2016 (5) TMI 932 - AT - Income Tax

Transfer of Capital Asset in 2008-09: Tribunal rules in favor of Revenue

The Tribunal held that there was a transfer of capital asset in the assessment year 2008-09, making the capital gains taxable in that year. The Tribunal ... Capital gain - transfer - CIT(A) held Joint Venture Agreement did not result in transfer of capital asset in the year under consideration and hence no capital gain had arisen - Held that:- In the present case, vide JDA dated 20.10.2007, the developer will get 60 to 65% of the constructed area and the assessee will get 30 to 35% of the constructed area. The assessee has also received ₹ 2.50 crores as interest free refundable security deposit and the developer agreed to develop the property after getting necessary plan from the CMDA. Further, it is also mentioned that the assessee has to hand over all original title deeds pertaining to the property for the purpose of getting plan sanction for construction. The assessee has also executed Power of Attorney in favour of Shri Suresh Jain, Managing Director of the developer company and the developer has the right to sell all flats and also to complete the assessee’s share of construction of flats within 36 months from the date of obtaining of plan sanctions. If there is a failure on the part of the developer to hand over the vacant possession of the property within the grace period of 12 months, there is a penalty clause that ₹ 20 lakhs per month shall be payable to the assessee. Further, by December, 2011, the developer almost constructed 9 towers each having 9 floors, which is mentioned in para 3.2 of this order. All these show that the JDA entered on 20.10.2007 actually acted upon. Subsequent agreements executed by the parties took only paper documents so as to postpone tax incidence. If one party is performed his part of duty i.e. developer shows that the other party also performed its part of obligation. Thus, the transaction entered into by the parties herein, which have the effect of transferring or enabling the enjoyment of any immovable property, then capital gains would be taxable in the year in which the transactions were entered into even if the transfer of the immovable property was not effective or complete under the general law. In our opinion, all the ingredients of sec.2(47)(v) of the Act are satisfied and it has to be inferred that a “transfer” took place within the meaning of sec.2(47)(v) of the Act. The completion of “transfer” of an immovable property under the general law was not required for the applicability of the provisions of sec.2(47)(v) of the Act, as held by various High Courts as discussed in earlier para. Accordingly, in the present case, there is a transfer u/s.2(47)(v) of the Act in the asst. year 2008-09. Accordingly, we reverse the order of the CIT(Appeals) and restore that of the AO. - Decided against assessee Issues Involved:1. Determination of whether the Joint Development Agreement (JDA) resulted in a transfer of capital asset in the year under consideration.2. Taxability of capital gains in the assessment year 2008-09.Issue-wise Detailed Analysis:1. Determination of whether the Joint Development Agreement (JDA) resulted in a transfer of capital asset in the year under consideration:The primary issue raised by the Revenue was whether the JDA between the assessee and the developer resulted in a transfer of capital asset in the year under consideration, thereby attracting capital gains tax. The assessee, along with six others, entered into a JDA with a developer for property development. According to the JDA, the developer was to receive 60-65% of the constructed area, while the landowners were to receive 30-35%. The developer also paid Rs. 2.50 crores as an interest-free refundable security deposit.The Assessing Officer (AO) observed that the landowners had handed over possession of the land to the developer for development purposes, as evidenced by the transfer of original title deeds and the execution of a General Power of Attorney in favor of the developer's Managing Director. The AO concluded that the possession of the property had been transferred, thus constituting a transfer under Section 2(47) of the Income Tax Act, 1961.The assessee contended that the developer had not fulfilled their commitments, as evidenced by a letter dated 19.11.2010. However, the AO noted that there was no cancellation of the JDA, and a supplementary agreement dated 19.04.2010 indicated a continuation of the original JDA, albeit with changes in terms. The AO concluded that the supplementary agreement was an attempt to misguide the department and avoid capital gains tax.The Commissioner of Income-tax (Appeals) (CIT(A)) deleted the addition, relying on the Tribunal's decision in the case of Vijay Productions (P) Ltd. v. Addl. CIT, which held that there was no transfer of capital asset in the assessment year 2007-08.2. Taxability of capital gains in the assessment year 2008-09:The Tribunal examined the facts and various judicial precedents to determine the taxability of capital gains. The Hyderabad Bench of the Tribunal, in the case of Sri Potla Nageswara Rao v. DCIT, held that the transfer of a capital asset occurs when the possession of the property is handed over to the developer under a joint development agreement, making the capital gains taxable in the year of such transfer.The Madras High Court, in the case of Madathil Brothers v. DCIT, observed that the definition of 'capital asset' includes property of any kind held by an assessee, and the term 'held' signifies possession, not necessarily ownership. The court further noted that the transfer of a capital asset under Section 2(47) includes any transaction involving the allowing of possession of immovable property in part performance of a contract.In the present case, the JDA dated 20.10.2007 indicated that the developer would get 60-65% of the constructed area, and the assessee would receive 30-35%. The assessee also received Rs. 2.50 crores as a security deposit, and the developer had the right to sell all flats and complete the construction within 36 months. By December 2011, the developer had almost constructed nine towers, indicating that the JDA was acted upon.The Tribunal concluded that the transaction entered into by the parties had the effect of transferring or enabling the enjoyment of the immovable property, thus satisfying the ingredients of Section 2(47)(v) of the Act. Therefore, the transfer took place in the assessment year 2008-09, making the capital gains taxable in that year.Conclusion:The Tribunal reversed the order of the CIT(A) and restored the AO's decision, holding that there was a transfer of capital asset in the assessment year 2008-09, making the capital gains taxable in that year. The appeal of the Revenue was allowed.