2013 (6) TMI 424 - AT - Income Tax

Tribunal Quashes Assessment Reopening; No Capital Gains Tax Found on 2006 Development Agreement.

The Tribunal invalidated the reopening of the assessment, finding no new tangible material to justify it. It determined the document executed on 28/2/2006 ... Reopening of assessment - Building development agreement with land owner - Transfer u/s. 2(47)(v) r.w.s. 53A of Transfer of Property Act - Whether the transferee can be said to have 'performed or is willing to perform' its obligations under the agreement? - Held that:- In the reassessment order AO has stated that originally the return was processed. He has not referred to any tangible material before him, in terms of the judgment of CIT vs. Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA), on the basis of which he entertained the prima facie belief that income chargeable to tax has escaped assessment. As per this development agreement dated 28.2.2006 land owner gets his share of plots on construction and consideration is quantified in terms of money. Also the handing over of possession in the development agreement is missing. Both the developer and the assessee having the landed property. They pooled together the landed property along with some other parties who are owners of some other landed property and all parties together given licence to the builder to enter the premises and construct houses. No sale was effected on the date of agreement. No consideration has been passed between the parties on signing the agreement. Further from the date of signing of development agreement dated 28.2.2006 to 31.3.2006 no progress has taken place in the said landed property which is subject matter of development agreement, nothing has been brought on record. Further, there was no consideration in the form of money passed between the parties. There was no construction, whatsoever, taken place during the period 28.2.2006 to 31.3.2006. Even otherwise there was no General Power of Attorney given by the assessee to the developer. In such a situation, it is only the actual performance of transferees obligation which can give rise to the situation envisaged in section 53A of the TP Act. On these facts, it is not possible to hold that the developer has performed its obligation during the period 28.2.2006 to 31.3.2006 in which the capital is sought to be taxed by the Revenue authorities. The condition laid down u/s. 53A of TP Act was not satisfied during the period from 28.2.2006 to 31.3.2006 thus it cannot be said that there was a transfer u/s. 2(47)(v) so as to levy capital gain tax. The judgement in the case of Chaturbhuj Dwarkadas Kapadia [ 2003 (2) TMI 62 - BOMBAY High Court] undoubtedly lays down a proposition which supports the case of the assessee as 'willingness to perform' has been specifically recognised as one of the essential ingredients to cover a transaction by the scope of section 53A of TP Act. In favour of assessee. Issues Involved:1. Reopening of the assessment.2. Nature of the document executed on 28/2/2006.3. Existence of a 'transfer' under Section 2(47) of the IT Act, 1961.4. Nature of capital gain and its computation.5. Liability to be assessed for interest under Section 234B of the IT Act, 1961.Issue-wise Detailed Analysis:I. Reopening of the Assessment:The assessee objected to the reopening of the assessment, arguing that the reopening was based on the same documents already on record and that there was no tangible fresh material to justify the reopening. The Tribunal held that the reopening of the assessment was invalid as the Assessing Officer did not have any new tangible material to justify the belief that income had escaped assessment. It was emphasized that the Assessing Officer cannot reopen an assessment based on a mere change of opinion without new material, as per the Supreme Court's ruling in CIT vs. Kelvinator of India Ltd. (320 ITR 561). Consequently, the Tribunal quashed the reopening of the assessment.II. Nature of the Document Executed on 28/2/2006:The assessee argued that the document dated 28/2/2006 was not a development agreement but a settlement of rights among the legal heirs of Late S. Hanumanth Reddy. The Tribunal observed that the document had all the elements of a development agreement, including the intention to develop the land into a residential township and the handing over of possession to the developer. Therefore, the Tribunal concluded that the document was indeed a development agreement and not merely a family settlement.III. Existence of a 'Transfer' under Section 2(47) of the IT Act, 1961:The Tribunal examined whether the development agreement constituted a 'transfer' under Section 2(47)(v) of the IT Act, 1961, which includes transactions involving the allowing of possession of any immovable property in part performance of a contract as referred to in Section 53A of the Transfer of Property Act. The Tribunal found that the conditions of Section 53A were not satisfied, as there was no handing over of possession, no consideration passed between the parties, and no construction activity took place during the relevant period. Therefore, the Tribunal held that there was no 'transfer' within the meaning of Section 2(47)(v) during the period from 28/2/2006 to 31/3/2006, and hence, no capital gains tax was applicable.IV. Nature of Capital Gain and Its Computation:The CIT(A) had computed the short-term capital gain based on the built-up area received by the assessee in lieu of the land transferred. However, the Tribunal held that since there was no 'transfer' under Section 2(47)(v) during the relevant period, there could be no capital gain, whether short-term or long-term, in the assessment year under consideration. The Tribunal emphasized that the computation of capital gains must be based on an actual transfer of property, which did not occur in this case.V. Liability to Be Assessed for Interest under Section 234B of the IT Act, 1961:Since the Tribunal held that there was no capital gain and quashed the reopening of the assessment, the issue of liability to be assessed for interest under Section 234B became moot and was not addressed further.Conclusion:The Tribunal allowed the appeals of the assessee, quashing the reopening of the assessment and holding that there was no 'transfer' under Section 2(47)(v) during the relevant period, thereby negating any capital gains tax liability. The Revenue's appeal was dismissed as infructuous.