2018 (10) TMI 1345 - AT - Income Tax

Capital gain - JDA - Transfer of capital asset - year of assessment - transfer of legal position of the property - Assessee submitted that there was no possession delivered in part performance in the manner contemplated by Sec.53A of the Transfer of Property Act and therefore there was no transfer during the relevant previous year - Held that - The clause in the JDA regarding possession clearly states that what is given is not possession contemplated u/s.53A of the Transfer of Property Act and that it is merely a license to enter the property for the purpose of carrying out development. Further, the subsequent MOU dated 16.8.2006 and delivery of legal possession on 22.4.2006 clearly shows that there was no transfer within the meaning of Sec.2(47)(v) during the previous year relevant to AY 2006-07. Therefore, invocation of the provisions of Sec.2(47)(v) in the facts and circumstances of the present case on the basis of clause-1 of the JDA, was not proper. The possession in the present is traced to the joint development agreement which is in the nature of permissive possession and not possession in part performance of agreement for sale. There is no document by which the revenue can come to the conclusion that there was delivery of possession. The mere fact that development of the property cannot be done without possession cannot be the basis to come to a conclusion that possession was delivered in part performance of the agreement for sale in the manner laid down in Sec.53A of the Transfer of Property Act. Thus we hold that there was no transfer during the previous year relevant to AY 2006-07. Therefore, capital gain on transfer of the property cannot be assessed in AY 2006-07. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether there was a transfer of capital asset by the assessee during the previous year relevant to AY 2006-07.
2. Whether the capital gain on such transfer can be brought to tax in AY 2006-07.

Issue-Wise Detailed Analysis:

1. Transfer of Capital Asset:
The assessee owned a property in Munnekolala Village, Bangalore, and entered into a registered Joint Development Agreement (JDA) with a builder on 29.03.2006. According to the JDA, the assessee would receive 30% of the built-up area and a proportionate undivided share of land, while the builder would get 70%. The builder was authorized to enter the property for development but this was not to be construed as delivery of possession under Section 53A of the Transfer of Property Act or Section 2(47)(iv) of the Income Tax Act, 1961. The assessee did not file a return for AY 2006-07, leading the AO to issue a notice under Section 148 and complete the reassessment under Section 144 based on the value determined by the Sub-Registrar.

2. Capital Gain Taxation:
The CIT(A) upheld the AO's decision, stating that there was a transfer within the meaning of Section 2(47)(v) of the Income Tax Act during the previous year by virtue of the JDA. The CIT(A) referenced the Karnataka High Court's decision in the case of Dr. T.K. Dayalu, which held that the date on which possession was handed over to the developer is relevant for capital gains tax. The CIT(A) concluded that the capital gains should be taxed in AY 2006-07 because the JDA was executed in FY 2005-06.

Tribunal's Decision:
The Tribunal considered the rival submissions and the provisions of Section 2(47) of the Income Tax Act, which defines "transfer" and includes transactions involving the allowing of possession of immovable property in part performance of a contract as per Section 53A of the Transfer of Property Act. The Tribunal noted that the JDA explicitly stated that the possession given was not under Section 53A and was merely a license for development. Furthermore, the subsequent MOU dated 16.08.2006 and the confirmation that legal possession was given on 22.04.2006 indicated no transfer during the previous year relevant to AY 2006-07.

The Tribunal held that the invocation of Section 2(47)(v) was improper as the possession given was permissive and not in part performance of an agreement for sale. The Tribunal concluded that there was no transfer during the previous year relevant to AY 2006-07, and thus, the capital gain could not be assessed in that year. The assessment of capital gain in AY 2006-07 was deemed bad and was deleted.

Conclusion:
The appeal of the assessee was allowed, and it was pronounced that there was no transfer of the capital asset during the previous year relevant to AY 2006-07, thereby invalidating the capital gain assessment for that year.