2017 (2) TMI 1523 - HC - Income Tax

Capital gain - Scope and legislative intent of Section 2(47)(ii), (v) and (vi) - JDA entered - essential ingredients for applicability of Section 53A of 1882 Act - Meaning to be assigned to the term possession - transfer of land by members of a Cooperative Society by signing an irremovable Power of Attorney in the name of the Developer and also by signing a Joint Development Agreement (JDA) would constitute transfer within the meaning of section 2(47)(ii) - taxable capital gains arises from the transaction entered by the assessee - HELD THAT - As decided in C.S. ATWAL case 2015 (7) TMI 878 - PUNJAB HARYANA HIGH COURT parties had agreed for pro-rata transfer of land.No possession had been given by the transferor to the transferee of the entire land in part performance of JDA so as to fall within the domain of Section 53A of 1882 Act. The possession delivered, if at all, was as a licencee for the development of the property and not in the capacity of a transferee. Further Section 53A of 1882 Act, by incorporation, stood embodied in section 2(47)(v) of the Act and all the essential ingredients of Section 53A of 1882 Act were required to be fulfilled. In the absence of registration of JDA dated 25.02.2007 having been executed after 24.09.2001, the agreement does not fall under Section 53A of 1882 Act and consequently Section 2(47)(v) of the Act does not apply. The issue of exigibility to capital gains tax having been decided in favour of the assessee, the question of exemption under Section 54F of the Act would not survive any longer and has been rendered academic.The Tribunal and the authorities below were not right in holding the assessee-appellant to be liable to capital gains tax in respect of remaining land for which no consideration had been received and which stood cancelled and incapable of performance at present due to various orders passed by the Supreme Court and the High Court in PILs.

Summary

Issues:
1. Interpretation of Section 2(47)(ii), (v), and (vi) of the Income Tax Act, 1961.
2. Applicability of Section 53A of the Transfer of Property Act, 1882.
3. Determination of possession in the context of property transfer.
4. Taxability of capital gains arising from a transaction.
5. Requirement of registration for applicability of Section 53A of the Transfer of Property Act, 1882.
6. Taxation on total consideration received and receivable in the case of capital gains.
7. Revocation of irrevocable Power of Attorney and its legal implications.
8. Application of clause (vi) of Section 2(47) of the Income Tax Act, 1961.

Analysis:
1. The appellant-revenue challenged an order by the Income Tax Appellate Tribunal regarding the deletion of an addition made by the Assessing Officer. The Tribunal relied on a High Court decision in a similar case. The issues revolved around the interpretation of Sections 2(47)(ii), (v), and (vi) of the Income Tax Act, 1961, and the applicability of Section 53A of the Transfer of Property Act, 1882.

2. The respondent-assessee, an individual, was involved in a Joint Development Agreement (JDA) with two companies for land development. The Assessing Officer treated the transaction as a transfer, resulting in capital gains tax liability. The Commissioner of Income Tax (Appeals) upheld this decision, leading to an appeal to the Tribunal, which ruled in favor of the assessee based on a previous High Court judgment.

3. The High Court analyzed the JDA and related documents to determine the nature of the transaction. It concluded that no possession was transferred in part performance of the JDA, and the JDA did not fall under Section 53A of the Transfer of Property Act, 1882 due to lack of registration. The Court also considered the tax treatment of amounts received and receivable under the capital gains provisions.

4. The Court referenced a previous case to establish that the possession granted was as a licensee for development, not as a transferee. It highlighted the importance of fulfilling all essential ingredients of Section 53A of the Transfer of Property Act, 1882 for a transaction to be considered a transfer for tax purposes. The Court dismissed the appeal, affirming the applicability of the previous judgment and the conclusions drawn from it.

5. The judgment emphasized the intricacies of property transactions, the legal requirements for transfer under tax laws, and the significance of registration in determining tax liabilities. The decision provided clarity on the tax treatment of capital gains arising from complex real estate transactions involving joint development agreements and multiple parties.

Conclusion:
The High Court dismissed the appeal by the revenue, upholding the Tribunal's decision in favor of the assessee based on the interpretation of relevant tax laws and previous judicial precedents. The judgment clarified the tax implications of property transfers under specific legal provisions and highlighted the importance of registration and possession in determining tax liabilities related to capital gains.