Principal Commissioner Ofincome Tax-2, Kolkata v. M/S. Emporis Properties Pvt.ltd., Kolkata

OD – 5 ITAT/59/2023 IA No.GA/1/2023 IN THE HIGH COURT AT CALCUTTA Special JurisdictionORIGINAL SIDE PRINCIPAL COMMISSIONER OFINCOME TAX-2, KOLKATA -Versus- M/S. EMPORIS PROPERTIES PVT.LTD., KOLKATA BEFORE :THE HON’BLE JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate : 30[th] March, 2023 Appearance :Ms. Smita Das De, Adv....for the appellant Mr. J. P. Khaitan, Sr. Adv.Mr. G. S. Gupta, Adv....for the respondent. The Court : This appeal filed by the revenue underSection 260A of the Income Tax Act, 1961 (the ‘Act’ forbrevity) is directed against the order dated 22[nd] September,2022 passed by the Income Tax Appellate Tribunal, “A” Bench,Kolkata (the Tribunal) in ITA No.299/Kol/2022 for theassessment year 2014-15. The revenue has raised the following substantialquestions of law for consideration: (i)On the facts and circumstances of the case andin law whether the Hon’ble ITAT holding thatthe very initiation of revisional proceedingsu/s 263 taken against the assessee vide orderdated 26/03/2022 is void in the eyes of lawand therefore quashed ?in law whether the Hon’ble ITAT holding thatthe very initiation of revisional proceedingsu/s 263 taken against the assessee vide orderdated 26/03/2022 is void in the eyes of lawand therefore quashed ? (ii)On the facts and circumstances of the case andin law whether the learned ITAT has failed toexamine the provision of Section 43CA of theIncome Tax Act, 1961 which are applicable tothe case of the assesse and accordingly beingthe deeming section the proceeds received bythe assessee are taxable u/s 43CA ?in law whether the learned ITAT has failed toexamine the provision of Section 43CA of theIncome Tax Act, 1961 which are applicable tothe case of the assesse and accordingly beingthe deeming section the proceeds received bythe assessee are taxable u/s 43CA ?(iii)Whether the learned ITAT had erroneously heldthat there was no conversion of Stock in tradeof the land which was offered in the JDA bythe assessee after extinguishing 45% of rightsto the total sale proceeds ?that there was no conversion of Stock in tradeof the land which was offered in the JDA bythe assessee after extinguishing 45% of rightsto the total sale proceeds ? We have heard Ms. Smita Das De, learned standingcounsel for the appellant/revenue and Mr. J.P. Khaitan, learnedsenior counsel assisted by Mr. G.S. Gupta, learned Advocate forthe respondent/assessee.The issue involved in the instant case is whether thePrincipal Commissioner of Income Tax (PCIT) was justified ininvoking his power under Section 263 of the Act and setting aside the assessment order passed under Section 143(3) readwith Section 147 of the Act dated 27[th] December, 2019.The assessee had entered into a land developmentagreement dated 17[th] September, 2013 for development of landand by virtue of the said agreement, after the construction ofthe housing complex on the said land, 55% of the constructedarea will be allotted to the assessee and 45% to the developer.In the opinion of the PCIT, the Assessing Officer omitted toexamine the transaction of transfer of land held as “Stock-in-trade” in the light of the provision of Section 43CA of the Actand this was the only reason for invoking the power underSection 263 of the Act. Firstly, we need to examine as towhether there was any enquiry conducted by the AssessingOfficer before completing the assessment and whether thesubject issue was taken note of by the Assessing Officer. Ithas to be borne in mind that the assessment was a re-assessmentproceedings under Section 147 of the Act and from the reasonfurnished from reasons furnished by the Assessing Officer forre-opening the assessment, we find this very issue was thereason for re-opening and there was a proposal to tax the longterm capital gains which, in the opinion of the AssessingOfficer, had escaped assessment. The assessee submitteddetailed reply objecting to the re-opening proceedings. It is contended that the land was not a capital asset that is notheld by them as a fixed asset or investment. Consequently,there was no transfer of any capital asset and handing overpossession of the land to the developer pursuant to the JointDevelopment Agreement. Further it was stated that the land wastheir stock-in-trade and stock-in-trade is not treated ascapital asset under the provisions contained in Section 2(4) ofthe Act. The assessee submitted their audited financialstatement for the financial year 2012-13 to substantiate theirclaim. Further, it was stated that the profit and lossstatement for the year ended 31[st] March, 2013 clearly indicatesthat the said land was their stock-in-trade. Further, theassessee submitted that profit from stock-in-trade ischargeable to tax under the heading profit and gains ofbusiness and the same will arise in future i.e. for the year ofactual sale to the prospective buyer. The assessee alsosubmitted that the reopening of the assessment was bad in lawas there was no fresh information in the possession of theAssessing Officer leading him to conclude that income hasescaped assessment. The reply given by the assessee along withthe documents were examined by the Assessing Officer and theassessment was completed accepting the stand taken by the assessee. The order passed by the PCIT under Section 263 wasthe subject-matter of challenge before the Tribunal. The Tribunal has, after taking note of Sections 43CA,50C and also the definition of transfer as defined underSection 2(47) of the Act examined the relevant clauses of theJoint Development Agreement. The following clause would berelevant for our purpose: REPRESENTIONS AND OBLIGATIONSOF THE OWNER 2.It is agreed and recorded that the said vested land admeasuring2 Bighas, 11 cottahs, 12 chittacks ad 36 sq. ft. ad morefullydescribed in the second schedule hereunder written shall alwaysbe the property of the owner ad any benefit deriving out of thesame shall belong exclusively to the owner and the developershall have no right title and interest therein. Providedhowever this shall not preclude the owner to enter into anarrangement with the developer for developing the said vestedland on the terms and conditions as may be mutually agreed uponprovided the owner is permitted by the Government of WestBengal to develop the said vested land. 1. APPOINTMENT 1.The owner herein hereby appoint the Developer as thebuilder and/or developer for carrying out the development atthe “said premises” as per the sanctioned plan or plan subjectto the terms and conditions recorded therein.………………..………….. SPACE ALLOCATION In consideration of the development of the Housing Complex atthe said premises by the Developer at its own costs and expenses which includes Owner’s Allocation and inconsideration of the said premises provided by the owner asenvisaged herein it is agreed by and between the Owner and theDeveloper that the entire constructed area of the said HousingComplex shall be divided and apportioned in the manner asstated hereunder :- (i) 55% of the constructed areas of the said Housing Complextogether with all the common areas, amenities and facilitiestherein and together with undivided proportionate share of theland of the said premises appertaining thereto shall belong tothe owner hereinafter called the “Owner’s Allocation”. (ii)45% of the constructed areas of the said Housing Complextogether with all the common areas, amenities and facilitiestherein and together with undivided proportionate share of theland of the said premises appertaining thereto shall belong tothe owner hereinafter called the “Developer’s Allocation”.together with all the common areas, amenities and facilitiestherein and together with undivided proportionate share of theland of the said premises appertaining thereto shall belong tothe owner hereinafter called the “Developer’s Allocation”. SECURITY DEPOSIT & ADVANCE (ii)45% of the constructed areas of the said Housing Complextogether with all the common areas, amenities and facilitiestherein and together with undivided proportionate share of theland of the said premises appertaining thereto shall belong tothe owner hereinafter called the “Developer’s Allocation”.together with all the common areas, amenities and facilitiestherein and together with undivided proportionate share of theland of the said premises appertaining thereto shall belong tothe owner hereinafter called the “Developer’s Allocation”. SECURITY DEPOSIT & ADVANCE 1.It is agreed and recorded that the Developer shall deposit withthe owner a total sum of Rs.10,00,0,000/- (Rupees tencrores) only as an interest free security deposit whichshall be paid in the following manner :-the owner a total sum of Rs.10,00,0,000/- (Rupees tencrores) only as an interest free security deposit whichshall be paid in the following manner :- (i)A sum of Rs.5,00,00,000/- (Rupees five crores) only shallbe paid by 30[th] September, 2013.be paid by 30[th] September, 2013. (ii)A further sum of Rs. 5,00,00,000/- (Rupees five crores)only shall be paid by 31[st] January, 2014.only shall be paid by 31[st] January, 2014. (iii)At the time of execution of this presents no payment isbeing made.being made. 2.It is agreed and recorded that the said interest free securitydeposit of the said total sum of Rs.10,00,00,000/- (Rupeesten crores) only shall be refunded by the owner to thedeveloper within fortnight from the date of the receipt ofthe notice of completion of the construction of the saidhousing complex.deposit of the said total sum of Rs.10,00,00,000/- (Rupeesten crores) only shall be refunded by the owner to thedeveloper within fortnight from the date of the receipt ofthe notice of completion of the construction of the saidhousing complex. TERMINATION It is agreed and recorded that in case o failure on the partof the Developer to complete the said Housing Complex and/orhand over Owner allocation with all common amenities andfacilities within the stipulated time of 4 (four) yearstogether with grace period of 1 (one) year as providedhereinabove, this agreement shall stand determined andcancelled and the developer shall cease to have any righttitle interest under this agreement in respect of the saidPremises and the Developer shall be entitled to complete theconstruction of incompleted portions of the said HousingComplex provided however the Owner shall refund the entireoutstanding amount of interest free Security deposit ad thecosts of construction of the said Housing Complex and value ofthe costs of construction shall be certified by the structuralengineer and architects”. From the above clause in the Joint DevelopmentAgreement, it is crystal clear that the assessee continued tobe the owner of the property throughout the development of theproperty and there is no transfer of ownership to thedeveloper. This aspect, in our opinion, was rightly noted bythe Tribunal. Thus reading of the entire agreement would showthat there was no transfer or sale of asset under the JointDevelopment Agreement rather the agreement was to develop theland making it saleable and in view of the construction of thesame, the developer would take a part of the stock-in-trade.Furthermore, in terms of the termination clause if the From the above clause in the Joint DevelopmentAgreement, it is crystal clear that the assessee continued tobe the owner of the property throughout the development of theproperty and there is no transfer of ownership to thedeveloper. This aspect, in our opinion, was rightly noted bythe Tribunal. Thus reading of the entire agreement would showthat there was no transfer or sale of asset under the JointDevelopment Agreement rather the agreement was to develop theland making it saleable and in view of the construction of thesame, the developer would take a part of the stock-in-trade.Furthermore, in terms of the termination clause if the developer fails to develop the housing complex and hand overthe assessee’s allotted area with all common amenities andfacilities within the stipulated time of four years togetherwith grace period of one year, the Joint Development Agreementwould stand determined and cancelled and the developer shallcease to have any right, title, interest under the JointDevelopment Agreement and the developer shall be entitled tocomplete the construction of the incomplete portion of thehousing complex provided however the assessee shall refund theentire outstanding amount of interest-free security deposit andthe cost of construction of the said housing complex and thevalue of the construction shall be certified by the structuralengineer and architects. Thereafter the Tribunal took note ofthe decision of the Hon’ble Supreme Court in the case ofCommissioner of Income Tax vs. Balbir Singh Maini reported in[2017] 398 ITR 531 (SC). The said decision is more or lessidentical to the facts of the case on hand wherein one of thequestions which fell for consideration was whether thetransaction under the Joint Development Agreement should beenvisaged as transfer exigible to tax by reference underSection 4(47)(v) of the Act read with Section 53A of theTransfer of Property Act, 1882. After taking note of thefacts, the Hon’ble Supreme Court held as follows: “23. A reading of the JDA in the present case would show thatthe owner continues to be the owner throughout theagreement, and has at no stage purported to transferrights akin to ownership to the developer. At the highest,possession alone is given under the agreement, ad that toofor a specific purpose – the purpose being to develop theproperty, as envisaged by all the parties. We are,therefore, of the view that this clause will also not ropein the present transaction.”the owner continues to be the owner throughout theagreement, and has at no stage purported to transferrights akin to ownership to the developer. At the highest,possession alone is given under the agreement, ad that toofor a specific purpose – the purpose being to develop theproperty, as envisaged by all the parties. We are,therefore, of the view that this clause will also not ropein the present transaction.” As mentioned earlier, the facts of the case in BalbirSingh Maini (supra) was more or less identical to the case onhand and after reading the Joint Development Agreement, theHon’ble Supreme Court found that the owner continues to be theowner throughout the agreement at any state purported totransfer rights akin to ownership to the developer. This isexactly the nature of transaction in the case on hand. Thatapart, the Tribunal also taken note of how the registeringauthorities have treated the Joint Development Agreement. Theregistering authorities have not treated the agreement as adeed of conveyance but have calculated the stamp duty bytreating the same under Article 4, 5(f) of Schedule 1A of theIndian Stamp Act. The Explanation under Clause (vi) of Clause5(f) states that the expression “Agreement or Memorandum of anAgreement” if relating to a sale shall include an agreement tosell or any memorandum or acknowledgement in relation to transfer or deliver of possession of immovable property with anintent to transfer right, interest in, or title to, suchproperty at any future date. This expression was noted and theregistering authorities have calculated the stamp duty on thesaid amount at the fixed rate and not treating it as aconveyance deed.Thus, we are of the considered view that the Tribunaltook note of the factual position and applied the correct legalprinciple and granted relief to the assessee. Thus, we find no ground to interfere with the orderpassed by the learned Tribunal. Accordingly, appeal(ITAT/59/2023) is dismissed and the substantial questions oflaw are answered against the revenue.Consequently, the connected application for stay (IANo.GA/1/2023) also stands closed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)