A Division Bench of the Bombay High comprising Justice Kamal Khata and Justice Dhiraj Singh Thakur quashed re assessment notice on the ground that permission under Development Agreement was given only for construction and that it does not amount to transfer under Income Tax Act.
The Petitioner, Late Bharat Jayantilal Patel, challenges the notice issued under Section 148 of the Income Tax Act, 1961 relevant to the assessment year 2013- 14. By virtue of the said notice, assessment for the year 2013-14 is sought to be reopened, on the ground that the assessing officer had reason to believe that income chargeable to tax for the assessment year 2013-14 had escaped assessment within the meaning of Section 147 of the Income Tax Act.
One of the objections raised by the Petitioner before the assessing officer was that Section 2(47)(v) of the Income Tax Act, which was invoked for the purpose of reopening had no application inasmuch as granting a license to the developer, as it 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 Income Tax Act would not apply.
The Counsel for the petitioner urged that the agreement between the Petitioner along with other owners and developers was a development agreement – according to which the developer was given rights only as a licensee. That such a licensee could not be said to be in ‘possession’ within the meaning of Section 53A of the T.P. Act and that ‘possession’ was otherwise necessary and an integral ingredient for purposes of bringing a transaction within the purview of Section 2(47)(v) of the Income Tax Act.
The Apex Court in Seshasayee Steels (P.) Ltd held that Section 53A of the Transfer of Property Act, 1882 would not be attracted in a case where a license was given to another for purposes of development of the flats and selling the same and that granting such a license could not be said to be granting possession within the meaning of Section 53A.
The Bench noted that “Applying the principle as crystallized by the Apex Court reproduced herein above, to the facts of the present case, it can be seen that the development agreement permitted construction on the land in question only as a licensee which did not have the effect of transmitting possession in favour of the licensee within the meaning and spirit of Section 53A of T.P. Act.”
“If that is so, then there would be neither any tangible material nor any reason for the assessing officer to believe that ‘any income chargeable to tax had escaped assessment’ and the action of the assessing officer, therefore, would be without jurisdiction”, the Bench said.
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