2016 (8) TMI 1560 - AT - Income Tax

Capital gain - FMV determination - JDA - value of the sale consideration of the land as on the date of Joint Development Agreement ( JDA ) - whether transfer of the land under JDA constitutes transfer as per the provisions of Section 2(47)(v) r.ws. 53A of the Transfer of Property Act? - CIT-A held that the deemed consideration of the land should be adopted as fair market value of the built up area to be received by the assessee as on the date of JDA and based on the Govt. records - HELD THAT - Identical issue decided in SMT. SAROJINI M KUSHE 2016 (4) TMI 1326 - ITAT BANGALORE as decided that because at the time of signing JDA the capital gain has to be computed only on the guidance value of the land. Even otherwise, if any capital gains to be accrued in future in favour of assessee after receiving the possession of the property. Certainly that would also be subject to capital gains. Therefore, in our final conclusion valuation of the capital gain should be appropriate to adopt the FMV/asset as deemed consideration, but not cost of the construction. - Decided against revenue.

Summary

Issues:
- Dispute over the value of the sale consideration of the land as on the date of Joint Development Agreement (JDA).

Analysis:
The appeal by the revenue challenges the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2006-07. The revenue contends that the income from JDA should be treated as Capital Gains based on the accrual system of accounting, while the CIT (Appeals) allowed the appeal, considering the capital gains to have arisen on the date of JDA. The primary issue revolves around the value of the sale consideration of the land at the time of the JDA.

The CIT (Appeals) relied on the judgment of the Hon'ble jurisdictional High Court in the case of CIT Vs. Dr.T.K. Dayalu, which determined that the transfer of land under JDA constitutes transfer under the Transfer of Property Act. The CIT (Appeals) directed the Assessing Officer to compute the capital gains based on the fair market value of the built-up area to be received by the assessee as on the date of JDA. The decision was supported by the Tribunal's previous rulings in similar cases.

The Tribunal considered the arguments presented by both parties and emphasized the importance of determining the appropriate valuation for capital gains. It was noted that the judgment in the case of CIT Vs. Dr.T.K. Dayalu was crucial in resolving the valuation controversy. The Tribunal concluded that the capital gain should be computed based on the guidance value of the land at the time of signing the JDA, rather than the cost of construction. The Tribunal dismissed the revenue's appeal, aligning with the previous decisions and the judgment of the High Court.

Therefore, the Tribunal upheld the order of the CIT (Appeals) regarding the valuation issue, following the precedent set by the jurisdictional High Court and previous decisions of the Tribunal. The appeal by the revenue was dismissed, affirming the computation of capital gains based on the fair market value of the property as deemed consideration at the time of JDA.