2016 (10) TMI 1041 - AT - Income Tax

Addition on account of long term capital gains taxable in the hands of the assessee - JDA - transfer within the meaning of sub sections (ii) and (vi) of Section 2(47) - Held that - Since no possession had been given by the transferor to the transferee of the entire land in part performance of JDA so as to fall within the domain of section 53A of the Transfer Act and consequently, section 2(47)(v) of the I.T. Act, did not apply, that further, willingness to perform their part of the contract was absent on the part of the developers, as it could not be performed by them, which was one of the conditions precedent for applying section 53A of the transfer Act. Further, in clause 26 of the JDA the principle of force majeure had been provided for, which would be applicable with full vigour in the circumstances. From the cumulative effect of the covenants contained in the JDA read with the registered special power of attorney 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) of the Act and 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 - Decided in favour of assessee.

Summary

Issues:
- Appeal against deletion of addition of Long Term Capital Gains
- Applicability of section 2(47)(ii) and (vi) of the Act
- Compliance with section 53A of the Transfer of Property Act

Issue 1: Appeal against deletion of addition of Long Term Capital Gains

The Revenue appealed against the deletion of an addition of ?1,55,37,787 made by the Assessing Officer (AO) on account of Long Term Capital Gains. The ld. CIT(A) allowed the appeal of the assessee, citing a judgment of the Hon’ble Punjab & Haryana High Court. The decision emphasized that income tax cannot be levied on hypothetical income, and income accrues when it becomes due with a corresponding liability to pay. The High Court's decision concluded that the assessee was not liable to capital gains tax for the remaining land due to various legal orders rendering the performance of the contract impossible. The Tribunal upheld the decision, citing similar facts and legal issues.

Issue 2: Applicability of section 2(47)(ii) and (vi) of the Act

The ld. CIT(A) was criticized for not adjudicating on the crucial issue of the applicability of section 2(47)(ii) and (vi) of the Act while deleting the addition of ?1,55,37,787. The Revenue argued that these provisions were de hors the provisions under section 2(47)(v) read with section 53A of the Transfer of Property Act and section 17(IA) of the Registration Act. However, the Tribunal, following the High Court's decision, held that the mandatory requirements of section 53A of the Transfer Act were not complied with, thus the assessee was not liable to capital gains tax for the remaining land.

Issue 3: Compliance with section 53A of the Transfer of Property Act

The crux of the dispute revolved around the compliance with section 53A of the Transfer of Property Act. The Tribunal emphasized that no possession had been given by the transferor to the transferee of the entire land, and the conditions precedent for applying section 53A were not met. The presence of a force majeure clause in the Joint Development Agreement further supported the decision that the assessee was not liable to capital gains tax for the remaining land. The Tribunal dismissed the Revenue's appeal, citing the similarity of facts with the High Court's precedent case.

In conclusion, the Tribunal upheld the decision of the ld. CIT(A) to delete the addition of Long Term Capital Gains, emphasizing the non-applicability of certain provisions and the legal impossibility of performing the contract, thus rendering the assessee not liable for capital gains tax on the remaining land.