2016 (7) TMI 1632 - AT - Income Tax

Validity of reassessment u/s 147 - assessee has not offered the capital gains in the year of entering of the JDA - transfer of land as per the provisions of section 2(47)(v) as the possession of the said property has been taken by the developer in part performance of contract referred in section 53A of the Transfer of Property Act - HELD THAT - There is no dispute that the assessee had entered into a JDA dt.12.5.2004 and had not offered any income being capital gain arising from the said JDA, Hon ble jurisdictional High Court in the case of CIT AND JCIT VERSUS TK. DAYALU 2012 (6) TMI 405 - KARNATAKA HIGH COURT held that when the possession was handed over to the developer at the time of entering into JDA, it constitutes transfer under Section 2(47)(v) of the Act and consequently the capital gains is to be taxed in the year in which the JDA was entered into. When the assessee did not offer the income arising from transfer of land in question under JDA and there was no original assessment then the reopening based on the decision of Hon ble jurisdictional High Court as well as facts came to the knowledge of the Assessing Officer that the assessee had entered into JDA is valid and justified. Addition on account of capital gains - HELD THAT - We find that as per the JDA dt.12.5.2004 the assessee has handed over possession to the developer for construction of the residential project though the said JDA and handing over of the possession does not constitute an outright and absolute sale however it would certainly constitute the transfer of the immovable property as per the provisions of section 2(47)(v) of the Act as held by the Hon ble jurisdictional High Court in the case of Dr. T.K. Dayalu 2012 (6) TMI 405 - KARNATAKA HIGH COURT . We do not find any error or illegality so far as the JDA along with handing over of possession constitute transfer of land in question in terms of section 2(47)(v) . The issue of computation of capital gains is set aside to the record of the Assessing Officer with a direction to compute the capital gains by taking consideration for transfer of the land as on the date of JDA as market value of the asset to be received by the assessee.

Summary

Issues Involved:
1. Validity of reassessment under Section 148.
2. Transfer of undivided interest in land and liability to Capital Gains tax.
3. Computation of long-term capital gains.
4. Liability to interest under Sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

1. Validity of Reassessment under Section 148:
The assessee filed a return on 5.2.2006, declaring income and agricultural income. During an enquiry, the Assessing Officer (AO) discovered a Joint Development Agreement (JDA) dated 12.5.2004 between the assessee and a developer. The AO issued a notice under Section 148 on 19.3.2012, citing a transfer of land under Section 2(47)(v) of the Income Tax Act, 1961, as the developer had taken possession in part performance of the contract. The AO relied on the judgment of the jurisdictional High Court in CIT Vs. Dr. T.K. Dayalu. The assessee challenged the reopening, arguing no transfer occurred as possession was not handed over, and the capital gains were offered in subsequent years. The CIT (Appeals) upheld the reopening, and the Tribunal found the reopening valid, citing the High Court's decision and the absence of an original assessment.

2. Transfer of Undivided Interest in Land and Liability to Capital Gains Tax:
The assessee contended that no transfer occurred upon executing the JDA, as possession was not handed over. The Tribunal referred to the High Court's judgment in Dr. T.K. Dayalu, which held that handing over possession under a JDA constitutes a transfer under Section 2(47)(v). The Tribunal concluded that the JDA and possession transfer constituted a transfer of immovable property, making the capital gains taxable in the year of the JDA.

3. Computation of Long-Term Capital Gains:
The assessee argued that the AO wrongly computed the capital gains by considering the cost of construction as the sale consideration. The Tribunal referred to its previous decisions, emphasizing that the Fair Market Value (FMV) as of the JDA date should be considered. The Tribunal directed the AO to compute the capital gains by taking the market value of the asset as of the JDA date.

4. Liability to Interest under Sections 234A, 234B, and 234C:
The assessee denied liability for interest under Sections 234A, 234B, and 234C. The Tribunal did not provide a detailed discussion on this issue, implicitly upholding the lower authorities' decisions.

Conclusion:
The Tribunal upheld the validity of the reassessment, confirmed the transfer of land under the JDA as a taxable event, and directed the AO to compute capital gains based on the FMV as of the JDA date. The appeal was partly allowed.