Issues Involved

Whether granting license to permit construction of land without giving any possession in land considered as transfer u/s. 2(47)?

Facts of the Case

• The assessee entered into a development agreement with a developer in consideration of which assessee was to receive certain number of flats.
• The development agreement was entered into in A.Y. 2012-13 the period under consideration and subsequently a supplementary development agreement was also entered during the A.Y. 2013-14.
•  According to the development agreements, the assessee was going to receive certain portion of constructed property in shape of flats in subsequent year and, therefore, the income in this year was not shown. Thus, in subsequent assessment year i.e. during assessment year 2013-14, the assessee had received number of flats which were sold and the capital gain on sale of flats was disclosed in subsequent assessment year.
• The AO was of the view that since the development agreement was signed during the period under consideration, the property is said to be transferred during this period only and accordingly not satisfied with the above reply of the assessee.

Arguments of the Appellant (Assessee)

1. The Ld. AR appearing from the side of the assessee submitted before the Bench that the assessee entered into a development agreement with the developer with regard to a piece of land owned by the assessee. According to the agreement, the assessee was to receive flats in consideration. Initially, development agreement was entered into in A.Y. 2012-13 the period under consideration and subsequently a supplementary development agreement was also entered during the A.Y. 2013-14. The value of piece of land subjected to development agreement was Rs.1,22,50,000/- and the value of constructed area which the assessee was supposed to receive was valued at Rs.2,23,26,000/-. Accordingly, the capital gains of Rs.1,00,76,000/- (Rs.2,23,26,000/-minus Rs.1,22,50,000/-) was calculated by the AO.
2. The Ld. AR further submitted before the Bench that as per the development agreement, the assessee was to receive flats of the value of Rs.2,23,26,000/- and admittedly these flats were handed over to the assessee in subsequent financial year i.e. in A.Y. 2013-14 and those flats were sold by the assessee in this subsequent period only and not during the period under consideration. Accordingly, the assessee has rightly shown the capital gains in assessment year 2013-14.
3. In support of its contention, Ld. AR also argued that section 53A of the Transfer of Property Act, 1882 would not be attracted in a case where a license was given to another for purposes of development of the flats and selling the same and that granting such a license could not be said to be granting possession within the meaning of section 53A. Such license cannot be said to be in ‘possession’ within the meaning of section 53A, which is a legal concept, and which denotes control over the land and not actual physical occupation of the land. Accordingly, section 53A of the TOPA cannot possibly be attracted.

Arguments of the Respondent (Revenue)

The Ld. Counsel for the Revenue, urged that since development agreement was signed during period under consideration, property was said to be transferred during this period only and completed assessment by determining total income which included capital gains on sale of immovable property.

Decision of the Court

The assessee has entered into a development agreement with the developer which was registered in A.Y. 2012-13. A supplementary development agreement was again entered into and was registered during the subsequent A.Y. 2013-14. We also find that the commencement certificate & the building permission of the subjected property was issued on by Municipal Corporation in A.Y. 2013-14 which is also in subsequent year. We also find that in consideration of said development agreement the assessee has received flats of value of Rs.2,23,26,000/- in the subsequent assessment year. These flats were handed over to the assessee in subsequent A.Y. and not during the period under consideration. We also find that these flats were sold by the assessee in assessment year 2013-14 and the respective capital gains was also shown in the income tax return of assessment year 2013-14.

The sole grievance of the assessee in this appeal is that although the development agreement was first entered during the A.Y. 2012-13 but subsequently a supplementary development was again entered & also registered in the subsequent assessment year & even the consideration i.e. flats were also received in subsequent assessment year in 2013-14. Considering the totality of the facts of the case and the evidences produced before us, & placing reliance on the judgement passed by Hon’ble Bombay High Court in the case of Bharat Jayantilal Patel we are of the considered opinion that capital gains income does not arise to the assessee on transfer of development rights in its land to a developer, since assessee had merely granted licence to permit construction on land to such developer but not given any possession in land as contemplated under section 53A of T.P. Act, 1882, there was no transfer as per section 2(47)(v) giving rise to any capital gain in hands of assessee.