2014 (12) TMI 471 - AT - Income Tax

Assessment of LTCG Claim of exemption u/s 54F Held that - Assessee along with E. Govinda Reddy has entered into the development agreement with M/s BPR Infrastructure Ltd. on 04/05/06 - developer in terms with the development agreement has started the development work by not only obtaining permission from concerned authorities and has also started construction activities and the construction is almost complete - assessee s contention that possession was not handed over to developer cannot be accepted - without being handled over possession over land, the developer would have started the development activity - facts available on record indicate that developer was handed over possession of land for starting development activity on execution of development agreement on 04/05/06, transfer in terms of section 2(47)(v) read with section 53A of TP Act for all intent and purpose has taken place in the AY relying upon Potla Nageswara Rao Vs. CIT 2014 (8) TMI 636 - ANDHRA PRADESH HIGH COURT - So far as adoption of sale consideration at ₹ 3,72,74,900, assessee rightly contended that sale consideration cannot be taken on the basis of cost of construction to the developer - the sale consideration deemed to have been received by assessee has to be arrived at on the basis of FMV as on the date of development agreement i.e. on 04/05/06. Assessee s share in the deemed sale consideration has to be worked out - during the assessment proceeding as well as before the first appellate authority, assessee has brought it on record that by virtue of a registered partition deed dated 23/06/1995, assessee is not absolute owner of the property, but, he owns 1/4th share along with his three sons - though, in the development agreement assessee along with E. Govinda Reddy have executed with developer by projecting them as absolute owners of land, but, on the basis of registered partition deed a ratification deed was executed on 23/04/07, wherein the other co-owners have also been made party to the development agreement - assessee s claim for apportioning the taxable capital gain amongst all the co-owners has to be considered keeping in view the registered partition deed dated 23/06/95 and ratification deed dated 23/04/07 - as neither AO nor CIT(A) has properly appreciated assessee s contention by keeping in view the aforesaid documentary evidences brought on record, we are of the view that the entire issue of computation of capital gain needs to be examined afresh by taking into account all the facts and materials brought on record thus, the matter is remitted back to the AO for fresh consideration - AO is also directed to consider assessee s claim of exemption u/s 54F in terms with the statutory provision Decided in favour of assessee.

Summary

Issues Involved:
1. Assessment of long-term capital gain of Rs. 3,69,63,500.
2. Claim of exemption under Section 54F.
3. Validity of the transfer of property under Section 2(47)(v) read with Section 53A of the Transfer of Property Act.
4. Determination of sale consideration.
5. Ownership and apportionment of taxable capital gain among co-owners.
6. Nature of the land as agricultural land under Section 2(14).

Detailed Analysis:

1. Assessment of Long-Term Capital Gain:
The core issue revolves around the assessment of long-term capital gain amounting to Rs. 3,69,63,500. The Assessee entered into a development agreement with M/s BPR Infrastructure Ltd. on 04/05/2006, handing over land for development. The AO determined that this constituted a transfer under Section 2(47)(v), thus attracting capital gain. The AO computed the capital gain by estimating the value of the land and the villas to be received by the Assessee.

2. Claim of Exemption Under Section 54F:
The Assessee raised additional grounds for claiming exemption under Section 54F. The Tribunal directed the AO to consider the Assessee's claim of exemption under Section 54F in accordance with statutory provisions and as permissible by law.

3. Validity of Transfer Under Section 2(47)(v) Read with Section 53A:
The Assessee contended that possession of the land was not handed over to the developer, and thus, no transfer occurred under Section 2(47)(v) read with Section 53A. However, the Tribunal found that the developer had indeed started development work, indicating that possession was handed over. Therefore, the transfer was considered valid in the impugned assessment year.

4. Determination of Sale Consideration:
The Assessee argued that the sale consideration should be based on the fair market value (FMV) as of the date of the development agreement and not on the cost of construction incurred by the builder. The Tribunal agreed, stating that the sale consideration should be based on the FMV as of 04/05/2006. The Tribunal referred to the stamp duty valuation of Rs. 5,41,20,000 for the total land, with the Assessee's 40% share valued at Rs. 1,08,24,000 after considering the 60:40 sharing ratio with the co-owner.

5. Ownership and Apportionment of Taxable Capital Gain:
The Assessee claimed that the land was co-owned with others by virtue of a registered partition deed dated 23/06/1995 and a ratification deed dated 23/04/2007. The Tribunal noted that these deeds were registered before the date of search and should be considered for apportioning the taxable capital gain among all co-owners. The AO was directed to re-examine the computation of capital gain by considering these documents.

6. Nature of the Land as Agricultural Land:
The Assessee contended that the land was agricultural and thus not a capital asset under Section 2(14). However, the CIT(A) concluded that the land was not agricultural as it was within 8 kilometers of a municipality. The Tribunal upheld this finding, rejecting the Assessee's contention.

Conclusion:
The Tribunal set aside the order of the CIT(A) and remitted the matter back to the AO for fresh consideration. The AO was directed to re-examine the computation of capital gain, taking into account the FMV as of the date of the development agreement, the registered partition deed, and the ratification deed. The AO was also instructed to consider the Assessee's claim for exemption under Section 54F. The appeal was allowed for statistical purposes.