2006 (6) TMI 138 - AT - Income Tax

Deletion of addition made by the AO on account of capital gain arising out of the transfer of property - relevant year of chargeability - deletion holding that the capital asset in question was not transferred in the year in which it has been taxed because the possession was not handed over to the purchasers during the previous year relevant to asst. yr. 1994-95 - HELD THAT - In a situation in which less than 10 per cent of the cash consideration is paid by the developer to the assessee and in which no part of consideration in kind is paid by the assessee, it cannot be said that the developer had 'complete control' over the property. When the control or right to control is not passed, there cannot be any question of transfer of property. In terms of cl. 9 of the development agreement, the possession was to be delivered only after the complete payment was made. Admittedly, this condition was not complied with till the end of the relevant previous year. In these circumstances, when only a small portion of sale consideration was received as earnest/deposit money and when the developer could not have, therefore, exercised his rights under the contract which were to crystallize on making the payments after the receipt of no objection certificate from the authorities, it cannot be said that there is anything to indicate, leave aside establish, passing of or transferring of complete control over the property in favour of the developer which is sine qua non for taking the date of contract as relevant for the purpose of deciding the year of chargeability of capital gains. Therefore, on the facts of the present case, the date of development agreement would not really be relevant to decide the year of chargeability. The conclusions arrived at by the CIT(A) is confirmed and no interference is required in the matter - appeal dismissed.

Issues Involved:
1. Determination of the year in which the capital gain arising from the transfer of property should be taxed.

Issue-Wise Detailed Analysis:

1. Determination of the year in which the capital gain arising from the transfer of property should be taxed:

The Revenue appealed against the CIT(A)'s order which deleted the addition of Rs. 1,16,81,766 made by the AO on account of capital gain. The AO had reopened the assessment under section 147 of the IT Act, arguing that the capital gain should be taxed in the assessment year 1994-95, as the transfer of property was deemed complete on 29th March 1994, the date the sale-cum-development agreement was executed. The assessee contended that the transfer was not complete until the possession was handed over on 10th April 1998, and thus, the capital gain should be taxed in the assessment year 1999-2000.

The CIT(A) sided with the assessee, holding that the capital asset was not transferred in the year 1994-95 because possession was handed over in the previous year relevant to the assessment year 1999-2000. The Revenue, however, argued that the issue was covered in their favor by the decision of the jurisdictional High Court in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT, asserting that the date of the contract is the date of transfer under section 2(47)(v) of the IT Act.

The assessee's counsel distinguished their case from Chaturbhuj Dwarkadas Kapadia, arguing that the possession was not handed over until 10th April 1998, and thus the transfer could not be deemed complete in 1994. The counsel also cited various precedents, including the case of Megji Mathradas vs. Jt. CIT and Assam Vegetables & Oil Products Ltd. vs. CIT, to support the argument that mere payment of part consideration does not constitute a transfer under section 53A of the Transfer of Property Act.

Upon reviewing the facts, it was noted that the agreement of sale was executed on 29th March 1994, but the possession was handed over on 10th April 1998. Several clauses in the agreement indicated that the full consideration was not paid until after 31st March 1994, and the possession was to be handed over only after the receipt of the no objection certificate and the payment of the balance consideration.

Clause 8 of the agreement stated that the owners would vacate the premises and hand over possession to the purchasers only after receiving the balance consideration. Clause 14 provided for the termination of the agreement if the owners' title was not accepted within the stipulated period, and Clause 24 allowed for the execution of a limited power of attorney for submitting building plans to the Municipal Corporation.

The Tribunal concluded that the transfer could only be said to have taken place in 1998 when possession was handed over, as per section 2(47)(v) of the IT Act. The Tribunal also noted that in the case of Chaturbhuj Dwarkadas Kapadia, almost the entire sale consideration was received in the year the Revenue sought to tax it, unlike in the present case where only a small portion of the consideration was received in 1994.

The Tribunal emphasized that the determination of the year of chargeability of capital gains depends on whether complete control over the property was transferred to the developer. In this case, since less than 10% of the cash consideration was paid, and the developer did not have existing possession or other controlling rights, it could not be said that complete control had passed.

The Tribunal also took note of the fact that the assessee continued to be in possession of the premises until the financial year 1996-97, and the possession was officially handed over on 10th April 1998. Thus, the Tribunal upheld the CIT(A)'s decision, confirming that the capital gain should be taxed in the assessment year 1999-2000 and dismissed the Revenue's appeal.

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