2012 (7) TMI 376 - AT - Income Tax

Treating the transaction as liable for capital gain - assessee contested that no transfer within the meaning of section 2(47)(v)has occurred in respect of the Development Agreement executed by the assessee - Held that - Starting words of s. 53A of the Transfer of Property Act are where any person contracts which means just the existence of a contract. The assessee is the person who has entered into a contract with the developer vide agreement dated 31.03.2006 - The term transfer is to be read along with the s. 45 and s. 2(47)(v) of IT Act If transferee has taken any steps to construct the flats, undisputedly then, under the provision of Income Tax Act a transfer has definitely taken place. Terms necessary to constitute the transfer can be ascertained with reasonable certainty - with two certainties one is passing of substantial consideration and second is passing over of possession - In this case the amount of consideration has to be paid to the assessee in the form of cash as well as in kind i.e., the flats to be constructed by the developers to be handed over to the owners - Even if some part of consideration remains to be paid, the transaction shall not affect the liability of capital gains tax so as to postpone the same indefinitely. What is meant in clause (v) is the transfer which involves allowing the possession so as to allow developer to undertake development work on the site - since the possession of the property already handed over to the developer and right and interest in the property has been transferred in favour of the developers.Being so the condition laid down in section 2(47)(v) has been complied with and the lower authorities justified in treating the transaction is liable for capital gain - against assessee.

Issues Involved:
1. Whether there was a 'transfer' within the meaning of section 2(47)(v) of the Income-tax Act concerning the Development Agreement executed by the assessee.
2. Whether the letter dated 14.10.2009 issued by the Developer confirming non-possession of the land was sufficient evidence for non-applicability of section 2(47)(v).
3. Whether the contingent clauses of the Development Agreement were rightly relied upon by the CIT(A) for determining the applicability of section 2(47)(v).
4. Whether the assessee was liable for long-term capital gain in the year under appeal.
5. Whether the market value should have been determined based on records of the Registrar of Assurance.

Detailed Analysis:

1. Transfer within the meaning of section 2(47)(v) of the Income-tax Act:
The primary issue was whether the Development Agreement executed by the assessee constituted a 'transfer' under section 2(47)(v) of the Income-tax Act. The Tribunal noted that the definition of 'transfer' 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. It was observed that the agreement dated 31.03.2006 between the assessee and the developer M/s. Splendid Aparna Projects Ltd. involved the transfer of possession, as evidenced by the clauses in the agreement and the actions taken by the developer, such as site development work and obtaining necessary permissions. The Tribunal concluded that the conditions laid down in section 2(47)(v) were met, thus constituting a 'transfer' for capital gains tax purposes.

2. Letter dated 14.10.2009 issued by Developer:
The assessee argued that the letter from the Developer, confirming that they had not taken possession of the land, should be considered sufficient evidence for the non-applicability of section 2(47)(v). However, the Tribunal found that the physical inspection report and the encumbrance certificate indicated that the developer had taken control of the land. The Tribunal held that the letter did not outweigh the evidence of possession and control by the developer, thus supporting the applicability of section 2(47)(v).

3. Reliance on Contingent Clauses of the Development Agreement:
The Tribunal examined the contingent clauses of the Development Agreement, which included conditions related to obtaining necessary government permissions and the developer's rights to sell their share of the property. The Tribunal found that these clauses indicated a transfer of rights and interests in the property to the developer, thus supporting the CIT(A)'s reliance on these clauses to determine the applicability of section 2(47)(v).

4. Liability for Long-term Capital Gain:
The Tribunal confirmed that the assessee was liable for long-term capital gain in the year under appeal. The Tribunal emphasized that the capital gain is taxable in the year in which the transfer took place, as per section 45 of the Income-tax Act. The Tribunal noted that the transfer occurred when the developer was allowed to take possession and control of the property, thus making the assessee liable for capital gains tax in that year.

5. Determination of Market Value:
The assessee contended that the market value should have been determined based on the records of the Registrar of Assurance. The Tribunal noted that this ground did not emanate from the order of the CIT(A) and declined to entertain it. The Tribunal upheld the CIT(A)'s decision and dismissed the appeals of the assessees.

Conclusion:
The Tribunal confirmed the orders of the lower authorities, holding that the Development Agreement constituted a 'transfer' under section 2(47)(v) of the Income-tax Act, making the assessee liable for long-term capital gains tax. The Tribunal also rejected the assessee's contention regarding the determination of market value based on the records of the Registrar of Assurance. All the appeals of the assessees were dismissed.

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