Fibars Infratech Pvt. Ltd vs. ITO (ITAT Hyderabad)

DATE: (Date of pronouncement)
DATE: January 20, 2014 (Date of publication)

Click here to download the judgement (Fibars_Development_Agreement_Capital_Gains.pdf)

S. 2(47)(v): A development agreement by which possession is transferred to developer is not a “transfer” for capital gains purposes if developer’s willingness to perform his part of the contract is not ascertainable with certainty

The assessee entered into a Development Agreement-cum-GPA with MAK Projects on 15.12.2006 (AY 2007-08). The agreement provided the MAK would construct a villa township in 30 months and that the assessee was entitled was entitled to a certain portion (16 villas) of the developed area as consideration for the transfer of the land. Though possession of the property was handed over to the developer, the assessee claimed that the transaction did not give rise to capital gains in AY 2007-08 on the basis that (a) the consideration was neither received nor quantified, (b) the project was at the conception stage and even the building plan approvals were not received & (c) the developer had not incurred any expenditure on the project. The AO & CIT(A) relied on Chaturbhuj Dwarakadas Kapadia 260 ITR 491 (Bom) where it was held that the execution of a development agreement amounted to a transfer u/s 2(47)(v) and gave rise to capital gains. On appeal by the assessee to the Tribunal HELD allowing the appeal:

S. 2(47)(v) provides that the term ‘transfer‘ includes “any transaction involving the allowing of, the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act”. In order to be “of the nature referred to in s. 53A of the Transfer of Property Act”, the necessary precondition is that the transferee should be willing to perform his part of the contract. The “willingness” has to be absolute and unconditional. If willingness is studded with a condition, it is no more than an offer and cannot be termed as willingness. On facts, the “willingness” of the developer to perform his part of the obligations is not ascertainable in AY 2007-08 because (a) the consideration was not paid to the assessee, (b) the building plans had not been approved, (c) there was no progress with regard to development in the AY, (d) there was no investment by the developer in the construction activity during the AY. It is not possible to say whether the developer is prepared to carry out those parts of the agreement to their logical end. The fact that the assessee has given possession is not relevant. Consequently, s. 2(47)(v) does not apply and the capital gains is not assessable to tax (Chaturbhuj Dwarakadas Kapadia 260 ITR 491 (Bom) explained/ distinguished)

Note: The same view was taken earlier in General Glass 108 TTJ 854 (Mum) (see paras 9 to 18 which are identical to paras 46 to 55 of the present order). Contrast with Charanjit Singh Atwal vs. ITO (ITAT Chd) where a contrary view was taken following Chaturbhuj Kapadia 260 ITR 491 (Bom) but without appreciating the fine point regarding certainty of developers’ “willingness” to perform his part of the bargain
4 comments on “Fibars Infratech Pvt. Ltd vs. ITO (ITAT Hyderabad)
  1. Redevelopment work is just re development till the work is completed it is continuing activity. No CG arises. that is sane way to look at things by revenue. no need to be over enthusiastic by revenue, yes there is enormous amount of pressure on revenue to get collections by dept.

    again taxing statutes are irrationally filled with irrelevant clauses and sub clauses and the like. Naturally AO is bound to misunderstand as AOs or CITs (A) too are not full blown legal professionals. they are some kind of half knowledgeable legal personnel, so they tend to make a lot of mistakes.

    it is all the more necessary the finance ministry to ensure the very Act is duly modified and highly simplified in their own interest i believe. Else unnecessarily legal expenses accrue at the cost of tax payers moneys as exchequer as also assessees also made to unnecessarily wasting money in unnecessary legal expenses that these expenses need to be saved in National interest.

  2. LC Valecha says:

    Agreed. Most of the AOs as well as CsIT(A) know very less about accountancy and law. The bad part is that they are normally not willing to listen & read the written replies given to them. They are also not willing to discuss on both subjects. They always pose to know everything. The truth of life is that there is lot to learn till the moment of death.

    • dear Mr.
      LCV, you are right.

      CITs and AOs behave the way you said. That causes a lot of hazards, simply because most of them fall under ‘half learned category when they hold some LL.B degrees.

      Same s the cae in several government departments where these kind of learneds are in positions of importance that is ‘durbaghya’ to people who happen to meet them.

      In a case I could see, an Assessee filed Form 35 before CIT(A) AGAINST an impugned Notice u/s 143(2) read with 142(2) after expiry of six months of the ROI IN an AY, IN the financial year when the ROI was filed violating sec 43(2)(ii)…’PROVIDED…’that No Notice under cl.(ii) shall be served on the Assessee AFTER SIX months end of FINANCIAL YEAR (FY) in which the Return of Income filled.’.

      In that specified case AO did not do his legal duty whether he was entitled to issue 143 Assessment Notice, after his Mandatory time Limitation prescription under sec 43(2)(ii) of six months rule had expired by about over an year, but simply issued Notice followed by 156 Notice with penalty without following Natural justice principle ..’audi alteram partem levied penalty on the Assessee saying Assessee concealed income some lacs though Asessee had deposited cash he received from his flat buyer in the same month in his bank account as Assess did not conceal any cash with him even for a month also but ld AO said in his Notice that Assessee could have laundered money when he gifted that money to his daughter out of india, through legal banking route.

      The Assesse was bed ridden by right side paralysis losing his memory as also his ability to speak by the time when AO’s so called impugned Notice surfaced and issued to the address from where assesse left as he sold that property, and also blamed and accused the Assessee had deliberately not informed the AO CONCERNED, OBVIOUSLY ALL HIS PRESUMPTIONS are some kind of concoction by his fertile imagination.

      so the Assesse through his CA filed Form 35 before CIT(A) WHO also did not examine time prescription stipulated by sec 143(2) (ii) in the income Tax Act 1961, proceeded to wrongly read Sale agreement of flat as that flat was sold against buyer’s bank loan which is releasable only when sale is executed before a sub registrar of stamps. ie after eecution only the banker directly releases the banker’s cheque directly to seller not through buyer. That clearly shows how low in accounting abilities of the CIT(A) one can notice. As a result CIT(A) adds, by treating that banker’s cheque money proceeds too, to the so called supposed to be some black money.

      Thus CIT(a) PASSING SOME IMPUGNED ORDER that AO can add that cheque money too to the so called black money and the CIT INSTRUCTS AO to levy additional penalty too.

      The above narration confirms your views you observed in your observation above . thanks

  3. That assesse filed form 36 appeal before ITAT (M) WHICH MAY COME for directions of ITAT(M), some time now with proper statement of facts i prepared that forms part of the form 36.

    so Valecha how revenue woks callously can be seen?

    this reference strongly supports your view on legal and accounting knowledge of the Revenue officers in income tax department.

    I believe judicial Member may set aside or quashing the AO’s Notice as also setting aside or quashing the CIT (A) ORDER that is the expected as legitimate expectation under Natural justice, as time prescription means when once AO failed his six months prescription the AO has no other gho but to accept the ROI already filed, as law makers made it clear that revenue officers need to be alert if not they have to lose the revenue is the philosophy behind time prescription in any statute under time bar principle. thanks mr. valecha for your erudite knowledge you rightly portrayed.

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