Binjusaria Properties Pvt. Ltd vs. ACIT (ITAT Hyderabad)

S. 2(47)(v): Despite handing over possession & receiving advance, development agreement is not a “transfer” for capital gains purposes if developer has not performed his part of the contract

The assessee entered into a development agreement pursuant to which the developer agreed to develop the property according to the approved plan from the competent authority and deliver the owner 38% of the constructed area in the residential part to the assessee. The assessee also executed a power of attorney in favour of the developer and handed over vacant and peaceful possession of the entire land. The assessee received a refundable/ adjustable advance of Rs. 2 crore from the developer. The developer also incurred an expenditure of Rs. 1.34 crore in building a boundary wall, etc. The AO held that the act of entering into the development agreement and handing over possession constituted a “transfer” u/s 2(47)(v) of the Act and that the assessee was liable to capital gains u/s 45. This was upheld by the CIT(A). On appeal by the assessee to the Tribunal HELD allowing the appeal:

A transaction is deemed to be a “transfer” u/s 2(47)(v) of the Act if the conditions of s. 53A of the Transfer of Property Act are satisfied. For s. 53A, ‘willingness to perform’ of the transferee 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 TOP Act will come into play. On facts, a reading of the ‘Development Agreement-cum-General Power of Attorney’ indicates that what was handed over by the assessee to the developer is only ‘permissive possession’. The agreement specifically provides that the assessee has permitted the developer to develop the land and that the consideration receivable by the assessee from the developer is ‘38% of the residential part of the developed area’. That being so, it is only upon receipt of such consideration in the form of developed area by the assessee in terms of the development agreement, the capital gains becomes assessable in the hands of the assessee. Further, the facts show that even as on date, there was no developmental activity on the land. The process of construction has not been even initiated and no approval for the construction of the building is obtained. This is due to lapse on the part of the transferee. While the assessee has fulfilled its part of the obligation under the development agreement, the developer has not done anything to discharge the obligations cast on it under the develop agreement. Mere receipt of refundable deposit cannot be termed as receipt of consideration. Consequently, s. 53A does not apply. As a result, there is no “transfer” u/s 2(47)(v) of the Act (Fibars Infratech, Vijaya Productions 134 ITD 19 (TM) followed, Chaturbhuj Dwarkadas Kapadia 260 ITR 491 (Bom) distinguished)