IT APPEAL NO. 676 (BANG.) OF 2011 
C.O. NO. 45 (BANG.) OF 2013
[ASSESSMENT YEAR 2007-08]

RAJPAL YADAV, JUDICIAL MEMBER 
AND ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

C.H. Sundar Rao, CIT (DR) for the Appellant. 
C. Ramesh, CA for the Respondent.

ORDER

Rajpal Yadav, Judicial Member - The Revenue is in appeal before us against the order of the learned CIT (A) dated 2nd February, 2011 passed for assessment year 2007-08. On receipt of the notice in the Revenue's appeal, the assessee has filed cross objection bearing No.45/Bang/2013.

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 assessee has incorporated the statement of facts and grounds together in the grounds of cross objections.

2. In brief the common question involved in the appeal as well as cross objection is, whether on execution of joint 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 Officer or some other figures is to be computed.

3. The brief facts of the case are that the assessee has filed his return of income on 31.12.2007 declaring an income of Rs.3,54,480/-. The case of the assessee was selected for scrutiny assessment and notices u/s 143(2), 142(1) were issued and served upon the assessee. On scrutiny of the accounts, it revealed to the Assessing Officer that the assessee along with his brother Mr. Nandish Reddy were the owner and in possession of 2 acres and 14 guntas of land comprised at Survey No.36/5, Doddanekundi Village, KR Puram Hobli, Bangalore East Taluk. They entered into a joint development agreement on 9.8.2006 with M/s Akme Project Ltd. As per the agreement, the assessee and his brother jointly received refundable deposit of Rs.1.00 crore for allowing the development on their land. The 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 built up area i.e. 1.50 lakh sft minimum. The assessee and his brother had given an irrevocable license to the developer to enter and develop the property. They have also executed a power of attorney in favour of the developer to enable the developer to gets sanction site plans, license and other approvals for the development of entire scheduled property. The developer was authorised to avail loans and financial facilities from the financial institutions. The Assessing Officer was of the view that the assessee's 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 Income Tax Act and the assessee's are assessable for long term capital gain. The Assessing Officer has computed the Long Term Capital Gain in the case of assessee as under:

4. The Assessing Officer has adopted the consideration of the land at Rs.800/- per sft, because this was the expenditure which the builder will incur for constructing the area. In lieu of this the assessee's have relinquished their rights in the land 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 computation of LTCG, hence he challenged the assessment order in appeal 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 to the assessee, though the joint development agreement provides an irrevocable license to the builder and to develop the entire property by putting up construction of multi storied building(s), but the agreement does not give possession of the property in the sense that the developer by virtue of possession cannot dispose off the property or in any manner as the developer prefers. It was also contended that no agreement to sell in favour of the developer as part performance contemplated under the provisions of section 53(A) of the transfer property act was executed. The emphasis was that only permissive possession was given to the developer and not the absolute possession 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 assessee as on the date of entering into joint development and executing the power of attorney taken place. Therefore, capital gain is not assessable, but the learned first appellate authority further observed that it is a case of exchange of assets, it is the market value of the built up area had to be considered as consideration for computation of LTCG in the year in which the built up area is handed over to the land owners.

7. Before us, the learned DR contended that the assessee and his brother have relinquished the 50% share in the land in favour of the builder by execution of the joint development agreement. They have fixed the consideration at 1.50 lakhs sft of constructed area. The consideration is in kind, whose value can be determined. They have given the possession of the land to the developer. Fifty per cent of the land of course would remain with the assessee along with their right of constructed area. Therefore, merely by mentioning in clause 4.1, terms contained in the agreement should not be construed transfer of the land either u/s 53A of T.P. Act or by delivery of possessions u/s 2(47) of the I.T. Act, cannot absolve them with the application of statutory provisions. He relied upon the judgment of the Hon'ble Karnataka High Court in the case of CIT v. Dr. T.K. Dayalu [2011] 202 Taxman 531/14 taxmann.com 120. He placed on record a copy of the Hon'ble High Court decision. He also relied upon the decision of the ITAT Hyderabad Bench in the case of Asstt. CIT v. A-Ram Reddy [2012] 52 SOT 521/23 taxmann.com 59. He pointed out that in this case the Tribunal has considered the definition of transfer 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 Iyengar & Sons Ltd. v. CIT [1959] 37 ITR 26.

8. On the other hand the learned Counsel for the assessee relied upon the order of the CIT (A) and contended that the assessee has given conditional possession to the developer. The developer could not use the possession according to his choice. In a way, a license was given to enter into land and 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, In re [2007] 294 ITR 196/164 Taxman 108 (AAR - New Delhi). He also relied upon the judgment of the Karnataka High Court in the case of CIT v. Ved Prakash Rakhra [2012] 210 taxman 605/26 taxmann.com 166.

9. In support of the cross objection, the learned Counsel for the assessee contended that while computing the capital gain, cost of the land transferred to the builder ought to be considered as consideration. For buttressing his contention, he made reference to the judgment of the Hon'ble Karnataka High Court in the case of Ved Prakash Rakhra(supra).
10. We have duly considered the rival contentions and gone through the record carefully. Section 2(47) has a direct bearing on the controversy. Therefore, it is pertinent to take note of relevant clauses from page 407 of the SOT.

"Section 2(47)
'transfer', in relation to a capital asset, includes

(v) 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, 1882 (4 of 1882);"
A bare reading of the above provision, it woulld reveal that in order to determine the capital gain as arisen to an assessee, there are basically three ingredients:

11. The dispute between the assessee and the Revenue is that on execution of the joint development agreement on 9.8.2006, no transfer has taken place. The assessee has just exchanged the assets. He along with his brother has given the land to the developer who will develop that land and provide the developed area to the assessee. On the day when developer would hand over the developed area, only then the transfer of the land in lieu of the developed area would crystallize. For buttressing this contention the assessee has been harping upon clause 4.1 of the joint development agreement. The learned CIT (A) has noticed various clauses of the agreement in the impugned order while reproducing the written submissions of the assessee. We have gone through the agreement. Clause 1.2 of the agreement provides the shares of the owner in the constructed area. The assessee along with his brother would get 50% of the share in the total constructed area. There is no dispute. The assessee has already opted conversion of the land for residential purpose and for further conversion into or for commercial use, the developer will be liable. Clause 2 deals with consideration and clause 3 with plans/license, clause 4 possession by way of an 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 the builder to enter into the scheduled property and develop the same by putting up the construction. They have also executed the power of attorney. The owner has further authorized the builders to sell, transfer its constructed area to their clients sub clause 5.2 and 5.3 are worth to refer in this respect which read as under:
"5.2 Further the OWNERS shall expressly, empower the DEVELOPER to sell/transfer, the DEVELOPER'S 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 completion 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% constructed area. At this stage, it is pertinent to refer the judgment of the Hon'ble Madras High Court in the case of T.V.Sundaram Iyengar & Sons Ltd. (supra) In this case the assessee carried on business 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 assets as receipt. Subsequent to its year of accounting, assessee agreed to accept in lieu of cash fully paid-up shares in purchaser company for the amount representing WDV of said vehicle which was much lower then the price at which assets were sold. The assessee was assessed to capital gains tax on sum representing selling 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 gains has arisen in that assessment year. The Hon'ble Court has held that right to receive the price had accrued to the assessee in the accounting year relevant to the asst. yr. 1947-48. The Hon'ble Court further held that in the subsequent years what parties did would not have any bearing on their tax liability for that year. Similarly, Hon'ble Andhra Pradesh High Court has also considered this issue in the case of Addl. CIT v. G.M. Omarkhan [1979] 116 ITR 950. The Hon'ble 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 Hon'ble Court has considered the judgment of Hon'ble Madras High Court in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra) and also the judgment of Hon'ble Supreme Court in the case of Alapati Venkataramiah v. CIT [1965] 57 ITR 185. The Hon'ble Court has observed that to attract the liability to tax under s. 45, it is sufficient if in the accounting year, profits have arisen out of the transfer of capital assets, in other words, the assessee had a right to receive the profit. Actual receipt of profit is not a relevant consideration. Once profit have arisen in the accounting year out of the transfer of the capital assets, that would be sufficient to attract liability under s. 45 of the Act.

13. The contention of the assessee that it is exchange of asset and transfer would materialize when the assessee would receive the constructed portion. In this situation, the assessee 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 business income in the hands of AOP. But that is not the case here. They have not agreed for jointly doing the business, neither builder shown such an intention. The assessee had relinquished his rights in the land upon which developer has incurred cost of construction and develop the property. In lieu of the relinquishment of rights in the land which ultimately would vest in the developer, the assessee and his brother would receive 1.50 lakhs sft of the constructed area. The year in which the area would be given to the assessee is immaterial. The moment the owners have handed over the possession to the developer a right to receive 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 Jasbir Singh Sarkaria (supra) a letter of indent was executed in favour of the developer by the land owners which authorized a provisional permission of entering into the land, later on the owners agreed to execute an irrevocable general power of attorney in favour of the developer or their nominees authorizing 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 the 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 that market value of the land to be transferred to the developer as on the date of the joint development agreement should be adopted as a consideration. Section 48 of the I.T. Act contemplates that the income chargeable under the head, capital gains shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the following amounts namely;

15. Thus, from the full value of the consideration, the assessee can deduct two items that issue is not in dispute before us. The dispute is what is the full value of the consideration. According to the assessee, the full value of the consideration should be a fair market value of the land to be transferred to the developer. Section 48 nowhere talks of fair market value. It talks of full consideration. Full consideration in this case is the cost of construction incurred by the builder on the assessee's share of constructed area, because the assessee would receive constructed area in lieu of the land share. Whatever is the expenditure incurred for constructing that area is a consideration in kind to the assessee. The Assessing Officer has estimated this consideration at Rs.800/per sft which is the minimum rate adopted by him on the basis of the expenditure accounted by the developer. Thus there cannot be any fault in the computation of capital gain made by the Assessing Officer. Taking into consideration of these facts and circumstances, we do not find any merit in the cross objection filed by the assessee, it is dismissed. The learned CIT (A) was not justified in holding that no capital gain has accrued to the assessee on account of transfer of land in this year. The order of the learned CIT (A) is set aside and that of the Assessing Officer is restored.

16. In the result appeal of the Revenue is allowed and the cross objection of the assessee is rejected.