While quashing the assessment order passed by the Commissioner of Income Tax, as per which the income from development rights were assessed to tax on accrual basis, the division bench of the Delhi High Court held that such income is not taxable on accrual basis.
The assessee-company, in the instant case, is engaged in the business of real estate development, entered into a development agreement with another company. Initially, the assessee received an interest free deposit. The Development agreement stipulates a condition that development rights of the land had to be given to the developer on a consideration of 2.10 crore per acre. The consideration, in terms with the said agreement, must be paid to the assessee within two years from the ‘effective date’ i.e, the date of completion of purchase of property including mutation in the name of the assesseein the revenue’s record.The Assessing Officer, completed assessment by assessing the income from development rightson accrual basis.
On appeal, both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal set aside the order. Therefore, the matter was brought before the High Court to decide the legality of the order imposing tax onthe income from development rights.
The Court noticed the decision in Commissioner of Income Tax-XI vs. M/s DLF Commercial Project Corporation ITA, in which it was held that “the method adopted by the assessee of treating income as having accrued at the point of sale of development rights, upon acquisition of license described the transaction and that treating the amount received prior to that event could not be brought to tax as income.”
Following the above decision, the Court dismissed the appeals finding that no question of law arises for consideration.
Read the full text of the order below.
