ITO, Bangalore V. Sri. N.S. Nagaraj, Bangalore

ITA 676/BANG/2011

• Counselvise Citation: 67621114 RSA 2011
• Duration Of Justice: 3 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-12-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 24-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: C RAMESH
• Keywords: Capital asset; Cost of acquisition; Fair market value
• Section: 142(1)

Judgement Text

ITA 676 AND CO 45 NS NAGARAJ BANGALORE PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE A BENCH, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.676/BANG/2011 (ASSESSMENT YEAR: 2007-08) INCOME TAX OFFICER WARD 7(2), 4 TH FLOOR, C WING, KENDRIYA SADAN, KORAMANGALA, BANGALORE 560001 VS. SRI N.S. NAGARAJ KODANDARAMA NILAYA, HAL ROAD, DODDANEKUNDI, MARATHALLI, BANGALORE 560037 PAN: AAIPN 1858 C (APPELLANT) (RESPONDENT) C.O. NO.45/BANG/2013 (ARISING OUT OF ITA NO.676/BANG/2011 (ASSESSMENT YEAR: 2007-08) SRI N.S. NAGARAJ KODANDARAMA NILAYA, HAL ROAD, DODDANEKUNDI, MARATHALLI, BANGALORE 560037 PAN: AAIPN 1858 C VS. INCOME TAX OFFICER WARD 7(2), 4 TH FLOOR, C WING, KENDRIYA SADAN, KORAMANGALA, BANGALORE 560001 (CROSS OBJECTOR) (RESPONDENT DEPARTMENT BY: SHRI C.H. SUNDAR R AO, CIT (DR) ASSESSEE BY: SHRI C. RAMESH, CA DATE OF HEARING: 13/11/2014 DATE OF PRONOUNCEMENT: 01/12/2014 O R D E R PER RAJPAL YADAV, J.M. THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDE R OF THE LEARNED CIT (A) DATED 2 ND FEBRUARY, 2011 PASSED FOR ASSESSMENT YEAR 2007-08. ON RECEIPT OF THE NOTICE IN THE REVEN UES APPEAL, THE ASSESSEE HAS FILED CROSS OBJECTION BEARING NO.4 5/BANG/2013. ITA 676 AND CO 45 NS NAGARAJ BANGALORE PAGE 2 OF 12 THE GROUNDS OF APPEAL TAKEN BY THE REVENUE ARE NOT IN CONSONANCE WITH RULE 8 OF THE ITAT RULES, THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. SIMILARLY, THE ASSESSE E HAS INCORPORATED THE STATEMENT OF FACTS AND GROUNDS TOG ETHER IN THE GROUNDS OF CROSS OBJECTIONS. 2. IN BRIEF THE COMMON QUESTION INVOLVED IN THE APP EAL AS WELL AS CROSS OBJECTION IS, WHETHER ON EXECUTION OF JOIN T DEVELOPMENT AGREEMENT BY THE ASSESSEE ALONG WITH HIS BROTHER MR . NANDISH REDDY ON 9.8.2006 WITH M/S. AKME PROJECTS LTD, THE LAND COMPRISING 2 ACRES AND 48 GUNTAS WAS TRANSFERRED TO THE DEVELOPER OR NOT?, IF YES, THEN CAPITAL GAIN OUGHT TO BE COMPUTED AT RS.5,95,23,974/- COMPUTED BY THE ASSESSING OFFIC ER OR SOME OTHER FIGURES IS TO BE COMPUTED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED HIS RETURN OF INCOME ON 31.12.2007 DECLARING AN INC OME OF RS.3,54,480/-. THE CASE OF THE ASSESSEE WAS SELECTE D FOR SCRUTINY ASSESSMENT AND NOTICES U/S 143(2), 142(1) WERE ISSU ED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUN TS, IT REVEALED TO THE ASSESSING OFFICER THAT THE ASSESSEE ALONG WITH HIS BROTHER MR. NANDISH REDDY WERE THE OWNER AND IN POS SESSION OF 2 ACRES AND 14 GUNTAS OF LAND COMPRISED AT SURVEY N O.36/5, DODDANEKUNDI VILLAGE, KR PURAM HOBLI, BANGALORE EAS T TALUK. THEY ENTERED INTO A JOINT DEVELOPMENT AGREEMENT ON 9.8.2006 WITH M/S AKME PROJECT LTD. AS PER THE AGREEMENT, TH E ASSESSEE AND HIS BROTHER JOINTLY RECEIVED REFUNDABLE DEPOSIT OF RS.1.00 CRORE FOR ALLOWING THE DEVELOPMENT ON THEIR LAND. T HE DEVELOPER WOULD CONSTRUCT A SALEABLE AREA OF 3.00 LAKH SQUARE FEET AT ITS OWN COST, THE ASSESSEE AND HIS BROTHER ARE ENTITLED FOR 50% OF THE ITA 676 AND CO 45 NS NAGARAJ BANGALORE PAGE 3 OF 12 BUILT UP AREA I.E. 1.50 LAKH SFT MINIMUM. THE ASSES SEE AND HIS BROTHER HAD GIVEN AN IRREVOCABLE LICENSE TO THE DE VELOPER TO ENTER AND DEVELOP THE PROPERTY. THEY HAVE ALSO EXECUTED A POWER OF ATTORNEY IN FAVOUR OF THE DEVELOPER TO ENABLE THE D EVELOPER TO GETS SANCTION SITE PLANS, LICENSE AND OTHER APPROVALS FO R THE DEVELOPMENT OF ENTIRE SCHEDULED PROPERTY. THE DEVEL OPER WAS AUTHORISED TO AVAIL LOANS AND FINANCIAL FACILITIES FROM THE FINANCIAL INSTITUTIONS. THE ASSESSING OFFICER WAS O F THE VIEW THAT THE ASSESSEES HAVE SURRENDERED THEIR RIGHTS TO THE EXTENT OF 50% IN THE LAND IN LIEU OF 50% CONSTRUCTED AREA I.E. 1. 50 LAKH SFT, WHOSE COST WAS TO BE BORNE BY THE BUILDER. THUS, IN THE OPINION OF THE ASSESSING OFFICER, TRANSFER OF THE LAND HAS TAKEN PLACE WITHIN THE MEANING OF SECTION 2(47)(V) OF THE INCOM E TAX ACT AND THE ASSESSEES ARE ASSESSABLE FOR LONG TERM CAPITAL GAIN. THE ASSESSING OFFICER HAS COMPUTED THE LONG TERM CAPITA L GAIN IN THE CASE OF ASSESSEE AS UNDER: BY ADOPTING THE VALUE OF COST OF CONSTRUCTION AT RS.800/- PER SFT SALE CONSIDERATION RECEIVED/RECEIVABLE = 150000/2X8 00 =6,00,000,00 LESS INDEXED COST OF LAND (COST OF LAND AS ON 16.04.2003)RS.4,00,000) = 4,76,026 LONG TERM CAPITAL GAIN = RS.5,95,23,974/- 4. THE ASSESSING OFFICER HAS ADOPTED THE CONSIDERAT ION OF THE LAND AT RS.800/- PER SFT, BECAUSE THIS WAS THE EXPE NDITURE WHICH THE BUILDER WILL INCUR FOR CONSTRUCTING THE AREA. I N LIEU OF THIS THE ASSESSEES HAVE RELINQUISHED THEIR RIGHTS IN THE LA ND IN FAVOUR OF THE BUILDER WHO WILL GET 50% OF THE LAND AS WELL AS 1.50 LAKHS SFT CONSTRUCTED AREA. 5. THE ASSESSEE WAS NOT SATISFIED WITH THE COMPUTAT ION OF LTCG, HENCE HE CHALLENGED THE ASSESSMENT ORDER IN A PPEAL ITA 676 AND CO 45 NS NAGARAJ BANGALORE PAGE 4 OF 12 BEFORE THE CIT (A). THE CONTENTION OF THE ASSESSEE BEFORE THE FIRST APPELLATE AUTHORITY WAS THAT ON EXECUTION OF JOINT DEVELOPMENT AGREEMENT, NO TRANSFER HAS TAKEN PLACE. ACCORDING T O THE ASSESSEE, THOUGH THE JOINT DEVELOPMENT AGREEMENT PR OVIDES AN IRREVOCABLE LICENSE TO THE BUILDER AND TO DEVELOP T HE ENTIRE PROPERTY BY PUTTING UP CONSTRUCTION OF MULTI STORIE D BUILDING(S), BUT THE AGREEMENT DOES NOT GIVE POSSESSION OF THE P ROPERTY IN THE SENSE THAT THE DEVELOPER BY VIRTUE OF POSSESSION CA NNOT DISPOSE OFF THE PROPERTY OR IN ANY MANNER AS THE DEVELOPE R PREFERS. IT WAS ALSO CONTENDED THAT NO AGREEMENT TO SELL IN FAV OUR OF THE DEVELOPER AS PART PERFORMANCE CONTEMPLATED UNDER TH E PROVISIONS OF SECTION 53(A) OF THE TRANSFER PROPERT Y ACT WAS EXECUTED. THE EMPHASIS WAS THAT ONLY PERMISSIVE POS SESSION WAS GIVEN TO THE DEVELOPER AND NOT THE ABSOLUTE POSSESS ION OF THE PROPERTY. IT WAS GIVEN A LICENSE TO DO CERTAIN ACTS ON BEHALF OF THE OWNER FOR DEVELOPMENT OF THE PROPERTY. 6. THE CIT (A) ON AN ANALYSIS OF THE AGREEMENT HAS HELD THAT NO TRANSFER OF THE ASSET IN THE CASE OF THE ASSESSE E AS ON THE DATE OF ENTERING INTO JOINT DEVELOPMENT AND EXECUTING TH E POWER OF ATTORNEY TAKEN PLACE. THEREFORE, CAPITAL GAIN IS NO T ASSESSABLE, BUT THE LEARNED FIRST APPELLATE AUTHORITY FURTHER O BSERVED THAT IT IS A CASE OF EXCHANGE OF ASSETS, IT IS THE MARKET V ALUE OF THE BUILT UP AREA HAD TO BE CONSIDERED AS CONSIDERATION FOR C OMPUTATION OF LTCG IN THE YEAR IN WHICH THE BUILT UP AREA IS HAND ED OVER TO THE LAND OWNERS. 7. BEFORE US, THE LEARNED DR CONTENDED THAT THE ASS ESSEE AND HIS BROTHER HAVE RELINQUISHED THE 50% SHARE IN THE LAND IN ITA 676 AND CO 45 NS NAGARAJ BANGALORE PAGE 5 OF 12 FAVOUR OF THE BUILDER BY EXECUTION OF THE JOINT DEV ELOPMENT AGREEMENT. THEY HAVE FIXED THE CONSIDERATION AT 1.5 0 LAKHS SFT OF CONSTRUCTED AREA. THE CONSIDERATION IS IN KIND, WHO SE VALUE CAN BE DETERMINED. THEY HAVE GIVEN THE POSSESSION OF TH E LAND TO THE DEVELOPER. FIFTY PER CENT OF THE LAND OF COURSE WOU LD REMAIN WITH THE ASSESSEE ALONG WITH THEIR RIGHT OF CONSTRUCTED AREA. THEREFORE, MERELY BY MENTIONING IN CLAUSE 4.1, TERM S CONTAINED IN THE AGREEMENT SHOULD NOT BE CONSTRUED TRANSFER O F THE LAND EITHER U/S 53A OF T.P. ACT OR BY DELIVERY OF POSSES SIONS U/S 2(47) OF THE I.T. ACT, CANNOT ABSOLVE THEM WITH THE APPLI CATION OF STATUTORY PROVISIONS. HE RELIED UPON THE JUDGMENT O F THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. DR. T.K . DAYALU REPORTED IN 60 DTR (KAR.)403/ 202 TAXMAN.COM 531. H E PLACED ON RECORD A COPY OF THE HON'BLE HIGH COURT DECISION . HE ALSO RELIED UPON THE DECISION OF THE ITAT HYDERABAD BENC H IN THE CASE OF ACIT VS. A. RAM REDDY. HE POINTED OUT THAT IN THIS CASE THE TRIBUNAL HAS CONSIDERED THE DEFINITION OF TRANS FER PROVIDED IN SECTION 2(47). HE ALSO RELIED UPON THE JUDGMENT OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF T.V. SUNDARAM IYEN GAR & SONS REPORTED IN 37 ITR 26. 8. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE AS SESSEE RELIED UPON THE ORDER OF THE CIT (A) AND CONTENDED THAT THE ASSESSEE HAS GIVEN CONDITIONAL POSSESSION TO THE DE VELOPER. THE DEVELOPER COULD NOT USE THE POSSESSION ACCORDING TO HIS CHOICE. IN A WAY, A LICENSE WAS GIVEN TO ENTER INTO LAND AN D CONSTRUCT THE BUILDING, MORE THAN THAT NO RIGHTS WERE TRANSFERRED TO THE BUILDER. HE RELIED UPON THE JUDGMENT OF THE AAR IN THE CASE OF JASBIR SINGH SARKARIA, 294 ITR 196. HE ALSO RELIED UPON THE ITA 676 AND CO 45 NS NAGARAJ BANGALORE PAGE 6 OF 12 JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. VED PRAKASH RAKHAR REPORTED IN 210 TAXMAN 605. 9. IN SUPPORT OF THE CROSS OBJECTION, THE LEARNED C OUNSEL FOR THE ASSESSEE CONTENDED THAT WHILE COMPUTING THE CAP ITAL GAIN, COST OF THE LAND TRANSFERRED TO THE BUILDER OUGHT T O BE CONSIDERED AS CONSIDERATION. FOR BUTTRESSING HIS CONTENTION, H E MADE REFERENCE TO THE JUDGMENT OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF VED PRAKASH RAKHAR (SUPRA). 10. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. SECTION 2(47) HAS A D IRECT BEARING ON THE CONTROVERSY. THEREFORE, IT IS PERTINENT TO T AKE NOTE OF RELEVANT CLAUSES FROM PAGE 407 OF THE SOT. SECTION 2(47) TRANSFER, IN RELATION TO A CAPITAL ASSET, INCLUDE S (I)X.X.X.X.X.X.X. (II)X.X.X.X.X.X.X.X. (III)X.X.X.X.X.X.X (IV)X.X.X.X.X.X.X (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE P OSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN P ART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN S. 53A OF THE TRANSFER OF PROPERTY ACT, 1882 (4 OF 1882); A BARE READING OF THE ABOVE PROVISION, IT WOULD REV EAL THAT IN ORDER TO DETERMINE THE CAPITAL GAIN AS ARISEN TO AN ASSESSEE, THERE ARE BASICALLY THREE INGREDIENTS: I) THERE MUST BE A CAPITAL ASSET; II) IT MUST HAVE BEEN TRANSFERRED DURING THE ACCOUN TING PERIOD RELEVANT TO THE ASSESSMENT YEAR. ITA 676 AND CO 45 NS NAGARAJ BANGALORE PAGE 7 OF 12 III) CAPITAL GAIN MUST HAVE ARISEN TO AN ASSESSEE OF SUC H AN ASSET. 11. THE DISPUTE BETWEEN THE ASSESSEE AND THE REVENU E IS THAT ON EXECUTION OF THE JOINT DEVELOPMENT AGREEMENT ON 9.8.2006, NO TRANSFER HAS TAKEN PLACE. THE ASSESSEE HAS JUST EXC HANGED THE ASSETS. HE ALONG WITH HIS BROTHER HAS GIVEN THE LAN D TO THE DEVELOPER WHO WILL DEVELOP THAT LAND AND PROVIDE TH E DEVELOPED AREA TO THE ASSESSEE. ON THE DAY WHEN DEVELOPER WOU LD HAND OVER THE DEVELOPED AREA, ONLY THEN THE TRANSFER OF THE LAND IN LIEU OF THE DEVELOPED AREA WOULD CRYSTALLIZE. FOR BUTTRE SSING THIS CONTENTION THE ASSESSEE HAS BEEN HARPING UPON CLAUS E 4.1 OF THE JOINT DEVELOPMENT AGREEMENT. THE LEARNED CIT (A) HA S NOTICED VARIOUS CLAUSES OF THE AGREEMENT IN THE IMPUGNED OR DER WHILE REPRODUCING THE WRITTEN SUBMISSIONS OF THE ASSESSEE . WE HAVE GONE THROUGH THE AGREEMENT. CLAUSE 1.2 OF THE AGREE MENT PROVIDES THE SHARES OF THE OWNER IN THE CONSTRUCTED AREA. THE ASSESSEE ALONG WITH HIS BROTHER WOULD GET 50% OF TH E SHARE IN THE TOTAL CONSTRUCTED AREA. THERE IS NO DISPUTE. TH E ASSESSEE HAS ALREADY OPTED CONVERSION OF THE LAND FOR RESIDENTIA L PURPOSE AND FOR FURTHER CONVERSION INTO OR FOR COMMERCIAL USE, THE DEVELOPER WILL BE LIABLE. CLAUSE 2 DEALS WITH CONSIDERATION A ND CLAUSE 3 WITH PLANS/LICENSE, CLAUSE 4 POSSESSION BY WAY OF A N IRREVOCABLE LICENSE, CLAUSE 5 POWER OF ATTORNEY. THE READING OF THE AGREEMENT WOULD SUGGEST THAT THE OWNERS I.E. THE ASSESSEE AND HIS BROTHER HAVE EXECUTED AN IRREVOCABLE LICENSE IN FAVOUR OF T HE BUILDER TO ENTER INTO THE SCHEDULED PROPERTY AND DEVELOP THE S AME BY PUTTING UP THE CONSTRUCTION. THEY HAVE ALSO EXECUTE D THE POWER OF ATTORNEY. THE OWNER HAS FURTHER AUTHORIZED THE B UILDERS TO ITA 676 AND CO 45 NS NAGARAJ BANGALORE PAGE 8 OF 12 SELL, TRANSFER ITS CONSTRUCTED AREA TO THEIR CLIENT S SUB CLAUSE 5.2 AND 5.3 ARE WORTH TO REFER IN THIS RESPECT WHICH RE AD AS UNDER: 5.2 FURTHER THE OWNERS SHALL EXPRESSLY, EMPOWER THE DEVELOPER TO SELL/TRANSFER, THE DEVELOPERS CONSTRUCTED AREA TO THEIR CLIENTS/NOMINEES OR THEIR SUCCESSORS ALONG WITH UNDIVIDED SHARE OF LAND, ON COMPLETION OF THE PROJECT. 5.3 THE OWNERS AGREE TO EXECUTE SUCH OTHER PAPERS AND DOCUMENTS REQUIRED FOR THE PURPOSE OF PLAN SANCTIONS FROM THE REQUISITE STATUTORY AUTHORITIES, STATUTORY BODIES AND/OR DEPARTMENTS INCLUDING CMC, BANGALORE DEVELOPMENT AUTHORITY, BANGALORE MAHANAGARA PALIKE, KARNATAKA POWER TRANSMISSION CORPORATION LTD, BANGALORE ELECTRIC SUPPLY COMPANY (BESCOM), BANGALORE WATR SUPPLY AND SEWERAGE BOARD, POLLUTION CONTROL BOARD, AIRPORT AUTHORITY, FIRE CONTROL DEPARTMENT FOR GETTING PERMISSIONS AND SANCTIONS, FOR THE EFFECTIVE DEVELOPMENT AND COMPLE TION OF THE PROJECT. 12. THUS, THE ASSESSEE HAS DIVESTED THE POSSESSION OF THE LAND TO THE DEVELOPER AND IN LIEU OF THAT, HE ALONG WITH HIS BROTHER WOULD RECEIVE CONSIDERATION IN THE SHAPE OF 50% CON STRUCTED AREA. AT THIS STAGE, IT IS PERTINENT TO REFER THE J UDGMENT OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF T.V.SUNDRA M IYENGAR & SONS. IN THIS CASE THE ASSESSEE CARRIED ON BUSINE SS IN PURCHASE AND SALE OF MOTOR VEHICLE. IN THE ASST. YR . 1947-48, ASSESSEE HAD SOLD ITS LORRIES, TAXIES AND VANS TO A COMPANY FOR A CERTAIN SUM. THE ASSESSEE WAS MAINTAINING ITS BOOKS OF ACCOUNT ON MERCANTILE BASIS. IT HAD SHOWN SALE PRICE OF ASS ETS AS RECEIPT. SUBSEQUENT TO ITS YEAR OF ACCOUNTING, ASSESSEE AGRE ED TO ACCEPT IN LIEU OF CASH FULLY PAID-UP SHARES IN PURCHASER C OMPANY FOR THE AMOUNT REPRESENTING WDV OF SAID VEHICLE WHICH WAS M UCH LOWER ITA 676 AND CO 45 NS NAGARAJ BANGALORE PAGE 9 OF 12 THEN THE PRICE AT WHICH ASSETS WERE SOLD. THE ASSES SEE WAS ASSESSED TO CAPITAL GAINS TAX ON SUM REPRESENTING S ELLING PRICE LESS WDV OF ASSETS. THE ISSUE AROSE BEFORE THE HON BLE COURT WAS WHETHER WITHOUT ANY UNDERSTATING THAT PRICE WAS TO BE PAID TO ANY FUTURE TIME, PRICE BECOME PAYABLE FORTHWITH IN THE RELEVANT ACCOUNTING PERIOD AND ASSESSEE OBTAINED A RIGHT TO RECEIVE PRICE IN THAT YEAR AND ITS PROFIT, THEREFORE, CAPITAL GAI NS HAS ARISEN IN THAT ASSESSMENT YEAR. THE HONBLE COURT HAS HELD TH AT RIGHT TO RECEIVE THE PRICE HAD ACCRUED TO THE ASSESSEE IN TH E ACCOUNTING YEAR RELEVANT TO THE ASST. YR. 1947-48. THE HONBLE COURT FURTHER HELD THAT IN THE SUBSEQUENT YEARS WHAT PARTIES DID WOULD NOT HAVE ANY BEARING ON THEIR TAX LIABILITY FOR THAT YE AR. SIMILARLY, HONBLE ANDHRA PRADESH HIGH COURT HAS ALSO CONSIDER ED THIS ISSUE IN THE CASE OF G.M. OMARKHAN (116 ITR 950). T HE HONBLE COURT HAS CONSIDERED FOUR QUESTIONS OF LAW IN THIS JUDGMENT. QUESTION NO. 3 IS RELEVANT FOR OUR PROPOSITION. IT READS AS UNDER : 'WHETHER THE PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET CAN BE CHARGEABLE TO INCOME-TAX IF THE TRANSFER IS AFFECTED IN THE PREVIOUS YEAR AND IF NO AMOUNT IS RECEIVED ?' THE HONBLE COURT HAS CONSIDERED THE JUDGMENT OF HO NBLE MADRAS HIGH COURT IN THE CASE OF T.V. SUNDARAM IYEN GAR & SONS LTD. (SUPRA) AND ALSO THE JUDGMENT OF HONBLE SUPRE ME COURT IN THE CASE OF ALAPATI VENKATARAMIAH VS. CIT (1965) 57 ITR 185 (SC). THE HONBLE COURT HAS OBSERVED THAT TO ATTRAC T THE LIABILITY TO TAX UNDER S. 45, IT IS SUFFICIENT IF IN THE ACCO UNTING YEAR, PROFITS HAVE ARISEN OUT OF THE TRANSFER OF CAPITAL ASSETS, IN OTHER WORDS, THE ASSESSEE HAD A RIGHT TO RECEIVE THE PROFIT. ACT UAL RECEIPT OF PROFIT IS NOT A RELEVANT CONSIDERATION. ONCE PROFIT HAVE ARISEN IN ITA 676 AND CO 45 NS NAGARAJ BANGALORE PAGE 10 OF 12 THE ACCOUNTING YEAR OUT OF THE TRANSFER OF THE CAPI TAL ASSETS, THAT WOULD BE SUFFICIENT TO ATTRACT LIABILITY UNDER S. 4 5 OF THE ACT. 13. THE CONTENTION OF THE ASSESSEE THAT IT IS EXCHA NGE OF ASSET AND TRANSFER WOULD MATERIALIZE WHEN THE ASSESSEE WO ULD RECEIVE THE CONSTRUCTED PORTION. IN THIS SITUATION, THE ASS ESSEE AND HIS BROTHER WOULD AGREE TO DEVELOP THE PROPERTY JOINTLY WITH THE DEVELOPER, THEY WOULD CONTRIBUTE THE CAPITAL IN THE SHAPE OF LAND AND THE BUILDER WOULD CONTRIBUTE THE CAPITAL IN THE SHAPE OF COST OF CONSTRUCTION. IN SUCH SITUATION, IT WOULD BE A B USINESS INCOME IN THE HANDS OF AOP. BUT THAT IS NOT THE CASE HERE. THEY HAVE NOT AGREED FOR JOINTLY DOING THE BUSINESS, NEITHER BUIL DER SHOWN SUCH AN INTENTION. THE ASSESSEE HAD RELINQUISHED HIS RIG HTS IN THE LAND UPON WHICH DEVELOPER HAS INCURRED COST OF CONS TRUCTION AND DEVELOP THE PROPERTY. IN LIEU OF THE RELINQUISHMENT OF RIGHTS IN THE LAND WHICH ULTIMATELY WOULD VEST IN THE DEVELOP ER, THE ASSESSEE AND HIS BROTHER WOULD RECEIVE 1.50 LAKHS S FT OF THE CONSTRUCTED AREA. THE YEAR IN WHICH THE AREA WOULD BE GIVEN TO THE ASSESSEE IS IMMATERIAL. THE MOMENT THE OWNERS H AVE HANDED OVER THE POSSESSION TO THE DEVELOPER A RIGHT TO REC EIVE THE DEVELOPED AREA WOULD ACCRUE TO THE OWNERS. IT IS A CONSIDERATION IN KIND, WHICH HAS A VALUE, WHICH CAN BE WORKED OUT . AS FAR AS THE DECISION RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE IS CONCERNED, THEY ARE NOT APPLICABLE ON THE FACTS. IN THE CASE OF JAGBEER SINGH SARKARIA (SUPRA) A LETTER OF INDENT W AS EXECUTED IN FAVOUR OF THE DEVELOPER BY THE LAND OWNERS WHICH AU THORIZED A PROVISIONAL PERMISSION OF ENTERING INTO THE LAND, L ATER ON THE OWNERS AGREED TO EXECUTE AN IRREVOCABLE GENERAL POW ER OF ATTORNEY IN FAVOUR OF THE DEVELOPER OR THEIR NOMINE ES AUTHORIZING ITA 676 AND CO 45 NS NAGARAJ BANGALORE PAGE 11 OF 12 THEM TO BOOK AND SELL THE DWELLING UNITS FALLING TO THEIR SHARES. BUT THE CASE IN HAND, BY VIRTUE OF THE DEVELOPMENT AGREEMENT, AS SEEN FROM CLAUSE 5.2, THE OWNERS HAVE AGREED THAT T HE DEVELOPER COULD SELL, TRANSFER THE AREA TO ITS CLIENTS. THERE IS INHERENT DIFFERENCE BETWEEN THE FACTS OF BOTH THE CASES. 14. IN THE CROSS OBJECTION, IT HAS BEEN PLEADED THA T MARKET VALUE OF THE LAND TO BE TRANSFERRED TO THE DEVELOPE R AS ON THE DATE OF THE JOINT DEVELOPMENT AGREEMENT SHOULD BE ADOPTE D AS A CONSIDERATION. SECTION 48 OF THE I.T. ACT CONTEMPLA TES THAT THE INCOME CHARGEABLE UNDER THE HEAD, CAPITAL GAINS SHA LL BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CO NSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET, THE FOLLOWING AMOUNTS NAMELY; A) EXPENDITURE INCURRED WHOLLY OR EXCLUSIVELY IN CONNECTION SUCH TRANSFER B) THE COST OF ACQUISITION OF THE ASSET AND THE COS T OF ANY IMPROVEMENT. 15. THUS, FROM THE FULL VALUE OF THE CONSIDERATION, THE ASSESSEE CAN DEDUCT TWO ITEMS THAT ISSUE IS NOT IN DISPUTE B EFORE US. THE DISPUTE IS WHAT IS THE FULL VALUE OF THE CONSIDERAT ION. ACCORDING TO THE ASSESSEE, THE FULL VALUE OF THE CONSIDERATIO N SHOULD BE A FAIR MARKET VALUE OF THE LAND TO BE TRANSFERRED TO THE DEVELOPER. SECTION 48 NOWHERE TALKS OF FAIR MARKET VALUE. IT T ALKS OF FULL CONSIDERATION. FULL CONSIDERATION IN THIS CASE IS T HE COST OF CONSTRUCTION INCURRED BY THE BUILDER ON THE ASSESSE ES SHARE OF CONSTRUCTED AREA, BECAUSE THE ASSESSEE WOULD RECEIV E CONSTRUCTED AREA IN LIEU OF THE LAND SHARE. WHATEVE R IS THE EXPENDITURE INCURRED FOR CONSTRUCTING THAT AREA IS A CONSIDERATION IN KIND TO THE ASSESSEE. THE ASSESSIN G OFFICER HAS ITA 676 AND CO 45 NS NAGARAJ BANGALORE PAGE 12 OF 12 ESTIMATED THIS CONSIDERATION AT RS.800/PER SFT WHIC H IS THE MINIMUM RATE ADOPTED BY HIM ON THE BASIS OF THE EXP ENDITURE ACCOUNTED BY THE DEVELOPER. THUS THERE CANNOT BE AN Y FAULT IN THE COMPUTATION OF CAPITAL GAIN MADE BY THE ASSESSI NG OFFICER. TAKING INTO CONSIDERATION OF THESE FACTS AND CIRCUM STANCES, WE DO NOT FIND ANY MERIT IN THE CROSS OBJECTION FILED BY THE ASSESSEE, IT IS DISMISSED. THE LEARNED CIT (A) WAS NOT JUSTIF IED IN HOLDING THAT NO CAPITAL GAIN HAS ACCRUED TO THE ASSESSEE ON ACCOUNT OF TRANSFER OF LAND IN THIS YEAR. THE ORDER OF THE LEA RNED CIT (A) IS SET ASIDE AND THAT OF THE ASSESSING OFFICER IS REST ORED. 16. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED AND THE CROSS OBJECTION OF THE ASSESSEE IS REJECTED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST DECEMBER, 2014. SD/- SD/- (ABRAHAM P. GEORGE) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 1 ST DECEMBER, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE