2013 (9) TMI 229 - AT - Income Tax

Long Term Capital Gain u/s 45 - transfer u/s 2(47) - scope of the terms, accrual or arise - vacant land - Possession given by the society to the developer under joint development agreement (JDA) - Advance Received or Actual Sales Held that - As per Section 45 of IT Act, income-tax was to be charged under the head capital gain on transfer of a capital asset and shall be deemed to be the income of the previous year in which transfer took place - The year of transfer was the crucial year and not the time of the receipt - Accrue means to arise or spring as a natural growth or result , to come by way of increase - Arising means coming into existence or notice or presenting itself both the words were used in contradistinction to the word receive and indicate a right to receive - They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income, which was more or less inchoate and which was something less than a receipt - An unenforceable claim to receive an undetermined or undefined sum does not give rise to accrual. It was not only the money which has been received by the assessee which was required to be taxed but the consideration which had accrued to the assessee was also required to be taxed. Deemed transfer of property u/s 2(47) Part performance - section 2(47)(v) r.w. section 45 indicates that capital gains was taxable in the year in which such transactions were entered into even if the transfer of immovable property was not effective or complete under the general law Held that - Charging an item of income under the head Capital gains require that there should be some profit, Such profit must be arising on account of transfer and there should be capital asset which has been transferred - There was no dispute that a capital asset was involved and there was some profit also Capital gain would be computed by considering the full value of consideration whether received or accruing as a result of the transfer - relying upon Mysore Minerals Ltd. v. CIT 1999 (9) TMI 1 - SUPREME Court it was not only the consideration received which was relevant but the consideration which had accrued was also relevant - irrevocable general power of attorney which leads to over all control of the property in the hands of the Developer, even if that means no exclusive possession by the Developer would constitute transfer - It can be said that it had to be construed as possession u/s 2(47). Thus, it is clear that non registration of agreement cannot lead to the conclusion that provision of section 2(47) (v) is not applicable. Non performance of the contract - Held that - The careful reading of the said clause of the JDA would show this payment was required to be made within a period of six months from the date of execution of this agreement or within two months from the date of approval of plan / sanction and drawing grant of final license to develop where upon the construction can commence, whichever is later. Thus, this installment was dependent on two contingencies first the expiration of a period of six months from the date of agreement or alternatively on the expiration of a period of two months from the date of approval of plans / designs drawing etc. leading to grant of final licenses which can lead to commencement of construction, whichever is later. The matter was taken up by way of PIL by certain citizens and Administration of the Union Territory before the Hon ble High Court which initially stayed the sanction of such plan etc. This led to situation where construction could not be commenced and hence payment was not required to be made in view of the pending litigation. The clauses of force majeure came into operation and therefore, it cannot be said that the developer is not willing to perform its part of the contract. In any case there is no default on the part of the developer as payment was not yet due as per clause 4(i)(iv) of JDA. - in view of clause 4.1(iv) read with clause 26(v) of the JDA, HASH Builder were not required to make the payment and it cannot be said that they were not willing to perform their part of the contract on this aspect. Therefore, this contention is rejected. Concept of real income - Taxability of pro-rata receipt - Receipt of consideration and registration of property relevant or not - the contention was that if consideration which has not been received was to be taxed then the assessee would be deprived for claiming exemption u/s 54 and 54EC. - Held that - Section 54 deals with deduction in case the assessee being an individual or HUF, transfers the residential house - the assessee had transferred the plot thus it cannot be said that deduction u/s 54F and 54 was same - no ground had been raised for deduction u/s 54F. - in some genuine cases the difficulties may arise but it was for the Parliament or the Government to provide remedy in such cases and judicial forums cannot do anything. Ownership of the plot - society or members - When the plots remain unallotted and obviously legal ownership and beneficial ownership belonged to the society - Held that - the Society has entered into JDA on behalf of the Members. It is the members who are owning the plots and the Society was only a facilitator. It becomes clear from the JDA that payment for consideration was to be made to an individual plot holder and in fact consideration was mentioned in terms of per Member. - Decided against the assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 147.
2. Taxability of capital gains in the year of transfer.
3. Determination of full value of consideration.
4. Applicability of Section 2(47) of the Income Tax Act.
5. Claim of deduction under Section 54F.
6. Charging of interest under Sections 234A and 234B.
7. Initiation of penalty under Section 271(1)(c).

Detailed Analysis:

Reopening of Assessment under Section 147:
The assessees challenged the reopening of assessments under Section 147, arguing it was based on a change of opinion. The Tribunal upheld the reopening, stating that the Assessing Officer had valid reasons to believe that income had escaped assessment due to the transactions involving Joint Development Agreements (JDAs). The Tribunal relied on the decision in the case of Avtar Singh Brar and others, where similar issues were discussed and upheld.

Taxability of Capital Gains in the Year of Transfer:
The main issue was whether the assessees were liable to capital gains tax in the year the JDAs were executed. The Tribunal referred to the decision in the case of Charanjit Singh Atwal, where it was held that the execution of JDAs and the handing over of possession constituted a transfer under Section 2(47)(v) of the Income Tax Act. The Tribunal noted that the possession given to the developers enabled them to exercise general control over the property, fulfilling the conditions of Section 53A of the Transfer of Property Act, even if the JDAs were not registered.

Determination of Full Value of Consideration:
The assessees argued that the consideration received should be treated as advances and not as full consideration. The Tribunal rejected this, stating that Section 45 of the Income Tax Act requires taxing the entire consideration, whether received or accrued, in the year of transfer. The Tribunal emphasized that the consideration included both monetary payments and the value of flats to be received, as stipulated in the JDAs.

Applicability of Section 2(47) of the Income Tax Act:
The Tribunal extensively discussed the applicability of Section 2(47)(v) and (vi), which include transactions involving the transfer of possession and enabling the enjoyment of immovable property. It was held that the JDAs and the irrevocable powers of attorney executed by the assessees constituted a transfer under these sections. The Tribunal relied on the decision in the case of Chaturbhuj Dwarkadas Kapadia and the Authority for Advance Rulings in Jasbir Singh Sarkaria, which clarified the interpretation of possession and transfer in such cases.

Claim of Deduction under Section 54F:
The assessees contended that they should be allowed deductions under Section 54F for investments in residential properties. The Tribunal dismissed this contention, noting that no specific grounds were raised in the appeals regarding Section 54F. It was also observed that the deductions under Section 54F and Section 54 are not the same, and the assessees did not fulfill the conditions for claiming such deductions.

Charging of Interest under Sections 234A and 234B:
The Tribunal held that the charging of interest under Sections 234A and 234B is consequential and should be computed in accordance with the law. The Assessing Officer was directed to charge or withdraw interest as per the provisions of the Income Tax Act.

Initiation of Penalty under Section 271(1)(c):
The assessees argued against the initiation of penalty proceedings under Section 271(1)(c). The Tribunal did not specifically address this issue in detail but upheld the orders of the lower authorities, indicating that the initiation of penalty was justified based on the facts and circumstances of each case.

Conclusion:
The Tribunal dismissed the appeals of all the assessees, upholding the taxability of capital gains in the year of transfer, the determination of full value of consideration, and the applicability of Section 2(47) of the Income Tax Act. The claims for deductions under Section 54F were rejected, and the consequential charging of interest under Sections 234A and 234B was upheld. The initiation of penalty proceedings under Section 271(1)(c) was also upheld.