2012 (7) TMI 376 - AT - Income Tax

Development Agreement as 'transfer' under Income-tax Act triggers long-term capital gains tax liability. Assessee's appeal dismissed.

Krishna Kumar D. Shah (HUF) Versus Deputy Commissioner of Income-tax, Central Circle-2, Hyderabad

Krishna Kumar D. Shah (HUF) Versus Deputy Commissioner of Income-tax, Central Circle-2, Hyderabad - TMI Issues Involved:1. Whether there was a 'transfer' within the meaning of section 2(47)(v) of the Income-tax Act concerning the Development Agreement executed by the assessee.2. Whether the letter dated 14.10.2009 issued by the Developer confirming non-possession of the land was sufficient evidence for non-applicability of section 2(47)(v).3. Whether the contingent clauses of the Development Agreement were rightly relied upon by the CIT(A) for determining the applicability of section 2(47)(v).4. Whether the assessee was liable for long-term capital gain in the year under appeal.5. Whether the market value should have been determined based on records of the Registrar of Assurance.Detailed Analysis:1. Transfer within the meaning of section 2(47)(v) of the Income-tax Act:The primary issue was whether the Development Agreement executed by the assessee constituted a 'transfer' under section 2(47)(v) of the Income-tax Act. The Tribunal noted that the definition of 'transfer' includes any transaction involving the allowing of 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. It was observed that the agreement dated 31.03.2006 between the assessee and the developer M/s. Splendid Aparna Projects Ltd. involved the transfer of possession, as evidenced by the clauses in the agreement and the actions taken by the developer, such as site development work and obtaining necessary permissions. The Tribunal concluded that the conditions laid down in section 2(47)(v) were met, thus constituting a 'transfer' for capital gains tax purposes.2. Letter dated 14.10.2009 issued by Developer:The assessee argued that the letter from the Developer, confirming that they had not taken possession of the land, should be considered sufficient evidence for the non-applicability of section 2(47)(v). However, the Tribunal found that the physical inspection report and the encumbrance certificate indicated that the developer had taken control of the land. The Tribunal held that the letter did not outweigh the evidence of possession and control by the developer, thus supporting the applicability of section 2(47)(v).3. Reliance on Contingent Clauses of the Development Agreement:The Tribunal examined the contingent clauses of the Development Agreement, which included conditions related to obtaining necessary government permissions and the developer's rights to sell their share of the property. The Tribunal found that these clauses indicated a transfer of rights and interests in the property to the developer, thus supporting the CIT(A)'s reliance on these clauses to determine the applicability of section 2(47)(v).4. Liability for Long-term Capital Gain:The Tribunal confirmed that the assessee was liable for long-term capital gain in the year under appeal. The Tribunal emphasized that the capital gain is taxable in the year in which the transfer took place, as per section 45 of the Income-tax Act. The Tribunal noted that the transfer occurred when the developer was allowed to take possession and control of the property, thus making the assessee liable for capital gains tax in that year.5. Determination of Market Value:The assessee contended that the market value should have been determined based on the records of the Registrar of Assurance. The Tribunal noted that this ground did not emanate from the order of the CIT(A) and declined to entertain it. The Tribunal upheld the CIT(A)'s decision and dismissed the appeals of the assessees.Conclusion:The Tribunal confirmed the orders of the lower authorities, holding that the Development Agreement constituted a 'transfer' under section 2(47)(v) of the Income-tax Act, making the assessee liable for long-term capital gains tax. The Tribunal also rejected the assessee's contention regarding the determination of market value based on the records of the Registrar of Assurance. All the appeals of the assessees were dismissed.