2023 (1) TMI 1305 - HC - Income Tax

Transfer of the capital asset - year of assessment - appellants widow of deceased assessee and her three children are joint owners of property entered into a JDA - transfer of capital asset u/s 2(47) - According to the Revenue, the liability to pay capital gains tax stems out of the JDA - HELD THAT - As combined reading of Clauses 6.2, 14.1 to 14.3 and 21 makes it clear that the delivery of possession to the developer is only for the performance of development/construction. Therefore, the view taken by the A.O and the ITAT that transfer was effected in the A.Y.2009-10 and making the assessees liable for payment of capital gains tax is perverse and untenable. Appeal allowed.

Summary

Issues:
1. Transfer of capital asset in the assessment year.
2. Validity of reopening assessment proceedings.
3. Adjudication of cost of the capital asset.

Issue 1: Transfer of Capital Asset
The case involved appeals challenging an order by the ITAT regarding the transfer of a capital asset in different assessment years. The appellants entered into a Joint Development Agreement (JDA) for a property. The Assessing Officer (AO) held that the JDA led to a transfer of the capital asset in a specific assessment year, resulting in capital gains tax liability. The CIT(A) reversed this finding, but the ITAT sided with the AO, prompting the appeals. The argument centered on whether possession was transferred as per Section 53A of the Transfer of Property Act. The JDA clauses were scrutinized, emphasizing that possession was not transferred until completion of construction. The Court held that the transfer did not occur in the assessed year, rendering the tax liability invalid.

Issue 2: Validity of Reopening Assessment
Another aspect was the validity of reopening assessment proceedings. The Revenue contended that possession was transferred simultaneously with the JDA execution, justifying the tax liability. However, the Court analyzed the JDA clauses, particularly Clause 6.2 and 14.3, which specified that possession was for development purposes only until completion. This analysis led to the conclusion that the AO and ITAT's view on the transfer in the assessed year was incorrect, supporting the appellants' position.

Issue 3: Adjudication of Cost of Capital Asset
The issue of adjudicating the cost of the capital asset was raised. The appellants argued that the JDA did not result in possession transfer as per Section 53A of the TP Act. The clauses in the JDA were crucial in determining the timing of possession transfer for tax purposes. The Court's detailed analysis of these clauses led to the decision in favor of the appellants, setting aside the ITAT's order and restoring the CIT(A)'s decision. The questions of law were answered in favor of the assessees, emphasizing that possession was not transferred in the assessed year, thereby negating the capital gains tax liability.