2012 (9) TMI 539 - AT - Income Tax

Capital Gain Assessee enter into Joint Development Agreement with developer in respect of land Assessee get 45% of the built up area in lieu of transfer of 55% of the undivided portion of the vacant land in favour of the developers for construction AO treat it as transfer of 55% of the land in favour of the developer was a deemed transfer in year in which agreement enter into & deposit also AO made addition on basis of value determined by sub- registrar as deemed consideration u/s 50C Held that - As the information obtained by AO u/s 133(b) from sub registrar regarding deemed consideration, could not use against the assessee before the same was put to the assessee. Violating of the principles of natural justice. Therefore issue remand back to AO. Non-refundable deposit in respect of enter into agreement for transfer of land - The assessee received a non-refundable deposit - Held that - AO determine deemed consideration in respect of transfer of land as per sec. 50C. Therefore non-refundable deposit is not justifiable as the AO has estimated the amount of consideration chargeable to tax u/s. 50C. Decides in favour of assessee

Summary

Issues Involved:
1. Liability for Short Term Capital Gains (STCG) under section 45(1) of the Income Tax Act.
2. Applicability of section 50C of the Income Tax Act for deemed consideration.
3. Taxability of non-refundable deposit of Rs. 15 lakhs.
4. Procedural fairness in the assessment process.

Issue-wise Detailed Analysis:

1. Liability for Short Term Capital Gains (STCG) under section 45(1) of the Income Tax Act:
The core issue was whether the assessee was liable for STCG on the transfer of 55% of the undivided portion of land under the Joint Development Agreement (JDA) dated 2.6.2006. The Assessing Officer (AO) held that the transfer was a deemed transfer under section 53A of the Transfer of Property Act, 1882, read with section 2(47)(v) of the Income Tax Act, and thus exigible to Capital Gains Tax in the year the JDA was entered into. The assessee argued that the JDA did not constitute a transfer as per section 45 of the Act and relied on the Bangalore Bench Tribunal decision in H.B. Jairaj Vs. DCIT. However, the CIT(A) upheld the AO's decision, relying on the Bombay High Court's ruling in Chaturbhuj Dwarka Das Kapadia V. CIT. The Tribunal agreed with the AO's finding, supported by the decisions of the Bombay High Court and Karnataka High Court in CIT V. Dr. T.K. Dayalu, confirming the liability for STCG in the relevant period.

2. Applicability of section 50C of the Income Tax Act for deemed consideration:
The AO invoked section 50C to determine the deemed consideration for the transfer of 55% of the undivided land portion, using the guidance value of Rs. 400 per sq. ft. provided by the Sub-Registrar. The assessee contended that section 50C was not applicable as the Stamp Valuation Authorities had not adopted or assessed any value for the transfer. Additionally, the AO had not provided the assessee an opportunity to file objections under section 50C(2). The CIT(A) did not provide clear findings on the applicability of section 50C but confirmed the addition of Rs. 23,96,000 as the deemed consideration. The Tribunal noted that the AO had used information obtained under section 133(b) without confronting the assessee, which violated the principles of natural justice. Consequently, the Tribunal remitted the issue back to the AO for de novo consideration, ensuring the assessee is given an opportunity to be heard.

3. Taxability of non-refundable deposit of Rs. 15 lakhs:
The AO included the non-refundable deposit of Rs. 15 lakhs as additional income, separate from the deemed consideration under section 50C. The assessee argued that this deposit was subsumed in the total deemed consideration and should not be taxed separately. The CIT(A) upheld the AO's decision, suggesting that the deposit represented the cost of 4 flats with parking slots. The Tribunal, however, found that once the deemed consideration was quantified under section 50C, the non-refundable deposit was naturally subsumed therein and should not be separately taxed.

4. Procedural fairness in the assessment process:
The assessee contended that the AO did not follow the mandatory procedure under section 50C(2) by failing to provide an opportunity to file objections before determining the deemed consideration. The Tribunal found merit in this argument, noting that the AO's use of information obtained under section 133(b) without confronting the assessee violated natural justice principles. The Tribunal remitted the matter back to the AO to reassess the deemed consideration, ensuring procedural fairness and providing the assessee an opportunity to present objections.

Conclusion:
The Tribunal partly allowed the appeal, confirming the liability for STCG but remitting the issue of deemed consideration and the taxability of the non-refundable deposit back to the AO for reassessment, ensuring procedural fairness and adherence to legal provisions.