The Bombay High Court granting of license to developer doesn’t amount to possession within meaning of section 53 A of Transfer of Property Act (TP) and Section 2(47)(v) of Income Tax Act,1961 is not applicable.
During the assessment proceedings under Section 143(3) of the Act, Darshana Anand Damle, the Petitioner had filed a copy of the Development Agreement before the Assessing Officer (“AO”). The AO asked Petitioner as to why the Development Agreement should not be treated as ‘transfer of the said land’ resulting in capital gains and taxed accordingly.
Petitioner explained that by entering into the Development Agreement, Petitioner has not transferred the land to Sai Ashray and specific reference was made to provisions of Section 2(47)(v) of the Act and Section 53A of the Transfer of Property Act, 1882. Petitioner’s explanation was accepted and the assessment order under Section 143(3) of the Act came to be passed on 31st March 2016 without making any addition on account of capital gains. Petitioner’s income was, however, determined as Rs.3,32,85,240/- wherein other additions to the total income of Petitioner were made.
Mr. Suresh Kumar submitted that Petitioner has filed original return of income treating the land in question as ‘stock in trade’ in the books of accounts and hence, not a ‘capital asset’ within the meaning of Section 2(47) of the Income Tax Act. The land in question was treated as a ‘capital asset’ and, therefore, the Petitioner had misrepresented the facts by treating the land as ‘stock in trade’ in her books of accounts instead of treating it as a ‘capital asset’ within the meaning of Section 2(47) of the Act.
The reason for reopening which prompted the AO to conclude that there was reason to believe escapement of income is that Petitioner along with two other co-owners had granted development rights in respect of land at Chikhloli, Ambernath to Sai Ashray. As per the Development Agreement, Sai Ashray shall develop the property at its own cost and shall give directly to owners 36% of the total constructed saleable area as total consideration for grant of development rights.
As per the Development Agreement, Sai Ashray paid Rs.40 Crores to land owners as refundable interest free deposit out of which Rs.21 Crore has been paid to Petitioner and her co-owner one Ashish Anand Damale.
It was evident that there was no failure to disclose any material fact. On that ground alone the notice dated 22nd March 2021 issued under Section 148 of the Act has to be quashed and set side. So also the impugned order dated 14th February 2022 disposing Petitioner’s objections.
The division bench comprising Justice K. R. Shriram and Justice Dr.N.K. Gokhale relying upon the judgment of the Apex Court in the case of Seshasayee Steels (P) Ltd. V Assistant Commissioner of Income Tax VI(2), held that the assessee had only granted a licence to Developer who entered into assessee’s land for the purpose of development and that did not amount to ‘allowing the possession of the land’ as contemplated under Section 53A of the Transfer of Property Act,1882 and therefore Section 2(47)(v) of the Act would not apply.
The Court held that granting of a licence for the purpose of development of the flats and selling the same could not be said to be granting possession.
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