2025 (8) TMI 582 - AT - Income Tax

Capital Gains Tax Requires Possession Transfer and Consideration Receipt Under Sections 2(47) and 45

ITAT Pune-AT held that for capital gains tax under sections 2(47) and 45, transfer requires possession delivery and receipt of consideration. The assessee ... Capital gains tax u/s. 2(47) r/w section 45 - developer has undertaken any construction-related work under the development agreement or not? - whether possession has been given to the Developer against the consideration finalized in the form of giving saleable rights for built-up area of 1189.59 sq.mtrs - HELD THAT:- For the transfer of the property, two ingredients are to be fulfilled, (1) Possession is handed over from the sellers to the buyer and (2) Consideration is received by the seller. However, in the instant case, the claim of the assessee is that possession has not been given to the Developer since the assessee and co-owners as on date still enjoys possession of the immovable property. Certain documents have been placed as proof of the possession of the immovable property by the assessee and co-owners which were not placed before the lower authorities. Under these given circumstances and since the assessee is claiming that ownership of the property in question not been transferred and possession has not been given to the Developer, deem it appropriate to restore the matter to the file of Jurisdictional Assessing Officer who shall depute an inspector to cause necessary verification or in the alternate ask ITO, Satara where the land in question is situated and get a remand report therefrom and if it is found that the possession of the land in question is still with the assessee and the other co-owners, there being no construction of immovable property on the said land as agreed under the Development Agreement and no consideration has been passed to Land owners, then addition on account of long term capital gain would be uncalled for in the hands of assessee and if found otherwise, then the ld. AO shall decide in accordance with law after providing opportunity of being heard to the assessee. Effective grounds of appeal raised by the assessee are allowed for statistical purposes. ISSUES: Whether the provision of Section 2(47)(v) read with Section 53A of the Transfer of Property Act, 1882 applies where the developer has not undertaken substantial construction-related work under a development agreement.Whether capital gains arise at the time of execution of the development agreement or only upon issuance of the Certificate of Completion under Section 45(5A) of the Income-tax Act.Whether notice under Section 148 can be issued after the lapse of four years from the end of the relevant assessment year as per Section 149(1)(a).Whether filing of Income Tax Return is mandatory under Section 139(1) when total income does not exceed the maximum non-taxable amount.Whether possession of the property has been transferred to the developer such that a valid transfer under Section 2(47) read with Section 45 and Section 53A has occurred, triggering capital gains liability.Whether the non-compliance with notice under Section 142(1) for submission of valuation report justifies dismissal of appeal without adjudication on merits under Section 250(6). RULINGS / HOLDINGS: The Court held that activities such as demolishing old structures, fencing, and installing bore-wells do not qualify as 'part performance' under Section 2(47)(v) read with Section 53A; substantial construction actions like laying foundation or obtaining municipal approvals are required.Capital gain does not arise at the time of the development agreement but only upon issuance of the Certificate of Completion as per Section 45(5A).Notice under Section 148 cannot be issued after the lapse of four years from the end of the relevant assessment year in accordance with Section 149(1)(a).Filing of Income Tax Return under Section 139(1) is mandatory only when total income exceeds the maximum amount not chargeable to tax.The addition of long-term capital gain by the Assessing Officer was not justified without proof of transfer of possession; possession was not handed over to the developer as per the civil court order dismissing the developer's suit for lack of proof of possession.The National Faceless Appeal Centre's dismissal of the appeal for non-compliance with Section 142(1) notice without passing a speaking order on merits as required under Section 250(6) was improper. RATIONALE: The Court applied the definition of 'transfer' under Section 2(47) of the Income-tax Act and the doctrine of 'part performance' under Section 53A of the Transfer of Property Act, 1882, requiring both possession and consideration to constitute a valid transfer.The Court relied on the statutory timeline for issuance of notice under Section 148 as prescribed by Section 149(1)(a), emphasizing the four-year limitation period.The Court noted that the filing of return under Section 139(1) is linked to the threshold income limit and is not mandatory below that limit.The Court recognized the importance of possession as a critical element of transfer and accepted the civil court's finding that possession was not transferred to the developer, thus negating the capital gains liability.The Court identified a procedural lapse in the appellate authority's failure to issue a speaking order on merits under Section 250(6), holding that dismissal solely for non-compliance with a valuation report notice was insufficient.The matter was remanded to the Assessing Officer for factual verification of possession through an inspector or local ITO, directing reassessment in accordance with law after providing opportunity of hearing, thereby reinforcing principles of natural justice and proper adjudication.