2024 (7) TMI 82 - AT - Income Tax

Joint development agreement signing alone doesn't trigger capital gains tax until actual development begins

ITAT Hyderabad held that LTCG arising from joint development agreement should be taxed in A.Y. 2015-16 rather than A.Y. 2012-13. The tribunal ruled that ... LTCG - joint development agreement between the assessee’s father and his family members - whether such capital gain tax is leviable for A.Y. 2012-13 or 2015- 16? - HELD THAT:- The assessee claims that although the joint development agreement was entered in the F.Y. 2011-12, the relevant A.Y. 2012-13, but nothing has happened on the ground that the developer has not started any construction. Only after sanction of the plan for A.Y. 2014-15, the developer has undertaken the development activities. Therefore, the assessee has computed long term capital gains for A.Y. 2015-16. We find force in the arguments of the counsel for the assessee because just because joint development agreement is entered, it cannot be said that the transfer takes place unless the parties to the agreement acted upon in pursuance of the terms and conditions of agreement. It cannot be said that event of taxation arises only on signing the agreement. Since the developer has obtained sanction plan from the concerned authorities for A.Y. 2014-15 relevant to A.Y. 2015- 16, in our opinion, the assessee has rightly computed capital gain for A.Y. 2015-16 and paid taxes. Since the tax has already been subjected in respect of joint development agreement, Assessing Officer has erred in computing capital gain for the impugned assessment and CIT(A) without appreciating the facts simply sustained the addition made by the AO. Therefore, set aside the order of the CIT(A) and direct the AO to delete the addition towards computation of long term capital gain for the A.T. 2012-13. Appeal filed by the assessee is allowed. Issues Involved:1. Reopening of assessment based on joint development agreement.2. Computation of long-term capital gains for assessment year 2012-13.3. Double taxation concern raised by the assessee.4. Jurisdiction to assess capital gains in the hands of the assessee.Issue 1: Reopening of Assessment Based on Joint Development AgreementThe case involved a dispute regarding the reopening of the assessment for the assessment year 2012-13 based on a joint development agreement entered into by the assessee and family members with a construction company. The Assessing Officer (AO) issued a notice under section 148 of the Income Tax Act, alleging that income chargeable to tax under capital gains had escaped assessment. The assessee challenged the reopening, arguing that the property belonged to the Hindu Undivided Family (HUF) and not directly to the assessee. The Appellate Tribunal found that the AO had erred in reopening the assessment as there was no nexus between the reasons given and the alleged income escapement. The Tribunal held that the reopening failed, as the property belonged to the HUF, and the capital gain should not have been assessed in the hands of the individual assessee.Issue 2: Computation of Long-Term Capital Gains for Assessment Year 2012-13The dispute also centered around the computation of long-term capital gains for the assessment year 2012-13. The AO calculated the long-term capital gains based on the joint development agreement, considering the share of the assessee's late father. The Appellate Tribunal noted that the capital gain arose from the joint development agreement entered into in the financial year 2011-12 but determined that the relevant assessment year for taxation was 2015-16. The Tribunal found merit in the assessee's argument that the capital gain should be assessed in the year when development activities commenced, which was after the approval of the plan in the financial year 2014-15. Consequently, the Tribunal directed the Assessing Officer to delete the addition towards the computation of long-term capital gains for the assessment year 2012-13.Issue 3: Double Taxation Concern Raised by the AssesseeThe assessee raised a concern regarding double taxation, arguing that he had already paid capital gains tax based on the joint development agreement for the assessment year 2015-16 and the subsequent sale of flats in 2018-19. The Appellate Tribunal acknowledged the assessee's compliance with tax payments for the respective years and deemed it impermissible to levy additional tax for the same capital gains in the assessment year 2012-13. The Tribunal recognized the principle against double taxation and ruled in favor of the assessee, allowing the appeal.Issue 4: Jurisdiction to Assess Capital Gains in the Hands of the AssesseeThe jurisdiction to assess capital gains in the hands of the individual assessee was also a point of contention. The Assessing Officer had considered the assessee as the legal heir of the deceased father and assessed the capital gains accordingly. However, the Appellate Tribunal found that the capital gains arising from the joint development agreement should have been attributed to the HUF rather than the individual assessee. The Tribunal highlighted that the tax had already been paid for the relevant years, and there was no justification for assessing the same capital gains in the hands of the individual assessee. Consequently, the Tribunal directed the Assessing Officer to delete the addition towards the computation of long-term capital gains for the assessment year 2012-13.