2017 (5) TMI 253 - HC - Income Tax

Addition on account of long term capital gains taxable in the hands of the assessee - Joint development agreement - transfer within the meaning of sub sections (ii) and (vi) of Section 2(47) - Held that - The matter is no longer res integra. In C.S. Atwal s case (2015 (7) TMI 878 - PUNJAB & HARYANA HIGH COURT) held that the issue involved in this appeal stands decided by this Court. 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 view of cancellation of JDA no further amount has been received and no action thereon has been taken. It was urged that as and when any amount is received, capital gains tax shall be discharged thereon in accordance with law. In view of the aforesaid stand, while disposing of the appeals, we observe that the assessee appellants shall remain bound by their said stand. 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 measuring for which no consideration had been received and which stood cancelled and incapable. - Decided in favour of assessee.

Summary

Issues involved:
Taxability of capital gains, applicability of penalty under Section 271(1)(c) of the Income Tax Act, 1961.

Analysis:

Issue 1: Taxability of capital gains
The case involved a dispute regarding the taxability of capital gains arising from a Joint Development Agreement (JDA) entered into by the respondent-assessee with two development companies. The JDA stipulated the transfer of land in exchange for monetary consideration and constructed flats. The Assessing Officer added back a portion of the capital gain to the assessee's income, which was upheld by the Commissioner of Income Tax (Appeals) and the Tribunal. However, the High Court, in a previous judgment, ruled in favor of the assessee, holding that no taxable capital gains arose from the transaction. The High Court emphasized that the possession transferred was as a licensee for property development, not as a transferee, and the JDA did not fall under the relevant provisions for taxability. Consequently, the High Court allowed the appeals, concluding that the assessee was not liable for capital gains tax on the remaining land, which was canceled and incapable of performance due to legal orders.

Issue 2: Applicability of penalty under Section 271(1)(c)
The Assessing Officer imposed a penalty under Section 271(1)(c) of the Act on the assessee for concealment of income and furnishing inaccurate particulars of income. However, the Commissioner of Income Tax (Appeals) allowed the assessee's appeal and deleted the penalty, citing that the assessee had furnished all necessary facts to compute the correct capital gain, demonstrating good faith. The revenue challenged this decision before the Tribunal, which dismissed the appeal, relying on previous judgments. The High Court noted that the taxability issue had been adjudicated in favor of the assessee in a prior case, rendering the penalty under Section 271(1)(c) inapplicable. As a result, the High Court dismissed the appeals, affirming that no penalty was exigible under the Act in the given circumstances.

In conclusion, the High Court upheld its previous judgment regarding the taxability of capital gains and the inapplicability of the penalty under Section 271(1)(c) of the Income Tax Act, 1961. The decision was based on the interpretation of relevant legal provisions and case law, emphasizing the importance of disclosing all material facts and the bona fide intentions of the assessee in tax matters.