2014 (2) TMI 1393 - AT - Income Tax

Addition made under the head capital gains - Joint Development agreement taken as sale deed - assessee argued merely signing of a tripartite Joint Development Agreement by the Society with M/s. Hash Builders and with M/s. Tata Housing Development Co. Ltd (THDC) did not result into accrual of the alleged capital gain to the assessee - relevant provisions of section 2(47) as also the provisions of section 53A of the Transfer of property Act - HELD THAT - As decided in SHRISATNAM SINGH KAINTH 2013 (9) TMI 229 - ITAT AMRITSAR and CHARANJIT SINGH ATWAL 2013 (8) TMI 364 - ITAT CHANDIGARH When the plots remain unallotted and obviously legal ownership and beneficial ownership belonged to the society. Had the plots been allotted to some members before entering into the JDA then it could have been said that the plots have already been allotted and therefore the society was not responsible for the same. Once the plots were owned by the assessee obviously the transfer of the same would lead to arising of profit which has to be taxed u/s 45. We are of the opinion that lower authorities have correctly rejected the arguments that income from such plots if any should be charged under the head business profits because it is a settled law that if an income falls under specific head of income contained in Section 14 under Chapter IV then the same has to be taxed under that head. - Decided against assessee.

Summary

Issues Involved:
1. Misreading of Joint Development Agreement as a 'sale deed'.
2. Rejection of assessee's contentions regarding capital gains.
3. Misconstruction of sections 2(47) and 53A of the Transfer of Property Act.
4. Computation of capital gain based on notional consideration.
5. Capital gain computation beyond the amount actually received.
6. Denial of exemption under section 54F.
7. Assessment of capital gain in the hands of the cooperative society.
8. Allegations of unjust and arbitrary orders by authorities.

Detailed Analysis:

1. Misreading of Joint Development Agreement as a 'sale deed':
The assessee argued that the CIT(A) misread the Joint Development Agreement (JDA) as a 'sale deed', resulting in an erroneous confirmation of capital gains addition. The tribunal referenced the decision in the case of Charanjit Singh Atwal, where it was established that the JDA constituted a transfer under section 2(47)(v) of the Income Tax Act, as it involved handing over possession and rights to the developer, thus constituting a transfer for capital gains purposes.

2. Rejection of assessee's contentions regarding capital gains:
The assessee's contentions that the signing of the JDA did not result in capital gains were rejected. The tribunal upheld the view that the JDA and the irrevocable power of attorney granted the developer substantial rights, including possession, which constituted a transfer under section 2(47)(v). The tribunal noted that the possession given to the developer need not be exclusive and could be concurrent with the owner's limited possession for specific purposes.

3. Misconstruction of sections 2(47) and 53A of the Transfer of Property Act:
The tribunal found that the CIT(A) correctly applied sections 2(47)(v) and 53A, noting that the transfer of possession and rights to the developer under the JDA constituted a transfer for capital gains purposes. The tribunal rejected the argument that the non-registration of the JDA invalidated the transfer, referencing the principle that the nature of the contract, rather than its registration status, is critical under section 2(47)(v).

4. Computation of capital gain based on notional consideration:
The tribunal upheld the computation of capital gains based on the full value of the consideration, including the notional value of the flats to be received by the assessee. It was emphasized that under sections 45 and 48, the entire consideration, whether received or accrued, must be considered for capital gains computation. The tribunal referenced the decision in Jasbir Singh Sarkaria, which supported the inclusion of accrued consideration in the year of transfer.

5. Capital gain computation beyond the amount actually received:
The tribunal rejected the argument that capital gains should be limited to the amount actually received, reiterating that the full consideration, including future receivables, must be accounted for in the year of transfer. This approach aligns with the statutory mandate of sections 45 and 48.

6. Denial of exemption under section 54F:
The tribunal noted that no specific ground for exemption under section 54F was raised in the appeal. Consequently, the claim for exemption under section 54F was not adjudicated. The tribunal emphasized that exemptions under sections 54 and 54F are distinct and must be claimed appropriately.

7. Assessment of capital gain in the hands of the cooperative society:
The tribunal found that the capital gains were correctly assessed in the hands of the individual members of the cooperative society, as they were the actual owners of the plots. The society acted merely as a facilitator. The tribunal referenced the fact that the consideration was paid directly to the individual members, reinforcing the view that the members were liable for the capital gains tax.

8. Allegations of unjust and arbitrary orders by authorities:
The tribunal dismissed the allegations of unjust and arbitrary orders, finding that the authorities acted within the legal framework and correctly applied the relevant provisions of the Income Tax Act. The tribunal's detailed analysis of the legal and factual issues supported the conclusion that the orders were neither unjust nor arbitrary.

Conclusion:
The tribunal dismissed the appeal, upholding the CIT(A)'s order and confirming the computation of capital gains based on the full consideration, including notional values, and the assessment of tax in the hands of individual members. The tribunal's decision was consistent with the principles established in previous cases, ensuring a comprehensive and legally sound resolution of the issues.