2015 (7) TMI 162 - AT - Income Tax

Transfer of capital asset to the developer in terms of section 2(47)(v) read with section 53A - Whether capital gain will not arise in the impugned assessment year there being no transfer of capital asset? - willingness of the developer to perform his part of the contract questioned - Held that - The developer not only took immediate steps to implement the project by preparing building plan/lay out, but, as per assessee s own admission, made an application before the competent authority in 2008 seeking building permission. However, the delay in obtaining building permission was firstly because the land was under the growth corridor which required specific clearance from the authorities concerned and secondly, because it was found from the Government order issued on 06.06.2005 that part of the land is treated as Government land. Due to these exigencies necessary permission could not be obtained for starting the development activity. The delay in development of project is not due to either any unwillingness or default on the part of the developer to undertake the development activity but because of extraneous circumstances beyond his control which resulted in delay in obtaining the approval from the competent authority. In fact, the assessee has not brought a single piece of evidence on record to demonstrate that at any point of time the developer has expressed his unwillingness to perform his part of the contract of undertaking the development activity. The Hon ble A.P. High Court in the case of Potla Nageswara Rao vs. DCIT (2014 (8) TMI 636 - ANDHRA PRADESH HIGH COURT) while interpreting the provisions of section 2(47) of the I.T. Act as well as section 53A of the Transfer of Property Act held that transfer in terms with section 2(47)(v) read with section 53A of the Transfer of Property Act takes place in the assessment year in which the development agreement is entered into and possession is delivered. Therefore, there is nothing on record to prove that the developer was unwilling to perform his part of the contract as provided under section 53A of the Transfer of Property Act, we are of the view that there is a transfer of capital asset in the impugned assessment year as envisaged under section 2(47)(v) of the Act resulting in capital gain. Keeping that in view we direct, while computing capital gain the A.O. should look into the observations made by the Ld. CIT(A) with regard to adoption of fair market value and indexed cost of acquisition. He should also decide the issue relating to deduction under section 54 or 54F in accordance with law. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Determination of transfer of capital asset under section 2(47)(v) read with section 53A of the Transfer of Property Act, 1882.
2. Computation of capital gain and adoption of fair market value.
3. Eligibility for deduction under section 54 or 54F of the I.T. Act.

Detailed Analysis:

1. Transfer of Capital Asset:
The primary issue revolves around whether there was a transfer of capital asset by the assessee to the developer in terms of section 2(47)(v) read with section 53A of the Transfer of Property Act, 1882, resulting in capital gain in the assessment year 2007-2008. The assessee, a HUF, entered into a registered development agreement-cum-General Power of Attorney with M/s. Sri Sai Venkateswara Estates on 30.08.2006. The agreement stipulated that the assessee would receive 43% of the constructed area along with an undivided share in the land. Additionally, a supplementary agreement was executed on 19.10.2006, modifying certain terms and treating an advance of Rs. 51,10,000 as a non-returnable security deposit.

The A.O. contended that the transaction constituted a transfer under section 2(47)(v) as the assessee handed over possession of the land and received a significant amount from the developer. The A.O. relied on the decision of ITAT, Hyderabad Bench in the case of Krishnakumar D. Shah (HUF) and others vs. DCIT, concluding that all conditions of section 2(47)(v) read with section 53A were satisfied, leading to a capital gain of Rs. 4,59,92,944.

The assessee argued that no development activity had commenced due to the developer's inability to obtain necessary permissions, indicating the developer's unwillingness to perform the contract. The Ld. CIT(A) agreed with the assessee, noting that no development activity had started even after seven years, thus ruling out the applicability of section 53A and consequently, the accrual of capital gain.

2. Computation of Capital Gain and Fair Market Value:
The Ld. CIT(A) also addressed the computation of capital gain and the adoption of fair market value by the A.O. The Ld. CIT(A) disapproved of the A.O.'s method of determining the fair market value and computation of capital gain. These findings were not challenged by the department in the appeal.

3. Eligibility for Deduction under Section 54 or 54F:
The Ld. CIT(A) observed that the assessee might be eligible for deductions under sections 54 or 54F of the I.T. Act. This aspect was also not contested by the department.

Tribunal's Conclusion:
The Tribunal analyzed the statutory provisions and case facts, emphasizing that the term 'transfer' under section 2(47)(v) must be read in consonance with section 53A of the Transfer of Property Act. The Tribunal noted that the developer had taken steps to obtain necessary permissions and the delay was due to factors beyond the developer's control, not due to any unwillingness to perform the contract. The Tribunal cited the jurisdictional High Court's decision in Potla Nageswara Rao vs. DCIT, which held that transfer occurs in the assessment year when the development agreement is executed, and possession is handed over.

The Tribunal concluded that there was a transfer of capital asset in the impugned assessment year, resulting in capital gain. However, the Tribunal directed the A.O. to consider the Ld. CIT(A)'s findings on the fair market value and indexed cost of acquisition and to decide on the eligibility for deductions under sections 54 or 54F in accordance with the law, ensuring a fair hearing for the assessee.

Outcome:
The appeal by the department was allowed for statistical purposes, with directions for the A.O. to reassess the computation of capital gain and eligibility for deductions as per the observations of the Ld. CIT(A).