2015 (1) TMI 740 - AT - Income Tax

Tribunal rules in favor of assessee, disallowing capital gain assessment for property transfer in 2001-02.

Dilip Anand Vazirani Versus Income Tax Officer-18(1(3), Mumbai

The Tribunal allowed the assessee's appeal, setting aside the tax authorities' decision to assess the capital gain in the assessment year 2001-02. It was ... Capital gain - selection of assessment year as 2001-02 - Held that:- Assessee had received advance amounts much earlier to the execution of development agreement, probably on the strength of the MOU. The property was encumbered with tenancy rights of many persons and the release of tenancy right was completed only in January, 2005. Further, the approval from municipal corporation was also got delayed and the plans were revised subsequent to AY 2000-01. The surrounding circumstances show that the developer did not start the work of development in the year relevant to AY 2001-02. As per the terms of development agreement, the assessee has given only licence to enter into the property, meaning thereby the possession was not given in the year relevant to AY 2001-02. Hence, we hold that the transfer of property did not take place on the date of execution of development agreement and accordingly the tax authorities are not justified in assessing the capital gain in AY 2001-02. Thus we do not find it necessary to address other issues relating to computation of capital gains. - Decided in favour of assessee. Issues Involved:1. Whether the capital gain is assessable in the assessment year 2001-02.2. Whether the computation of capital gain approved by Ld CIT(A) is correct in law.Detailed Analysis:1. Assessability of Capital Gain in the Assessment Year 2001-02:The primary issue was whether the capital gain should be assessed in the assessment year 2001-02. The facts of the case reveal that the property in question was originally owned by the assessee's father, who migrated from Pakistan during the partition. The property was allotted to the legal heirs after a prolonged legal battle, culminating in a final order from the Settlement Commission in 2000.The tax authorities, relying on the development agreement dated 25.9.2000 and the possession letter dated 15.5.2000, concluded that the transfer of property occurred in the assessment year 2001-02. They applied the provisions of sections 2(47)(v) and 2(47)(vi) of the Income Tax Act, which pertain to the transfer of property, and assessed the capital gain as short-term capital gain for that year.However, the assessee contended that the possession was not given in 2000 but only a license to enter the property was granted to the developer. The developer did not start the development work immediately due to delays in municipal approvals and settling tenant claims. The substantial payment and actual possession were only completed in the financial year 2004-05, relevant to the assessment year 2005-06.The Tribunal noted that the property was encumbered with tenancy rights, which were only cleared by January 2005. The developer received municipal approvals and commenced development much later than 2000. The Tribunal found that mere execution of the development agreement and receipt of advance payments did not constitute a transfer of property under section 2(47) of the Act.The Tribunal relied on various case laws, including the decision in Chaturbhuj Dwarakadas Kapadia vs. CIT, where it was held that the willingness to perform by the developer is crucial for determining the date of transfer. The Tribunal also referred to other judgments where it was held that the date of actual possession and substantial compliance with the agreement terms are critical in determining the year of chargeability of capital gains.Based on these findings, the Tribunal concluded that the transfer of property did not occur in the financial year relevant to the assessment year 2001-02. Therefore, the capital gain could not be assessed in that year, and the tax authorities' decision was set aside.2. Computation of Capital Gain:Since the Tribunal held that the transfer of property did not take place in the financial year relevant to the assessment year 2001-02, it did not find it necessary to address the issues relating to the computation of capital gains. The Tribunal's decision on the primary issue rendered the computation aspect moot for the assessment year 2001-02.Conclusion:The appeal filed by the assessee was allowed, and the orders of the tax authorities assessing the capital gain in the assessment year 2001-02 were set aside. The Tribunal pronounced its order in the open court on 14.11.2014.