Bombay High Court Clarifies that License to Developer Is Not Transfer of Land

Bombay High Court Clarifies that License to Developer Is Not Transfer of Land

The Bombay High Court has ruled in favour of an assessee and dismissed a notice issued to him under Section 148 of the Income Tax Act. The Court held that once an Assessing Officer (AO) raises a query during assessment proceedings and the assessee responds, the AO is deemed to have considered the query in calculating the assessment. The assessment order does not need to explicitly mention or discuss the query to demonstrate the AO's satisfaction with the matter raised during the assessment.

In this case, the assessee, an individual, and other co-owners entered into a Development Agreement with Sai Ashray Developers on June 15, 2012, for the development of a piece of land located in Chikhloli, Ambernath.

During the assessment proceedings, the assessee explained that the Development Agreement did not constitute a transfer of the land to Sai Ashray. The AO accepted the assessee's explanation and passed an assessment order under Section 143(3) of the Income Tax Act without making any additional tax liability on account of capital gains. Subsequently, the assessee received a notice under Section 148 of the Income Tax Act, stating that the Deputy Commissioner of Income Tax had reason to believe that the assessee's income, chargeable to tax, had escaped assessment. The assessee submitted detailed objections to this notice, which were disposed of by an order dated February 14, 2022.

The Division Bench of Justices K.R. Shriram and N.K. Gokhale observed that the AO had already examined and deliberated upon the issue of whether there was a transfer of land during the assessment proceedings.

Therefore, the Bench concluded that the assessee had not failed to disclose any material fact. On this ground alone, the Section 148 notice and the challenged order disposing of the assessee's objections had to be quashed and set aside.

Moreover, the Bench also observed a similar scenario involving another co-owner. In this instance, the legal heir of the deceased co-owner had initiated a writ petition, wherein the court had previously ruled that the assessee had merely provided a license to the developer, granting them access to the assessee's land for development purposes. This act did not constitute 'permitting possession of the land' as defined in Section 53A of the Transfer of Property Act. Consequently, Section 2(47)(v) of the Income Tax Act would not be applicable. The Court had determined that the act of granting a license for the development and sale of flats could not be construed as granting possession of the land.

Taking into account the aforementioned factors, the High Court ruled in favour of the assessee and consequently, disposed of the petition.