2007 (12) TMI 323 - AT - Income Tax

Computation Capital gain - transfer property under development agreement - selection of assessment year - HELD THAT - The developer agreed to construct and deliver to the assessee 34 per cent of the super built up area in the apartment building to be constructed on the schedule property for the absolute use and benefit of the assessee free from all encumbrances. Further, the recital No. 5.2 clearly states that in consideration of the developer agreeing to deliver the assessee the constructed area as per para 5.1, the assessee had agreed to transfer/convey to the developer an undivided 66 per cent share in the schedule property. Therefore, from the aforesaid recital, it is apparent that the assessee had transferred 66 per cent undivided share of the schedule property mentioned together with his share for the purpose of constructing a super built multi-storeyed building. This transaction had taken place in the year 1995-96. In the present case, admittedly, the transfer has taken place only in the assessment year 1995-96 and not in the assessment year 1998-99. Our view is also fortified by the decision relied on by the learned counsel for the assessee and also decision of this Tribunal in the case of D.L. Nandagopala Reddy (Indl.) v. ITO 2003 (10) TMI 251 - ITAT BANGALORE-C . Therefore, applying the same, we hold that if at all there is any capital gains arise, it is only in the year of transfer i.e., 1995-96 and not in the assessment year 1998-99. It is ordered accordingly. In the result, the appeal filed by the assessee is partly allowed to the extent stated above.

Summary

Issues Involved:

1. Validity of assessment on a non-existing HUF.
2. Validity of notice under section 148.
3. Assessment year for capital gains.
4. Correctness of capital gains computation and exemption under section 54.

Detailed Analysis:

1. Validity of assessment on a non-existing HUF:

The assessee argued that the CIT(A) erred in law and on facts by failing to annul the impugned assessment made on a non-existing HUF. The assessee contended that the joint family ceased to exist before the notice under section 148 was issued. The Departmental Representative countered that the property in question was inherited by the assessee from his father and that the assessee had filed returns in the status of an HUF for several years. The Tribunal noted that the assessee had consistently filed returns in the status of an HUF and had offered income from house property (flats received from the developer) which was accepted by the Department. Therefore, the Tribunal concluded that the assessment in the status of an HUF was justified and this ground failed.

2. Validity of notice under section 148:

The assessee claimed that the notice under section 148 issued on 19-4-2000 did not specify the status as HUF. The Tribunal did not find merit in this argument as the assessee had consistently filed returns in the status of an HUF and the Department had accepted this status in previous assessments.

3. Assessment year for capital gains:

The primary issue was whether the capital gains arose in the assessment year 1995-96 or 1998-99. The assessee argued that the transfer took place in 1995-96 when the joint development agreement was entered into, while the Department contended that the capital gains were chargeable in 1998-99 when the assessee received possession of the constructed flats. The Tribunal reviewed the joint development agreement and noted that the assessee had agreed to transfer an undivided 66% share of the property to the developer in 1995-96. The Tribunal held that the transfer took place in 1995-96 as the assessee had transferred the undivided share of the property to the developer for constructing a multi-storeyed building. Therefore, the capital gains should be charged in the assessment year 1995-96, not 1998-99.

4. Correctness of capital gains computation and exemption under section 54:

The assessee challenged the computation of capital gains and the exemption granted under section 54. The Tribunal did not provide a detailed analysis of this issue as it concluded that the capital gains should be charged in the assessment year 1995-96. Consequently, the computation of capital gains and the exemption under section 54 for the assessment year 1998-99 became irrelevant.

Conclusion:

The Tribunal concluded that the assessment in the status of an HUF was justified and the notice under section 148 was valid. However, it held that the capital gains should be charged in the assessment year 1995-96, not 1998-99. The appeal filed by the assessee was partly allowed to the extent that the capital gains should be assessed in 1995-96.