Assistant Commissioner Of Income Tax, Circle- 4(2)(1), Bangalore V. M/s. N G Balu Reddy HUF, Bangalore

ITA 651/BANG/2020

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 6009 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 09-08-2020
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SHEETHAL
• Keywords: Capital asset; Cost of acquisition; Difference of opinion; Competent authority; Benefit of exemption; Change of opinion; Reassessment proceedings; Capital Gains
• Section: 148; 143(3); 139(4); 48; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA No.651/Bang/2020 Assessment year : 2009-10 The Asst. Commissioner of Income- tax, Circle-4(2)(1), Bengaluru. Vs. M/s NG Balu Reddy, HUF 222/222, Ashirvada Nilaya, Doddanekkundi Bengaluru-560 037. PAN – AADHN 2410 A REVENUE ASSESSEE Revenue by : Shri Chetan R, Addl. CIT (DR) Assessee by : Smt. Sheethal, Advocate Date of hearing : 01.12.2021 Date of Pronouncement : 21.12.2021 O R D E R Per Chandra Poojari, Accountant Member This appeal by the Revenue is directed against the order of the CIT(A)-9 dated 25/2/2020. 2. The Revenue raised the following grounds:- “1 . "On the facts of the case and in the law, the learned CIT(A) erred in holding that the information on which the case of the assessee HUF was re-opened was already available to the AO at the time of assessment of G.Anitha(Individual), though the case under consideration ITA No.651/Bang/2020 Page 2 of 35 was re-opened by issuing notice under section 147, of the LT Act, on 08.03.20 13 in the case of HUF for the assessment year 2009-10 on the basis of submission furnished by G.Anitha (Individual) during the re-opened assessment proceedings for the assessment year 2005-06 on 17.0 1.2013 stating that the property in question is HUF property of N.G.Balu Reddy". 2. On the facts of the case and in the law, the learned CIT(A) erred in holding that the capital gains arising out of the Joint Development Agreement dated 12.05.2004 is assessable in the assessment year 2005-06 ignoring the fact that the assessee (HUF) itself has offered the capital gains on account of said JDA at Rs.90,44,260/- for the Asst. Year 2009-10 in the Income Tax return filed on 28.03.2013. 3. On the facts of the case and in the law, the learned CIT(A) erred in holding that the correct working of capital gains arising out of the Joint Development Agreement dated 12.05.2004 need not be decided as capital gains is assessable in the assessment year 2005-06 ignoring the fact that the assessee (HUF) itself has offered the capital gains on account of said JDA of Rs.90,44,260/- for the Asst. Year 2009-10 in the Income Tax return filed on 28.03.2013. 4. On the facts of the case and in the law, the learned CIT(A) erred in ignoring the fact the correct amount of capital gains arising out of the Joint Development Agreement dated 12.05.2004 neither taxed in the hands of HUF nor in the hands of G.Anitha, who has executed the agreement.” 3. The facts of the case are that the assessee has filed its return of income in the capacity of HUF represented by his wife Smt.G.Anitha as the manager of HUF on 21.02.2011 belatedly u/s. 139(4) and not u/s.139(1) declaring income of Rs.5,07,070/- ITA No.651/Bang/2020 Page 3 of 35 3.1 The income declared in the return of income are from income from house property and income from other sources. The ld. AO has been entrusted a work of enquiry in respect of joint development agreement entered by the assesses coming under the jurisdiction of Range-7, Bangalore. During the course of enquiry proceedings, it is found that the assessee has entered into joint development agreement (JDA) dated 12.05.2004 with M/s.SJR Builders, No.49, 27th Main, I Stage, BTM Layout, Bangalore-68 along with Sri. N.G.Chandra Reddy, brother of assessee's HUF in respect of the property bearing Sy.No.136/ 1, situated at Munnekolalu Village, Varthur Hobli, Bangalore East Taluk. 4. On verification of the income tax return filed for the above year, it is noticed that the assessee has not paid capital gains tax on account of joint development agreement entered by the assessee in respect of land owned by HUF along with Sri.N.G.Chandra Reddy. The assessee has received the constructed portion of the flats on 06.08.2008 in lieu of surrendering 68% of undivided share of land in the above property. The total extent of land given for joint development was 90049 SFT. Total land surrendered comes to 61223 SF'T. In lieu of surrendering the above land the assessee has got super built up area of 48191 SFT. The assessee's share is 50% of the above which comes to 24096 SF'T. The builder vide his letter dated 11.09.2012 has furnished the cost of project at Rs.20.91 crores. 32% of the same as per the sharing ratio of 68:32 comes to ITA No.651/Bang/2020 Page 4 of 35 Rs.6,69,12,000/-, 50% being the assessee's share comes to Rs.3,34,56,000/-. The capital gains assessable in the capacity of HUF comes to Rs.3,34,56,000/-. 5. On going through the return of income filed by the assessee it is found that the assessee has not offered the above capital gains tax. As per the provisions of Sec.2(47)(v), the assessee is liable for capital gain tax, but the assessee has failed to offer the same. In the above circumstances, the AO was of the opinion that that income has escaped assessment in the capacity of HUF for A.Y.2009-10. Therefore, to assess the escaped capital gains tax, a notice u/ s. 148 was issued to the assessee on 08.03.2013 with the prior approval of the Addl.CIT, Range-7, Bangalore which was duly served on the assessee. In response to the above notice the assessee's representative Sri.M.Raghavan, Advocate vide his letter dated 01.04.20 13 has requested the grounds on which the assessment was reopened and also the reasons recorded thereon. The reasons recorded for issue of notice u/s.148 was communicated to the assessee. In response to the above notice the assessee has filed its return of income on 28.03.2013 offering the capital gains on account of the JDA entered by him with a detailed explanation vide assessee's representative Sri.M.Raghavan's, Advocate letter dated 28.03.2013 arriving at the capital gains at Rs.98,73,200/- after claiming various expenses like cost of acquisition, cost of improvement etc. before claiming deduction u/s.54F of Rs.8,28,940/- and arrived at the net capita' gains of Rs.90,44,260/- as against the actual capital ITA No.651/Bang/2020 Page 5 of 35 gains of Rs.3,34,56,000/- as worked out above. At the time of filing the return of income the assessee did not raise any objection for issue of notice and admitted the capital gains as per his own calculations and filed the return of income. 6. The assessee challenged the reopening of the assessment before the lower authorities. The CIT(A) given a finding that same transaction of subject matter of assessment in the hands of individual capacity of Smt. G Anitha. Being so, the same transaction cannot be considered in the case of members of assessee or HUF and the reopening which is already on record is bad in law. Accordingly, he cancelled the reopening of the assessment. 7. Further, the chargeability of the transaction in the hands of the assessee as capital gain with reference to above transaction, the CIT(A) observed that the accessibility arises in assessment year 2005-06 and not in the assessment year i.e 2009-10. On this basis also we delete the addition. Against this, Revenue is in appeal before us. On Re-opening 8. The ld.DR submitted that assessment was reopened on the reason that the assessee had entered into Joint Development Agreement (JDA) on 12/5/2004 with M/s SJR Builders, Bangalore along with Shri NG Chandra Reddy bother of ITA No.651/Bang/2020 Page 6 of 35 assessee’s HUF in respect of property bearing survey No.136/1 situated at Munnekolallu Village, Varthur Hobli, Bangalore East Taluk. On verification of the assessee’s return of income for the assessment year 2009-10, it was noticed that assessee had not paid capital gain tax on account of this transaction, as such, assessment was reopened after duly recording reasons for reopening the assessment. 9. According to ld.DR, the CIT(A) has not properly considered the details of the transaction which was available with the AO in the case of Smt. G Anitha and on that basis, assessment cannot be cancelled. According to ld.DR the mere fact that a particular income has been disclosed in the hands of a particular person that would not disentitle the A.O to hold subsequently that, that income is not the income of that person on the basis of materials in the possession of the AO or on the basis of enquiry, he may come to the conclusion that the income was that of another person and cannot be income of person who has offered it as his income. It is immaterial whether the material was already in the possession of AO on the date on which on the admission of a particular assessee as his income or the information came into possession of the AO subsequently. What is material is whether in the facts and circumstances of the particular case, it can be said that the AO has irrevocably made up his mind upon materials before him that it is the income of another assessee and is not and cannot be the income of assessee who has offered it as his income. There is nothing in the Act which ITA No.651/Bang/2020 Page 7 of 35 precludes the AO to come to conclusion that even though in the previous year, the assessment was made on the footing that the assessee was an HUF, there was in fact no HUF and the income for the purpose of assessment belonged to an individual and on that footing to make a assessment/re-assessment as the case may be. Similarly, if the income assessed in the hands of individual and later the AO came to know that income is not belonged to individual and it is belongs to HUF, he can reopen the assessment of an HUF also. 10. The ld.AR submitted that the assessee has filed returns of income on 29.03.2006 under the Income Tax Act, 1961 (the Act) and declared the total income of Rs.1,43,400/- and agriculture income of Rs.1,65,000/- under the Act. 11. It is submitted that after filing of returns under the Act, the work of enquiry specifically in respect of joint development agreements pertaining to the assessee herein, was entrusted to the assessing authority, wherein, in the due course of enquiry, it was found that the assessee along with Shri Chandra Reddy entered into said joint development agreements on 12.05.2004 with M/s. SJR Builders, Further, it was found that the said agreement had been made out, relating to the immovable land in Sy.No.136/1, measuring on the Eastern Side – 240 Feet, on the Western Side – 256 Feet, on the Northern Side – 149 Feet and on the Southern Side – 188 Feet, totally measuring 2 Acres, situated ITA No.651/Bang/2020 Page 8 of 35 at Munnekollalu Village, Varthur Village, Bangalore East Taluk, Bangalore. 12. Further it is submitted that the AO issued notice u/s 148 on 29.03.2012 to Smt.G.Anita (Ind) seeking to assess the escaped Capital gains to Tax for the AY- 2005-06 which was duly served on her on 30.03.2012, in response to which Smt.G.Anita (Ind) filed Return of Income repeating the same income as was disclosed in her original return taking the stand that the property involved belonged to the HUF of which she was Kartha. Smt.G.Anita further took the stand that the income arising out of the JDA was assessable for the AY- 2009-10 since the project was completed and handed over in the year 2008-09. 13. The Assessing officer even after getting the detailed reply to the notice under section 148 of the Act concluded that the assessment in the hand of Anita (Ind) for the AY- 2005-06 and passed the assessment order taxing capital gain in the hands of Smt.Anita G (Indl). However, assessing authority had continued parallel proceedings by issue of notice under section 148 of the Act on 08.03.2013 in the hands of assessee (HUF) for the AY- 2009-10 assessing the capital gain arising out of the JDA dt. 12.05.2004 in the assessee (HUF) hands. In response to notice u/s 148 of the Act dated 08.03.2013 the Assessee filed return under protest disclosing capital gain in the hand of HUF for the AY- 2009-10. However on 31.03.2014 AO concluded the proceedings for the AY- 2009-10 u/s 143(3) r.w.s 147 of the Act ITA No.651/Bang/2020 Page 9 of 35 assessing the capital gain arising of JDA dated 12.05.2004 and adopting his own method of valuation. 14. It was also submitted that the action of AO against Anita (Ind) had formed an opinion that capital gain arising from JDA is assessable in the hands of Mrs. Anita G.(Indl) and concluded the assessment on 25.03.2013 rejecting the plea that the assessable entity is HUF and not Individual. The learned AO recorded the reasons in no uncertain terms for coming to the conclusion that Individual Anita alone not HUF is liable for capital gain tax on JDA dt. 15.05.2004 for AY- 2005-06. However even after giving such an opinion he initiated action against the HUF by issuing the notice u/s 148 of the Act on 08.03.2013 by changing his opinion that capital gain tax is to be assessed in the hand of HUF and not in Individual for the AY- 2009-10. Hence he continued parallel proceedings simultaneously for different assessment years. It is further submitted that if the AO was of opinion that capital gain is chargeable in the hand of HUF he ought to have dropped further proceeding in the case of individual but he did not do so but continued to assess individual and also HUF for different assessment year in respect of same Income. Hence notice issued under section 148 of the Act is bad in law. Further there was no new tangible material, and assessment was done only by change of opinion and suspicious that there is escapement of income. Further it is submitted that reopening can never be done on the basis of change of opinion. AO cannot stand on platform and catch two different trains together of same ITA No.651/Bang/2020 Page 10 of 35 opinion, this view is supported in the Case Law CIT vs. Kelvinator of India reported in 320 ITR 561(Sc) wherein it was held that reappraisal of same facts documents and information means change of opinion and AO has not power to review his order. Ranjihit Reddy vs. DCIT reported in 161 TTJ 316 it was held that reopening relying on information already on record is bad in law. Which is also supported by Delhi High Court in the case of CIT vs. Usha International Ltd., reported in 348 ITR 485 (Del) para 6. Therefore it is respectfully submitted that notice dt. 8/3/2013 suffers from infirmity of change of opinion. Further Bombay High Court in the case of Pr.CIT vs. Hanil Era Textiles Ltd in ITA 203 of 2017 held that without there being new tangible material available reopening is bad in law. Further in the case of CIT vs. Sahara India Mutual benefit company Calcutta High Court held that initiation of reassessment proceedings merely on change of opinion was justified. M/s.DEL India (P) Ltd., vs. JCIT reported in 432 ITR 212 (Kar) wherein it is held by the Hon’ble Court that the reopening is bad in law by change of opinion. 15. The ld.AR contended that unfortunately when the notice u/s.147 was issued, the assessment made in the individual status of Smt.G.Anitha was subsisting. Obviously the notice u/s.147 was issued to the HUF status of Balu Reddy only to assess Balu Reddy HUF for the assessment year 2009-10 only on the basis of the information given by Anitha. No further investigation having been done by the assessing authority. In the circumstances, the notice u/s.147 was bad in law as held in the following cases:- ITA No.651/Bang/2020 Page 11 of 35 1. Ajay Oxycholoride Floorings vs. ACIT 283 ITR 169 2. Tanna Builders P.Ltd., vs. Smt.Neela Krishnan and Another 283 ITR 448 (Bom) 16. In the above cases the issue is that reopening of the assessment on the basis of the protective assessment made after 4 years was bad in law. In this case also the assessment was conclusively made on Anitha individual when notice u/s.148 was issued. Thus, there cannot be two assessments on the same income in two different persons. The assessment in the hands of Anitha was cancelled by the CIT(A) only on 16.4.2015. Accordingly, the notice u/s.148 issued on 8.3.2013 is without jurisdiction. Independently apart from the information provided by Smt.Anitha there was no further investigation done by the assessing authority as to the assessment is required to be made on the HUF of Balu Reddy and if so in which year it is to be assessed. The reasons recorded provides the information that the reopening was done only on the basis of the information given by Mrs. Anitha. In the circumstances, the reopening is bad in law. 17. The assessee placed reliance in the case of Dy.CIT vs. Bullion Investments and Financial Services (P)Ltd., 314 ITR 187, wherein, under similar circumstances, the co-ordinate bench of this Tribunal held that the reopening was bad in law. Accordingly, the reassessment made is required to be cancelled. Though, this was pursued in appeal by the Revenue before the High Court, the same stood disposed of by the High Court by dismissing the appeal on monitory limit and upheld the order of the Tribunal. 18. In alternative, it is respectfully submitted that since development agreement was entered on 12.05.2004 and ITA No.651/Bang/2020 Page 12 of 35 possession was handed over on 12.05.2004, the capital gain if any chargeable to tax for the AY- 2005-06 and not 2009-10 as it is very clear from the JDA dt.12.05.2004 and the developer has taken requisite Government approvals for construction of residential apartment under the name and style – SJR Spencer. Hence, as per provisions of section 2(47)(v), transfer of land had taken place in respect of possession of immovable property being handed over to the developer and the same is part performance of the contract, in nature, as per Section 53A of the Transfer of Property Act, 1882, it had been held that, in a joint development agreement, the relevant date for attracting capital gain is the date on which possession was handed over to the concerned developer, where the complete control over the immovable property to such agreement, which is transferred to such developer, then the date of contract would be relevant to decide the year of chargeability. This view is supported by the Hon’ble High Court of Karnataka in the case of CIT vs. T.K.Dayalu reported in 202 Taxman 531(KAR/2011) in ITA 3165 of 2005 wherein it is held that in a JDA the relevant date for attracting capital gain is the date on which possession is handed over to the developer and has further held that if a contract read as a whole indicates passing of or transferring of complete control over the property in favour of the developer then the date of contract would be relevant to decide the year of chargeability. The assessee’s representative has taken objection for issue of notice u/s 148 on the ground that the property given for joint development is HUF property and hence notice issued in the ITA No.651/Bang/2020 Page 13 of 35 individual capacity is not correct. Further AO also in the remand report page 2 of the remand report makes an categorical statement since JDA dated 12.05.2004 the capital gain if any is chargeable to tax for Assessment year 2005-06 in the hand of HUF. 19. The ld.AR relied on the order of the Ld. CIT(A) and submitted that the JDA on the basis of which assessment was reopended was alredy available with the A.O in the case of Mrs. G.Anitha and he has already taken a stan that the capital gains was assessable in her hands in individual capacity of G.Anitha. In such circmstances for the same property, same transaction and on the basis of same information, the AO could not reopen the assessment of present assesse. The information on the basis of which the notice was issued u/s 148 of the IT Act to the HUF was already available with the AO at the time of the assessment of G. Anitha in her individual capacity. As such there was no new information and hnce, the reopening is invalid. 20. We have heard both the parties and perused the materials on record. In the present case, the assessee entered into JDA on 12/5/2004 with SJR Builders, No.49, 27 th Main, 1 st Stage, BTM Layout, Bengalur along with Shri NG Chandra Reddy brother of assessee’s HUF in respect of proper bearing survey No.136/1 situated at Munnekolallu Village, Varthur Hobli, Bangalore East Taluk. The assessee has not offered income from this transaction in the assessment year under consideration. On the basis of ITA No.651/Bang/2020 Page 14 of 35 which enquiry carried out by the AO, he came to conclusion that the income earned from this JDA is to be taxed in assessment year 2009-10 in the hands of present assessee. Accordingly, he recorded the reason for reopening the assessment and duly reopened the assessment and issued notice u/s 148 of the Act. 21. Now, the contention of the ld.AR is that this JDA was considered in the hands of Smt. G Anitha in her individual capacity in assessment year 2005-06 and this was subject matter of appeal before the CIT(A). The CIT(A) vide order dated 25/4/2013 annulled the assessment by observing that the assesse Mrs. G. Anitha was taxed wrongly. The partion deed clearly divides properties of the Sri N.C. Gurumurthy, HUF between the co-parcencers, who in turn are Karthas of their HUFs. The A.O has also recognized that the assessee’s late husband was the Kartha of his HUF and properties have devolved upon this HUF. On his demise, such properties devolve on the succeeding HUF consisting of assesse and her minor children. The only flimsy reason provided by the AO is that the assesse Mrs. G.Anitha has not been named as Kartha in the Partition Deed nor the JDA. 22. According to ld.AR on the basis of same information, he reopened the assessment of assessee being HUF for the assessment year 2009-10. In our opinion, the AO has jurisdiction to initiate the proceedings u/s 147 r.w.s 148, if the conditions laid down therein are complied with, against a person ITA No.651/Bang/2020 Page 15 of 35 on the ground that the income, though it has been assessed in the hands of another, has escaped assessment in HUF hands. The only question that arises at the time of reopening of assessment is, whether the income has escaped assessment or has been under assessed in the hands of the person against whom the said proceedings are initiated. If the income really belongs to the HUF, then the said income is escaped income in the hands of HUF. If the HUF failed to disclose this income by filing the return of income then AO could reopen the assessment on the basis of material in his hands. The fact that the income has been assessed in the hands of a different entity about whom more information is later available does not detract the AO to bring that income to tax by reopening the assessment in the hands of right person. Furthermore, the income is not belonged to any individual would have been subjected to tax, portion of which might have earned the benefit of exemption in the case of HUF because the exemption limits of an HUF, could be higher, if the income has been assessed wrongly in the hands of the assessable unit to which it did not belong, that does not prevent from properly assessing in the hands of a unit to which it belonged by process of reopening. For this purpose we place reliance on the judgment of Hon’ble Supreme Court in the case of ITO VS. Bachu Lal Kapoor 60 ITR 74 (SC), wherein it is held that ‘an HUF is a separate unit of assessment. It is a distinct assessable entity. It is a "person" within its definition in the Act. It is liable to be assessed to income-tax in respect of its income. A member of that HUF is not liable to pay any tax in respect of any ITA No.651/Bang/2020 Page 16 of 35 sum which he receives as a member of that family out of the income of that family. If the said HUE has escaped assessment for any year, the ITO, subject to the conditions laid down in s. 34(1) of 1922 act, may issue a notice thereunder calling upon the said HUF to submit a return of its income for that year and proceed to assess it in terms thereof. It is manifest from a combined reading of the said provisions that the ITO can issue a notice to an HUF under s. 34 on the ground that it has escaped assessment. Under s. 3 in the matter of assessment, there is no question of any election between an HUF and a member thereof in respect of the income of the family. If an HUF exists, under s. 3 the ITO has to assess it in respect of its income. Indeed, under s. 14(1) any part of the income received by its members cannot be assessed over again. While s. 3 confers an option on the ITO to assess either the AOP or the members of the association individually, no such option is conferred on him thereunder in the case of an HUF, as its existence excludes the liability of its members in respect of the income of the former received by the latter. So long as the HUF exists, the individuals thereof cannot separately be assessed in respect of its income. Nonetheless, if, under some mistake, such income was assessed to tax in the hands of the individual members, which should not have been done, when a proper assessment was made on the HUF in respect of that income, the Revenue has to make appropriate adjustments; otherwise, the assessment made in respect of that income on the HUE would be contrary to the provisions of the Act, particularly s. 14(1). Therefore, if the assessment ITA No.651/Bang/2020 Page 17 of 35 proceedings initiated under s. 34 culminates in the assessment of the HUF, appropriate adjustments have to be made by the ITO in respect of the tax realised by the Revenue in respect of that part of the income of the family assessed on the individuals of the said family. To do so is not to re-open the final orders of assessment, but in reality to arrive at the correct figure of tax payable by the HUE. The High Court went wrong in holding that the ITO had no jurisdiction to initiate proceedings under s. 34 against the respondent as the Karta of an HUF’. 23. Qua the person who is subsequently sought to be made liable for it, income must be held to have escaped assessment when the AO decides not to include it in its income. Where the escaped income is sought to be assessed in the hands of the right person, the AO justified in reopening that assessment by following the procedure laid down in sec. 147 and 148. The only argument of the ld.AR is that this information had to be of income arises out of JDA cited supra was considered in the hands of Smt. G Anitha and this information is already with AO and he was prevented from reopening the assessment of HUF in the assessment year 2009-10. 24. In the present case, the AO has not followed any information for reopening of this assessment on the basis of order of CIT(A) dated 25/4/2013 in the case of Mrs.. G Anitha as the notice u/s 148 was issued to the present assessee much before the issue on 8/3/2013 which is much before the order of CIT(A) ITA No.651/Bang/2020 Page 18 of 35 dated 25/4/2013 in the case of Mrs. G Anitha. Being so, the AO reopened the assessment of the present assessee on the basis of information available with him so as to assess the income to tax in the hands of right person i.e present assessee. Hence, we do not find any infirmity in reopening of assessment by the AO. Accordingly, the order of the CIT(A) on this issue is reversed and the ground of the appeal of the Revenue in Ground No.1 is allowed. On merit of the additions, now, we will take up ground No.2,3,4 collectively. 25. The fact of this issue are that the CIT(A) after annulling reopening of the assessment further observed that the capital gains are assessable in the asst. year 2005-06 instead of assessment year 2009-10in the hands of present assessee-HUF. The AO taken a stand that since the assessee has himself offered the capital gain in the assessment year 2009-10 and on the basis of that the income from capital gain arising out of joint JDA for the assessment year 2009-10 was to be taxed. However, the CIT(A) placed reliance on the judgment of Hon’ble Karnataka High Court in the case of Dr. T.K Dayalu 202 Taxmann 531, and observed that capital gain arises out of JDA dated 12/5/2004 are assessable in the assessment year 2005-06 and not in the assessment order 2009-10. Against this Revenue is in appeal before us. ITA No.651/Bang/2020 Page 19 of 35 26. We have heard both the parties and perused the materials on record. The ld.AR field written submissions stating that in view of the judgment of judicial High Court in the case of T.K Dayalu cited supra, the income arises out of JDA on 12/5/2004 to be taxed in the assessment year 2005-06. We have carefully gone through the JDA and also various judgment cited by the parties. The ld.DR has cited the order of the Tribunal in the case of Smt. Kavitha Kamlesh Shah in ITA Nos.1508 & 1509/Bang/2016 dated 25/6/2021 wherein it is held as follows:- “27. We have heard both the parties and perused the material on record. We have carefully gone through the conditions laid down in JDA and GPA. The assessee entered into JDA on 5.2.2007, the financial year ended on 31.3.2007. GPA was also entered into on 5.2.2007. We have also gone through the clauses No. 1, 3, 6 & 8 of JDA and the clauses in GPA, specifically clause no. 9. A reading of the above clauses make it clear that the assessee has only given the licence to the developer to enter into the land and to construct the building on the same. The assessee has to come for final registration in favour of flat owners who has to convey the ownership in their favour. As seen from the date of JDA, it was entered on 5.2.2007 at the fag end of the FY 2006-07 relating to AY 2007-08. In this year under consideration, no much development has taken place. The AO sought to bring capital gain only on the reason that the assessee entered into JDA with the Developer. But there was no progress in the development in the assessment year under consideration. It was the submission of the ld. AR that there was no development activity until the end of FY 2006- 07. Commencment of building construction has not been ITA Nos. 1508 & 1509/Bang/2016 Page 15 of 22 initiated a the building approval was obtained in the next financial year. Therefore, no income is said to have accrued as laid down in section 48 of the Act. Nothing is brought on record by the AO to show that there was development activity in the impugned land during the assessment year under consideration and ITA No.651/Bang/2020 Page 20 of 35 cost of construction incurred by the developer was not known. Therefore, it is to be inferred that there was no construction activity by the developer during the assessment year in this land. The assessee only received a meagre amount of refundable deposit of Rs.3 lakhs during the financial year as enumerated in clause 13 of the JDA. Being so, there was no transfer of property under this JDA. Also without accrual of construction to the assessee, assessee was not expected to pay capital gain on the JDA entered by the assessee with the developer. The condition laid down in section 2(47)(v) of the Act r.w.s. 53A of the Transfer of Property Act is not complied with as there was no willingness of the developer to perform his part of the duty in terms of the JDA. Accordingly it is held that there was no transfer for the assessment year under consideration as held by the Hon’ble Supreme Court in the case of Seshasayee Steels P Ltd. (supra). Accordingly, we hold that there was no transfer in AY 2007-08. Accordingly, the other grounds are academic and not adjudicated. Thus, the appeal for the AY 2007-08 is partly allowed.” 27. We have gone through the JDA dated 12/5/2004. As per this JDA, transaction took place in the previous year 2004-05 relevant to assessment year 2005-06. We have perused the various clauses of this JDA. The clause No.4 of the JDA reads as follows:- “4. The First Party Owners hereby agrees and undertakes to grant the Second Party Developer irrevocable right, license and permission to enter upon the Schedule 'A' and 'B' Property for the purpose of construction of the proposed Residential Apartment and to deliver Vacant Possession of the Schedule Property simultaneously subject to the payment of the Security deposit referred infra. The Second Party Developer are entitled to enter upon the Schedule 'A' and ' B' Property for commencing the preliminary work and continue to exercise the said right till the completion of the project in terms of this Agreement. This Possession however shall not be construed as Possession handed ITA No.651/Bang/2020 Page 21 of 35 over in part performance u/s 53-A & B of the transfer of Property Act.” 28. As per the above clause of JDA the possession given under JDA shall not be construed as possession in the hands in part performance u/s 53A and 53B of Transfer of Property Act. Further, no progress has been taken place in the assessment year 2005-06 and the assessee has received only 30 lakhs as refundable security deposit as discussed in clause 10 of JDA. 10. That the Second Party Developer has paid a total sum of Rs30,00,000/7 (Rupees Thirty Lakh Only) to the First Party Owners in the following manner a) A Sum of Rs.5,00,000/- (Rupees Five Lakh Only) by way of Cheque bearing No.790293, Dated 17-12- 2003, drawn on ING VYSYA Bank, Jayanagar Branch, Bangalore as refundable deposit in favour of Sri.N.G.Chandra Reddy. b) A Sum of Rs.500,000/- (Rupees Five Lakh Only) by way of Cheque bearing No.773176, Dated 13-04- 2004, drawn on ING VYSYA Bank, Jayanagar Branch, Bangalore as refundable deposit in favour of Sri.N.G.Chandra Reddy. c) A Sum of Rs.20,00,000/- (Rupees Twenty Lakh Only) by way of Cheque bearing No.254689, Dated 1- 05-2004, drawn on ING VYSYA Bank, Jayanagar Branch, Bangalore as refundable deposit in favour of Smt.G.Anitha.” 29. Nothing is brought on record by the assessee to show that there was development activity in the scheduled property during the assessment year 2005-06. Therefore, it is to be inferred that ITA No.651/Bang/2020 Page 22 of 35 there is no construction activity by the developer during the assessment year 2005-06 in the said land and the assessee received a meager refundable taxes of Rs.30 laksh vide JDA dated 12/5/2004. The condition laid down in sec.2(47)(v) of the Act r.w.s 53A of the TP Act is not complied with, as there is no development activity in the said property in the assessment year 2005-06. At this point it is pertinent to take support from the judgment of Hon’ble Supreme Court in the case of Seshayee Steels Pvt. Ltd., Vs. ACIT reported in 421 ITR 46, wherein it was held mere giving licence to the developer could not be said to be ‘possession’ within the meaning of sec. 53A of TP Act 1882 and the developer has to get the control over the land and not actual physical occupation of land. 30. The ld. AR submitted that the facts of the case in the latest decision of the Hon'ble Supreme Court in the case of Seshasayee Steels P Ltd Vs ACIT reported in 421 ITR 46 is distinguishable from the assessee's case as it was held therein that mere giving of licence to the developer could not be said to be "possession" within the meaning of section 53A of the Transfer of Property Act, 1882, and the developer has to get the control over the land and not actual physical occupation of land. The Hon'ble Supreme Court observed that on the date of agreement to sell the owner’s rights were completely intact and the further held that the assessee's right in the immovable property were extinguished on the receipt of last cheque and compromise deed could be stated ITA No.651/Bang/2020 Page 23 of 35 to be the transaction which had the effect of transferring the immovable property in question. 31. In the case of Seshasayee Steels P Ltd. (supra) the facts were that landlord had entered into an agreement to sell coupled with GPA. Subsequently, the parties thereto had entered into a comprise deed to ratify the GPA and the agreement to sell. The compromise deed was executed for the fact that the developer had not adhered to all the terms and condition of agreement to sell and therefore, provisions of section 53A of Transfer of Property Act, 1882 were not complied with and contract for sale fell into question. As per section 53A of Transfer of Property Act, 1882 contract can be ascertained when in part performance of contract, a person has taken over the possession and has done in furtherance of the contract performed or is willing to perform his part of the contract. In the case of Seshasayee Steels though the possession was taken over, there was no willingness to perform his part of contract as the transferee had not adhered to the terms and conditions of the agreement to sell and therefore, the compromise deed was executed to ratify the agreement to sell and GPA. The compromise deed could be stated to be the document to effect the transfer and as such the Hon'ble Supreme Court held that on the receipt of the last cheque mentioned in the compromise deed, the assessee's rights in the property stood extinguished. ITA No.651/Bang/2020 Page 24 of 35 32. In the present case, the assessee got its share of constructed area in the assessment year under consideration and capital gain accrued to the assessee in the assessment year under consideration and the assessee has acknowledge the same by declaring the capital gain in the assessment year 2009-10. Now, the assessee cannot take a plea that the capital gain accrued in assessment year 2005-06 could be accepted. 33. According to the assessee, the date of transfer u/s 2(47)(v) of the Act to be the financial year 2004-2005 relevant to the assessment year 2005-2006 and not the financial year 2008-09 relevant to the assessment year 2009-10, in which year the assessee got his share of constructed area into his possession. Though it was initially held by various Courts that the capital gains are to be assessed in the year in which the development agreement has been entered into between the land owner and the developer, considering the fact that in many cases, the development agreement was not acted upon by the developer, different views have been expressed as to be year of assessability, based on the facts and circumstance of each case. It was held by various Courts that “willing to perform” for the purpose of section 53A of the Transfer of Property Act, 1882 is something vital; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligation under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of section 53A of the Transfer of ITA No.651/Bang/2020 Page 25 of 35 Property Act will come into play on the facts of that case. It is only elementary that, unless provisions of section 53A of the Transfer of Property Act are satisfied on the facts of a case in the assessment year 2005-06, the transaction in question cannot fall within the scope of deemed transfer u/s 2(47)(v) of the I.T. Act. Thus, let us consider whether the transferee, on the facts of the present case, can be said to have `performed or is willing to perform’ its obligations under the agreement. 34. It is important to bear in mind that s. 2(47)(v) refers to 'possession’ to be taken or retained in part performance of the contract of the nature referred to in s. 53A of the Transfer of Property Act" and in the case before Hon'ble Karnataka High Court, there was no dispute that the conditions of s. 53A were satisfied. In other words, the proposition laid down by their Lordships can at best be inferred as that when conditions under s. 53A are satisfied, and when the assessee enters into a contract which is a development agreement, in the garb of agreement of sale, it is the date of this development agreement which is material date to decide the date of transfer. However, by no stretch of logic, this legal precedent can support the proposition that all development agreements, in all situations, satisfy the conditions of s. 53A which is a sine qua non for invoking s. 2(47)(v). 35. In order to invoke the principles laid down by the Hon'ble Karnataka High Court in the case of Dr. T.K Dayalu, it is, therefore, necessary to demonstrate that the conditions under s. ITA No.651/Bang/2020 Page 26 of 35 53A of the Transfer of Property Act are satisfied. This section is reproduced below for ready reference: "Sec. 53A—Part performance—Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or, any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed thereof by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than the right specifically provided by the terms of the contract Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof." ITA No.651/Bang/2020 Page 27 of 35 36. A plain reading of the s. 53A of the Transfer of Property Act shows that in order that a contract can be termed to be "of the nature referred to in s. 53A of the Transfer of Property Act" it is one of the necessary preconditions that transferee should have or is willing to perform his part of the contract. This aspect has been duly taken note of by the Hon'ble Bombay High when their Lordships observed as follows "That, in order to attract s. 53A, the following conditions need to be fulfilled (a) There should be contract for consideration; (b) It should be in writing; (c) It should be signed by the transferor; (d) It should pertain to the transfer of immovable property; (e) The transferee should have taken possession of property; (f) Lastly, transferee should be ready and willing to perform the contract". 37. Elaborating upon the scope of expression "has performed or is willing to perform", the oft quoted commentary "Mu/la—The Transfer of Property Act" (9th Edn. : Published by Butterworths India), at p. 448, observes that "The doctrine of readiness and willingness is an emphatic way of expression to establish that the transferee always abides by the terms of the agreement and is willing to perform his part of the contract. Part performance, as a statutory right, is conditioned upon the transferee's willingness to perform his part of the contract in terms covenanted thereunder. ITA No.651/Bang/2020 Page 28 of 35 Willingness to perform the roles ascribed to a party, in a contract is primarily a mental disposition. However, such willingness in the context of s. 53A of the Act has to be absolute and unconditional. If willingness is studded with a condition, it is in fact no more than an offer and cannot be termed as willingness. When the vendee company expresses its willingness to pay the amount, provided the (vendor) clears his income-tax arrears, there is no complete willingness but a conditional willingness or partial willingness which is not sufficient... In judging the willingness to perform, the Court must consider the obligations of the parties and the sequence in which these are to be performed......” 38. We are in agreement with the views so expressed in this commentary on the provisions of the Transfer of Property Act. It is thus clear that 'willingness to perform' for the purposes of s. 53A is something more than a statement of intent; it is the unqualified and unconditional willingness on the part of the vendee to perform its obligations. Unless the party has performed or is willing to perform its obligations under the contract, and in the same sequence in which these are to be performed, it cannot be said that the provisions of s. 53A of the Transfer of Property Act will come into play on the facts of that case. It is only elementary that, unless provisions of s. 53A of the Transfer of Property Act are satisfied on the facts of a case, the transaction in question cannot fall within the scope of deemed transfer under s. 2(47)(v) of the IT Act. Let us therefore consider whether the ITA No.651/Bang/2020 Page 29 of 35 transferee, on the facts of the present case, can be said to have 'performed or is willing to perform' its obligations under the agreement. 39. Even a cursory look at the admitted facts of the case would show that the transferee had neither performed nor was it willing to perform its obligation under the agreement in the assessment year 2005-06. The agreement on the basis of which capital gains is sought to be taxed in the present case is agreement dated 12.5.2004. The transferee made a payment of Rs30 lakhs refundable security deposit as discussed earlier. As such, the assessee has received only a meager amount as refundable security deposit which cannot be construed as receipt of part of sale consideration. Admittedly, there is no progress in the development agreement in the assessment year 2005-2006. The sanction of the building plan is utmost important for the implementation of the agreement entered between the parties. Without sanction of the building plan, the very genesis, of the agreement fails. To enable the execution of the agreement, firstly, plan is to be approved by the competent authority. In fact, the building plan was not got approved by the builder in the assessment year under consideration. Until permission is granted, a developer cannot undertake construction. As a result of this lapse by the transferee, the construction had not taken place in the assessment year under consideration. There is a breach and break down of development agreement in the assessment year under consideration. Nothing is brought on ITA No.651/Bang/2020 Page 30 of 35 record by authorities to show that there was development activity in the project during the assessment year 2005-06 and cost of construction was incurred by the builder/developer. Hence it is to be inferred that no amount of investment was made by the developer in the construction activity in subsequent assessment years in this project and it would amount to non-incurring of required cost of acquisition by the developer. In the assessment year 2005-06, it is not possible to say whether the developer prepared to carry out those parts of the agreement to their logical end. The developer in the assessment year 2005-06 had not shown its readiness or having made preparation for the compliance of the agreement. The developer has not taken steps to make it eligible to undertake the performance of the agreement which are the primary ingredients that make a person eligible and entitled to make the construction. The act and conduct of the developer in the assessment year 2005-06 shows that it had violated essential terms of the agreement which tend to subvert the relationship established by the development agreement. Being so, it was clear that in the assessment year 2005-06, there was no transfer of not only the flats as superstructure but also the proportionate land by the assessee under the joint development agreement. As per clause, development agreement, time is the essence of the contract and as per clause No.6(f) the said property is to be developed and handover the possession of the owners' allocation to the owners' and/or their nominees within 3 years from the date of commencement of construction and further grace period of 3 months was given. But the fact remains ITA No.651/Bang/2020 Page 31 of 35 that the transferee had not only failed to perform its obligations under the agreement, but was also unwilling to perform its obligations in the assessment year 2005-06. Even otherwise, the assessee has not brought on record the actual position of the project in the assessment year 2005-06 whether the developer started the construction work at any time during the assessment 2005-06 or any development has taken place in the project in the relevant period. The ld.AR proceed on the sole issue with regard to handing over the possession of the property to the developer in part performance of the development agreement. In our opinion, the handing over of the possession of the property is only one of the conditions under s. 53A of the Transfer of Property Act but it is not the sole and isolated condition. It is necessary to go into whether or not the transferee was 'willing to perform' its obligation under these consent terms. When transferee, by its conduct and by its deeds, demonstrates that it is unwilling to perform its obligations under the agreement in this assessment year 2005-06, the date of agreement ceases to be relevant. In such a situation, it is only the actual performance of transferee's obligations which can give rise to the situation envisaged in s. 53A of the Transfer of Property Act. On these facts, it is not possible to hold that the transferee was willing to perform its obligations in the financial year 2004-05 in which the capital gains are sought to be taxed by the assessee. We hold that this condition laid down under s. 53A of the Transfer of Property Act was not satisfied in this assessment year 2005-06. Once we come to the conclusion that the transferee was not 'willing to perform', ITA No.651/Bang/2020 Page 32 of 35 as stipulated by and within meanings assigned to this expression under s. 53A of the Transfer of Property Act, its contractual obligations in this previous year relevant to the asst. year 2005- 06, it is only a corollary to this finding that the development agreement dt. 12th May, 2004 based on which the impugned taxability of capital gain is to be charged imposed by the assessee and upheld by the CIT(A), cannot be said to be a 'contract of the nature referred to in s. 53A of the Transfer of Property Act' and, accordingly, provisions of s. 2(47)(v) cannot be invoked on the facts of this case. Dr. T.K Dayalu (supra) undoubtedly lays down a proposition which, favours the Revenue, inasmuch as 'willingness to perform' has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of s. 53A of the Transfer of Property Act. Assessee does not get any assistance from this judicial precedent. The very foundation of assessee case is thus devoid of legally sustainable basis. 40. That is clearly an erroneous assumption, and the provisions of deemed transfer under s. 2(47)(v) could not have been invoked on the facts of the present case for the assessment year 2005- 06. 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 at the impugned property in the assessment year 2005-06 and also there is no evidence to show that the right to receive the sale consideration actually ITA No.651/Bang/2020 Page 33 of 35 accrued to the assessee in asst. year 2005-06. Without accrual of the consideration to the assessee, the assessee is not expected to pay capital gains on the entire agreed sale consideration in the asst. year 2005-06. When time is essence of the contract, and the time schedule is not adhered to, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under s. 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in s. 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of s. 2(47)(v) will apply in the asst. year 2005-06. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the Revenue deserves to succeed on reason that the capital gains to be taxed in this assessment year 2009-10. 41. Being so, the argument of the learned AR that the capital gains are to be taxed in the present case in the assessment year 2005-2006 is not tenable. The transferee only made payment of refundable deposit of Rs.30 lakhs and other necessary permission so as to commence the construction not at all commenced and there was no progress in the development of property in the assessment year 2005-2006. The Municipal sanction for development was obtained subsequently, which is utmost important for the implementation of the JDA. Without sanctioning of the building plan, the very genesis of the agreement fails. To enable the execution of the JDA, firstly, plan ITA No.651/Bang/2020 Page 34 of 35 is to be approved by the competent authority. Since no building plan in the assessment year 2005-2006 was approved or produced before us, we cannot hold that the transfer took place in the assessment year 2005-2006. Nothing is brought on record by the assessee to show that there was a development activity in the impugned project during the assessment year 2005-2006 and any cost of construction was incurred by the builder. It is to be inferred that no amount of investment by the developer in the construction activity during the assessment year 2005-2006. Hence, we are of the opinion that transferee was not willing to perform his part of obligations as stipulated in the JDA, in the assessment year 2005-2006 within the meaning as expressed in section 53A of the Transfer of Property Act. As such, the contractual obligation of the developer was not met with in the assessment year 2005- 2006. Being so, the conditions laid down in section 2(47)(v) of the I.T. Act cannot be invoked so as to bring the capital gains into tax in the assessment year 2005-2006 and thus the very foundation of the assessee’s case is devoid of merits and not tenable and more so there is a specific clause in the JDA as enumerated earlier that the assessee is only given licence to the vendee to develop the Schedule Property and the legal ownership remains with the assessee and there cannot be any transfer in the assessment year 2005-2006 and it has rightly brought into taxation by the A.O. in the assessment year 2009- 2010 as in the assessment year 2009-2010, the assessee received duly developed and constructed area into his possession coming into his share. Accordingly, we are not in agreement with the ITA No.651/Bang/2020 Page 35 of 35 argument of the learned AR that the transfer took place in the assessment year 2005-2006 and it was rightly brought to tax by the AO in the assessment year 2009-2010, since in this assessment, the assessee received duly developed and constructed area into his possession out of its share of constructed area. Thus, these additional grounds raised by the Revenue is allowed. 42. In the result, the appeal of the Revenue is allowed. Order pronounced in the open court on 21 st December, 2021. Sd/- Sd/- (GEORGE GEORGE K) ( CHANDRA POOJARI) Judicial Member Accountant Member Bangalore, Dated, 21 st December, 2021 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. By order Asst. Registrar, ITAT, Bangalore.