2016 (11) TMI 117 - AT - Income Tax

Capital gain - development agreement - transfer u/s 2(47)(v) - whether possession has been given by the assessee to the developer or not? - Held that - Clause 3, clause 6 and clause 14 of the Development Agreement clearly laid down that the possession shall be given to the developer only upon fulfillment of certain conditions i.e. sanctioning of scheme by Slum Rehabilitation Authority and obtaining the letter of intent and other requisite permissions from the Competent Authorities. It has also been clarified in clause 14 that owner (assessee) shall always be deemed to be in physical and exclusive possession of the said property until the issuance of Annexure -II by SRA. It is an admitted fact on record that even till date no permission or scheme has been granted by the SRA in respect in the impugned land. Thus, there could not have been any question of parting with the physical possession by the assessee with the developer. Even otherwise, no material has been brought on record by the AO or by Ld. CIT-DR before us indicating any contradiction in the factually findings recorded by Ld. CIT(A). In other words, nothing has been brought on record to show that physical possession was given by the assessee to the developer. It does not transpire that there was clear intendment of the assessee to make transfer of the said land by virtue of this agreement itself, in view of the detailed reasoning and analyses given by us in earlier part of our order. Further, the distinguishing features and facts of the above said case were that in the said case, the admitted case of the said assessee was that transfer had taken place, and the only dispute in the said case was confined to the year of chargeability. Further, the fact of possession having been handed over by the assessee to the developer was also admittedly on record and the same was not denied. Whereas, on the other hand, in the case before us neither the possession has been handed over nor it is an admitted case of the assessee that transfer has taken place even till date. Further,Hon ble Bombay High Court got an occasion to analyse the aforesaid judgment in the case of CIT v. Geeta Devi Pasari (2008 (7) TMI 990 - BOMBAY HIGH COURT) wherein it was clearly held that unless the purchaser was actually physically put in possession, even though the agreement was entered, it cannot be said that transfer had taken place in view of section 2(47)(v) and therefore capital gain could not be charged to tax. Thus it can be said that no transfer of the impugned land had taken place during the year before us. Whether the impugned amount of ₹ 10 crores received by the assessee should be brought to tax as income from other sources? - Held that - The impugned amount of ₹ 10 crores is stated to be in the nature of advance money received by the assessee for the proposed contracts of the land and to deal with such a situation a specific section i.e. section 51 exists on the statute. Section 51 provides that under such circumstances, amount of advance received shall be deducted from the cost for which impugned asset was acquired. Thus, we direct the AO to treat this amount of ₹ 10 crores as per provisions of section 51 of the Act and the consequences as per law should follow. The AO is directed to re-compute the income accordingly after giving opportunity of hearing to the assessee. - Decided against revenue.

Summary

Issues Involved:
1. Determination of taxability of long-term capital gain.
2. Registration requirement for invoking section 2(47)(v) of the Income Tax Act.
3. Applicability of section 2(47)(v) in the context of possession and development agreements.
4. Treatment of advance money received under section 51 of the Income Tax Act.

Detailed Analysis:

1. Determination of Taxability of Long-Term Capital Gain:
The central issue in the appeal was whether the development agreement between the assessee and M/s. Shivalik Ventures resulted in a transfer of land, thereby giving rise to a taxable long-term capital gain of ?25,81,38,515/-. The Assessing Officer (AO) held that the development agreement constituted a transfer under section 2(47)(v) of the Income Tax Act, and thus the gain was taxable. However, the assessee contended that no transfer occurred under the said section, and hence no capital gain should be taxed.

2. Registration Requirement for Invoking Section 2(47)(v):
The AO presumed the development agreement to be a registered document and based the assessment of capital gain on this erroneous assumption. The Ld. CIT(A) clarified that the agreement was not registered, and therefore, the provisions of section 2(47)(v) could not be invoked. The Tribunal upheld this view, emphasizing that the amendment in the Registration Act, 1908, mandates the registration of documents for them to be effective under section 53A of the Transfer of Property Act, 1882. Consequently, without registration, the agreement could not result in a transfer as per section 2(47)(v).

3. Applicability of Section 2(47)(v) in the Context of Possession and Development Agreements:
The Tribunal examined whether possession was given to the developer, which is a crucial aspect under section 2(47)(v). It was found that the land was occupied by slum dwellers and no permissions from the Slum Rehabilitation Authority (SRA) were obtained, thus the possession remained with the assessee. The Tribunal also noted that the development agreement explicitly stated that possession would remain with the assessee until the issuance of requisite permissions from the SRA. Therefore, the Tribunal concluded that no transfer occurred during the year under consideration.

4. Treatment of Advance Money Received under Section 51:
The AO argued that the ?10 crores received by the assessee should be taxed as income from other sources. However, the Tribunal directed that this amount should be treated as advance money under section 51 of the Income Tax Act, which requires such advance to be deducted from the cost of acquisition of the asset. The AO was instructed to re-compute the income accordingly after providing the assessee an opportunity for a hearing.

Conclusion:
The Tribunal upheld the findings of the Ld. CIT(A) that no transfer of land occurred under the development agreement during the year under consideration, and therefore, no capital gain was taxable. The appeal filed by the Revenue was dismissed, and the AO was directed to treat the advance money as per section 51 of the Income Tax Act.