INCOME TAX ACT, 1961

Section 5

Income - Accrual - Amount received on transfer of development rights -

AO reopened assessee's case on noticing that M/s. T Developer, i.e. proprietorship concern of assessee, had transferred certain development rights to M/s. S (P) Ltd. for a consideration of Rs. 336 Lacs, out of which an amount of Rs. 100.80 Lacs was stated to be received during financial year 2008-09. AO held that assessee transferred the development rights and handed over the possession of property, the aforesaid transfer qualified to be treated as transfer under section 53A of Transfer Property Act, 1882 and therefore, resultant gains would be chargeable to tax as Business Profits. Since assessee followed mercantile system of accounting, the entire amount received/receivable on sale of development rights would be taxable in the year of signing of development agreement and handing over of possession of land. Therefore, the amount of Rs. 336 Lacs was treated as business income against which expenditure of Rs. 58.80 Lacs was allowed to the assessee and the balance amount of Rs. 277.20 Lacs was determined as business income. Held: The income can be said to accrue when it becomes due. Assessee was engaged as civil contractor and the income earned from the stated project was assessed as Business Income. Therefore, the term 'transfer' as defined in section 2(47)(v), would not apply since the same was applicable only in case of capital assets held by assessee. The development rights were held as business assets. Proceeding further, it was evident from the terms of the Joint Venture Agreement that only part income accrued to the assessee on execution of the project agreement. The balance consideration was conditional receipt and was to accrue only in the event of assessee performing certain obligations under the agreement. Another pertinent fact to be noted was that the payments received in subsequent years had already been offered to tax. Therefore, no fault could be found in the impugned order in estimating the income @10% of gross receipts. Once the income was estimated, no further disallowance under section 40A(3) would be warranted.

REFERRED : Anil Rai v. State of Bihar 2009 TaxPub(EX) 0022 (SC); Morvi Industries Limited v. CIT (Central) (1971) 82 ITR 835 (SC) : 1971 TaxPub(DT) 0397 (SC); CIT, Bombay City I v. Messrs. Shoorji Vallabhdas and Company (1962) 46 ITR 144 (SC) : 1962 TaxPub(DT) 0307 (SC); ED. Sassoon And Company Limited & Ors. v. CIT (1954) 26 ITR 27 (SC) : 1954 TaxPub(DT) 0103 (SC); Otters Club v. Director of Income Tax (Exemptions) Mumbai & Others (2017) 392 ITR 244 (Bom) : 2017 TaxPub(DT) 0689 (Bom-HC); The CIT-8, Mumbai v. Mrs. Hemal Raju Shete (ITA No. 2348 of 2014) : 2016 TaxPub(DT) 2102 (Bom-HC); Shivsagar Veg. Restaurant v. Asstt. CIT (2009) 317 ITR 433 (Bom) : 2009 TaxPub(DT) 1040 (Bom-HC); Dy. CIT Central Circle 3 (2), Mumbai v. JSW Limited & (Vice-Versa) (ITA Nos. 6264 & 6103/Mum/2018) Order, dated 14-5-2020 : 2020 TaxPub(DT) 2142 (Mum-Trib)

FAVOUR : Partly in assessee's favour.

A.Y. : 2009-10

INCOME TAX ACT, 1961

Section 254

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