2018 (2) TMI 1761 - AT - Income Tax

Reopening of an assessment u/s 147 - capital gains arising out of entering into Joint Development Agreement - the AO held that there is transfer within the meaning of section 2(47) and assessed to Capital gains by adopting cost of construction of the share of built up area as a consideration and computed short term capital gains and brought to tax. - AO denied the benefit u/s 54F Held that - In the present case, the assessee never produced this agreement of sale before the Assessing Officer. Therefore genuineness of the agreement is not beyond doubt. Furthermore mere perusal of the agreement of sale placed at page 30 of the paper book, it is clear full consideration has not been paid. Therefore the agreement of sale cannot be considered for the purpose of reckoning the holding period. The only date which can be considered is the date of registration of sale deed that is 5/12/2005. Therefore, gains arising out of entering into joint development agreement are assessable as short term capital gain . Hence, short term capital gains are not eligible for exemption u/s 54D of the Act. Therefore we uphold the order the lower authorities. Decided against the assessee.

Summary

Issues involved:
1. Whether gains arising on entering into a joint development agreement are taxable under short term capital gains or long term capital gains?
2. Whether the holding period of the property subject to the joint development agreement should be calculated from the date of agreement or the date of registration of the sale deed?
3. Whether the assessee is eligible for exemption under section 54F of the Income Tax Act?

Analysis:

Issue 1: Taxability of gains from joint development agreement
The main issue in this case was to determine whether the gains arising from entering into a joint development agreement should be classified as short term capital gains or long term capital gains. The Assessing Officer (AO) had treated the transaction as a 'transfer' under section 2(47) of the Income Tax Act, resulting in capital gains. The appellant contested this classification, arguing that the gains should be considered long term capital gains and thus eligible for exemption under section 54F.

Issue 2: Calculation of holding period
Another crucial aspect of the case was the calculation of the holding period for the property involved in the joint development agreement. The appellant claimed that the holding period should be reckoned from the date of the agreement to purchase the property, while the revenue authorities argued that the holding period should start from the date of registration of the sale deed. The disagreement on the holding period impacted the tax treatment of the gains derived from the transaction.

Issue 3: Eligibility for exemption under section 54F
The appellant also contested the denial of the benefit under section 54F of the Income Tax Act by the lower authorities. The argument centered around the applicability of the exemption to the gains classified as long term capital gains from the joint development agreement. The appellant relied on various judicial precedents to support their claim for exemption under section 54F.

In the judgment, the Tribunal analyzed the contentions of both parties, emphasizing the importance of the holding period and the actual transfer of rights in the property. The Tribunal concluded that the gains arising from the joint development agreement should be treated as short term capital gains, as the appellant had not acquired any interest in the property until the registration of the sale deed. Consequently, the appellant was not eligible for the exemption under section 54F. The Tribunal upheld the decision of the lower authorities, dismissing the appellant's appeal.

This detailed analysis highlights the critical issues addressed in the judgment regarding the taxability of gains from a joint development agreement, the calculation of the holding period, and the eligibility for exemption under section 54F of the Income Tax Act.