2012 (6) TMI 380 - AT - Income Tax

Short term capital gain on sale of land - development agreement - deleting the addition by CIT(A) - Held that - When possession has been allowed of any immovable property in part performance of a contract, then it amounts to transfer of capital asset - as the possession has been given by the assessee to the developer in the present year, contract has been entered into with the developer as per which price had been fixed and almost entire payment was also received by the assessee all the requirements of Section 2(47)(v) of Income tax Act, 1961 as well as Section 53A of Transfer of Property Act are fulfilled - as the property in question had been transferred by the assessee in the present year itself so, the capital gain tax is payable by the assessee in the present year itself for the entire property - order of Ld. CIT(A) is not sustainable - in favour of revenue.

Summary

Issues:
Appeal against deletion of addition on account of short term capital gain for assessment year 1997-98.

Analysis:

Issue 1: Deletion of Addition of Short Term Capital Gain
The Assessing Officer (A.O.) noted the assessee declared short term capital gain on the sale of land. The A.O. observed a development agreement between the assessee and a developer for the sale of land. The A.O. found discrepancies in the declared income and issued a notice for details. The A.O. calculated the capital gain at Rs. 26,80,492/- for the financial year 1996-97. The Commissioner of Income Tax (CIT) deleted this addition, leading to the revenue's appeal. The revenue contended that Sections 2(47)(v) and 53A of the Transfer of Property Act applied, justifying the A.O.'s tax assessment. The CIT(A) and the assessee disagreed, presenting detailed submissions and supporting documents.

Issue 2: Applicability of Section 2(47)(v) and Section 53A
The Tribunal examined the development agreement's terms, possession date, and payment details. It discussed the legal provisions of Section 2(47)(v) and Section 53A of the Transfer of Property Act. The Tribunal noted that possession was given to the developer, payment was received, and the agreement fulfilled the criteria for capital asset transfer. The Tribunal disagreed with the assessee's argument that possession was not for sale but for development. It emphasized the importance of correct tax assessment timing and rejected the contention that subsequent year declarations affected the current year's tax liability.

Issue 3: Interpretation of Development Agreement
The Tribunal analyzed specific clauses of the development agreement, emphasizing the fixed price, payment receipts, and possession transfer. It distinguished the present case from a prior tribunal decision and highlighted the agreement's key provisions. The Tribunal concluded that the CIT(A)'s order was incorrect as the entire capital gain on the property sale should be taxed in the current year. Therefore, the Tribunal reversed the CIT(A)'s decision and upheld the A.O.'s assessment, allowing the revenue's appeal.

In summary, the Tribunal found that the capital gain was taxable in the current year based on the development agreement and possession transfer, rejecting the assessee's arguments and supporting the revenue's appeal.