2017 (1) TMI 259 - AT - Income Tax

Levy of capital gains - eligible transfer - co-owners - assessment year - Held that - We find that the assessee had placed the registered valuer s report , the contents of which were not controverted by the ld AO that the market value of the property as on the date of receipt of the possession thereof and indexed cost thereof was more than the consideration received on sale of the property during the assessment year in question. We find that the assessee had placed the computation of capital gains based on this valuation report wherein the net result only resulted in a capital loss of ₹ 84,622/- as elaborated in the ld CITA order. The ld CITA observed that this was not disputed by the ld AO in the remand report. The registered valuer had determined the market value of the property sold at ₹ 80,80,000/- at the time of construction. The ld AO was not able to bring on record any evidence to suggest that the market value was not correct. Therefore, the ld CITA held that the market value based on registered valuer s report cannot be brushed aside. We find that the ld CITA had rightly observed that the transfer within the meaning of section 2(47) of the Act had already happened in the year 1997 itself and the execution of the sale deeds in the financial year 2006-07 is only the culmination of the transfer that took place pursuant to development agreement dated 16.7.97. We also find lot of force in the alternative argument of the assessee, without prejudice, that as per the computation placed on record by the assssee, there is no resultant capital gains that could be taxed in the year under appeal. Hence we hold that the ld CITA had rightly deleted the levy of capital gains and had rightly held that the transfer had not taken place in the year under appeal both on law as well as on facts. - Decided in favour of assessee

Issues Involved:
1. Justification of CIT(A) in deleting the levy of capital gains.
2. Validity and enforceability of the collaboration agreement and the power of attorney.
3. Year of taxability of capital gains.
4. Computation of capital gains.

Detailed Analysis:

1. Justification of CIT(A) in Deleting the Levy of Capital Gains
The primary issue was whether the CIT(A) was justified in deleting the levy of capital gains for the assessment year in question. The CIT(A) relied on judicial precedents and concluded that the transfer of property took place in 1997 when the development agreement and power of attorney were executed, and possession was handed over to the developer. Therefore, no capital gains could be taxed in the assessment year under appeal.

2. Validity and Enforceability of the Collaboration Agreement and the Power of Attorney
The assessee and her co-owner entered into a development agreement on 16.07.1997 with the developer, which was accompanied by a registered power of attorney allowing the developer to sell and transfer the property. The CIT(A) observed that this agreement and the power of attorney were valid and enforceable, even though the development agreement was unregistered. This was further supported by the fact that the possession of the property was handed over to the developer, which constituted a transfer under section 2(47)(v) of the Income Tax Act read with section 53A of the Transfer of Property Act.

3. Year of Taxability of Capital Gains
The CIT(A) held that the transfer took place in 1997, the year the development agreement was executed and possession was handed over. This was supported by the judicial precedents, including the decisions of the Hon’ble Calcutta High Court and the Hon’ble Bombay High Court, which stated that the transfer is considered to have taken place when possession is given to the developer for construction purposes. The revenue's argument that the sale deeds executed in the year under appeal constituted the transfer was rejected.

4. Computation of Capital Gains
The CIT(A) also addressed the computation of capital gains. The assessee provided a registered valuer's report showing that the market value of the property at the time of construction was higher than the consideration received upon its sale. The AO did not dispute this valuation in the remand report. Consequently, the CIT(A) concluded that there was no capital gain to be taxed in the year under appeal, as the indexed cost of acquisition exceeded the sale consideration, resulting in a capital loss.

Conclusion:
The appellate tribunal upheld the CIT(A)'s decision to delete the levy of capital gains, agreeing that the transfer took place in 1997 and not in the assessment year under appeal. The tribunal also found that the computation of capital gains, based on the registered valuer's report, was accurate and resulted in no taxable gain. Therefore, the appeals of the revenue were dismissed.

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