2000 (1) TMI 990 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of the amount receivable by the assessee by virtue of a development agreement.
2. Disallowance of interest receivable from Trans Asian Carpets Ltd., a sister concern.

Summary:

Issue 1: Taxability of the Amount Receivable by the Assessee by Virtue of a Development Agreement

The appeal pertains to the assessment year 1988-89 and revolves around the taxability of Rs. 1.80 crores receivable by the assessee under a development agreement dated 29th Aug., 1987. The Assessing Officer (AO) contended that the transfer of land to M/s Runwal Investments (P) Ltd. constituted a transfer under section 45 of the IT Act, thus taxable under 'Capital gains'. The AO argued that the possession of land was transferred, fulfilling the conditions of section 53A of the Transfer of Property Act, 1882, and section 2(47)(v) of the IT Act.

The assessee argued that the agreement was for development purposes only, not a transfer of ownership, and the last instalment was due in May 1988, thus no transfer occurred in the assessment year 1988-89. The CIT(A) agreed with the assessee, noting that possession was conditional upon the final payment, and the agreement was for development, not sale. The CIT(A) concluded that the amount was not taxable in the current year but could be taxed in the subsequent year.

The Revenue appealed, asserting that possession was transferred, thus constituting a transfer under section 2(47)(v) of the IT Act. The Tribunal upheld the CIT(A)'s decision, noting that the agreement granted only a licence to develop the land, not a transfer of ownership. The Tribunal emphasized that the conditions of section 53A of the T.P. Act were not met, and the transaction did not constitute a 'transfer' under the IT Act. Therefore, the consideration receivable was not taxable under 'capital gains' for the assessment year 1988-89.

Issue 2: Disallowance of Interest Receivable from Trans Asian Carpets Ltd.

The second issue involved the disallowance of interest receivable amounting to Rs. 43,630 from Trans Asian Carpets Ltd., a sister concern. The CIT(A) set aside the issue to the AO for a proper finding, noting that the assessee followed a cash system of accounting, which had been consistently accepted by the Department. The Tribunal found no infirmity in the CIT(A)'s order and upheld it, dismissing the appeal filed by the Department.