2011 (10) TMI 682 - AT - Income Tax

Capital gain - transfer of property under the Development Agreement - Held that - The agreement in question does not establish that a transaction of sale of property was completed in terms of provisions of Section 2(47)(v) of the I.T. Act read with Section 53A of the transfer of Property Act as neither the entire consideration was paid nor the possession of the property was handed over to the vender and so the capital gain worked out by the A.O and added to the income of the assessee in the A.Y. was not justified. The amount received out of the agreed consideration during the year at best can be treated as advance received towards the agreed consideration of the transaction. It is also an established proposition of the law that the A.O is required to make just and proper assessment as per the law based on the merits of the facts of the case before it. Just assessment does not depend as to what is claimed by the assessee but on proper computation of income deduced based upon the provisions of law. An A.O. can not allow the claims of the assessee if the related facts and provisions of law do not approve it and similarly it is also the duty of the A.O to allow even those benefits about which the assessee is ignorant but otherwise legally entitled to. The issue raised in Ground No. (1)(b) is thus decided in favour of the assessee.

Summary

Issues Involved:
1. Validity of the development agreement due to the invalid partition of the property.
2. Determination of whether a "transfer" of property took place under Section 2(47) of the Income Tax Act, 1961.
3. Valuation of the property for stamp duty purposes.
4. Method of calculating exemption under Section 54F of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Validity of the Development Agreement:
The appellant argued that the partition of the property was declared invalid by the Additional District & Assistant Sessions Judge, Pune, and thus, the assessee HUF had no locus standi to enter into a development agreement with Deepganga Associates, rendering the agreement void. However, this issue was deemed academic and not adjudicated upon due to the decision on the main issue regarding the "transfer" of property.

2. Determination of "Transfer" under Section 2(47) of the Income Tax Act:
The core issue was whether the development agreement constituted a "transfer" of property under Section 2(47) of the Income Tax Act, giving rise to capital gains. The assessee contended that no physical possession of the property was handed over to Deepganga Associates as per Clause 10 of the agreement, which stipulated that possession would be given only upon receipt of full payment. The assessee argued that mere permission for development did not amount to a transfer under Section 53A of the Transfer of Property Act. The AO and CIT(A) disagreed, holding that the rights granted to the developer constituted a transfer under Section 2(47)(v) of the Act. However, the Tribunal found that essential conditions for a transfer, such as full payment and physical possession, were not met. Citing relevant case law, the Tribunal concluded that the transaction did not constitute a transfer under Section 2(47)(v), and thus, the capital gains tax was not applicable. The ground was decided in favor of the assessee.

3. Valuation of Property for Stamp Duty:
The appellant argued that the value adopted for stamp duty by the Sub Registrar was in excess of the market value of the property and that the AO should have obtained a valuation report from the District Valuation Officer. This issue was not adjudicated upon due to the decision on the main issue regarding the "transfer" of property.

4. Method of Calculating Exemption under Section 54F:
The appellant contended that the CIT(A) erred in accepting the AO's method of calculating the exemption available under Section 54F of the Act. This issue was also not adjudicated upon due to the decision on the main issue regarding the "transfer" of property.

Conclusion:
The appeal was allowed, and the Tribunal concluded that no transfer of property occurred under Section 2(47)(v) of the Income Tax Act, 1961, as the essential conditions for a transfer were not met. Consequently, the capital gains tax was not applicable, and the other grounds became academic and did not require adjudication.