2014 (8) TMI 636 - HC - Income Tax

Liability to pay capital gains - Capital gain arise in the year of entering into development agreement or not Held that - While upholding the Tribunal s application of law, payment of consideration on the date of agreement of sale is not required, it may be deferred for future date - The element of factual possession and agreement are contemplated as transfer - When the transfer is complete, automatically, consideration mentioned in the agreement for sale has to be taken into consideration for the purpose of assessment of income for the assessment year when the agreement was entered into and possession was given - factually it was found that both the aspects took place in the previous year relevant to the assessment year 2003-04 the Tribunal has rightly held that the assessee is liable to pay tax on the capital gains for the assessment year Decided against Assessee.

Issues:
1. Interpretation of the term "transfer" under the Income-tax Act, 1961.
2. Determination of capital gains arising from a development agreement.
3. Consideration of possession and agreement as transfer for tax assessment purposes.

Issue 1: Interpretation of the term "transfer" under the Income-tax Act, 1961:
The judgment revolves around the interpretation of the term "transfer" under section 2(47) of the Income-tax Act, 1961. The court analyzed the definition of transfer, emphasizing that the language of section 53A of the Transfer of Property Act, 1882, incorporated in the Income-tax Act, does not mandate immediate payment of consideration for a transfer to occur. The court highlighted that factual possession and agreement can constitute a transfer, and consideration may be deferred to a future date. By citing relevant legal provisions, the court concluded that the transferor's liability to pay tax on capital gains arises in the assessment year when the agreement was entered into and possession was given, irrespective of the timing of consideration payment.

Issue 2: Determination of capital gains arising from a development agreement:
The court addressed the question of whether capital gains arise in the year of entering into a development agreement. The appellant argued against the Tribunal's decision, contending that no consideration was paid at the time of agreement, and hence, no transfer occurred. The court examined the facts of the case, where an agreement was entered into for construction purposes, and concluded that the transfer of the land as a capital asset took place during the relevant assessment year. The court upheld the Tribunal's decision that the appellant is liable to pay tax on the capital gains for that assessment year, dismissing the appeal based on the factual findings and legal principles applied.

Issue 3: Consideration of possession and agreement as transfer for tax assessment purposes:
The judgment delved into the significance of possession and agreement in determining a transfer for tax assessment purposes. The court emphasized that when possession and agreement are established, the consideration mentioned in the agreement must be considered for income assessment in the year of agreement and possession. By analyzing the factual aspects of the case and the legal provisions, the court affirmed that the possession and agreement in the previous year relevant to the assessment year triggered the tax liability for capital gains. Consequently, the court found no legal grounds to admit the appeal, leading to its dismissal without costs.

In conclusion, the judgment provides a detailed analysis of the interpretation of the term "transfer" under the Income-tax Act, the determination of capital gains from a development agreement, and the role of possession and agreement in tax assessment for capital gains, ultimately resulting in the dismissal of the appeal based on the specific facts and legal principles involved.

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