2014 (10) TMI 319 - AT - Income Tax

Tribunal rules on capital gains from development agreement, exemption under section 54F denied

Mr. Venigalla Anand Prasad, Smt. V. Krishna Kumari Versus DCIT, Central Circle-5, Hyderabad

Mr. Venigalla Anand Prasad, Smt. V. Krishna Kumari Versus DCIT, Central Circle-5, Hyderabad - TMI Issues Involved:1. Determination of the year in which capital gains arise from a development agreement.2. Eligibility for exemption under section 54F of the Income Tax Act.3. Nature of the land sold and whether it qualifies as agricultural land exempt from capital gains tax.Detailed Analysis:1. Determination of the Year in Which Capital Gains Arise from a Development Agreement:The primary issue was whether the capital gains from a development agreement should be recognized in the year the development agreement was executed (A.Y. 2005-06) or when the possession of the built-up area was received (A.Y. 2007-08). The Assessing Officer (A.O.) determined that the capital gains arose in A.Y. 2005-06 based on the development agreement dated 08.12.2004, citing the decision in the case of Dr. Maya Shenoy and Jasbeer Singh Sarkaria, where it was held that the liability of capital gains arises in the year of execution of the development agreement. The assessee contended that the capital gains should be recognized in A.Y. 2007-08 when the built-up area was received. The CIT(A) confirmed the A.O.'s view, holding that the date of the development agreement constitutes the transfer within the meaning of section 2(47)(v) of the Income Tax Act. The Tribunal upheld this view, rejecting the assessee's grounds and confirming that the capital gains arose in A.Y. 2005-06.2. Eligibility for Exemption Under Section 54F of the Income Tax Act:The assessee claimed exemption under section 54F on the long-term capital gains in A.Y. 2007-08. However, since the capital gains were determined to arise in A.Y. 2005-06, the A.O. and CIT(A) rejected the exemption claim for A.Y. 2007-08. The Tribunal admitted the additional ground raised by the assessee for A.Y. 2005-06, stating that the A.O. should examine the eligibility for exemption under section 54/54F in A.Y. 2005-06. The issue was restored to the file of the A.O. to examine the facts and provisions for granting necessary exemption/deduction if the assessee is eligible.3. Nature of the Land Sold and Whether It Qualifies as Agricultural Land Exempt from Capital Gains Tax:In the Revenue's appeal for A.Y. 2007-08, the issue was whether the land sold by the assessee was agricultural land and thus exempt from capital gains tax. The A.O. treated the gain from the sale of the land as business income, rejecting the claim that the land was agricultural and situated beyond 8 km from the notified municipality. The CIT(A) held that the land was agricultural and situated beyond the prescribed limits, exempting it from capital gains tax. The Tribunal upheld the CIT(A)'s decision, noting that the land was agricultural in nature, used for agricultural purposes, and situated beyond the 8 km limit from the nearest municipality. The Tribunal referenced its decision in the case of M/s. Bhavya Constructions P. Ltd., affirming that the land did not qualify as a capital asset under section 2(14) of the Income Tax Act.Conclusion:The Tribunal concluded by partly allowing the appeals for statistical purposes for A.Y. 2005-06, dismissing the appeals for A.Y. 2007-08, and dismissing the Revenue's appeal for A.Y. 2007-08. The Tribunal's decision was pronounced in the open court on 12.09.2014.