2016 (6) TMI 1197 - AT - Income Tax

Addition applying notional capital gain - proof of transfer - whether Joint Development Agreement which was not executed and sale as per that agreement was not complete - Held that - Since no possession had been given by the transferor to the transferee of the entire land in part performance of JDA dated 25.02.2007 so as to fall within the domain of section 53A of the Transfer Act and consequently, section 2(47)(v) did not apply, that further, willingness to perform their part of the contract was absent on the part of the developers, or it could not be performed by them, which was one of the conditions precedent for applying section 53A of the transfer Act; that in clause 26 of the JDA dated 25.02.2007, the principle of force majeure had been provided for, which would be applicable with full vigour in the circumstances; that from the cumulative effect of the covenants contained in the JDA read with the registered special power of attorney dated 26.02.2007, it could not be held that the mandatory requirements of section 53A of the Transfer Act were complied with, which stood incorporated in section 2(47)(v); that once that was so, it could not be said that the assessees were liable to capital gain tax in respect of the remaining land which was not transferred by them to the developer/builder because of supervising event and not on account of any volition on their part; and that viewed from another angle, it could not be said that any income chargeable to capital gains tax in respect of the remaining land had accrued or arisen to the assessee in the facts of the case. See Charanjit Singh Atwal vs. CIT 2015 (7) TMI 878 - PUNJAB & HARYANA HIGH COURT . - Decided in favour of assessee.

Summary

Issues involved:
Assessment of notional capital gain based on a Joint Development Agreement for a plot sale.

Detailed Analysis:

1. Assessment Year 2007-08 Appeal: The appellant challenged the order of the CIT(A) dated 05.06.2015, raising concerns about the addition of notional capital gain by the Assessing Officer. The grounds of appeal highlighted errors in assessing the capital gain based on a partial payment received for a plot sale.

2. Factual Background: The individual assessee filed the return of income for the assessment year 2007-08, declaring an income and agricultural income. The scrutiny assessment was completed, and the income was revised through an order u/s 154. The case was reopened under section 148, concerning the sale of a plot where only part payment was received.

3. Assessment Dispute: The AO computed the long-term capital gain based on the full consideration accrued to the assessee, leading to an addition of notional capital gain. The CIT(A) upheld this decision, prompting the appellant to appeal against the assessment.

4. Legal Precedent: The appellant cited a decision by the Hon'ble High Court in a similar case, emphasizing the absence of possession transfer as per the Joint Development Agreement. The Court's ruling clarified the conditions for applying relevant sections of the Transfer Act and the Income Tax Act, concluding that no capital gain tax liability arose due to non-transfer of the remaining land.

5. Judgment: After considering the arguments and legal precedent, the ITAT Amritsar allowed the appeal, following the decision of the Hon'ble High Court. The similarities between the present case and the precedent case led to the conclusion that the appellant was not liable for capital gains tax on the remaining land due to supervening events and lack of compliance with statutory requirements.

6. Final Decision: The ITAT pronounced the order in favor of the appellant on 27th June 2016, allowing the appeal and relieving the assessee from the tax liability on the notional capital gain assessed by the AO and upheld by the CIT(A).

This detailed analysis outlines the assessment dispute, legal precedent, and the final judgment in the case concerning the assessment of notional capital gain based on a Joint Development Agreement for a plot sale during the assessment year 2007-08.