2014 (8) TMI 1176 - HC - Income Tax

Year of taxability of capital gain - when the development agreement was entered or when the built up area was completed and handed over to the assessee - handing over possession is relevant for capital gain tax - HELD THAT - In the case of Commissioner Vs. D.K.Dayal 2012 (6) TMI 405 - KARNATAKA HIGH COURT after noticing the case law on the point has held that the date on which possession was handed over to the developer is relevant and therefore the capital gain tax is payable for the assessment year in which the possession was handed over in terms of the joint development agreement. Therefore on mere entering into a joint development agreement there is no transfer. The transfer in the Income Tax Act takes places on the date the possession of the property is delivered though not a registered document is executed conveying the title. In the instant case the authorities have held that the capital gain tax is payable in the assessment year 1995-96 when the joint development agreement was entered into by the assessee with the developer for transfer of 66% interest in an undivided immovable property and possession of the land was handed over and not when the built up area was completed and handed over to the assessee in the assessment year 1998-99. Hence we answer the substantial question of law raised in favour of the assessee

Summary

Issues:
Interpretation of capital gains tax liability in relation to the transfer of property under a development agreement.

Analysis:
The High Court of Karnataka, comprising of Justice N. Kumar and Justice Rathnakala, heard a revenue's appeal challenging a Tribunal's order. The main issue in question was whether capital gains tax should be levied in the assessment year when a development agreement was signed or when possession of the property was transferred. Referring to the case law in Commissioner Vs. D.K.Dayal, the Court established that the crucial moment for tax liability is when possession is handed over, not merely when the agreement is signed. The Court emphasized that a transfer, as defined in the Income Tax Act, occurs when possession is delivered, even without a registered document conveying the title.

In the specific case under consideration, the authorities had determined that the capital gains tax should apply in the assessment year when the development agreement was signed and possession was transferred, not when the built-up area was completed and handed over. Consequently, the Court ruled in favor of the assessee, rejecting the revenue's argument. The Court dismissed the appeal, stating that there were no merits to support the revenue's position in this matter.