2018 (11) TMI 1901 - AT - Income Tax

Long term capital gains - assessee had entered into Development Agreement - assessee had acquired the property in the year 1989 which was registered in the name of assessee - AO holds that the said property was acquired out of funds of husband as the assessee had no income - plea of assessee was that the said property was acquired out of joint funds and jointly belongs to all the members of family i.e. assessee her husband and her sons and daughters - assessee in the year under consideration had entered into Development Agreement and had received an advance which was in the form of security deposit - HELD THAT - The assessee is in appeal for assessment year 2012-13 i.e. the financial year in which the Development Agreement was entered into between the parties. At the time of entering into Development Agreement the assessee received only sum of Rs. 5, 50, 000/- which was though called as entire consideration amount was actually part of consideration amount since the assessee was also entitled to receive six constructed flats on different floors in the proposed building. The main part of consideration i.e. value of constructed portion to be received by the assessee was definitely in future. In such circumstances where the assessee though had parted with the possession of property for the purpose of development of the said project and had also received so-called consideration for the property but had not received the main part of consideration i.e. constructed flats then such a transaction of entering into Development Agreement would not make the assessee liable to pay capital gains tax on entering into such Development Agreement. The said transaction does not amount to transfer under section 2(47) of the Act and in the absence of the same the assessee is not liable to pay capital gains tax under section 45. No capital gains has arisen in the hands of assessee on the date of entering into Development Agreement and the computation of long term capital gains in the hands of assessee is not warranted since the property has not been developed and the assessee has not received constructed portion which is allocated to her share. In such circumstances order of CIT(A) is reversed and hold that there is no merit in assessing the income from capital gains in the hands of assessee in the year under consideration. The ground of appeal No.1 raised by the assessee is thus allowed. Whole capital gains are not to be assessed in the hands of assessee since the assessee was holding the said property on behalf of its family and after family partition each of the family member shall have equal share - In view of holding that the capital gains do not arise in the year under consideration the said issue becomes academic at present and hence we do not address the same.

Summary

Issues Involved:
Assessment of long term capital gains in the hands of the assessee in the year of entering into a Development Agreement; Rejection of the claim of partition in the family property; Assessment of income from capital gains in the hands of the assessee as Manager/Karta of the HUF; Dispute over the gender of the Karta of the HUF; Levy of interest under sections 234A, 234B, and 234C.

Analysis:

1. Assessment of Long Term Capital Gains:
The appeal challenged the assessment of income from long term capital gains in the year the assessee entered into a Development Agreement. The Assessing Officer considered the transfer of rights under the Agreement as attracting capital gains. However, the Tribunal found that since the assessee had only received an advance and not the full consideration, the transaction did not constitute a transfer under the Income-tax Act. Citing judicial precedents, the Tribunal ruled that the assessee was not liable to pay capital gains tax at that stage.

2. Rejection of Family Partition Claim:
The appeal contested the rejection of the claim of partition in the family property. The Assessing Officer held that the property exclusively belonged to the assessee, despite family members being consenting parties to the Development Agreement. The Tribunal, however, focused on the intentions of the parties as per the Agreement, determining that no capital gains arose at the time of entering into the Agreement. Consequently, the issue of family partition became irrelevant due to the non-existence of capital gains.

3. Assessment of Income as HUF Manager/Karta:
The appeal disputed the rejection of the claim that the assessee, as the Manager/Karta of the HUF, should not be assessed for the capital gains. The Tribunal, based on the absence of capital gains, did not delve into this issue, rendering it moot in the current context.

4. Dispute Over Gender of HUF Karta:
The appeal challenged the notion that only male members could be the Karta of an HUF, contrary to the assessee's claim. However, since the Tribunal did not find any capital gains liable for assessment, the issue of the gender of the Karta was not addressed in the judgment.

5. Levy of Interest under Sections 234A, 234B, and 234C:
The appeal contested the justification for levying interest under these sections. However, the Tribunal did not provide a specific ruling on this issue in the judgment, focusing primarily on the capital gains assessment matters.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the assessee on the grounds related to the assessment of capital gains. The rejection of the family partition claim and other associated issues became immaterial due to the absence of capital gains liability. The judgment highlighted the importance of the actual receipt of consideration in determining the taxability of capital gains, supported by relevant legal precedents.