2017 (8) TMI 1189 - AT - Income Tax

Capital gain tax - Assessment of long term capital gain - entering development agreement between the developer and other 7 joint co-owners without any considerations - transfer u/s 2(47) - Held that - We find that clause No. 2 4 5 and 28 of the Development Agreement are the essence of the contract wherein developer has agreed that the possession of the sale unit shall be given only after accommodating old tenants first and in no case developer will be entitled to possession of self components unless old tenants / occupants inducted in the respective permanent accommodation on ownership basis. Further the assessee entered into a new development agreement cum deed of assignment of lease with another developer M/s Jiva Builders and developers dated 27-12-2007 & deed of confirmation was registered with the sub-registrar Mumbai city-3 vide dated 07-01-2010. It is also a fact that the assessee has not parted with the possession of the property till date or has not handed over the possession of the property to the new developer and even the new agreement. In view of the decision of Hon ble Bombay High Court in the case of Geetadevi Pasari (2008 (7) TMI 990 - BOMBAY HIGH COURT) and the fact of the case that no transfer of property took place during the FY relevant to the AY 2008-09 and no possession was handed over to the developer and ultimately the agreement between the assessee and the developer the assessee cannot be held to be liable for capital gain tax liability. Accordingly all these five appeals of the assessee are allowed.

Issues Involved:
1. Condonation of delay in filing the appeals.
2. Assessment of Long Term Capital Gain (LTCG) on entering into a development agreement.
3. Applicability of Section 2(47) of the Income Tax Act, 1961, and Section 53A of the Transfer of Property Act.
4. Determination of the year of taxability for capital gains.
5. Applicability of Section 50C for determining the fair market value.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeals:
The appeals by the assessee were time-barred by 140 days. The assessee filed a condonation petition along with an affidavit explaining the delay. The delay was attributed to the advice of the consultant to file a rectification application under Section 154 of the Income Tax Act, 1961, and subsequent festivals and holidays. The Tribunal condoned the delay and admitted the appeals, as the Senior Departmental Representative conceded that the delay could be condoned.

2. Assessment of Long Term Capital Gain (LTCG) on Entering into a Development Agreement:
The core issue was the assessment of LTCG on entering a development agreement dated 27-12-2007 between the developer and the co-owners without any monetary consideration. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] determined that the development rights were transferred, and hence, capital gains should be assessed. The AO assessed the market value of the property at ?5,78,30,500/- and attributed a share of ?22,29,875/- to each co-owner.

3. Applicability of Section 2(47) of the Income Tax Act, 1961, and Section 53A of the Transfer of Property Act:
The Tribunal examined whether the development agreement constituted a transfer under Section 2(47) of the Income Tax Act, 1961, read with Section 53A of the Transfer of Property Act. The Tribunal noted that no possession was handed over to the developer, and the conditions stipulated in the development agreement were not fulfilled during the assessment year 2008-09. The Tribunal relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Geetadevi Pasari, which held that capital gains tax liability arises only in the year when possession is given.

4. Determination of the Year of Taxability for Capital Gains:
The Tribunal concluded that the liability for capital gains would arise only in the year in which possession is given. Since the possession was not handed over during the assessment year 2008-09, the Tribunal held that no transfer took place during this period. The Tribunal emphasized that the agreement alone does not constitute a transfer unless possession is handed over, as supported by the decision in Geetadevi Pasari's case.

5. Applicability of Section 50C for Determining the Fair Market Value:
The Tribunal noted that the AO had used the market value estimated by the sub-registrar for stamp duty purposes to determine the fair market value. However, since no transfer took place during the relevant assessment year, the applicability of Section 50C was not directly addressed. The Tribunal focused on the absence of a transfer event to conclude that no capital gains tax liability arose for the assessment year 2008-09.

Conclusion:
The Tribunal allowed the appeals of the assessees, holding that no transfer of property took place during the financial year relevant to the assessment year 2008-09. Consequently, the assessees were not liable for capital gains tax for that period. The decision was pronounced in the open court on 23-08-2017.

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