2023 (1) TMI 1405 - HC - Income Tax

Addition of capital gain invoking the provision of Section 2(47) - capital gain for the land owner stands reckoned on the date of JDA - Scope of Joint Development Agreement (JDA) clauses regarding transfer of title ownership - HELD THAT - The powers vested are only administrative in nature. Clause 13.2 shows that power of attorney shall permit the developer to enter into agreement to sell construction agreements and sale deeds with the prospective third party purchaser. It is also clarified that the GPA shall become effective only upon approval of developmental plan and installment being paid. A combined reading of Clauses 3.1 and 13 shows that parties have specifically agreed that assessee shall continue to own entire JD property until conveyance deed took place. Clause 13 is in consonance with Clause 3.1. There is no material on record to show that any conveyance had taken place in A.Y. 2014-15. Unless there is material to establish that there was any conveyance the view taken by the A.O. is perverse and the said view has rightly been reversed by both CIT(A) and ITAT. The questions of law are answered in favour of the assessee.

Summary

Issues:
1. Whether the Tribunal was justified in upholding the deletion of addition under Capital Gains by invoking Section 2(47) of the IT Act?
2. Whether the Tribunal's decision can be considered as perverse in nature based on relevant case laws?
3. Interpretation of Joint Development Agreement (JDA) clauses regarding transfer of title ownership.

Analysis:
1. The appeal involved a challenge by the Revenue against the ITAT's decision to delete the addition under Capital Gains made by the AO. The main contention was whether the Tribunal was correct in upholding the deletion by invoking Section 2(47) of the IT Act. The AO had added capital gains based on the JDA between the assessee and a developer. However, both the CIT(A) and ITAT concurred that the assessee was not liable to pay capital gains tax for the relevant assessment year. The High Court upheld this decision, emphasizing that there was no material to establish any conveyance had taken place in that year, leading to the dismissal of the appeal in favor of the assessee.

2. The second issue raised was whether the Tribunal's decision could be deemed as perverse, especially in light of relevant case laws cited by the Revenue. The Revenue argued that the Tribunal's reliance on certain decisions was incorrect and that the facts of the present case were distinguishable. However, the High Court found that the clauses in the JDA clearly indicated that the assessee would continue to own the entire property until a conveyance deed took place. The Court concluded that without evidence of conveyance in the relevant assessment year, the AO's view was indeed perverse, and the decisions of the CIT(A) and ITAT were justified.

3. The interpretation of the JDA clauses regarding the transfer of title ownership was crucial in this case. The clauses in question specified that the owner would retain ownership of the entire property until conveyance to purchasers of the units in the project. The power of attorney granted to the developer was clarified to be administrative in nature until certain conditions were met. The High Court's analysis focused on the specific language of the JDA clauses and how they dictated the ownership rights and transfer of title. The Court's decision was based on a combined reading of these clauses, which supported the conclusion that the assessee retained ownership until conveyance, thus impacting the assessment of capital gains tax.

In conclusion, the High Court dismissed the appeal, ruling in favor of the assessee and against the Revenue, based on the specific provisions of the JDA and the absence of evidence of conveyance in the relevant assessment year.