THE issue before the bench is - Whether when there is no pro rate transfer of land to developer, assessee can be made liable to pay capital gains tax with respect to remaining land for which no payment was received as development agreement was cancelled due to various court orders. NO is the answer.
Facts of the case
The assessee, an individual, is a member of M/s Defence Services Cooperative House Building Society Limited, Mohali consisting of various members. The society was owner of 27.3 acres of land. The members of the society had been allotted plots of various sizes. A resolution was passed by the Executive Committee of the society that all the members would surrender their rights in the property to the society and the society would enter into an agreement on behalf of the members with developers to develop 27.3 acres of land owned by the society. On 27.4.2007, the society entered into tripartite Joint development Agreement with HASH and THDC to develop the land and it was agreed that in lieu of grant of development rights, the developers will pay a monetary consideration of Rs. 80 lacs to be paid in installments and additionally one built up flat measuring 2250 square feet in the project to be given to each individual member of the society having plot size of 500 square yards in the land owned by the society. On 25.2.2007, assessee having plot of 500 square yards received part of the entire consideration. The members of the society issued an irrevocable power of attorney in favour of the developers to undertake various acts in furtherance of JDA. First sale deed was executed for registration of 3.08 acres of land by the society in favour of THDC. On 25.4.2007, second sale deed for transfer of 4.62 acres of land was registered by the society in favour of THDC against payment of second installment of Rs. 18 lacs received by each member having plot size of 500 square yards. Assessee declared an income of Rs. 2,72,496/- for AY 2008-09. The sources of income were shown as salary and business income. On 7.1.2010, revised computation of income was filed by assessee during the assessment proceedings declaring income of Rs. 22,50,730/- which included capital gains on the consideration of advances and part payment under the JDA. On 17.2.2010, notice u/s 148 was issued to the assessee who stated in reply that revised return already filed on 1.1.2010 be treated in response to the notice. On 5.5.2010, assessee filed computation of income before AO declaring income of Rs. 22,50,730/- from salary, business income and long term capital gain. AO passed an order and consideration receivable by the assessee under the JDA was brought to tax under the head 'capital gains'.
The assessee filed an appeal before CIT(A) on 9.6.2011. Pursuant to a PIL, HC stayed construction/development of the project. On 28.1.2011, the society issued letter to HASH for payment of third installment in accordance with clauses of the JDA. On 4.2.2011, HASH stated that the third installment would become due only after obtaining permission to commence construction. On 11.5.2011, the society sent legal notice stating that time was the essence of the JDA and delay was attributable to the developers in obtaining necessary approval from the competent authority. The society gave 30 days time to the developers to make the payment of the third installment. On non receipt of the payment on 13.6.2011, the society passed a resolution to terminate the attorney issued in favour of the developers. On 31.10.2011, the society cancelled the power of attorney issued in favour of the developers. High Court directed the developers to obtain additional permission under the Punjab New Capital (Periphery) Control Act, 1952. High Court in a writ petition, ordered stay of construction in the entire catchment area of Sukhna Lake as per survey of India record which also covered the project under consideration. The court also ordered for demolition of any structure after 11.3.2011. Status quo was granted by SC, wherein the court directed that no construction should be undertaken in the area in question. Thus, CIT(A) dismissed the appeal filed. On further appeal, Tribunal also dismissed the appeal upholding the order passed by AO and affirmed by the CIT(A) bringing the entire consideration receivable to tax under the JDA.
++ the Tribunal had adjudicated the appeals of the assessees relying upon the order dated 29.7.2013 passed by it in the case of Charanjit Singh Atwal vs. ITO, Ward No.VI(I) Ludhiana 2013-TIOL-1111-ITAT-CHD against which ITA No.200 of 2013 was filed in this Court. After considering the relevant statutory provisions and the case law, the conclusions arrived at by this Court were that perusal of the JDA dated 25.2.2007 read with sale deeds dated 2.3.007 and 25.4.2007 in respect of 3.08 acres and 4.62 acres respectively would reveal that the parties had agreed for pro-rata transfer of land. No possession had been given by the transferor to the transferee of the entire land in part performance of JDA dated 25.2.2007 so as to fall within the domain of Section 53A of 1882 Act. The possession delivered, if at all, was as a licencee for the development of the property and not in the capacity of a transferee. Further Section 53A of 1882 Act, by incorporation, stood embodied in section 2(47)(v) and all the essential ingredients of Section 53A of 1882 Act were required to be fulfilled. In the absence of registration of JDA dated 25.2.2007 having been executed after 24.9.2001, the agreement does not fall u/s 53A of 1882 Act and consequently Section 2 (47)(v) does not apply. It was submitted by counsel for the assessee that whatever amount was received from the developer, capital gains tax has already been paid on that and sale deeds have also been executed. In view of cancellation of JDA dated 25.2.2007, no further amount has been received and no action thereon has been taken. It was urged that as and when any amount is received, capital gains tax shall be discharged thereon in accordance with law. In view of the aforesaid stand, while disposing of the appeals, we observe that the assessee shall remain bound by their said stand. The issue of exigibility to capital gains tax having been decided in favour of the assessee, the question of exemption u/s 54F would not survive any longer and has been rendered academic. The Tribunal and the authorities below were not right in holding the assessee to be liable to capital gains tax in respect of remaining land measuring 13.5 acres for which no consideration had been received and which stood cancelled and incapable of performance at present due to various orders passed by SC and the HC in PILs. Therefore, the appeals are allowed. The substantial questions of law were answered and appeals disposed of accordingly. It was not disputed between the counsel for the parties that the issue involved herein is squarely covered by the aforesaid judgment. Accordingly, the present appeals are disposed of in the same terms