2014 (3) TMI 575 - HC - Income Tax

Assessment of capital gains - Whether in the light of section 2(47)(v) read with section 45, the Tribunal is right in holding that the capital gains assessment made for the assessment year is not sustainable in law Held that - The Tribunal did not correctly appreciated the question on hand - When transfer is defined under the Income Tax Act and it includes a transaction involving possession to be handed over in part performance of a contract in the nature referred to in Section 53A of Transfer of Property Act, it amounts to transfer. The terms and conditions of the agreement clearly indicates that the intention of the parties is to sell the property as such to the buyer, or their nominees and a power of attorney is given to enable the buyer to sell the undivided share of land in favour of purchasers of apartments to be constructed by the buyer of the land - the assessee themselves executes the sale deed after several years on the request of the builder - the actual transfer takes place between the assessee and the builder and it is thereafter the builder transfers possession to the purchaser of the apartments - Capital gains is to be computed at the time when the transfer takes place which has to be during the assessment year when a substantial portion of the amount was received by the assessee, that is when Rs.3.81 crores was received by the assessee during the assessment year 2004-05 thus, the order of the Tribunal set aside - Decided in favour of Revenue. Entitlement for exemption u/s 11(1A) of the Act Held that - The Assessing Officer granted exemption u/s 11(1A) of the Act for the investment made under Section 11(1A)(a)(ii) - It is contented that in subsequent years also, depending upon the amount received, appropriate investments have been made by the assessee - the order passed by the Assessing Officer has to be confirmed - The AO is directed to pass appropriate orders after considering whether the assessee is entitled for any further benefit with reference to the claim of the assessee under Section 11A of the Act.

Summary

Issues:
Assessment of capital gains based on possession transfer and payment conditions under Section 53A of the Transfer of Property Act.

Analysis:
The case involved an appeal filed by the Revenue against the Income Tax Appellate Tribunal's order regarding the assessment of capital gains for the assessment year 2004-05. The dispute arose from the transfer of possession of land to a builder for a deferred consideration, leading to the construction of an apartment complex. The Revenue contended that the entire consideration should be taxed as long-term capital gains in the assessment year, while the Tribunal ruled in favor of the assessee, stating that the transfer occurs only upon the execution of the sale deed. The questions raised for consideration included the applicability of Section 2(47)(v) and Section 53A of the Transfer of Property Act.

The Revenue argued that the agreement clearly indicated possession transfer and substantial consideration payment, invoking Section 53A of the Transfer of Property Act, which constitutes a transfer under Section 2(47) of the Income Tax Act. However, the Tribunal found that the conditions of possession transfer and substantial payment were not fully met, thus not constituting a transfer.

The court analyzed the definitions of "transfer" under Section 2(47) of the Income Tax Act and "part performance" under Section 53A of the Transfer of Property Act. It noted that possession transfer in part performance of a contract signifies a transfer, as evident from the agreement between the parties. The court emphasized that possession was handed over upon the first installment payment, indicating a contractual obligation for sale.

The court rejected the respondent's argument that the agreement was not a sale agreement, highlighting that possession transfer in part performance constitutes a transfer under the law. It clarified that the builder effectively acted as the buyer, and the delayed execution of sale deeds was to avoid duplication and stamp duty payments. The court concluded that the actual transfer occurred between the assessee and the builder, and capital gains should be computed when possession was transferred and a substantial payment received.

In the final decision, the court allowed the appeal, setting aside the Tribunal's order and directing the Assessing Officer to confirm the capital gains computation. It also mentioned that if the assessee is eligible for further benefits under Section 11A of the Income Tax Act, appropriate provisions should be made accordingly.