2017 (11) TMI 708 - AT - Income Tax

Capital gain on alleged transfer of two immovable property owned by the appellant - as per assessee he has received mere advance against the development agreement whereas no possession has been handed over by him since consent of the respective owners could not be obtained till date and suits in this regard and pending before appropriate courts - Held that - Transfer of possession is one of the primary condition so as to attract the provisions of Section 53A and consequently being covered u/s 2(47)(v). The assessee has all along contended that the possession of the properties was never handed over to the developer which has been reiterated before us also. The Ld. AR has placed certain additional evidences in the form of Letter from the Developer and copies of suits filed by the developer before appropriate court. We find that the fact that whether the assessee has handed over the possession to the developer or not has nowhere been examined by any of the lower authorities. Hence, on the fact of the case, we remit the matter back to the file of Ld. AO for adjudication. If the transaction is found chargeable to tax, the computation thereof shall be computed in terms of Section 48 and other provisions, as applicable. Needless to say, adequate opportunity of being heard shall be granted to the assessee, who in turn, is directed to substantiate his stand in this regard. Resultantly, assessee s appeal stands partly allowed for statistical purposes

Issues Involved:
1. Taxability of capital gains on the transfer of two immovable properties.
2. Applicability of Section 50C of the Income Tax Act.
3. Determination of fair market value and cost of acquisition.

Issue 1: Taxability of Capital Gains on the Transfer of Two Immovable Properties
The primary issue was whether the capital gains from the alleged transfer of two immovable properties owned by the assessee were assessable in the impugned assessment year (AY 2010-11). The assessee contended that the development rights of the properties were sold under conditions that were not fulfilled, such as obtaining 100% tenant consent and government permissions. Therefore, possession and title were never transferred, and only advance payments were received, arguing that no transfer occurred under Section 2(47) of the Income Tax Act, hence no capital gains arose. The Assessing Officer (AO) disagreed, concluding that capital gains arose in the impugned AY as the development rights were granted through irrevocable agreements, applying Section 50C for valuation.

Issue 2: Applicability of Section 50C of the Income Tax Act
The AO applied Section 50C, which deals with the valuation of the transfer of immovable property, concluding that the market value of the properties was higher than the sale consideration. The assessee objected, arguing that Section 50C applies only to the transfer of land or buildings, not development rights. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's application of Section 50C but directed the AO to refer the valuation matter to the District Valuation Officer (DVO) due to the assessee's objections.

Issue 3: Determination of Fair Market Value and Cost of Acquisition
The CIT(A) directed the AO to refer the valuation of the cost of acquisition and fair market value of the development rights to the DVO, considering the objections raised by the assessee during the assessment proceedings.

Detailed Analysis:

Taxability of Capital Gains:
The tribunal examined whether the transfer of development rights constituted a 'transfer' under Section 2(47) of the Income Tax Act. The assessee argued that no transfer occurred as possession was not handed over due to unfulfilled conditions, referencing clauses in the development agreements and ongoing tenant consent issues. The tribunal referred to the Supreme Court judgment in CIT Vs. Balbir Singh Maini, which emphasized the necessity of possession transfer for a transaction to qualify as a transfer under Section 2(47)(v). The tribunal noted that the lower authorities did not examine whether possession was transferred and remitted the matter back to the AO for fresh adjudication, directing the AO to determine if possession was handed over and, if so, compute the capital gains accordingly.

Applicability of Section 50C:
The tribunal upheld the CIT(A)'s direction to refer the valuation matter to the DVO, acknowledging the assessee's objections to the market value adopted by the AO. The tribunal noted that Section 50C applies to transactions involving the transfer of land or buildings and directed the AO to follow the provisions of Section 50C(2) for valuation.

Determination of Fair Market Value and Cost of Acquisition:
The tribunal agreed with the CIT(A)'s decision to refer the valuation of the properties to the DVO, ensuring a fair determination of the cost of acquisition and fair market value. This direction was deemed necessary due to the discrepancies in the valuation adopted by the AO and the objections raised by the assessee.

Conclusion:
The tribunal concluded that the assessee's appeal was partly allowed for statistical purposes, remitting the matter back to the AO for fresh adjudication on the transfer and valuation issues. The revenue's appeal was dismissed as infructuous due to the remand. The order was pronounced in the open court on 08th November 2017.

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