2015 (4) TMI 294 - AT - Income Tax

Development Agreement not taxable transfer under Income Tax Act; no liability for capital gains tax.

Income Tax Officer Versus Shri Sham Kumar

Income Tax Officer Versus Shri Sham Kumar - TMI Issues Involved:1. Whether the Development Agreement resulted in taxable capital gains.2. Applicability of Section 2(47)(v) of the Income Tax Act and Section 53A of the Transfer of Property Act.3. The relevance of judicial precedents and previous tribunal decisions.Issue-wise Detailed Analysis:1. Whether the Development Agreement resulted in taxable capital gains:The core issue was whether the Development Agreement entered into by the assessee with the Developer resulted in taxable capital gains in the year of the agreement. The assessee argued that no liability to capital gains tax arose because no development had taken place, nor had any consideration accrued. The Assessing Officer (AO) disagreed, determining capital gains based on the fair market value of the land and citing various judicial precedents.2. Applicability of Section 2(47)(v) of the Income Tax Act and Section 53A of the Transfer of Property Act:The AO opined that the Development Agreement resulted in a transfer under Section 2(47)(v) of the Income Tax Act, which includes transactions where possession is given in part performance of a contract as per Section 53A of the Transfer of Property Act. The assessee contended that the possession given was only for development purposes and did not constitute a transfer. The CIT (A) agreed with the assessee, stating that since no construction had begun and no permissions were obtained, the conditions of Section 53A were not met. The tribunal supported this view, emphasizing that 'willingness to perform' is a crucial element under Section 53A, which was not demonstrated by the Developer.3. The relevance of judicial precedents and previous tribunal decisions:The tribunal considered various judicial precedents, including the Bombay High Court's decision in Chaturbhuj Dwarkadas Kapadia vs. CIT, which the AO relied upon. However, the tribunal distinguished this case by noting that the conditions of Section 53A were not satisfied in the present case. The tribunal also referred to its own decisions in similar cases, such as M/s. Fibars Infratech (P) Ltd vs. ITO and K. Radhika & Others vs. DCIT, where it was held that capital gains could not be taxed if the developer had not performed or shown willingness to perform its contractual obligations. The tribunal concluded that mere receipt of a refundable deposit did not constitute consideration for capital gains tax purposes.Conclusion:The tribunal upheld the CIT (A)'s decision, stating that the Development Agreement did not result in a transfer under Section 2(47)(v) of the Income Tax Act. The tribunal emphasized that the Developer's lack of action towards development and the absence of any accrued consideration meant that no capital gains tax liability arose for the assessee in the assessment year in question. The appeal filed by the Revenue was dismissed.