Answer  No. Tax is payable when the conveyance deed is executed.

 CIT Vs. M/S. DLF  Commercial Project Corporation, I.T.A. No. 627/2012, Date ofOrder: 15.07.2015, High Court of Delhi

The assessee follows the accrual system of accounting. The accrual system of accounting takes into consideration all gains and losses pertaining to the accounting period for which income is being ascertained, irrespective of whether income has been actually received or whether expenses were paid out. Similarly, every receipt is not treated as an income of the assessee. The assessee‟s accounting policy is provided for in Accounting Standard 4, Schedule 9. Para 3 of the schedule deals with recognition of Revenue and Related costs:  “Sale of development rights is recognized on accrual basis in the financial year in accordance with the terms of the agreements entered into with the customers”. In the instant case, since no sale occurred, no income can be said to have accrued to the assessee.

The assessee’s submission that sale is deemed to have taken place when proper conveyance is executed, in the circumstances is sound. In the absence of any sale, the revenue‟s attempt to bring to tax the advances received by the assessee must also fail, given that such advances were not towards any income that the assessee was entitled to receive in the two assessment years. Indeed, the Business Development Agreement dated 02.08.2006 between M/s DLF Ltd. and the assessee and the Memorandum of Understanding dated 06.12.2006 between M/s DLF Ltd., the assessee and CBDL indicate that the advances received by the assessee from M/s DLF Ltd. and CBDL were for sale of development rights. Since the assessee failed to sell any such rights in the two years in question, the advances received cannot be classified as income.

(Please click here for judgment)