2022 (2) TMI 1025 - AT - Income Tax

Chargeability of capital gains - Year of assessment - Transfer of capital asset u/s 2(47) - CIT-A deleting the impugned long term capital gain addition made on protective basis - HELD THAT - The assessee had entered into a development agreement cum GPA dt. 04.03.2009 (duly registered document) wherein the possession was irrevocably handedover to the developer party M/s. AMSRI Builders. There is further no dispute that this followed the latter supplementary agreement dt. 25.09.2014 between assessee, M/s. AMSRI Builders and M/s. Rajaram Constructions which is in continuity with the first main development agreement only. That being the case, we express our due agreement with the Revenue's arguments that the assessee had indeed transferred the relevant capital asset by way of a registered development agreement cum GPA on 04.03.2009 relevant to A.Y. 2009-10. We further make it clear that such a part performance has indeed been treated as transfer u/s. 2(47)(v) as per the hon'ble jurisdiction high court in case of Potla Nageswara Rao 2014 (8) TMI 636 - ANDHRA PRADESH HIGH COURT . We further find no merit in assessee's vehement contentions that once the developer had not performed the agreement hereinabove, the same stands annulled by the efflux of time. This is for the reason that the assessee has failed to pinpoint any of the specified conditions in the original agreement that time was essence of the contract in light of section 55 of the Indian Contract Act, 1872 The assessee never cancelled the said former development agreement even unilaterally as it has entered into the latter supplementary agreement on 25.09.2014 in continuity with the earlier one only. The question as to whether mere non-payment of the corresponding consideration; if any, would keep the impugned long term capital gains in abeyance has already been decided in Revenue's favour in the case of CIT Vs. Balbir Singh Maini 2017 (10) TMI 323 - SUPREME COURT . Their lordships make it clear that mere accrual of income; when it becomes due, in such an instance gives rise to a corresponding liability of the other party. No merit in assessee's arguments placing reliance on Seshasayee Steels Pvt. Ltd. 2019 (12) TMI 70 2 - SUPREME COURT at the same time since the assessee had executed an irrevocable transfer of possession as against a mere licence therein. The same stands distinguished therefore. AO herein had made a protective addition of long term capital gains in light of the clinching fact that it had been substantively assessed in the latter A.Y. 2015-16.Case law Banyan and Berry Vs. CIT 1995 (12) TMI 12 - GUJARAT HIGH COURT holds that a protective assessment is very much at par with the substantive one. We thus are of the opinion that the mere fact of the impugned addition having been made on protective basis would hardly provide any relief to the assessee in light of the overwhelming factual possession supporting the Revenue's case in preceding paras. - Decided in favor of revenue.

Summary

Issues Involved:
1. Applicability of CBDT Circulars on tax effect limit for filing appeals.
2. Determination of the correct assessment year for capital gains taxation.
3. Validity of the development agreement and its amendments.
4. Applicability of Section 45(5A) of the Income Tax Act.
5. Protective vs. substantive assessment of capital gains.

Detailed Analysis:

1. Applicability of CBDT Circulars on Tax Effect Limit for Filing Appeals:
The Revenue's appeal ITA 853/Hyd/2018 was dismissed due to the tax effect being ?38,81,323/-, which is below the threshold of ?50 lakh as per CBDT Circular No. 03 of 2018 and Circular No. 17 of 2019. The tribunal held this appeal as covered by these circulars with retrospective effect, leading to its dismissal.

2. Determination of the Correct Assessment Year for Capital Gains Taxation:
The Revenue contended that the chargeability of capital gains should arise in the Assessment Year (A.Y.) 2009-10 based on the development agreement dated 05-03-2009. However, the CIT(A) deleted the long-term capital gain addition for A.Y. 2009-10, noting that the development work did not commence as per the agreement, and the final agreement and plan approval occurred in the financial year 2014-15. The tribunal upheld the CIT(A)'s decision, noting that the capital gains were offered and assessed in A.Y. 2015-16.

3. Validity of the Development Agreement and Its Amendments:
The appellant argued that the developer could not commence the project as per the initial agreement dated 05-03-2009, leading to several amendments and a final supplementary agreement on 25-09-2014. The tribunal noted that the initial agreement was not canceled and was in continuity with the supplementary agreement, thus constituting a transfer under Section 2(47)(v) of the Income Tax Act.

4. Applicability of Section 45(5A) of the Income Tax Act:
The Revenue argued that the provisions of Section 45(5A) were not applicable as they were introduced for A.Y. 2018-19 and applied only to individuals and HUFs, not corporate entities. The tribunal did not find this argument relevant to the case at hand, focusing instead on the timing and validity of the development agreement.

5. Protective vs. Substantive Assessment of Capital Gains:
The tribunal addressed the issue of protective assessment, noting that the Assessing Officer made a protective addition for A.Y. 2009-10 to avoid double taxation, as the capital gains were substantively assessed in A.Y. 2015-16. The tribunal cited case law to affirm that protective assessments are valid and upheld the Revenue's stance that the capital gains should be recognized in A.Y. 2009-10 based on the initial development agreement.

Conclusion:
The Revenue's appeal ITA 852/Hyd/2018 was allowed, and the long-term capital gain addition for A.Y. 2009-10 was restored, with instructions for the Assessing Officer to adjust the computation considering the capital gains declared in A.Y. 2015-16. The appeal ITA 853/Hyd/2018 was dismissed based on the tax effect limit prescribed by CBDT Circulars. The order was pronounced in the Open Court on 11th February 2022.