2022 (7) TMI 322 - AT - Income Tax

Joint Development Agreement: Permissive Possession Not Transfer of Property

Smt. Munilakshamamma Versus The Income Tax Officer Ward 7 (2) (2) Bengaluru.

The Tribunal ruled that the Joint Development Agreement did not constitute a transfer of property as only permissive possession was granted, not legal ... LTCG - JDA transaction - Nature of land sold - Primary contention of the assessee was that the impugned land was an agricultural land not falling with the definition of capital assets u/s 2(14) - HELD THAT:- In the instant case, as mentioned earlier, in view of the various clauses in the JDA, it is clear that the assessee has given only a permissive possession and not the legal possession as contemplated within the meaning of section 53A of the Transfer of Property Act - we are of the view that the provisions of section 53A of the Transfer of Property Act are not applicable to the impugned JDA. In view of the matter, the provision of section 2(47)(vii) of the I.T.Act are also not applicable during the relevant financial year. 12. The judgment of the Hon’ble Karnataka High Court in the case of Dr.T.K.Dayalu (2012 (6) TMI 405 - KARNATAKA HIGH COURT] relied on by the CIT(A) is distinguishable on facts. In the instant case, the assessee has neither received any non-refundable deposit nor has delivered the possession of the land to the developer, except for granting license to have ingress and egress into the land proposed to be developed, and accordingly, there is no transfer as defined u/s 2(47) of the I.T.Act. The implementation of the proposed project was legally restrained following the refusal of consent by the Hon’ble National Green Tribunal as well as the Karnataka State Pollution Control Board orders dated 04.05.2010 and 05.10.2016, respectively. To revive the abandoned project, the assessee and the developer had entered into an amended relinquishment agreement with Bangalore Development Authority vide agreement dated 09.05.2019 in order to comply with the directions of the Hon’ble National Green Tribunal. As per the said agreement, the assessee surrendered the total area of 2.35 acres out of total area of 7.25 acres of land to be utilized for the proposed project. Thus, reducing the available area for the proposed project to only 4.30 acres as against 7.25 acres as originally envisaged. The assessee obtained revised sanction plan from the Bangalore Development Authority vide letter dated 11.11.2019 and a fresh JDA agreement was entered between the developer and the assessee vide agreement dated 27.11.2019. Therefore, following the dictum laid down by the in the case of CIT v. Balbir Singh Naini (2017 (10) TMI 323 - SUPREME COURT] we hold that the provisions of section 45 were not attracted for the relevant assessment year. It is ordered accordingly. Issues Involved:1. Whether the assessee is liable for capital gains for the Joint Development Agreement (JDA) entered with M/s. Ramky Infrastructure Limited.2. Whether the impugned land qualifies as agricultural land and not a capital asset under section 2(14) of the Income Tax Act.3. Applicability of section 45 of the Income Tax Act in light of the refusal of consent by the National Green Tribunal and Karnataka State Pollution Control Board.Issue-wise Detailed Analysis:1. Liability for Capital Gains under the Joint Development Agreement (JDA):The primary issue debated was whether the JDA entered by the assessee with M/s. Ramky Infrastructure Limited resulted in a transfer of property, thereby attracting capital gains tax. The assessee contended that the land was agricultural and not a capital asset under section 2(14) of the Income Tax Act. However, this ground was not pressed by the assessee, leading to its dismissal. The focus shifted to whether the legal possession of the property was transferred under the JDA. The assessee argued that only permissive possession was granted to the developer, not legal possession, thus not constituting a transfer under section 2(47)(v) of the Income Tax Act read with section 53A of the Transfer of Property Act. The Tribunal agreed with the assessee, noting that the JDA granted only permissive possession and not legal possession, thereby ruling out the applicability of section 53A of the Transfer of Property Act and consequently section 2(47)(v) of the Income Tax Act.2. Qualification of the Land as Agricultural Land:The assessee initially raised the issue that the impugned land was agricultural and thus not a capital asset under section 2(14) of the Income Tax Act. However, this ground was not pressed during the proceedings and was subsequently dismissed. The CIT(A) had earlier held that the land fell within the definition of urban land and thus qualified as a capital asset, irrespective of its agricultural status.3. Applicability of Section 45 in Light of Refusal of Consent by Authorities:The assessee raised an additional ground stating that the refusal of consent by the National Green Tribunal and the Karnataka State Pollution Control Board legally restrained the implementation of the proposed project, thereby nullifying the applicability of section 45 of the Income Tax Act. The Tribunal examined this contention and noted the orders from the National Green Tribunal and Karnataka State Pollution Control Board, which halted the project. The Tribunal cited the Supreme Court judgment in CIT v. Balbir Singh Maini, which held that if a project is legally restrained, the provisions of section 45 are not attracted. The Tribunal found that the project was indeed legally restrained, and thus, section 45 was not applicable for the relevant assessment year.Conclusion:The Tribunal concluded that the JDA did not result in a transfer of property as only permissive possession was granted, not legal possession. Consequently, the provisions of section 53A of the Transfer of Property Act and section 2(47)(v) of the Income Tax Act were not applicable. Furthermore, due to the legal restraint on the project by the National Green Tribunal and Karnataka State Pollution Control Board, section 45 of the Income Tax Act was not attracted for the relevant assessment year. The appeal filed by the assessee was partly allowed.