August 2011
Reassessment: Section 147 and section 148: Development agreement dated 17-9-2004 terminated in view of default of developer: Suit filed by developer ultimately settled by order of High Court dated 2-5-2011: Capital gain not taxable in A.Y. 2005-06: Notice u/s.148 for taxing the capital gain in A.Y. 2005-06 is not valid.
By K. B. Bhujle, Advocate
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[Amar R. Shanbhag v. ITO (Bom.); W.P. No. 552 of 2011 dated 18-7-2011] The assessee individual had entered into development agreement with a developer on 17-9-2004. The agreed consideration was Rs.4 crore. As the developer failed to pay the amount of Rs.30 lakh before 31-10-2004, the assessee petitioner on 28-3-2005 terminated the development agreement. Thereafter, on the developer issuing the cheques for Rs.30 lakh on 30-6-2005, the development agreement was restored. In view of the further default on the part of the developer, on 19-5-2010, the petitioner once again terminated the development agreement. Thereupon, the developer filed a suit in the Bombay High Court, which was ultimately settled on 2-5-2011, wherein the consideration was enhanced from Rs.4 crore to Rs.7.5 crore. It was also ordered that the petitioner delivers the possession of the property to the developers as on the date of the order i.e., 2-5-2011.
In the meanwhile, the Assessing Officer issued notice u/s.148 dated 25-3-2010 proposing to tax the capital gain arising from the development agreement in the A.Y. 2005-06. The Bombay High Court allowed the writ petition filed by the petitioner-assessee and quashed the said notice u/s.148 and held as under:
“(i) It cannot be said that there was any reason to believe that income chargeable to tax has escaped assessment in the A.Y. 2005-06, so as to initiate reassessment proceedings u/s. 147 r.w.s 148 of the Act.
(ii) So long as the consent terms filed on 2-5-2011 hold the field, the question of bringing to tax the capital gains under the development agreement dated 17-9-2004 in A.Y. 2005-06 does not arise at all.
(iii) In the result, the impugned notice dated 25-3-2010 issued u/s.148 of the Act is quashed and set aside.”
