Section 2(47)(v): Under the development agreement, since no construction activity had taken place on the land in the relevant previous year, it cannot be said that the transferee has performed or was willing to perform its obligation under the agreement in the relevant year and, therefore, provisions of section 2(47)(v) did not apply.
Facts:
During the F.Y. 2006-07, the assessee company transferred certain property for development to M/s MAK Projects (P) Ltd. The development agreement was executed on 15th December, 2006. As per the development agreement, the assessee was entitled to receive 16 villas comprising 9,602 sq. yards of plotted area along with 58,606 sq. ft. of built up area.
However, there was no development activity until the end of the previous year ending 31st March, 2007. Commencement of building process had not been initiated as the building approval was provided only on 6th March, 2007. The Assessing Officer alleged that the transaction under development agreement was a transfer u/s. 2(47)(v) as on the date of entering into the agreement.
Though possession of the property was handed over to the developer, the assessee contended that since there is no amount of investment by the developer in the construction activity during the F.Y. 2006-07, it would amount to non-incurring of required cost of acquisition by the developer. Hence, no consideration can be attributed to the F.Y. 2006-07. As there is no quantification of consideration to be received by the assessee, section 2(47)(v) would not apply.
Held:
The handing over of the possession of the property is only one of the conditions u/s. 53A of the Transfer of Property Act, but it is not the sole and isolated condition. It is necessary to go into whether or not the transferee was ‘willing to perform’ its obligation under these consent terms. When transferee, by its conduct and by its deeds, demonstrates that it is unwilling to perform its obligations under the agreement in this assessment year, the date of agreement ceases to be relevant. In such a situation, it is only the actual performance of transferee’s obligations which can give rise to the situation envisaged in section 53A of the Transfer of Property Act.
In the given case, nothing is brought on record by the authorities to show that there was development activity in the project during the assessment year under consideration and cost of instruction was incurred by the developer. Hence, it is to be inferred that there was no amount of investment by the developer in the construction activity during the assessment year in this project and it would amount to non-incurring of required cost of acquisition by the developer. The developer in this assessment year had not shown its readiness in making preparations for the compliance of the agreement. On these facts, it is not possible to hold that the transferee was willing to perform its obligations in the financial year in which the capital gains are sought to be taxed by the Revenue. This condition laid down u/s. 53A of the Transfer of Property Act was not satisfied in this assessment year. Consequently, section 2(47) (v) did not apply.
Further, it cannot be said that there is any sale in terms of section 2(47)(i). To say that there is an exchange u/s. 2(47)(i) both the properties which are subject matter of the exchange in the transaction are to be in existence at the time of entering into the transaction. It is to be noted that at the time of entering into development agreement, only the property i.e., land pertaining to the assessee is in existence. There is no quantification of consideration or other property in exchange of which the assessee has to get for handing over the assessee’s property for development.
It cannot be said that the assessee carried on the adventure in the nature of trade so as to bring the income under the head ‘Income from business’. This is so, because the assessee has not sold any undivided share in the property to the developer in the year under consideration. The assessee remains to be the owner of the said property and the land was put for development for the mutual benefit. Even if the transaction is considered as business transaction, it would be taxed only when the undivided share in the land is transferred.
