessing Officer has also submitted that assessee had received RS.1.25 crores from Sri D. Krupender reddy as sale consideration and that sum of Rs.8,25,000/- was already claimed as deduction while admitting long Term capital gains of Rs.22 crores for A. Y. 2006-07 and that without prejudice to plea that payment were not allowed as deduction at all, quantum of deduction was to be confined to following: Payment to Sri D. Krupender Reddy Rs.10,00,00,000 Less: Amount received from him Rs.1,25,00,000 Less: amount claimed in return Rs. 8.25,000 Rs. 1,33,25,000 Balance Rs. 8,16,75,000 11.3 CIT(A) referring to few case laws, observed that in assessee s case, encumbrance was created by assessee itself through its MOUs entered into in 2003. While it is true that JDAs required vacant possession to be handed over, this by itself is not of much consequence. What is relevant in light of decision in case of Roshan Babu Mohammed Hussain Merchant is manner in which obligation to pay Krupender Reddy & Others was created. Following decision in case of Roshan Babu Mohammed Hussain Merchant and decisions of Supreme Court cited therein, assessee's claim in this regard is rejected. 12. Considered submissions of both counsels and perused material facts on record as well as orders of revenue authorities. 12.1 In case of Naozar Chenoy Vs. CIT 234 ITR 95 (AP), Hon ble AP High Court has held as follows: As regards amount which was embezzled by person who was entrusted with job to assist agent of assessee in selling property, assessee is not entitled for deduction of said amount as he lost amount in capacity as owner and not in course of 21 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. transaction and it is also not incidental to transaction. As regards expenditure incurred by assessee towards payment of amount to tenants for vacating premises, which is subject-matter of sale transaction, it has nexus with transaction as without tenants vacating premises, building cannot be sold. Therefore, said expenditure was incurred for effecting transaction and therefore he is entitled for deduction of amounts incurred towards vacation of tenants, in computing capital gain of building sold. 12.2 In case of CIT Vs. Abrar Alvi 247 ITR 312 (Bom], Bombay High Court has held as follows: Tribunal came to conclusion that what was transferred, vide sale deed dt. 2nd May, 1992, was not tenancy rights but building itself and, therefore, what was to be allowed as deduction for working out capital gains was not cost of tenancy but cost of ownership rights. In view of said finding, Tribunal remanded matter back to AO to work out market value of building as on 4th Aug., 1983, and allow as deduction cost of asset sold to work out capital gains. This is pure finding of fact. No interference is called for. Hence, appeal is dismissed. 12.3 CIT v Bradford Trading Co. P. Ltd. (2003) 261 ITR 222(Mad), Madras High Court has held as under: Amount paid by assessee to third party to settle pre-existing claims against transfer of assets as also litigation expenses constituted expenditure incurred wholly and exclusively for transfer of capital asset and was deductible in computation of capital gains; amount reimbursed by vendee to assessee towards such claim constituted part of sale consideration but deductible while computing capital gains. 12.4 Respectfully following ratios laid down in aforesaid decisions, and relevant arbitration settlement was arrived at to clear vacant land free from all encumbrances. No doubt assessee itself entered into transaction but leading to breach of contract terms, it has to incur this cost which is nothing but part of associated rights on property. Unless it is settled land cannot be held to be free from encumbrances. In our considered view, payment is directly relating to transfer of property. Hence, it needs to be treated as expenses related to transfer of property. Accordingly, AO is directed to allow this expenditure as expenses 22 ITA No. 694/H/13 Panyam Cements and Mineral Industries Ltd. associated with transfer of property. Accordingly, this ground is allowed. 13. In result, appeal of assessee is partly allowed. Pronounced in open court on 28 th September, 2016 Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 28 th September, 2016 kv Copy to:- 1) Panyam Cements and Mineral Industries Ltd., C/o M/s Anjaneyulu & Co., CAs., 30, Baghyalakshmi Nagar, Gandhi Nagar, Hyderabad 500 080 2) Addl. CIT, Kurnool Range, Kurnool. 3) CIT(A) - IV, Hyderabad 4 CIT - III , Hyderabad 5) Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File Panyam Cements and Mineral Industries Ltd. v. Addl. Commissioner of Income-tax, Kurnool Range, Kurnool
Report Error