ITAT rules JDA execution without possession transfer to builder doesn't trigger capital gains under section 2(47)(v)

The ITAT Kolkata ruled in favor of the assessee regarding capital gains computation under a joint development agreement (JDA). The AO had computed short-term capital gain using stamp valuation authority rates, treating the JDA as a deemed sale under section 2(47)(v). The tribunal held that mere execution of JDA without transferring possession to the builder does not constitute transfer of land under section 2(47)(v). Since the assessee only permitted construction after obtaining approvals and no actual construction occurred due to legal hurdles, no capital gains liability arose. The appeal was allowed.

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Issues involved:
The judgment addresses the issue of the addition of capital gain on land based on a joint development agreement under section 2(47)(v) of the Act.

Summary:

Issue 1: Addition of Capital Gain on Land

The appeal concerns the addition of Rs. 33,84,024 as capital gain by the Assessing Officer, based on a joint development agreement with a builder. The Assessing Officer computed the gain by considering the value as per stamp valuation authority and deducting the cost of acquisition. The CIT(Appeals) affirmed this addition.

After reviewing the contentions and the agreement, it was found that the mere execution of the joint development agreement did not constitute a transfer of land under section 2(47)(v) of the Act. The agreement allowed for construction on the plot, with the ownership remaining with the assessee. Citing a similar decision by the Jurisdictional High Court, it was concluded that no transfer or sale of the asset occurred under the agreement. The Supreme Court's decision in a related case supported this interpretation.

Additionally, the registering authorities treated the agreement as not a conveyance deed, further supporting the view that no transfer of ownership occurred. The Tribunal applied the correct legal principle and granted relief to the assessee. Consequently, the order of the Tribunal was upheld, and the appeal was dismissed.

Separate Judgment by Shri Rajesh Kumar, Accountant Member:

The judgment by Shri Rajesh Kumar, Accountant Member, set aside the CIT(Appeals) order and directed the Assessing Officer to delete the addition of capital gain. It was noted that no possession was given to the builder for part performance of the contract, and no construction had taken place due to legal hurdles. Based on these factors, the capital gain assessment based on the joint development agreement was deemed inappropriate, leading to the allowance of the assessee's appeal.

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