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 ... Transfer within the meaning of section 2(47)(v) - taxability of capital gains in the year of transfer - doctrine of part performance (section 53A) - possession handed over as constituting transferTransfer within the meaning of section 2(47)(v) - possession handed over as constituting transfer - taxability of capital gains in the year of transfer - Whether the Joint Development Agreement resulted in a 'transfer' attracting capital gains tax in asst. year 2008-09 under section 2(47)(v) of the Act - HELD THAT: - The Tribunal examined the terms of the Joint Development Agreement (JDA) dated 20.10.2007 and the factual matrix, noting that owners handed over original title deeds for plan sanction, executed a General Power of Attorney in favour of the developer's managing director, and the developer was authorised to sell flats and to complete and deliver the constructed areas within stipulated time. By December 2011 substantial construction had been carried out, and sample sale deeds executed by the power-holder recorded the JDA and the transfer of undivided shares to purchasers. On these facts the Tribunal held that the parties had acted upon the JDA and possession/rights enabling enjoyment of the immovable property were put into effect. Applying the inclusive definition of 'transfer' in section 2(47)(v) and the doctrine of part performance under section 53A, the Tribunal concluded that all ingredients of section 2(47)(v) were satisfied and the event of transfer occurred in the year under consideration. Reliance was placed on precedents holding that handing over possession or allowing possession to be taken pursuant to such development agreements gives rise to transfer for capital gains purposes and that taxability arises in the year when the transaction enabling enjoyment/possession occurs, even if formal conveyance is later. The Tribunal therefore disagreed with the CIT(A)'s view and found that subsequent paper arrangements could not negate the substantive transfer effected under the JDA. [Paras 7, 8]A transfer within the meaning of section 2(47)(v) took place and capital gains are taxable in asst. year 2008-09; the CIT(A) order is reversed and the AO's order restored.Final Conclusion: Revenue's appeal allowed; the Tribunal held that the JDA resulted in a transfer under section 2(47)(v) and capital gains are assessable in asst. year 2008-09, reversing the CIT(A) and restoring the AO's order. 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.