2023 (12) TMI 1261 - AT - Income Tax

Capital gain - Joint Development agreement (JDA) - Transfer / sale of land u/s 2(47)(v) or not? - AO on the basis of said joint development agreement computed the short-term capital gain by taking the value as per stamp valuation authority as deemed sale consideration - HELD THAT - Mere execution of joint development agreement with the builder would not result in any transfer of land by the assessee as contemplated by the provisions of section 2(47)(v) of the Act as the assessee has not allowed the possession of the plot to be taken away by the builder in part performance of a contract . It is just an agreement for carrying out construction on the plot after obtaining requisite permissions from the Government authorities and then after completion of the project, certain area has to be allotted to the assessee. We find merit in the contention of assessee that the said execution of land development agreement cannot be a sale of land in favour of the builder within the meaning of section 2(47)(v) as only construction was allowed to be done by the builders after obtaining necessary approvals from competent authorities and, therefore, the capital gain has wrongly been computed and charged to tax. No construction has been carried out on the said land due to legal hurdles. Capital gain cannot be assessed on the basis of joint development agreement executed by the assessee during the year as no possession was given to the builder in part performance of the contract but it is only permission to carry out construction on the plot. Considering all appeal of assessee allowed.

Summary

Issues involved:
The judgment addresses the issue of the addition of capital gain on land based on a joint development agreement under section 2(47)(v) of the Act.

Summary:

Issue 1: Addition of Capital Gain on Land

The appeal concerns the addition of Rs. 33,84,024 as capital gain by the Assessing Officer, based on a joint development agreement with a builder. The Assessing Officer computed the gain by considering the value as per stamp valuation authority and deducting the cost of acquisition. The CIT(Appeals) affirmed this addition.

After reviewing the contentions and the agreement, it was found that the mere execution of the joint development agreement did not constitute a transfer of land under section 2(47)(v) of the Act. The agreement allowed for construction on the plot, with the ownership remaining with the assessee. Citing a similar decision by the Jurisdictional High Court, it was concluded that no transfer or sale of the asset occurred under the agreement. The Supreme Court's decision in a related case supported this interpretation.

Additionally, the registering authorities treated the agreement as not a conveyance deed, further supporting the view that no transfer of ownership occurred. The Tribunal applied the correct legal principle and granted relief to the assessee. Consequently, the order of the Tribunal was upheld, and the appeal was dismissed.

Separate Judgment by Shri Rajesh Kumar, Accountant Member:

The judgment by Shri Rajesh Kumar, Accountant Member, set aside the CIT(Appeals) order and directed the Assessing Officer to delete the addition of capital gain. It was noted that no possession was given to the builder for part performance of the contract, and no construction had taken place due to legal hurdles. Based on these factors, the capital gain assessment based on the joint development agreement was deemed inappropriate, leading to the allowance of the assessee's appeal.