Sec. 5 & 45 of Income Tax Act, 1961 - Income - When obligations of assessee under the joint venture agreement are not yet performed, there cannot be any occasion to bring the consideration, for performance of such obligations to tax.
Facts: Whether CIT(A) erred in deleting the addition made on account of sale of development rights without appreciating the fact that this amount had accrued to the assessee on account of transfer of its rights in the property and therefore was liable to offer this amount for taxation as income from capital gains and this amount cannot be treated as an advance in the nature of capital assets.
Held, that In this case, the income can be considered to accrue or arise only when the assessee is able to evacuate 25 per cent slum dwellers as per the agreement/deed. If in case assessee is unable to comply with, assessee will have to return the same to Shivalik. What was to be received by the assessee was from a joint venture, in which assessee itself was a participant, but, under the said arrangement, it was to be entirely funded by Shivalik Ventures Pvt Ltd. The essence of the arrangement was the performance of obligations by the assessee so far as the above obligations are concerned. In our humble understanding of the situation, while the assessee was to help the assessee get the development rights in favour of the joint venture, the payment was to be received by hum "as original developer appointed by the said societies" and this payment cannot be read in isolation with all its obligations under the joint venture arrangement. It was a composite agreement, and, irrespective of whether we look at the modifications or not, and all the terms of the agreement were to be read in conjunction of each other. When an assessee had an obligation to perform something, and the assessee had not performed those obligations nor does he even seem to be in a position to perform these obligations, it cannot be said that a partial payment for fulfilling these obligations can be treated as income in the hands of the assessee. The obligations under the agreement, as extracted above, have not been performed till date, as is the uncontroverted stand of the assessee. Clearly, therefore, the income in question never accrued to the assessee. Until the obligations for performance of which an amount is received, such a receipt cannot have an income character in the hands of the person who is still to perform such obligations. When obligations of the assessee under the joint venture agreement are not yet performed, there cannot be any occasion to bring the consideration, for performance of such obligations, to tax. Just because the assessee does not pay the amounts to be paid by the assessee as income of the assessee. In the light of these discussions, as also bearing in mind entirety of the case, the taxability of Rs 5.40 crores, on account of what is alleged to be, transfer of development rights is wholly devoid of merits, thus we approve the conclusions arrived at by CIT(A) and decline to interfere in the matter. - ITO V/s NEWTECH (INDIA) DEVELOPERS -  205 TTJ 012 (ITAT-MUMBAI)