Smt M mani., Anakapalle V. The ITO, Ward-1(1)., Visakhapatnam

ITA 309/VIZ/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7156 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 01-11-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 15-06-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TH LUCAS PETER
• Assessee Lawyers: C V S MURTHY
• Keywords: Capital asset
• Section: 145

Judgement Text

ITA NO 309 OF 2007 M MANI VISAKHAPATNAM PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.309/VIZAG/2007 ASSESSMENT YEAR: 2002 - 03 M. MANI, VISAKHAPATNAM VS. ITO WARD-1(1) VISAKHAPATNAM (APPELLANT) PAN NO:AHVPM 9252 E (RESPONDENT) APPELLANT BY: SHRI C.V.S. MURTHY, CA RESPONDENT BY: SHRI T.H. LUCAS PETER, CIT (DR) ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 19.04.2007 PASSED BY LEARNED CIT(A)-I, VISAKHAPATNA M AND IT RELATES TO THE ASSESSMENT YEAR 2002-03. 2. THE GROUNDS RAISED BY THE ASSESSEE GIVE RISE TO THE FOLLOWING TWO ISSUES: I) WHETHER THE LEARNED CIT (A) IS JUSTIFIED IN HOLD ING THAT THE CAPITAL GAIN ARISING OUT OF DEVELOPMENT AGREEMENT I S ASSESSABLE IN THE ASSESSMENT YEAR 2002-03 AND IN NO T ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTIONS I N COMPUTATION OF CAPITAL GAIN. II) WHETHER THE LEARNED CIT (A) IS JUSTIFIED IN CON FIRMING THE ASSESSMENT OF PROPORTIONATE AMOUNT OF COMPENSATION FOR BREACH OF CONTRACT. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE FILED HER RETURN OF INCOME FOR THE ASSESSMENT YEAR 2002-0 3 BELATEDLY AND HENCE THE SAME WAS LODGED. HOWEVER, FROM THE SAID RETURN THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED REFUND AND TH E SAME HAS RESULTED ITA NO 309 OF 2007 M MANI VISAKHAPATNAM PAGE 2 OF 9 DUE TO THE DEDUCTION OF TDS ON RENT PAID TO THE ASS ESSEE BY A CONCERN NAMED M/S LAVU EDUCATIONAL SOCIETY. ON MAKING FURTH ER INQUIRIES, IT CAME TO THE NOTICE OF THE ASSESSING OFFICER THAT THE ASS ESSEE HAD GIVEN HER LAND FOR DEVELOPMENT OF THE SAME INTO RESIDENTIAL APARTM ENTS AND THE COMPLETION OF CONSTRUCTION OF THE APARTMENT TOOK PL ACE DURING THE FINANCIAL YEAR 2001-02 RELEVANT TO THE ASSESSMENT YEAR 2002-0 3. AS PER THE DEVELOPMENT AGREEMENT, THE ASSESSEE HAS RECEIVED 50 % OF THE CONSTRUCTED AREA IN EXCHANGE OF HALF SHARE OF LAND SURRENDERED TO THE DEVELOPER. THE ASSESSING OFFICER, ACCORDINGLY CAME TO THE CONCLUSION THAT THE SAID TRANSACTION HAS RESULTED IN LONG TERM CAPI TAL GAIN ASSESSABLE FOR THE ASSESSMENT YEAR 2002-03 AND ON NOTICING THAT TH E ASSESSEE DID NOT OFFER THE CAPITAL GAINS, THE ASSESSING OFFICER REOP ENED THE ASSESSMENT BY ISSUING NOTICE UNDER SECTION 148. BEFORE THE ASSESS ING OFFICER, THE ASSESSEE CONTENDED THAT THE CAPITAL GAIN IS NOT ASS ESSABLE IN THE ASSESSMENT YEAR 2002-03 BUT THE SAID CONTENTION WAS REJECTED BY THE ASSESSING OFFICER. IN THE REOPENED ASSESSMENT, THE ASSESSING OFFICER DETERMINED THE LONG TERM CAPITAL GAIN AT RS.69,83,9 82/-. FURTHER, AS PER THE DEVELOPMENT AGREEMENT, THE DEVELOPER HAS TO COM PLETE THE CONSTRUCTION WITHIN 18 MONTHS FROM THE DATE OF AGRE EMENT, FAILING WHICH, HE HAS TO PAY A COMPENSATION OF RS.15,000/- P.M. FO R THE PERIOD OF DELAY. AS THERE WAS DELAY IN COMPLETION OF CONSTRUCTION, T HE ASSESSEE FILED A SUIT AGAINST THE DEVELOPER DEMANDING COMPENSATION. THE HON'BLE COURT AT VISAKHAPATNAM AWARDED COMPENSATION, OUT OF WHICH TH E ASSESSING OFFICER WORKED OUT THE COMPENSATION RELATABLE TO THE YEAR U NDER CONSIDERATION AT RS.24,000/- AND BROUGHT THE SAME TO TAX. THE ASSES SEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT (A) BUT WAS UNSUCC ESSFUL. HENCE THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS. THE FIRST ISSUE RELATES TO THE DETERMINATION OF THE YEAR OF ASSESSABILITY OF CAPIT AL GAIN. THE FACTS RELATING TO THIS ISSUE ARE STATED IN BRIEF. THE AS SESSEE PURCHASED A PLOT OF LAND ADMEASURING 615 SQ. YARDS ALONG WITH A TERRACE D HOUSE LOCATED ITA NO 309 OF 2007 M MANI VISAKHAPATNAM PAGE 3 OF 9 THEREIN ON 22.4.1986 FOR A SUM OF RS.3,50,000/-. IN ITIALLY THE ASSESSEE ENTERED INTO A DEVELOPMENT AGREEMENT ON 23.10.1996 WITH A PARTNERSHIP CONCERN NAMED M/S BEANGE FOUNDATIONS FOR CONSTRUCTI ON OF MULTI STOREYED COMPLEX ON THE PLOT OF LAND CITED ABOVE. IT WAS STA TED THAT THE SAID PARTNERSHIP FIRM GOT DISSOLVED AND HENCE THE ASSESS EE ENTERED INTO ANOTHER DEVELOPMENT AGREEMENT ON 14.05.1998 WITH ON E OF THE PARTNERS OF THE ABOVE SAID FIRM NAMED SHRI G.SESHAGIRI RAO O N SIMILAR LINES AS THAT OF ORIGINAL DEVELOPMENT AGREEMENT. ACCORDING TO TH E SAID DEVELOPMENT AGREEMENT, THE ASSESSEE WOULD GET 50% OF THE CONSTR UCTED AREA IN LIEU OF SURRENDERING RIGHTS OVER 50% OF PLOT AREA. FROM TH E SUIT FILED BY THE ASSESSEE AGAINST THE DEVELOPER, IT WAS NOTICED BY T HE ASSESSING OFFICER THAT THE POSSESSION OF THE CONSTRUCTED AREA WAS HAN DED OVER TO THE ASSESSEE ON 18-05-2001. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE CAPITAL GAIN IS ASSESSABLE IN THE ASSESSMENT YEAR 2 002-03. THE LEARNED CIT(A) ALSO CONFIRMED THE VIEW OF THE ASSESSING OFF ICER. 4.1 DURING THE COURSE OF HEARING BEFORE US, IT WAS BROUGHT TO OUR NOTICE BY LEARNED A.R THAT AN IDENTICAL ISSUE WAS DECIDED BY THIS BENCH IN THE CASE OF P.UMA BALA IN ITA NO.51/VIZAG/2007, VIDE IT S ORDER DATED 05-05- 2010, WHERE IN THE TRIBUNAL HAS HELD THAT THE CAPIT AL GAIN IN THE CASE OF DEVELOPMENT AGREEMENT IS ASSESSABLE IN THE YEAR IN WHICH THE DEVELOPMENT AGREEMENT WAS ENTERED INTO. WE HAVE GO NE THROUGH THE SAID ORDER AND WE EXTRACT BELOW THE RELEVANT OBSERV ATIONS FROM IT. 5.5 WE HAVE CAREFULLY GONE THROUGH THE TERMS AN D CONDITIONS OF THE DEVELOPMENT AGREEMENT DATED 05-11-1997. WE NOTICE THAT THERE IS NO PROVISION FOR CANCELLATION OF AGRE EMENT BY EITHER OF THE PARTIES. ACCORDING TO THE AGREEMENT, THE BU ILDER HAS TO BEAR ALL THE EXPENSES RIGHT FROM THE STAGE OF PREPA RING ARCHITECTURAL PLANS. THE ONLY CONDITION STIPULATED IS THAT THE CONSTRUCTION SHOULD BE COMPLETED WITHIN 18 MONTHS F ROM THE DATE OF HANDING OVER OF THE VACANT POSSESSION OF TH E PROPERTY. IN CASE OF FAILURE, THE BUILDER SHALL PAY DAMAGES AT RS.50,000/- PER MONTH FOR THE PERIOD OF DELAY. THUS THE DEVELO PMENT AGREEMENT IS AN ABSOLUTE ONE WITH OUT ANY RIGHT OF CANCELLATION THEREOF. THERE WAS NO TRANSFER OF MONEY IN THE FOR M OF CASH ITA NO 309 OF 2007 M MANI VISAKHAPATNAM PAGE 4 OF 9 BETWEEN THE PARTIES. THE OWNER OF THE PROPERTY SHA LL RELINQUISH THE RIGHT OVER THE PROPERTY AND IN RETURN, THE OWNE R SHALL RECEIVE UNDIVIDED SHARE OF LAND AND A PORTION OF THE TOTAL CONSTRUCTED AREA. THE BUILDER SHALL INVEST HIS OWN MONEY FOR CO NSTRUCTION OF THE MULTI STOREYED COMPLEX AND IN RETURN, HE IS ENT ITLED TO RECEIVE A PORTION OF THE CONSTRUCTED AREA, WHICH HE IS ENTI TLED TO DEAL WITH IN HIS OWN RIGHT. 5.6 NOW THE QUESTION IS WHETHER THE IMPUGNED DE VELOPMENT AGREEMENT WILL FALL UNDER THE MISCHIEF OF SECTION 2 (47(V) OF THE ACT. THE LEGAL POSITION OF DEVELOPMENT AGREEMENT V IS--VIS SECTION 2(47(V) OF THE ACT WAS CONSIDERED BY THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF CHATURBHUJ DWARKADAS KAPA DIA, CITED SUPRA (260 ITR 491). THE RELEVANT OBSERVATIONS OF THE HIGH COURT, IN THAT CASE, ARE EXTRACTED BELOW: IT WAS ARGUED ON BEHALF OF THE ASSESSEE THAT THERE WAS NO EFFECTIVE TRANSFER TILL GRANT OF IRREVOCABLE LICENCE. IN THIS CONNECTION, THE JUDGMENTS OF THE SUPREME COURT WERE CITED ON BEHALF OF THE ASSESSEE, BUT ALL THOSE JUDGMENTS WERE PRIOR TO INTRODUCTION OF THE CONCEPT OF DEEMED TRANSFER UNDER SECTION 2(47)(V). IN THIS MATTER , THE AGREEMENT IN QUESTION IS A DEVELOPMENT AGREEMENT . SUCH DEVELOPMENT AGREEMENTS DO NOT CONSTITUTE TRANSFER IN GENERAL LAW. THEY ARE SPREAD OVER A PERIOD OF TIME. THEY CONTEMPLATE VARIOUS STAGES. THE BOMBAY HIGH COURT IN VARIOUS JUDGMENTS HAS TAKEN THE VIEW IN SEVERAL MATTERS THAT THE OBJECT OF ENTERING INTO A DEVELOPMENT AGREEMENT IS TO ENABLE A PROFESSIONAL BUILDER/CONTRACTOR TO MAKE PROFITS BY COMPLETING THE BUILDING AND SELLING THE FLATS AT A PROFIT. THAT THE AIM OF THESE PROFESSIONAL CONTRACTORS WAS ONLY TO MAKE PROFITS BY COMPLETING THE BUILDING AND, THEREFORE, NO INTEREST IN THE LAND STANDS CREATED IN THEIR FAVOUR UNDER SUCH AGREEMENTS, THAT SUCH AGREEMENTS ARE ONLY A MODE OF REMUNERATING THE BUILDER FOR HIS SERVICES OF CONSTRUCTING THE BUILDING (SEE GURUDEV DEVELOPERS V KURLA KONKAN NIWAS CO-OPERATIVE HOUSING SOCIETY (2000) 3 MAH LJ 131). IT IS PRECISELY FOR THIS REASON THAT THE LEGISLATURE HAS INTRODUCED SECTION 2(47(V) READ WITH SECTION 45 WHICH INDICATES THAT CAPITAL GAINS IS TAXABLE IN TH E YEAR IN WHICH SUCH TRANSACTIONS ARE ENTERED INTO EVEN IF THE TRANSFER OF IMMOVABLE PROPERTY IS NOT EFFECTIVE OR COMPLETE UNDER THE GENERAL LAW. IN ITA NO 309 OF 2007 M MANI VISAKHAPATNAM PAGE 5 OF 9 THIS CASE THAT TEST HAS NOT BEEN APPLIED BY THE DEPARTMENT. NO REASON HAS BEEN GIVEN WHY THAT TEST HAS NOT BEEN APPLIED, PARTICULARLY WHEN THE AGREEMENT IN QUESTION, READ AS A WHOLE, SHOWS THAT IT IS A DEVELOPMENT AGREEMENT. THERE IS A DIFFERENCE BETWEEN THE CONTRACT ON ONE HAND AND THE PERFORMANCE ON THE OTHER HAND . IN THIS CASE, THE TRIBUNAL AS WELL AS THE DEPARTMENT HAVE COME TO THE CONCLUSION THAT THE TRANSFER TOOK PLACE DURING THE ACCOUNTING YEAR ENDING 31.3.1996, AS SUBSTANTIAL PAYMENTS WERE EFFECTED DURING THAT YEAR AND SUBSTANTIAL PERMISSIONS WERE OBTAINED. IN SUCH CASES OF DEVELOPMENT AGREEMENT, ONE CANNOT GO BY SUBSTANTIAL PERFORMANCE OF A CONTRACT. IN SUCH CASES, THE YEAR OF CHARGEABILITY IS THE YEAR IN WHICH THE CONTRACT IS EXECUTED. THIS IS IN VIEW OF SECTION 2(47(V) OF THE ACT. .. IN THIS CASE , THE AGREEMENT IS A DEVELOPMENT AGREEMENT AND IN OUR VIEW, THE TEST TO BE APPLIED TO DECIDE THE YEAR OF CHARGEABILITY IS THE YEAR IN WHICH THE TRANSACTION WAS ENTERED INTO . WE HAVE TAKEN THIS VIEW FOR THE REASON THAT THE DEVELOPMENT AGREEMENT DOES NOT TRANSFER THE INTEREST IN THE PROPERTY TO THE DEVELOPER IN GENERAL LAW AND, THEREFORE, SECTION 2(47)(V) HAS BEEN ENACTED AND IN SUCH CASES, EVEN ENTERING INTO SUCH A CONTRACT COULD AMOUNT TO TRANSFER FROM THE DATE OF AGREEMENT ITSELF. . THEREFORE, IF ON A BARE READING OF A CONTRACT IN IT S 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 PERMISSIONS FROM VARIOUS AUTHORITIES, EITHER UNDER POWER OF ATTORNEY OR OTHERWISE AND IN THE NAME OF THE ASSESSEE, THEN THE ASSESSING OFFICER IS ENTITLED TO TAKE THE DATE OF CONTRACT AS THE DATE OF TRANSFER IN VIEW OF SECTION 2(47(V).. WE DO NOT FIND MERIT IN THE ARGUMENT OF THE ASSESSEE THAT THE COURT SHOULD GO ONLY BY THE DATE OF ACTUAL POSSESSION AND THAT IN THIS PARTICULAR CASE, THE COURT SHOULD GO BY THE DATE ON WHICH IRREVOCABLE LICENCE WAS GIVEN. ITA NO 309 OF 2007 M MANI VISAKHAPATNAM PAGE 6 OF 9 5.7 WE FEEL IT NECESSARY TO DISCUSS ABOUT THE F ACTS OF THE CASE OF CHARUBHUJ DWARKADAS KAPADIA, REFERRED SUPRA IN O RDER TO UNDERSTAND THE LEGAL PROPOSITION LAID DOWN BY THE H ONBLE BOMBAY HIGH COURT. IN THAT CASE, THE ASSESSEE ENTE RED INTO AN AGREEMENT ON 18.8.1994 TO SELL THE PROPERTY TO A BU ILDER FOR A CONSIDERATION OF RS.1.85 CRORES WITH A RIGHT TO THE BUILDER TO DEVELOP THE PROPERTY IN ACCORDANCE WITH THE RELEVAN T RULES. THE ASSESSEE SHALL GRANT AN IRREVOCABLE LICENSE TO ENTE R UPON THE ASSESSEES SHARE OF THE PROPERTY UPON RECEIPT OF NE CESSARY PERMISSIONS AND APPROVALS AND ALSO THE NOC UNDER CH APTER XXC OF THE INCOME TAX ACT. BY 31.3.1996, THE BUILDER OB TAINED MOST OF THE APPROVALS AND ALSO PAID MAJOR PORTION OF THE CONSIDERATION. THE POWER OF ATTORNEY WAS EXECUTED IN FAVOUR OF THE BUILDER ON 12.3.1999. THE ASSESSEE OFFERED THE CAPITAL GAINS IN THE ASSESSMENT YEAR 1999-2000, SINCE THE LICENCE AND PO WER OF ATTORNEY WERE GIVEN IN THE FINANCIAL YEAR 1998-99. THE AO AND ITAT HELD THAT THE CAPITAL GAINS IS ASSESSABLE IN T HE ASSESSMENT YEAR 1996-97 SINCE SUBSTANTIAL COMPLIANCE OF TERMS OF AGREEMENT HAS TAKEN PLACE BEFORE 31.3.1996. HOWEVER THE HIG H COURT HELD THAT THE IMPUGNED SALE AGREEMENT IS ONLY A DEVELOP MENT AGREEMENT AND HENCE THE CAPITAL GAIN IS ASSESSABLE IN THE YEAR IN WHICH THE SAID AGREEMENT WAS ENTERED INTO. THUS THE CONTENTIONS OF BOTH THE ASSESSEE AS WELL AS THAT OF THE REVENUE WITH REGARD TO THE YEAR OF CHARGEABILITY WERE REJEC TED. 5.8 THUS, AS PER THE LEGAL PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE ABOVE CITED CASE, THE FACT ORS SUCH AS DATE OF POSSESSION, SUBSTANTIAL COMPLIANCE OF THE CONTRACT ETC. ARE NOT RELEVANT IN THE CASE OF DEVELOPMENT AGREEME NTS. THE HIGH COURT HAS OBSERVED THAT THE AIM OF THE BUILDER UNDER THE DEVELOPMENT AGREEMENT WAS TO MAKE PROFITS BY COMPLE TING THE BUILDING AND THEREFORE, NO INTEREST IN THE LAND STA NDS CREATED IN THEIR FAVOUR UNDER SUCH AGREEMENTS. THUS THE SAID AGREEMENTS ARE ONLY A MODE OF REMUNERATING THE BUILDER FOR HIS SERVICES OF CONSTRUCTING THE BUILDING. THE HIGH COURT HAS NOTI CED THAT THE ASSESSEES WERE ENTERING INTO DEVELOPMENT AGREEMENTS WITH THE BUILDERS BY CONFERRING PRIVILEGES OF OWNERSHIP TO T HEM AND WERE CLAIMING THAT THE CAPITAL GAINS WOULD ARISE ONLY AF TER REGISTERING THE CONVEYANCE DEED. ACCORDINGLY THE HIGH COURT HEL D THAT THE SECTION 2(47(V) WAS BROUGHT INTO THE STATUTE TO PLU G THIS KIND OF LOOP HOLE. THUS BY CONSIDERING THE OBJECT OF THE D EVELOPMENT AGREEMENTS AND ALSO THE PURPOSE OF INTRODUCTION OF SECTION 2(47)(V) OF THE ACT, THE HONBLE HIGH COURT HAS FIN ALLY HELD THAT THE YEAR OF CHARGEABILITY IN THE CASE OF DEVELOPMEN T AGREEMENTS IS THE YEAR IN WHICH THE CONTRACT WAS EXECUTED. 5.9. NOW, COMING TO THE FACTS OF THE CASE, THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE IMPUGNED AGREEMENT ENTERED ITA NO 309 OF 2007 M MANI VISAKHAPATNAM PAGE 7 OF 9 INTO BETWEEN THE ASSESSEE AND THE BUILDER IS A DEV ELOPMENT AGREEMENT. AS STATED EARLIER, THE SAID AGREEMENT IS AN ABSOLUTE ONE WITH NO RIGHT TO REVOKE THE AGREEMENT. AS PER THE PROPOSITIONS LAID DOWN BY THE HONBLE BOMBAY HIGH C OURT, THE ISSUES SUCH AS HANDING OVER THE POSSESSION OF LAND, SUBSTANTIAL COMPLIANCE OF TERMS OF AGREEMENT ETC. ARE NOT RELEV ANT IN THE CASE OF DEVELOPMENT AGREEMENTS. HENCE THE DEVELOPM ENT AGREEMENTS RESULT IN TRANSFER OF CAPITAL ASSET AN D THE YEAR OF CHARGEABILITY IS THE YEAR IN WHICH THE SAID CONTRAC T WAS EXECUTED. IN THE INSTANT CASE, THE DEVELOPMENT AGREEMENT WAS E NTERED ON 05.11.1997 AND HENCE THE YEAR OF CHARGEABILITY OF C APITAL GAIN IS THE ASSESSMENT YEAR 1998-99. IN VIEW OF THE FOREGOI NG DISCUSSIONS, WE ARE OF THE VIEW THAT THE TAX AUTHOR ITIES ARE RIGHT IN LAW IN HOLDING THAT THE CAPITAL GAIN IS ASSESSAB LE IN ASSESSMENT YEAR 1998-99. THE ABOVE DISCUSSIONS ANSWERS THE F IRST TWO QUESTIONS REFERRED IN PARA 3 SUPRA. 5. IN THE INSTANT CASE, THE DEVELOPMENT AGREEMENT DATED 14.05.1998 ENTERED WITH SHRI G.SESHAGIRI RAO IS ONLY RELEVANT, AS THE APARTMENT WAS BUILT AS PER THE SAID AGREEMENT. WE HAVE GONE THR OUGH THE DEVELOPMENT AGREEMENT AND WE NOTICE THAT THERE IS NO PROVISION FOR CANCELLATION OF AGREEMENT BY EITHER OF PARTIES. THE DEVELOPER HAS TO BEAR ALL THE EXPENSES RIGHT FROM THE STAGE OF PREPARING ARCHITEC TURAL PLANS. THE DEVELOPER HAS TO FINISH CONSTRUCTION WITHIN 18 MONT HS OF THE DATE OF AGREEMENT AND IN CASE OF HIS FAILURE, HE HAS TO PAY COMPENSATION TO THE ASSESSEE @ RS.15,000/- PER MONTH TILL THE DATE OF A CTUAL DELIVERY. AS PER CLAUSE X OF THE AGREEMENT, THE ASSESSEE HAS GIVEN L ICENSE AND PERMISSION TO THE DEVELOPER TO ENTER UPON THE PROPERTY WITH FU LL RIGHT AND AUTHORITY TO COMMENCE, CARRY ON AND COMPLETE DEVELOPMENT THERE O F IN ACCORDANCE WITH THE PERMISSIONS MENTIONED IN THE AGREEMENT. T HE DEVELOPER IS NOT ENTITLED TO ASSIGN THE SAID RIGHT OR INTEREST TO AN Y PARTY WITHOUT THE CONSENT OF THE ASSESSEE. THUS THE IMPUGNED DEVELOP MENT AGREEMENT IS AN ABSOLUTE ONE WITH NO RIGHT TO REVOKE THE AGREEME NT. AS PER THE PROPOSITIONS LAID DOWN BY THE HON'BLE BOMBAY HIGH C OURT, THE ISSUES SUCH AS HANDING OVER THE POSSESSION OF LAND, SUBSTANTIAL COMPLIANCE OF TERMS OF AGREEMENT ETC. ARE NOT RELEVANT IN THE CASE OF DEVE LOPMENT AGREEMENTS. HENCE, AS PER THE DECISION OF HON'BLE BOMBAY HIGH C OURT IN THE CASE OF CHATURBHU DWRKADAS KAPADIA, (SUPRA) AND THE DECISIO N RENDERED BY THIS ITA NO 309 OF 2007 M MANI VISAKHAPATNAM PAGE 8 OF 9 BENCH IN THE CASE OF P.UMA BALA, (SUPRA), THE YEAR OF CHARGEABILITY OF THE CAPITAL GAINS IS THE YEAR IN WHICH THE DEVELOPMENT AGREEMENT WAS ENTERED INTO. HENCE THE CAPITAL GAIN IN THE INSTANT CASE I S NOT ASSESSABLE FOR THE ASSESSMENT YEAR 2002-03, BUT IT IS CHARGEABLE IN TH E ASSESSMENT YEAR 1999-2000, AS THE DEVELOPMENT AGREEMENT WAS EXECUTE D ON 14.5.1998. ACCORDINGLY WE SET ASIDE THE ORDER OF LEARNED CIT(A ) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE CAPITAL GAIN ASSESSED IN THE ASSESSMENT YEAR 2002-03 AND ASSESS THE CAPITAL GAIN IN THE ASSESSMENT YEAR 1999-2000 IN ACCORDANCE WITH THE LAW. 6. THE NEXT ISSUE RELATES TO THE ASSESSABILITY OF COMPENSATION AWARDED IN THE COURT DECREE. AS STATED EARLIER THE ASSESSE E FILED A SUIT AGAINST THE DEVELOPER CLAIMING COMPENSATION FOR THE DELAY IN CO MPLETION OF PROJECT. THE COURT AWARDED A COMPENSATION OF RS.2,71,500/- F OR THE PERIOD FROM 14.11.99 TO 17.5.2001. FROM THIS INFORMATION, THE ASSESSING OFFICER COMPUTED THE COMPENSATION PERTAINING TO THE PERIOD FROM 1.4.2001 TO 17.5.2001 RELEVANT FOR THE ASSESSMENT YEAR 2002-03 AT RS.24,000/- AND ASSESSED THE SAME IN THE HANDS OF THE ASSESSEE. TH E LEARNED CIT(A) ALSO CONFIRMED THE SAME. BEFORE US, THE LEARNED A.R SUB MITTED THAT THE ASSESSEE HAS NOT RECEIVED THE COMPENSATION YET AND HENCE THE SAME WOULD BE OFFERED TO TAX IN THE YEAR OF RECEIPT. ON THE OTHER HAND THE LEARNED D.R SUBMITTED THAT THE COMPENSATION AMOUNT IS TAXABLE AS IT BECOME DUE AS PER THE ORDER OF THE COURT. 6.1 AS PER SEC. 145 OF THE ACT, THE INCOME CHAR GEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR I NCOME FROM OTHER SOURCES SHALL, SUBJECT TO THE PROVISIONS OF SUB-SE CTION (2), BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THERE CANNOT BE ANY DISP UTE THAT THE COMPENSATION AMOUNT IN THE INSTANT CASE IS CHARGEAB LE UNDER THE HEAD INCOME FROM OTHER SOURCES. IT IS NOT SHOWN BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS BEEN REGULARLY FOLLOWING MERCANTIL E SYSTEM OF ACCOUNTING ITA NO 309 OF 2007 M MANI VISAKHAPATNAM PAGE 9 OF 9 IN RESPECT OF THE INCOME CHARGEABLE UNDER INCOME F ROM OTHER SOURCES. ACCORDING TO LEARNED A.R, THE COMPENSATION WOULD BE OFFERED TO TAX IN THE YEAR OF RECEIPT, I.E. ACCORDING TO HIM, THE ASSESSE E IS FOLLOWING CASH SYSTEM OF ACCOUNTING FOR THIS SOURCE. IN THAT CASE, THE IM PUGNED COMPENSATION CANNOT BECOME TAXABLE ON ACCRUAL BASIS. ACCORDINGL Y WE REVERSE THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSE SSING OFFICER TO DELETE THE COMPENSATION AMOUNT OF RS.24,000/- FROM THE TOT AL INCOME OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED. PRONOUNCED IN THE OPEN COURT ON 11 TH MARCH, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 11-03-2011 COPY TO 1 SHRI M. MANI, C/O SHRI K.S.S. SARMA, FCA (CHARTER ED ACCOUNTANT) NO.11-3-32 JAMPA VARI STREET, ANNAKAPALLE 531001 2 THE ITO WARD-1(1) VISAKHAPATNAM 3 4. THE CIT 1, VISAKHAPATNAM THE CIT(A), 1, VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM