2024 (2) TMI 1403 - AT - Income Tax

Long Term Capital Gain - development agreement by holding no transfer of capital asset u/s. 2(47)(v) - transfer of land affected during the year under consideration as per the Joint Development Agreement - HELD THAT - Section 53A of the Transfer of Property Act, 1882 would not be attracted in a case where a license was given to another for the purpose of development of flats and selling the same and granting such license could not be said to be granting possession within the meaning of section 53A of the Transfer of Property Act, 1882. In the present case also, clause 6 of the modified agreement of Joint Development, Construction and Sale clearly shows that the owners which includes the assessee confirmed the license and permission given to the developer by the previous owner to enter into upon the said property. The said license to the developer is personal and under no circumstances the developer shall transfer the same to any third party. Therefore, the argument, DR is not acceptable that the license and permission is a right itself gives rise transfer of property u/s. 2(47)(v) - clause 3 of the said agreement establishes that the developer shall construct a portion of building for the owners in proportion of 42.5% out of total built up area of the proposed building which supports the case of the assessee no capital gain arose in the year under consideration, but it could be in the year in which possession of share of assessee in the proposed building is given. Clause 7 reads that the owners including the assessee given a registered power of attorney to the developer, in order to obtain the sanction of layout, building plan and to appear before various authorities for mutation on behalf of the owners and to do all general acts, deeds and things in the name of owners to commence and complete the development of the said property as per the terms and conditions mentioned in the said agreement. Therefore, as per the said agreement, the owners has permitted the said developer to develop the property belonging to the owners only as a licensee which did not have the effect of transfer of property to the licensee. The developer has given possession of the assessee s share in June, 2017 which is evident from para 5.3.3 of the impugned order which is also not disputed by the DR. CIT(A) clearly recorded that the assessee offered the capital gain in the year in which share in the constructed area is given to the assessee, which is subjected to tax in A.Y. 2018-19 which is also not disputed by the DR. If we accept the contention of the ld. DR that the capital gain was rightly determined by the AO in A.Y. 2012-13, certainly, it amounts to double taxation, having offered the same in A.Y. 2018-19, as rightly pointed by the ld. AR. Thus, we find no infirmity in the order of CIT(A) in holding that there is no transfer u/s. 2(47)(v) and no capital gain is chargeable thereon in the year under consideration. Thus, the grounds raised by the Revenue fails and are dismissed.

Summary

Issues Involved:
1. Whether the CIT(A) was justified in deleting the addition made by the AO on account of Long Term Capital Gain in respect of a development agreement by holding no transfer of capital asset under Section 2(47)(v) of the Income Tax Act.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Long Term Capital Gain
The primary issue under consideration was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition made by the Assessing Officer (AO) regarding Long Term Capital Gain (LTCG) in respect of a development agreement, by holding that there was no transfer of a capital asset under Section 2(47)(v) of the Income Tax Act during the assessment year 2012-13.

Facts and Background:
The assessee, engaged in the business of distribution of stationery, filed a return of income on 31-03-2013. A search action under Section 132 of the Act was conducted on 01-12-2015 in the case of M/s. Concrete Developers, during which a joint development agreement involving the assessee was seized. The AO issued a notice under Section 153A r.w.s. 153C, and the assessee responded by referring to the return filed on 31-03-2013. The AO inferred that the possession of land given to the developer constituted a transfer under Section 2(47) of the Act and determined the LTCG, resulting in a total income of Rs. 3,19,26,123/- for the assessee.

CIT(A)'s Decision:
The CIT(A) relied on the Mumbai Tribunal's decision in the case of Mrs. Aarti Sanjay Kadam and the Bombay High Court's decision in Chaturbhuj Dwarkadas, holding that the capital gain is taxable in the year of receipt of the constructed area, not in the year of entering into the development agreement. The CIT(A) directed the AO to delete the addition made on account of LTCG for the assessment year 2012-13.

Revenue's Argument:
The Revenue argued that the CIT(A) erred in deleting the addition without considering the joint development agreement, which indicated that the capital gain is taxable in the year of the transaction, irrespective of the receipt of consideration. The Revenue contended that the assessee should have been taxed in the assessment year 2012-13, not 2018-19, to avoid double taxation.

Assessee's Argument:
The assessee argued that the consideration (42.5% share in the property) was received in June 2017 and declared in the return for the assessment year 2018-19. The assessee contended that taxing the capital gain in 2012-13 would result in double taxation since it was already subjected to tax in 2018-19.

Tribunal's Findings:
The Tribunal examined the modified joint development agreement and noted that no consideration was paid to the assessee in the year under consideration, and the assessee would receive the share only in the constructed area. The Tribunal referred to the Bombay High Court's decision in the case of Late Bharat Jayantilal Patel, which held that a license for development does not constitute possession under Section 53A of the Transfer of Property Act, 1882. The Tribunal concluded that the license and permission given to the developer did not amount to a transfer of property under Section 2(47)(v) of the Act. The Tribunal upheld the CIT(A)'s decision, noting that taxing the capital gain in 2012-13 would result in double taxation.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming that no transfer under Section 2(47)(v) occurred in the assessment year 2012-13 and that the capital gain was correctly taxed in the year the constructed area was received (assessment year 2018-19).

Further Appeals:
The Tribunal applied the same findings to ITA No. 413/NAG/2019, which had identical facts, and dismissed both appeals filed by the Revenue.

Order Pronouncement:
The order was pronounced in the open court on 21st February 2024.