INCOME TAX ACT, 1961

Section 2(47)

Capital gain - Transfer under section 2(47) - Sum received by assessee pursuant to a Development Agreement - Refunded late on

Assessee entered into a development agreement with an Infrastructure company for development of its land and developer was granted irrevocable licence to develop the land. Since physical possession of the property was given and an amount was received by assessee from developer towards advance during the financial year 2006-07, capital gains was eligible on the transfer of property as per provisions of section 2(47) read with section 45. Assessee in its return of income had not admitted capital gains and consequently, no assessment was made for the said year. Assessee resisted reopening contending that there was no transfer of the land and the transaction cannot be treated to be a deemed transfer under section 2(47)(v). AO held that since original development agreement and power of attorney were cancelled, it cannot be treated as transfer under section 2(47). However, amount received by assessee as advance had to be treated as a windfall gain and treated as income from other sources. Held: By no stretch of imagination, the sum received in the hands of the assessee can be treated to be a windfall gain as it did not accrue to the assessee as a result of circumstances outside their control. Therefore, the finding of AO was incorrect. What weighed in the mind of AO to hold that the amount lies in the hands of assessee was a windfall gain was by referring to an event which took place during assessment year. Obviously, this could not have been done by AO because the assessment which was the subject matter of consideration was of the year 2007-08. In fact, even on the date when AO completed the assessment under section 147 by Order, JDA was not rescinded and the Power of Attorney was not cancelled. Therefore, AO could not have held that this was on account of a windfall gain to be brought to tax under the head 'income from other sources'. Thus, Substantial Question of law was required to be answered against the revenue. The assessee entered into a development agreement with L&T Urban Infrastructure Ltd. for development of its land of 35 acres 44 cents and the development agreement was entered into on 9-3-2007. As per the various clauses of the development agreement, the developer was granted irrevocable licence to develop the land, vacant possession of the property was handed over to the developer and a power of attorney was also executed in favour of the developer by the assessee Company. Since physical possession of the property was given and an amount of Rs. 9 Crores was received by the assessee from the developer towards advance during the financial year 2006-07, capital gains was eligible on the transfer of property under consideration as per provisions of section 2(47) r/w. Section 45 of the Act. It was stated that for assessment year 2007-08, the assessee in its return of income had not admitted capital gains and consequently, no assessment was made for the said year. The assessee resisted reopening contending that there was no transfer of the land and the transaction cannot be treated to be a deemed transfer under section 2(47)(v) of the Act. Objections given by the assessee for the reopening of the assessment proposing to invoke section 2(47) of the Act was accepted by the assessing officer and it was held that the transaction cannot be treated as a transfer under section 2(47) of the Act. However, the assessing officer brought to tax the amount of Rs. 9 Crores under the head 'income from other sources' by treating it as a windfall gain. Tribunal held that Rs. 9 Crores received by the assessee pursuant to a Development Agreement had not accrued as income and was, there fore, not taxable till the Joint Development Agreement took off and sale proceeds were received by the developer. Held: It was evidently clear that the amount of Rs. 9 Crores was paid as advance under the MOU. The said amount was to be adjusted/appropriated against the revenue share of the assessee. The modus/manner of adjustment/appropriation was agreed to be done based on mutual agreement. This amount remained with the assessee, the assessee in turn created a mortgage in favour of the developer to the tune of about Rs. 120 Crores and possession of the land was handed over for the purpose of development. The Joint Development Agreement did not take off and the matter remained as such and ultimately, in February 2015, the developer addressed the assessee to return the amount of Rs. 9 Crores before 31-3-2015. Even at that point of time, the agreement was not cancelled and the power of attorney granted to the developer remained in force. Therefore, by no stretch of imagination, the sum of Rs. 9 Crores in the hands of the assessee can be treated to be a windfall gain as it did not accrue to the assessee as a result of circumstances outside their control. There was no finding rendered by the assessing officer that the sum of Rs. 9 Crores does not fall under the heads A to E to be brought under head 'F' which deals with 'Income from other sources'. Therefore, the finding of the assessing officer was perverse. The Joint Development Agreement, Power of Attorney, the mortgage were all in force at the relevant time. In fact, even on the date when the assessing officer completed the assessment under Section 147 of the Act by Order, dated 25-3-2015, the Joint Development Agreement was not rescinded and the Power of Attorney was not cancelled. Therefore, on facts, the assessing officer could not have held that this is on account of a windfall gain to be brought to tax under the head 'income from other sources'. Therefore, ITAT was justified in holding that Tribunal held that Rs. 9 Crores received by the assessee pursuant to a Development Agreement had not accrued as income and was, there fore, not taxable till the Joint Development Agreement took off and sale proceeds were received by the developer.

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