Business   

Liability for owner in a development agreement

Development agreement is different from agreement for sale, since the property is not made available to the developer for the purpose of his enjoyment so that it should not be possible to treat it as an agreement for sale. Even where power of attorney is executed in favour of the developer for consideration either received or to be received by way of built-up superstructure constructed in the proportionate part of the plot retained by the owner, a suit for specific performance is not available for enforcing development agreement as is possible in respect of agreement for sale simpliciter. Development agreement should ordinarily be treated essentially as a builder’s agreement in the nature of executory contract.

But the courts have taken the view that they can be treated on a par with an agreement for sale in the context of analogous definition of transfer for pre-emptive purchase of property by the Government under Chapter XX-C (now deleted) in Ashok Leyland Finance Ltd. v Appropriate Authority (1998) 230 ITR 398 (Mad), Ashish Mukerji v Union of India (1996) 222 ITR 168 (Patna) and Ansal Properties and Industries Ltd. v Appropriate Authority (1999) 236 ITR 793 (Del). There is a contrary decision upholding the development agreement to be different from an agreement for sale in R. Vijayalakshmi v Appu Hotels Ltd. (2002) 257 ITR 4 (Mad), which should be more appropriate for purposes of capital gains tax.

Handing over possession to builder for purposes of his carrying out his obligation under the development agreement has been sometimes wrongly taken as date of transfer. Where effective possession is, however, inferred from the development agreement and the surrounding facts, liability cannot be postponed after such date. Where effective transfer is inferable from facts, capital gains tax will be attracted on that date as held in Chaturbhuj Dwarkadas Kapadia v CIT (2003) 260 ITR 491 (Bom). It was pointed out by the Authority for Advance Ruling in Jasbir Singh Sarkaria In re (2007) 294 ITR 196 (AAR) that effective possession could be presumed from the power of attorney, which is given after receipt of substantial consideration.

Where the owner has not received any immediate benefit with power of attorney limited to ministerial acts relating to construction and the development agreement does not unconditionally confer possession to developer, transfer should be presumed only on registration of law or completion of the agreement, whichever is earlier.

S. RAJARATNAM

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

Hope at last over Doha Round of trade talks financial scene
Fast-tracking the economic reforms agenda
Computers in bank cannot override the law
TDS on cumulative deposit
Liability for owner in a development agreement

Copyright © 2008, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu