2011 (9) TMI 257 - AT - Income Tax

Transfer u/s 2(47) - Development Agreement to develop the property - liability of the capital gains of the co-owners - Held that - Without accrual of the consideration to the assessee, the assessee is not expected to pay capital gains on the entire agreed sales consideration. When time is essence of the contract, and the time schedule is not adhered to, it cannot be said that such a contract confers any rights on the vendor/landlord to seek redressal under section 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in section 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of section 2(47)(v) will apply in the situation before us. Considering the facts and circumstances of the present case as discussed above, we are of the considered view that the assessee deserves to succeed on reason that the capital gains could not have been taxed in the in this assessment year in appeal before us.

Issues Involved:
1. Determination of the date of transfer for capital gains computation.
2. Applicability of Section 2(47)(v) of the Income-tax Act, 1961.
3. Classification of income from land transactions as capital gains or business income.

Issue-Wise Analysis:

1. Determination of the Date of Transfer for Capital Gains Computation
The primary issue was whether the date of execution of the Development Agreement on 11-5-2005 should be considered as the date of transfer for computing capital gains. The Assessing Officer (AO) held that the entire capital gain accrues on the date of execution of the Development Agreement. However, the CIT(A) restricted the computation to the value of the built-up area and developed land to which the assessees were entitled. The Tribunal found that the transferee had neither performed nor was willing to perform its obligation under the agreement in the assessment year under consideration. The Tribunal concluded that the conditions under Section 53A of the Transfer of Property Act were not satisfied, and hence, the provisions of Section 2(47)(v) of the Income-tax Act could not be invoked for the assessment year in dispute.

2. Applicability of Section 2(47)(v) of the Income-tax Act, 1961
The Tribunal examined whether the Development Agreement constituted a transfer under Section 2(47)(v). The Tribunal noted that for Section 2(47)(v) to apply, the conditions of Section 53A of the Transfer of Property Act must be met, including the transferee's willingness to perform the contract. The Tribunal found that the transferee had not shown readiness or made preparations for compliance with the agreement during the assessment year. Consequently, the Tribunal held that the Development Agreement did not constitute a transfer under Section 2(47)(v) for the assessment year in question.

3. Classification of Income from Land Transactions as Capital Gains or Business Income
The Revenue argued that the income from the sale of land should be treated as business income, asserting that the assessee was involved in real estate activities. The Tribunal reviewed the facts, including the holding period of the land and the circumstances of each sale. It was found that the assessee held the land as an investment and not as stock-in-trade, with some lands being sold under compelling circumstances such as impending government acquisition or legal disputes. The Tribunal concluded that the transactions were not in the nature of trade or business and upheld the CIT(A)'s decision to treat the gains as capital gains, not business income.

Conclusion:
The Tribunal ruled in favor of the assessees on the primary issues, holding that the Development Agreement did not constitute a transfer under Section 2(47)(v) during the assessment year in question and that the income from the sale of land should be treated as capital gains. Consequently, the appeals by the assessees were partly allowed, and the Revenue's appeals were dismissed.

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