2025 (5) TMI 1950 - AT - Income Tax

ITAT deletes capital gains addition where developer aggregated HUF land and sold apartments with tax deducted in developer's name

Parandhaman Bhakthavatsala Naidu, HUF Versus The ITO, Non-Corporate Ward-1 (6), Chennai.

ITAT Chennai held that capital gains should not accrue to assessee-HUF where land was aggregated by developer in 2010 and sold as apartments in AY ... Capital gains accrual in the hands of the assessee-HUF - whether transfer/part performance of the contract as envisaged in section 53A of the TP Act r.w.s.2(47)(v) ? HELD THAT:- Tax has been deducted by the ultimate buyers of the apartment at Luz Amore in the name of the Shri Ravi Appa Swamy in respect of the payments made to him]. This fact is also corroborated from the bank statement filed by the assessee. Therefore we find that the action of the AO/Ld.CIT(A) to be erroneous for making addition of the capital gains in the hands of the assessee when the fact remains that the capital gains ought to have been computed in the hands of the seller/builder to whom the payments have been made by the ultimate buyers as evident from Form 26QB for AY 2016-17. Assessee-HUF stands on the same pedestal as that of other owners/vendors whose lands were aggregated by M/s. Appaswamy Real estates in the year 2010 and sold in AY 2016-17 after developing it as Luz More ought not to have been taxed in the hands of the assessee. Thus, no capital gains would accrue in the hands of the assessee-HUF in the AY 2016-17 and therefore, the impugned addition need to be deleted. Assessee appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal were:Whether the transfer of the undivided share (UDS) of immovable property by the assessee-HUF to the developer constituted a transfer under section 2(47)(v) of the Income Tax Act, 1961, read with section 53A of the Transfer of Property Act, 1882, in the Assessment Year (AY) 2011-12 or in AY 2016-17;Whether the Long Term Capital Gains (LTCG) arising from the sale of the property should be taxed in the hands of the assessee-HUF in AY 2016-17 or in AY 2011-12;Whether the Assessing Officer (AO) was justified in invoking section 50C of the Act to compute the capital gains based on the market value of the entire developed property in AY 2016-17, despite the assessee not receiving any consideration in that year;Whether the Learned Commissioner of Income Tax (Appeals) (Ld.CIT(A)) was correct in confirming the addition of LTCG in AY 2016-17 despite the assessee's submissions and documentary evidence;Whether the principle of consistent treatment should apply, given that other vendors who sold their undivided shares to the same developer were not subjected to capital gains tax in AY 2016-17.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Timing of Transfer under Section 2(47)(v) of the Income Tax Act read with Section 53A of the Transfer of Property ActThe legal framework relevant to this issue includes section 2(47)(v) of the Income Tax Act, which defines 'transfer' to include the transfer of rights in an immovable property, and section 53A of the Transfer of Property Act, which deals with the doctrine of part performance, whereby possession given under an irrevocable power of attorney can amount to transfer in the eyes of law.The assessee contended that the transfer took place upon execution of the Sale Agreement dated 06.11.2009 and the subsequent registration of an irrevocable power of attorney on 30.04.2010, which gave possession of the property to the developer, thereby triggering the incidence of capital gains in AY 2011-12. The assessee argued that the power of attorney holder only signed the sale deed in AY 2016-17 as a consenting witness and no fresh consideration was received by the assessee in that year.The AO, however, treated the sale as having occurred in AY 2016-17, relying on the registered sale deed aggregating six immovable properties sold by the assessee and four other vendors to the developer for a total consideration of Rs. 7.25 crores and computed LTCG accordingly under section 50C based on the market value of Rs. 7.97 crores.The Tribunal examined the facts and noted that possession of the property was given to the developer by registration of power of attorney in AY 2011-12 and that the consideration of Rs. 1.05 crores was received in AY 2010-11. The Tribunal observed that the doctrine of part performance under section 53A of the Transfer of Property Act applied, and thus the transfer legally occurred in AY 2011-12.The Tribunal found that the AO and Ld.CIT(A) erred in ignoring these facts and treating the sale as occurring in AY 2016-17. The Tribunal emphasized that the transfer of rights and possession to the developer and receipt of consideration in AY 2010-11/2011-12 established the timing of transfer for capital gains purposes.Issue 2: Computation and Taxation of LTCG in AY 2016-17 vs AY 2011-12Section 45 of the Income Tax Act provides that capital gains arise on the transfer of a capital asset. The timing of such transfer is critical for determining the relevant AY for taxation.The AO computed LTCG in AY 2016-17 by aggregating the market value of the entire developed property and allocating a proportionate share to the assessee. The AO relied on section 50C to adopt the stamp duty value as the deemed sale consideration.The assessee submitted bank statements and Form 26QB evidencing tax deducted at source by the ultimate buyers in the name of the developer, not the assessee, for payments made in AY 2016-17. This demonstrated that no consideration passed to the assessee in AY 2016-17. The assessee also pointed out that the entire consideration for its share was received in AY 2010-11, and the balance amount was invested in another property with capital gains offered for taxation accordingly.The Tribunal found that the AO and Ld.CIT(A) disregarded this evidence and failed to appreciate that the consideration in AY 2016-17 was received only by the developer. Consequently, the Tribunal held that LTCG could not be taxed in the hands of the assessee in AY 2016-17 but arose in AY 2011-12.Issue 3: Application of Section 50C and Market Value ConsiderationsSection 50C mandates that where the sale consideration declared is less than the stamp duty value, the latter shall be considered as the sale consideration for computing capital gains.The AO invoked section 50C based on the market value of the entire developed property in AY 2016-17. However, the Tribunal noted that the assessee had already received consideration for its undivided share in AY 2010-11 and had transferred possession by power of attorney in AY 2011-12. The subsequent sale of developed apartments by the developer in AY 2016-17 did not involve any fresh consideration to the assessee.Therefore, the Tribunal concluded that section 50C could not be invoked in AY 2016-17 for the assessee's share, as no transfer or receipt of consideration occurred in that year. The deemed sale consideration under section 50C was thus inapplicable to the assessee for AY 2016-17.Issue 4: Failure of Ld.CIT(A) to Consider Assessee's EvidenceThe Ld.CIT(A) confirmed the AO's addition primarily on the ground that the assessee failed to file written submissions or documentary evidence in support of its grounds of appeal and did not produce relevant documents during assessment proceedings.The Tribunal, however, observed that the assessee had furnished the Sale Agreement, power of attorney documents, bank statements, and Form 26QB, which were on record before both the AO and Ld.CIT(A). These documents clearly established the timing of transfer and receipt of consideration.The Tribunal criticized the Ld.CIT(A) for brushing aside these relevant facts and evidence without due appreciation and for mechanically confirming the AO's addition. The Tribunal emphasized that such disregard of evidence was erroneous.Issue 5: Consistency in Treatment of Other VendorsThe assessee brought to the Tribunal's notice that other vendors who had sold their undivided shares to the same developer under similar circumstances were not subjected to capital gains tax in AY 2016-17.The Tribunal examined the assessment orders of other vendors, such as Mr. Anup N. Melwani and Mr. Deepak V. Mirpuri, who had executed similar power of attorney documents and transferred possession in AY 2010-11/2011-12. Their AOs did not make any addition of capital gains in AY 2016-17.The Tribunal held that the assessee-HUF stood on the same footing as these other vendors and ought not to have been taxed in AY 2016-17. The principle of consistent treatment was thus applicable, and the AO's contrary action was unjustified.3. SIGNIFICANT HOLDINGSThe Tribunal held:'The transfer/part performance of the contract as envisaged in section 53A of the TP Act read with section 2(47)(v) of the Act took place in the eyes of law in AY 2011-12, and therefore, the incidence of LTCG arose in AY 2011-12 as per section 45 of the Act.''The action of the AO/Ld.CIT(A) to be erroneous for making addition of the capital gains in the hands of the assessee to the tune of Rs. 41,69,758/- when the fact remains that the capital gains ought to have been computed in the hands of the seller/builder to whom the payments have been made by the ultimate buyers as evident from Form 26QB for AY 2016-17.''No capital gains would accrue in the hands of the assessee-HUF in the AY 2016-17 and therefore, the impugned addition need to be deleted.'Core principles established include:The timing of transfer for capital gains purposes is governed by the legal transfer of rights and possession under section 2(47)(v) and section 53A of the TP Act, not merely by registration of sale deeds or receipt of consideration in later years;Section 50C cannot be invoked to compute deemed sale consideration in a year where the assessee neither transferred the property nor received any consideration;The doctrine of part performance under section 53A is applicable in establishing transfer of immovable property rights;Tribunal must consider and appreciate documentary evidence and submissions before confirming additions;Consistent treatment of similarly placed taxpayers is a relevant consideration in assessment proceedings.Accordingly, the Tribunal allowed the appeal and deleted the addition of LTCG in AY 2016-17 in the hands of the assessee-HUF.