2025 (5) TMI 802 - AT - Income Tax

Tax Liability Reset: JDA Land Transfer Requires Actual Possession Verification Before Capital Gains Assessment

Pushpa Kumari Versus Income Tax Officer, Ward-6 (2), Patna

The Tribunal remanded a tax case involving a Joint Development Agreement (JDA) back to the Assessing Officer for fresh assessment. The key findings were ... LTCG - Transfer u/s 2(47) - Whether the Joint Development Agreement (JDA) amounted to a transfer of right, title, and interest in the land? - HELD THAT:- D.R. has rightly pointed out that the cancellation deed and cancellation letter issued by the developer were very much subsequent to the orders passed by the revenue authorities. Therefore, the subsequent cancellation of Joint Development Agreement was not before the AO and CIT(Appeals). Thus, remit the matter back to the file of ld. Assessing Officer to examine this issue afresh by taking into consideration of the cancellation deed and after physical verification of property. AO is also directed to pass assessment order by considering the physical possession of the subject matter of the land after opportunity of being heard to the assessee. Hence, the grounds raised by the assessee are allowed for statistical purposes. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal include:(a) Whether the Joint Development Agreement (JDA) dated 15th July 2014 amounted to a transfer of right, title, and interest in the land within the meaning of section 2(47) of the Income Tax Act, thereby triggering capital gains tax liability under section 45.(b) Whether capital gains could be computed and taxed when the developer had not initiated any development activity and the land remained in the possession of the assessee.(c) Whether the cancellation of the Joint Development Agreement, executed subsequent to the assessment and appellate orders, could be considered for reassessment or appellate relief.(d) Whether the appellant was afforded natural justice in the assessment and appellate proceedings, particularly in light of the appellant's inability to furnish information due to adverse personal circumstances and the COVID-19 pandemic.(e) The validity of the demand of capital gains tax and interest on the deemed income arising from the JDA, especially when no actual income was received by the appellant.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (b): Transfer under Section 2(47) and Capital Gains LiabilityThe legal framework involves the interpretation of section 2(47) of the Income Tax Act, which defines 'transfer' for capital gains purposes, and section 45 which deals with the chargeability of capital gains on such transfer. The Tribunal examined whether the execution of the JDA itself constituted a transfer of the right, title, and interest in the land.Precedents cited by the appellant included recent case law (notably C.I.T. vs. Chemosyn Limited) which underscore that mere execution of a JDA without actual transfer or development activity does not amount to a transfer triggering capital gains.The Court noted that the Assessing Officer (AO) invoked section 2(47) read with section 45 and 48 to compute capital gains despite the fact that the developer had not commenced any development work and the land remained with the appellant. The appellant argued that the absence of any physical transfer or possession by the developer negated the applicability of capital gains provisions.The Tribunal found that the AO and the Commissioner of Income Tax (Appeals) had not considered the subsequent cancellation of the JDA, nor had they physically verified the possession of the land before concluding on the transfer. Therefore, the Tribunal remitted the matter back to the AO for fresh examination, directing that the AO should consider the cancellation deed and conduct physical verification of the land to ascertain the actual possession and transfer status.The Tribunal emphasized that the legal interpretation of 'transfer' under section 2(47) requires factual determination of whether the assessee had parted with right, title, and interest in the property. The absence of development activity and retention of possession by the assessee raised a strong factual question that the AO must address.Issue (c): Consideration of Subsequent Cancellation of Joint Development AgreementThe appellant submitted a cancellation deed dated 27th July 2023 and a letter from the developer intimating the cancellation of the JDA. These documents were not before the AO or the CIT(Appeals) at the time of their orders.The Tribunal held that since these documents post-dated the assessment and appellate orders, the earlier authorities could not consider them. However, the Tribunal allowed their consideration on remand, instructing the AO to take these into account afresh in the reassessment process.This approach aligns with principles of natural justice and fair adjudication, allowing the appellant to present relevant facts that materially affect the tax liability.Issue (d): Natural Justice and Procedural FairnessThe appellant contended that the CIT(Appeals) erred in dismissing the appeal without proper consideration of the appellant's inability to comply due to adverse conditions including mental, physical, financial hardship, and the COVID-19 pandemic. The appellant also alleged non-receipt of notices from the CIT(Appeals) before passing the order.The Tribunal did not explicitly rule on these procedural contentions but implicitly recognized the appellant's difficulties by remitting the matter for fresh consideration and directing the AO to provide an opportunity of hearing.The Tribunal's direction to allow the appellant to be heard afresh ensures compliance with the principles of natural justice and procedural fairness.Issue (e): Tax Demand and Interest on Deemed IncomeThe appellant challenged the tax demand and interest on the ground that no real income was received from the JDA, and thus the deemed capital gains income was not justified.The Tribunal did not directly adjudicate on the quantum of tax or interest but by remanding the matter for fresh assessment after considering the cancellation and possession facts, the Tribunal effectively allowed reconsideration of the tax demand in light of the actual facts.3. SIGNIFICANT HOLDINGSThe Tribunal held:'The subsequent cancellation of Joint Development Agreement dated 15.07.2014 was not before the ld. Assessing Officer and ld. CIT(Appeals). Thus, considering the facts and circumstances of the case, I remit the matter back to the file of ld. Assessing Officer to examine this issue afresh by taking into consideration of the cancellation deed and after physical verification of property.''The ld. Assessing Officer is also directed to pass assessment order by considering the physical possession of the subject matter of the land after opportunity of being heard to the assessee.'Core principles established include:(i) Mere execution of a Joint Development Agreement does not ipso facto amount to transfer under section 2(47) unless right, title, and interest in the property have actually passed.(ii) Capital gains tax liability depends on factual determination of transfer and possession, which requires physical verification and consideration of all relevant documents, including subsequent cancellation.(iii) Tax authorities must afford opportunity of hearing and consider relevant facts and documents before concluding on capital gains liability.(iv) Subsequent developments, such as cancellation of agreements, though not available at the time of original assessment, can be considered on remand to ensure just adjudication.On the facts, the Tribunal allowed the appeal for statistical purposes and remitted the matter for fresh assessment, thereby setting aside the orders of both the AO and CIT(Appeals) without deciding the capital gains question conclusively on merits.