2012 (7) TMI 189 - AT - Income Tax

Transfer of Capital asset u/s 2(47)(v) - land given to developer for development - assessee contended non-chargeability of capital gains in respect of the land, which was not transferred but only given for development, hence not coming within preview of Section 2(47)(v) - Held that - In instant case, owners have entered into an agreement for development of the property and certain rights were assigned to the developer who in turn had made the substantial payment and consequently entered into the property and thereafter if the transferee has taken any steps in relation to construction of the flats, then it is to be considered as transfer u/s. 2(47)(v). The fact that the legal ownership continued with the owners to be transferred to the developer at a future distant date really does not affect the applicability of s. 2(47)(v) since definition of transfer not merely prescribes allowing of possession but to be retained in part performance of a contract of the nature referred in s. 53A of the Transfer of Property Act. Thus, if the possession and control of the property is already vested with the transferee and the impugned development agreement has not been duly cancelled and it is still in operation, it has to be decided that there is a transfer u/s. 2(47)(v). In our opinion, the real intention of the parties herein to be seen, accordingly, issue is set aside to file of the CIT(A) to decide the same afresh in light of the above observations and decision in case of Chaturbhuj Dwarkadas Kapadia v. CIT (2003 (2) TMI 62 (HC)) and Dr. Maya Shenoy v. ACIT (2008 (10) TMI 262 (Tri)) - Appeal allowed for statistical purposes.

Issues Involved:
1. Whether the Development Agreement constitutes a "transfer" under Section 2(47) of the Income Tax Act, 1961.
2. Whether the cancellation of the Development Agreement affects the capital gains tax liability.
3. Determination of the correct valuation for the computation of capital gains.
4. The applicability of Section 2(47)(v) of the Income Tax Act, 1961 to the Development Agreement.
5. Whether the opening cash balance of Rs. 16,00,000 in the cash flow statement is unexplained and thus taxable.

Issue-wise Analysis:

1. Development Agreement as "Transfer" under Section 2(47):
The core issue was whether the Development Agreement with the builder qualifies as a "transfer" under Section 2(47) of the Income Tax Act, 1961, thereby attracting capital gains tax. The Tribunal referred to the provisions of Section 2(47)(v) which includes any transaction involving the allowing of possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882. The Tribunal observed that the developer had substantial rights over the property and had undertaken steps towards construction, indicating a transfer of possession. This aligns with the definition of "transfer" under Section 2(47)(v), thus making the transaction liable for capital gains tax.

2. Cancellation of the Development Agreement:
The assessee argued that the cancellation of the Development Agreement should nullify any capital gains tax liability. The Tribunal noted that the cancellation occurred after the assessment was completed and did not affect the original agreement's validity at the time of the transaction. The Tribunal emphasized that the real intention and actions taken by the parties at the time of the original agreement are crucial. Since substantial steps towards development were taken, the cancellation did not negate the earlier transfer under Section 2(47)(v).

3. Valuation for Capital Gains Computation:
The assessee contested the valuation method used by the Assessing Officer, who relied on a statement from the Managing Director of the developer company to determine the sale price per square foot. The Tribunal found that the Assessing Officer's method of applying a uniform rate for both the built-up area and parking area was arbitrary. The Tribunal directed the CIT(A) to re-evaluate the valuation, considering actual costs and profits from the developer's books rather than relying solely on statements made during search operations.

4. Applicability of Section 2(47)(v):
The Tribunal extensively discussed the applicability of Section 2(47)(v) to development agreements. It referred to various judicial precedents, including the cases of Chaturbhuj Dwarakadas Kapadia and Jasbir Singh Sarkaria, which held that development agreements fall under the ambit of Section 2(47)(v). The Tribunal reiterated that the transfer of possession and substantial rights to the developer, even without a registered conveyance deed, constitutes a transfer under Section 2(47)(v).

5. Opening Cash Balance of Rs. 16,00,000:
The Revenue challenged the CIT(A)'s deletion of the addition of Rs. 16,00,000 as unexplained money. The Tribunal noted that the assessee had shown this amount as an opening balance in the cash flow statement. The Tribunal set aside this issue to the CIT(A) for re-examination, directing the assessee to substantiate the availability of the opening balance. The Tribunal emphasized the need for proper enquiry by the CIT(A) before concluding on the matter.

Conclusion:
The Tribunal set aside the issues regarding the transfer under Section 2(47)(v) and the valuation for capital gains to the CIT(A) for fresh adjudication, considering the Tribunal's observations and judicial precedents. The Tribunal also directed the CIT(A) to re-examine the unexplained cash balance issue. The appeals were partly allowed for statistical purposes, with the Revenue's appeals on valuation dismissed as infructuous.

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