2020 (11) TMI 444 - AT - Income Tax

Capital gain - Joint Development Agreement entered - transfer of the land u/s 2(47) - as per AO by virtue of the agreement both the assessee had transferred their immovable property as per the provisions of section 2(47)(v) of the Act r.w.s 53A of Transfer of Property Act - HELD THAT - Apart from the execution of the development agreement, it appears that no other activities were pursued by the Developer till date such as obtaining the plan sanction, development of the land etc. As extremely doubtful regarding the legal validity of the development agreement between both the assessee and the Developer. In this situation, we are of the considered view that the decision of the CIT (A) in the case of both the assessee are appropriate. Hence, we do not find it necessary to interfere with the decision of the CIT (A) in the case of both the assessee. Therefore, the appeals of the Revenue are devoid of merits. In the case of Joint Development agreement it should be construed that the land owner had entered into business venture by introducing his landed property into the business, accordingly the provisions of Section 45(2) will come into operation and the LTCG shall be chargeable to income tax as his income of the previous year in which the land is transferred, and for the purpose of section 48 of the Act, the fair market value of the land on the dated of introducing the land in the Joint Venture shall be deemed to be the full value of the consideration received or accrued as a result of the transfer of the land.

Summary

Issues:
Appeals filed by Revenue against CIT (A) orders for AY 2013-14 deleting capital gains addition of ?3,94,24,000 in hands of assessees under development agreement.

Analysis:
1. Identical Grounds of Appeal: Revenue raised 6 identical grounds in both appeals challenging deletion of capital gains addition by CIT (A) in hands of assessees under development agreement.

2. Facts of the Case: Assessees entered development agreement with a company, leading to addition of capital gains by AO under LTCG. CIT (A) deleted the addition based on higher judiciary decisions, leading to Revenue's appeal.

3. AO's Position: AO considered possession transfer under development agreement as transfer of immovable property under IT Act and Transfer of Property Act, leading to capital gains addition.

4. CIT (A) Decision: CIT (A) deleted addition due to non-implementation of development agreement, lack of municipal sanction, developer's non-compliance, absence of legal action period, and non-fulfillment of essential conditions under TP Act.

5. ITAT Decision: ITAT upheld CIT (A) decision as possession not transferred, developer failed obligations, refundable deposit not sale consideration, and lack of progress in development activities. ITAT found development agreement legally doubtful, supporting CIT (A) decision.

6. Legal Validity of Agreement: ITAT emphasized that in joint development agreements, Section 45(2) applies, and fair market value of land introduced in venture is considered for capital gains tax.

7. Pronouncement and Covid-19 Impact: Order pronounced post 90 days due to Covid-19 lockdown, citing extraordinary circumstances. ITAT relied on Mumbai Tribunal decision for the same.

8. Final Verdict: Revenue's appeals dismissed, supporting CIT (A) decision to delete capital gains addition in hands of assessees under the development agreement.

This detailed analysis outlines the issues, facts, positions of AO and CIT (A), ITAT's decision, legal validity of the agreement, and the final verdict, providing a comprehensive understanding of the judgment.