2015 (8) TMI 1099 - HC - Income Tax

Transfer of property - capital gain - scope and legislative intent of Section 2(47)(ii), (v) and (vi) of the Act - what are the essential ingredients for applicability of Section 53A of 1882 Act - meaning to be assigned to the term possession ? - whether in the facts and circumstances, any taxable capital gains arises from the transaction entered by the assessee? - Held that - Perusal of the JDA dated 25.2.2007 read with sale deeds dated 2.3.007 and 25.4.2007 in respect of 3.08 acres and 4.62 acres respectively would reveal that the parties had agreed for pro-rata transfer of land. No possession had been given by the transferor to the transferee of the entire land in part performance of JDA dated 25.2.2007 so as to fall within the domain of Section 53A of 1882 Act. The possession delivered, if at all, was as a licencee for the development of the property and not in the capacity of a transferee. Section 53A of 1882 Act, by incorporation, stood embodied in section 2(47)(v) of the Act and all the essential ingredients of Section 53A of 1882 Act were required to be fulfilled. In the absence of registration of JDA dated 25.2.2007 having been executed after 24.9.2001, the agreement does not fall under Section 53A of 1882 Act and consequently Section 2 (47)(v) of the Act does not apply. The issue of exigibility to capital gains tax having been decided in favour of the assessee, the question of exemption under Section 54F of the Act would not survive any longer and has been rendered academic. The Tribunal and the authorities below were not right in holding the assessee-appellant to be liable to capital gains tax in respect of remaining land measuring 13.5 acres for which no consideration had been received and which stood cancelled and incapable of performance at present due to various orders passed by the Supreme Court and the High Court in PILs. Therefore, the appeals are allowed. See C.S.Attwal vs. The Commissioner of Income Tax, Ludhiana and another 2015 (7) TMI 878 - PUNJAB & HARYANA HIGH COURT

Summary

Issues:
1. Interpretation of Section 2(47)(ii), (v), and (vi) of the Income Tax Act.
2. Applicability of Section 53A of the 1882 Act.
3. Determination of possession in a legal context.
4. Taxability of capital gains in a specific transaction.

The judgment by the High Court of Punjab & Haryana addressed the issues arising from two appeals, ITA Nos.161 and 322 of 2014, with a common concern. The case involved an individual member of a cooperative society owning land in Mohali. The society entered into a Joint Development Agreement (JDA) with developers to develop the land, entailing monetary consideration and built-up flats for society members. The appellant declared income from the JDA in his revised return, leading to a tax assessment under the head of capital gains. Disputes arose regarding the taxability of the consideration receivable under the JDA. The Commissioner of Income Tax (Appeals) and the Tribunal upheld the tax assessment, prompting the appellant's appeal to the High Court.

The High Court analyzed the legal provisions and case law to determine the tax implications of the JDA. Referring to the judgment in a related case, the Court clarified that for a transaction to attract capital gains tax, possession must be transferred as per Section 53A of the 1882 Act. In this case, no possession of the entire land was transferred to the developers, and any possession granted was for development purposes, not as a transferee. The Court emphasized that the essential elements of Section 53A must be met, and since the JDA was not registered post-2001, it did not fall under the relevant provisions. The Court also noted that the appellant had paid capital gains tax on amounts received and executed sale deeds, and any further receipts would be subject to tax accordingly.

Based on the analysis, the Court ruled in favor of the appellant, stating that the cancellation of the JDA and the unfulfilled nature of the transaction due to legal constraints rendered the remaining land non-taxable for capital gains. The Court highlighted that the appellant would be liable for capital gains tax only on amounts received and recognized, aligning with the appellant's compliance with tax obligations. Consequently, the Court allowed the appeals, emphasizing that the question of exemption under Section 54F of the Act was no longer relevant due to the decision on capital gains tax liability.

In conclusion, the High Court disposed of the appeals in line with the precedent judgment, emphasizing the non-taxability of the remaining land due to the cancellation of the JDA and legal restrictions. The Court's decision provided clarity on the tax treatment of the JDA transaction, ensuring compliance with tax obligations based on amounts received and recognized, while exempting the appellant from capital gains tax on the undeveloped land.