TaxTMI 
TaxTMI 
TaxTMI 
Section 2 (47) (v) of Income Tax Act provides that 'transfer', in relation to a capital asset, includes any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882);
Now, say a Development Agreement is signed in Year 1 in respect of lands which are agricultural, for formation of sites for which the conversion of land into non-agricultural land is necessary, a part advance is also received on the date of signing of this agreement. However, possession of lands for commencement of any work is provided only after the orders for conversion are issued in Year 3.
The question is whether the date of transfer shall be construed as Year 1 or Year 3 - whether the possession of land would construed to be handed over to the developer on execution of the agreement dated in Year 1 and the transfer of property have taken place in view of the section 2(47)(v) of the Act r.w. section 53A of the Transfer of Property Act, 1882 in Year 1.
The decision of Hon'ble Supreme Court in case of M/s SESHASAYEE STEELS P. LTD. Versus ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI (2), CHENNAI - 2019 (12) TMI 702 - Supreme Court in this respect lays down that in order to attract provisions of section 53A of the Transfer Of Property Act The transferee must, in part performance of the contract, have taken possession of the property or any part thereof. The transferee (developer) must have performed or be willing to perform his part of the agreement. Further, a registered deed must be executed. It should not be a mere a license to enter the property for the purpose of carrying out development. As per the decision of The Hon'ble Karnataka High Court in case of CIT and JCIT Versus TK. Dayalu - 2012 (6) TMI 405 - Karnataka High Court, capital gains will arise in the year in which full control and possession of land in question is given.
Another issue raised many a times is that say in the above example, the entire consideration was paid by the buyer in Year 1 after deduction of TDS u/s 194IA, then would the proposition change and the Capital Gain or Capital Loss be assessed in Year 1 as it would be deemed that the transfer took place in year 1 itself.
The answer still will not change as transaction shall be treated as transfer only when possession has been taken or retained by buyer. Since possession of property has been handed over to buyer in Year 3, transfer would be considered to have taken place in Year 3 only.
To sum up, the capital gains are offered to tax in the year in which the following conditions are satisfied -
1. The year in which the transferee has taken physical possession of the property or any part thereof.
2. The year in which transferee has performed or is willing to perform his part of the agreement.
3. The year in which a registered deed is executed. An agreement for sale is not a registered deed.
4. A mere a license to enter the property for the purpose of carrying out development work would not be sufficient. But, as per the decision of The Hon'ble Karnataka High Court in case of CIT and JCIT Versus TK. Dayalu - 2012 (6) TMI 405 - Karnataka High Court,, capital gains will arise in the year in which full control and possession of property in question is given.