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2018 (12) TMI 630 - AT - Income TaxLiability to pay capital gain tax - hypothetical income - accrual of income - activity of development was not completed and assessee received nothing in lieu of execution of the development agreement - Held that - The assessee in pursuance of execution development agreement dated 07.07.2009 received no consideration if any. In view of law mentioned above the long term/short term capital gain is liable to be assessed when the income will accrued to the assessee. It is settled law that it is the real income that is to be taxed and not the hypothetical income. Therefore, in the said circumstances of the case, the finding of the CIT(A) is not justifiable on this issue, therefore, we set aside the finding of the CIT(A) on this issue and delete the said addition. - decided in favour of assessee.
Issues Involved:
1. Liability to pay capital gain tax. 2. Determination of transfer under Section 2(47) of the Income Tax Act, 1961 read with Section 53A of the Transfer of Property Act. 3. Conclusion on the transfer of property during the relevant assessment year. 4. Disallowance of registration and other expenses capitalized by the assessee. 5. Arising of capital gain as per Section 45 of the Income Tax Act, 1961. 6. Entitlement to exemption under Section 54F of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Liability to Pay Capital Gain Tax: The primary issue was whether the assessee was liable to pay capital gain tax. The CIT(A) held that the assessee was liable for capital gain tax based on the development agreement dated 07.07.2009. The Tribunal examined whether the execution of the development agreement resulted in the accrual of income and thus the liability to pay capital gain tax. 2. Determination of Transfer Under Section 2(47) of the Income Tax Act, 1961 read with Section 53A of the Transfer of Property Act: The Tribunal analyzed whether the transfer of property had taken place as per Section 2(47) of the Income Tax Act, 1961 read with Section 53A of the Transfer of Property Act. The Tribunal referred to the case of M/s. Binjursaria Properties Pvt. Ltd. Vs. ACIT, where it was held that capital gains are assessable in the year in which the developed area is handed over to the assessee. The Tribunal concluded that the mere execution of the development agreement did not constitute a transfer under Section 2(47) unless the developer was willing to perform its obligations. 3. Conclusion on the Transfer of Property During the Relevant Assessment Year: The Tribunal found that the assessee had not received any consideration in the form of developed property during the assessment year. The Tribunal relied on the case of CIT Vs. Balbir Singh Maini, which held that income accrues only when it becomes due and there is a corresponding liability of the other party to pay the amount. Therefore, the Tribunal concluded that the transfer of property did not occur in the relevant assessment year. 4. Disallowance of Registration and Other Expenses Capitalized by the Assessee: The Tribunal did not specifically address this issue in detail, as it was interlinked with the primary issue of whether the capital gain was assessable in the relevant year. Since the Tribunal concluded that the capital gain was not assessable in the relevant year, the disallowance of expenses capitalized by the assessee was implicitly set aside. 5. Arising of Capital Gain as per Section 45 of the Income Tax Act, 1961: The Tribunal held that the capital gain could not be assessed in the year under appeal because the assessee had not received any consideration from the development agreement. The Tribunal emphasized that capital gain arises only when the income accrues to the assessee, which did not happen in the relevant assessment year. 6. Entitlement to Exemption Under Section 54F of the Income Tax Act, 1961: The Tribunal did not specifically address the issue of exemption under Section 54F, as it was contingent upon the assessment of capital gain. Since the Tribunal concluded that no capital gain was assessable in the relevant year, the issue of exemption under Section 54F became moot. Conclusion: The Tribunal set aside the findings of the CIT(A) and deleted the addition of capital gain to the income of the assessee. The Tribunal concluded that the capital gain was not assessable in the relevant assessment year as the income had not accrued to the assessee. The appeal of the assessee was allowed.
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