2010 (5) TMI 921 - AT - Income Tax

Summary

Issues Involved:
1. Whether the development agreement dated 05.11.1997 resulted in a "transfer" u/s 2(47) of the Income-tax Act.
2. Determination of the relevant assessment year.
3. Liability of the appellant to pay tax on her share or the entire capital gain.
4. Valuation of the transferred asset.
5. Eligibility for exemption u/s 54.

Summary:

1. Whether the development agreement dated 05.11.1997 resulted in a "transfer" u/s 2(47) of the Income-tax Act:
The Tribunal examined whether the development agreement dated 05.11.1997 constituted a "transfer" as per Section 2(47)(v) of the Income-tax Act. The assessee argued that the provisions of Section 53A of the Transfer of Property Act were not satisfied as possession was not handed over, nor was any consideration received at the time of the agreement. However, the Tribunal, relying on the decision of the Hon'ble Bombay High Court in Chaturbhuj Dwarkadas Kapadia, held that the development agreement resulted in a transfer of property in the year it was executed, i.e., the assessment year 1998-99.

2. Determination of the relevant assessment year:
The Tribunal concluded that the relevant assessment year for the capital gains arising from the development agreement was 1998-99, as the agreement was executed on 05.11.1997. This decision was based on the legal proposition that the year of chargeability in the case of development agreements is the year in which the contract was executed.

3. Liability of the appellant to pay tax on her share or the entire capital gain:
The Tribunal noted that the AO did not recognize the Memorandum of Agreement between the assessee and her children, assessing the entire capital gains in the hands of the assessee. However, since the CIT(A) had changed his stand regarding the assessability of rental income in the assessee's own case, the Tribunal set aside the issue of whether the assessee is liable to pay tax on the entire capital gains or only on her 25% share, remitting it back to the CIT(A) for fresh consideration.

4. Valuation of the transferred asset:
The Tribunal upheld the CIT(A)'s determination of the consideration for the transfer at Rs. 34.68 lakhs, based on the SRO rates applicable to the constructed areas and deductions for unfinished construction. The Tribunal found the CIT(A)'s calculation reasonable and did not interfere with his decision on this issue.

5. Eligibility for exemption u/s 54:
The Tribunal agreed with the CIT(A) that the assessee was not eligible for exemption u/s 54, as the entire building was let out for commercial purposes, and thus, the character of the property remained "commercial." The Tribunal upheld the CIT(A)'s decision to reject the claim for exemption u/s 54.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, with the issue of liability to pay tax on the entire capital gains or only on her share being remitted back to the CIT(A) for fresh consideration. The Tribunal upheld the CIT(A)'s decisions on the other issues.