2012 (9) TMI 486 - AT - Income Tax

Assessment of capital gain for Asst. Year 2007-08 - transfer of property - assessee contested that as per Joint development agreement or the Supplementary agreement no event resulting in transfer of property took place in the previous year relevant to Asst. Year 2007-08 but in 2006-07 - Held that - A contract can be termed to be of the nature referred to in Section 53A of the Transfer of Property Act it is one of the necessary preconditions that transferee should have or is willing to perform his part of the contract - on examining the JDA dated 21.12.2005 and the Supplementary Agreement dated 3.4.2006 fact revealed is that the assessee given possession of the property vide clause No. 6, however, the consideration receivable by the assessee in the form of flats is specifically determined by the Supplementary Agreement dated 3rd April, 2006. Being so, there is no progress pursuant to the Development Agreement in the A.Y. 2006-07 and nothing has been brought on record by the assessee to show that the development activities and determination of the consideration in A.Y. 2006-07 and no material is brought on record regarding the construction cost incurred in the year 2006-07, hence developer in the A.Y. 2006-07 had not shown his readiness or having made preparation for compliance of the agreement - thus as it is not possible to hold that the transferee is willing to perform his obligation in the A.Y. 2006-07 though the JDA was entered on 21.12.2005 the conditions laid down in section 53A of Transfer of Property Act were satisfied in A.Y. 2007-08, capital gain has to be taxed in A.Y. 2007-08 only - aginst assessee. Determination of cost of construction with regard to transfer of long term capital asset - Held that - The sales consideration in the case of developer s case cannot be adopted because while selling the properties, the developer may have considered several factors like the floor on which a particular premises is situated, personal relationship between the buyer and the developer and so on & if the assessee itself had constructed the property, it can be presumed that the assessee also must have incurred, by and large, the same cost thus it is the actual cost of construction only which should be, adopted as the sales consideration in the case of the assessee - thus in the present case the cost of construction as determined in the case of the developer and adopted by the AO cannot be accepted, accordingly direct the AO to consider price inflation for each assessment year from 2001-02 to 2008-09 and determine the cost of construction per flat to be received by the assessee - in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Assessment of capital gains for AY 2007-08.
2. Applicability of Section 2(47)(v) of the IT Act.
3. Determination of the cost of construction.
4. Allowance of certain expenditures as part of the cost of acquisition.

Issue-wise Detailed Analysis:

1. Assessment of Capital Gains for AY 2007-08:
The assessee contested the assessment of capital gains for the AY 2007-08, arguing that no transfer of property occurred in the relevant year. The Joint Development Agreement (JDA) was executed on 21.12.2005, and a Supplementary Agreement was signed on 3.4.2006, which specified the assessee's share of 7 flats in lieu of 57% undivided right over the land. The lower authorities held that the right to receive consideration was determined by the Supplementary Agreement dated 3.4.2006, making the assessee liable for tax on capital gains in AY 2007-08.

2. Applicability of Section 2(47)(v) of the IT Act:
The assessee argued that the provisions of Section 2(47)(v) regarding deemed transfer did not apply, as the development agreement did not result in a transfer of property. The assessee cited several case laws, including S. Raghuram Reddy v. ITO and Smt. Vasavi Pratap Chand v. DCIT, to support the claim that mere execution of a development agreement does not constitute a transfer. The Tribunal held that the conditions of Section 53A of the Transfer of Property Act were fulfilled only in AY 2007-08, as the consideration was specifically determined by the Supplementary Agreement dated 3.4.2006, and the developer's willingness to perform the contract was recognized.

3. Determination of the Cost of Construction:
The assessee disputed the cost of construction determined at Rs. 925 per sq. ft. by the Assessing Officer, arguing that the actual cost was Rs. 650 per sq. ft. as per the builder's letter. The Tribunal referred to the case of B. Narasimha Reddy & Ors., where it was held that the cost of construction should be based on the actual cost incurred by the developer. The Tribunal remitted the issue back to the Assessing Officer to determine the cost of construction per flat, considering price inflation for each assessment year, but capped it at Rs. 925 per sq. ft.

4. Allowance of Certain Expenditures as Part of the Cost of Acquisition:
The assessee claimed deductions for Rs. 5 lakhs paid towards bore-well, gate with compound wall, etc., and Rs. 1,61,300 incurred as development charges for laborers. The lower authorities disallowed these expenditures due to a lack of evidence. The Tribunal upheld the disallowance, as the assessee failed to provide supporting evidence for these expenditures.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes, confirming the assessment of capital gains in AY 2007-08 based on the fulfillment of conditions under Section 53A of the Transfer of Property Act. The cost of construction issue was remitted back to the Assessing Officer with specific directions, while the claim for certain expenditures was dismissed due to insufficient evidence.