2023 (4) TMI 117 - HC - Income Tax

Validity of Revision u/s 263 by CIT - As per PCIT AO omitted to examine the transaction of transfer of land held as Stock-in-trade in the light of the provision of Section 43CA - ITAT holding that the very initiation of revisional proceedings u/s 263 taken against the assessee is void - whether the transaction under the Joint Development Agreement should be envisaged as transfer exigible to tax by reference under Section 4(47)(v) of the Act read with Section 53A of the Transfer of Property Act, 1882? HELD THAT - Assessment was a re-assessment proceedings under Section 147 of the Act and from the reason furnished from reasons furnished by the Assessing Officer for re-opening the assessment, we find this very issue was the reason for re-opening and there was a proposal to tax the long term capital gains which, in the opinion of the AO, had escaped assessment. The assessee submitted detailed reply objecting to the re-opening proceedings. From the above clause in the Joint Development Agreement, it is crystal clear that the assessee continued to be the owner of the property throughout the development of the property and there is no transfer of ownership to the developer. This aspect, in our opinion, was rightly noted by the Tribunal - reading of the entire agreement would show that there was no transfer or sale of asset under the Joint Development Agreement rather the agreement was to develop the land making it saleable and in view of the construction of the same, the developer would take a part of the stock-in-trade. The facts of the case in Balbir Singh Maini 2017 (10) TMI 323 - SUPREME COURT was more or less identical to the case on hand and after reading the Joint Development Agreement, the Hon ble Supreme Court found that the owner continues to be the owner throughout the agreement at any state purported to transfer rights akin to ownership to the developer. This is exactly the nature of transaction in the case on hand. The registering authorities have not treated the agreement as a deed of conveyance but have calculated the stamp duty by treating the same under Article 4, 5(f) of Schedule 1A of the Indian Stamp Act. The Explanation under Clause (vi) of Clause 5(f) states that the expression Agreement or Memorandum of an Agreement if relating to a sale shall include an agreement to sell or any memorandum or acknowledgement in relation to transfer or deliver of possession of immovable property with an intent to transfer right, interest in, or title to, such property at any future date. This expression was noted and the registering authorities have calculated the stamp duty on the said amount at the fixed rate and not treating it as a conveyance deed. Thus, we are of the considered view that the Tribunal took note of the factual position and applied the correct legal principle and granted relief to the assessee. Decided against the revenue.

Summary

Issues Involved:
The issues involved in the judgment are:
1. Whether the initiation of revisional proceedings under Section 263 of the Income Tax Act was valid?
2. Whether the provisions of Section 43CA of the Income Tax Act were applicable to the case?
3. Whether there was a conversion of Stock in trade of the land offered in the Joint Development Agreement (JDA)?

Issue 1:
The first issue in the case was regarding the validity of the initiation of revisional proceedings under Section 263 of the Income Tax Act. The Principal Commissioner of Income Tax (PCIT) set aside the assessment order passed under Section 143(3) read with Section 147 of the Act, citing that the Assessing Officer failed to examine the transaction of transfer of land held as "Stock-in-trade" in light of Section 43CA of the Act. The PCIT invoked his power under Section 263 based on this omission by the Assessing Officer. The Tribunal examined whether there was any enquiry conducted by the Assessing Officer before completing the assessment and noted that the subject issue was the reason for re-opening the assessment. The assessee contended that the land was their stock-in-trade and not a capital asset, supported by their financial statements. The Tribunal upheld the assessee's position, finding no transfer or sale of asset under the Joint Development Agreement.

Issue 2:
The second issue revolved around the applicability of Section 43CA of the Income Tax Act to the case. The Tribunal, after considering Sections 43CA, 50C, and the definition of transfer under Section 2(47) of the Act, examined the relevant clauses of the Joint Development Agreement. The Tribunal analyzed the agreement clauses, emphasizing that the assessee remained the owner of the property throughout the development process, with no transfer of ownership to the developer. This interpretation was supported by a Supreme Court decision in a similar case, where it was held that possession alone was given under the agreement for the purpose of development, not a transfer of ownership rights. The registering authorities also treated the agreement as not a deed of conveyance but calculated stamp duty under a different provision, further supporting the assessee's position.

Issue 3:
The third issue raised was whether there was a conversion of Stock in trade of the land offered in the Joint Development Agreement. The Tribunal carefully examined the clauses of the Joint Development Agreement, highlighting that the agreement aimed to develop the land for saleability without transferring ownership to the developer. The termination clause specified that if the developer failed to complete the project within the stipulated time, the agreement would be canceled, and the developer would have no right or interest. The Tribunal's analysis aligned with legal principles and factual positions, leading to the dismissal of the appeal and ruling in favor of the assessee.

This comprehensive summary outlines the key legal issues and the Tribunal's detailed analysis and decision on each matter in the judgment.