2017 (9) TMI 1647 - AT - Income Tax

Tribunal rules no land transfer without registered JDA, relieves assessee from capital gains tax

Sri Laxmidhar Panda Versus ACIT, Range-2, Bhubaneswar

The Tribunal allowed the appeal, ruling in favor of the assessee and deleting the addition of Rs. 4,05,87,159 for long-term capital gains tax. It ... Computing long term capital gain tax - assessment on the date on which the development agreement was entered into with the promoter OR the date on which the land and the title therein was actually transferred - transfer of property - absence of registered joint development agreement - Held that:- It is not in dispute in the instant case that the joint development agreement dated 9.9.2008 entered by the assessee with Shri Jitendra Hans is not registered. In view of the above decision in the case of C.S. Atwal vs. CIT, Ludhiana [2015 (7) TMI 878 - PUNJAB & HARYANA HIGH COURT] in absence of registered joint development agreement, the agreement does not fall under section 53A of the 1882 Act and consequently, section 2(47)(v) does not apply. Hence, there is no transfer of land by the assessee during the year under consideration and consequently, the assessee is not liable to capital gains tax. Hence, we set aside the orders of lower authorities an delete the addition under the head “ long term capital gains ” and allow the appeal of the assessee. Issues Involved:1. Determination of the date of transfer for the purpose of computing long-term capital gains tax.2. Validity and implications of the Joint Development Agreement (JDA) and General Power of Attorney (GPA).3. Applicability of Section 53A of the Transfer of Property Act and Section 2(47)(v) of the Income Tax Act.4. Requirement of registration for the JDA under the Registration Act, 1908.5. Quantum of capital gains and the correctness of the valuation.Issue-Wise Detailed Analysis:1. Determination of the Date of Transfer for Long-Term Capital Gains Tax:The assessee argued that the Additional Commissioner erred by computing long-term capital gains tax based on the date of the development agreement rather than the actual transfer date of the land and title. The Assessing Officer and CIT(A) held that the transfer occurred when the development agreement and irrevocable GPA were executed, as the possession of the land was handed over to the developer, which constituted a transfer under Section 53A of the Transfer of Property Act and Section 2(47) of the Income Tax Act.2. Validity and Implications of the Joint Development Agreement (JDA) and General Power of Attorney (GPA):The JDA dated 9.9.2008 between the assessee and the developer stated that the assessee would receive 14 out of 32 flats constructed by the developer. The assessee also executed an irrevocable GPA in favor of the developer, enabling the latter to sell the remaining flats. The CIT(A) upheld that the possession and rights transferred to the developer constituted a valid transfer for tax purposes.3. Applicability of Section 53A of the Transfer of Property Act and Section 2(47)(v) of the Income Tax Act:The CIT(A) and the Assessing Officer relied on judicial precedents to conclude that the transfer of possession and rights under the JDA and GPA amounted to a transfer under Section 53A of the Transfer of Property Act, making the assessee liable for capital gains tax. The assessee contended that no actual transfer occurred as the sales consideration was not received, and the GPA did not constitute a valid transfer of land.4. Requirement of Registration for the JDA under the Registration Act, 1908:The assessee argued that the JDA was not registered, and as per the amendments to Section 53A of the Transfer of Property Act and Sections 17 and 49 of the Registration Act, the unregistered JDA had no effect. The Tribunal agreed with this argument, citing the decision of the Punjab & Haryana High Court in C.S. Atwal vs. CIT, which held that an unregistered JDA does not fulfill the requirements of Section 53A and thus does not constitute a transfer under Section 2(47)(v) of the Income Tax Act.5. Quantum of Capital Gains and the Correctness of the Valuation:The Assessing Officer computed the capital gains based on the market value of the 14 flats to be received by the assessee, less the proportionate value of the land, resulting in an addition of Rs. 4,05,87,159 to the assessee's income. The CIT(A) upheld this valuation. However, the Tribunal set aside the orders of the lower authorities, concluding that there was no transfer of land during the year under consideration due to the unregistered JDA, and thus, the assessee was not liable for capital gains tax.Conclusion:The Tribunal allowed the appeal filed by the assessee, setting aside the orders of the lower authorities and deleting the addition of Rs. 4,05,87,159 under the head 'long-term capital gains.' The judgment emphasized that in the absence of a registered JDA, the agreement does not fall under Section 53A of the Transfer of Property Act, and consequently, Section 2(47)(v) does not apply, resulting in no transfer of land and no liability for capital gains tax for the assessee.