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2008 (11) TMI 310 - AT - Income TaxChargeability of capital gains in respect of the land not 'transferred' - Scope of 'Transfer' u/s 2(47)(v) - doctrine of part performance - CIT(A) held that AO was legally justified in holding that the assessee was liable to capital gains tax for the AY 1995-96 on transfer of development rights in the previous year relevant to AY 1995-96 - appellant had undivided 29.68 per cent share in an ancestral property - A development agreement was executed with a firm M/s Lunkad Associates; stated to be for a consideration having both cash and kind components - though the appellant had received cash - but no capital gain was shown for the year under consideration i.e. AY 1995-96 as per the return - HELD THAT - The Importance of the word transfer is due to the reason that in the charging s. 45 the capital gain is taxable on transfer of a capital asset . Precisely this section prescribes that any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head capital gains and shall be deemed to be the income of the previous year in which the transfer took place. The doctrine of part performance is undoubtedly based upon the doctrine of equity. If one party has performed his part of duty then equity demands that the other party shall also perform his part of. the obligation. If one party has stood by his words then it is expected from the other party to also stand by his promise. On the facts of this case the developer has got bundle of rights and thereupon entered into the property. Undisputedly flats have also been constructed by M/s Lunkad Associates. Thus under the provision of IT Act a transfer has definitely took place. To sum-up the owners have entered into an agreement for development of the property and certain rights were assigned to the developer who in turn had made the substantial payment and consequently entered into the property and constructed the flats. The fact that the legal ownership continued with the owners to be transferred to the society at a future distant date really does not affect the applicability of s. 2(47)(v). The transferee was undisputedly willing to perform his part of the contract even though a dispute had cropped up but that subsequent event had not adversely effected the main agreement rather the confirmity of events and thereafter series of developments have further admittedly strengthened the amount of consideration. Entering into the property and handing over of the possession was instantaneous thus entire conspectus of the case has attracted the provision of s. 45 of the Act. We have arrived at the conclusion by respectfully following a decision and the law laid down by the Hon'ble jurisdictional High Court delivered in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT 2003 (2) TMI 62 - BOMBAY HIGH COURT . In the result ground is dismissed.
Issues Involved:
1. Validity of proceedings under Section 147 read with Section 148. 2. Liability to capital gains tax on the transfer of development rights. 3. Deduction claim for the value of retained FSI. 4. Charging of interest under Section 234B. 5. Indexed cost of acquisition for determining capital gains. 6. Double taxation of capital gains in two assessment years. Detailed Analysis: Issue 1: Validity of Proceedings under Section 147 read with Section 148 The assessee did not press this ground, and it was dismissed accordingly. Issue 2: Liability to Capital Gains Tax on the Transfer of Development Rights The assessee had a 29.68% share in an ancestral property and entered into a development agreement on 30th Nov. 1994 with M/s Lunkad Associates for a total consideration of Rs. 3,91,87,500. The assessee received Rs. 1 crore on 22nd Nov. 1994 and Rs. 75,00,000 up to 21st March 1995 but did not show capital gain for AY 1995-96. The AO issued a notice under Section 148 and determined that a transfer of development rights had occurred, resulting in capital gains of Rs. 3,89,21,144. The CIT(A) upheld the AO's decision, stating that the transfer of development rights constituted a capital asset transfer, and the developer had the right to enter and develop the property upon payment of Rs. 2 crores. This was supported by evidence such as the performance of 'Bhumi Puja' and the erection of hoardings. The Tribunal agreed with the CIT(A), noting that the developer had taken substantial steps towards development and had performed his part of the contract, thus fulfilling the conditions of Section 53A of the Transfer of Property Act and Section 2(47)(v) of the IT Act. The Tribunal cited the jurisdictional High Court decision in Chaturbhuj Dwarkadas Kapadia vs. CIT to support its conclusion. Issue 3: Deduction Claim for the Value of Retained FSI The assessee did not press this ground, and it was dismissed accordingly. Issue 4: Charging of Interest under Section 234B The assessee did not press this ground, and it was dismissed accordingly. Issue 5: Indexed Cost of Acquisition for Determining Capital Gains The Revenue appealed against the CIT(A)'s decision to adopt the indexed cost of acquisition as on 1st April 1981 at Rs. 43,62,005, instead of Rs. 2,66,356 as determined by the AO. The CIT(A) followed the decision in the case of a co-owner, Shri T.H. Poonawala, and directed the AO to adopt the cost of acquisition at Rs. 11,97,000 for the entire property. The Tribunal upheld the CIT(A)'s decision, noting that the Co-ordinate Bench had already taken a view in favor of the assessee in a similar case, and the facts were identical. Therefore, the Revenue's appeal was dismissed. Issue 6: Double Taxation of Capital Gains in Two Assessment Years The Revenue appealed against the CIT(A)'s decision to delete the capital gains for AY 1996-97, arguing that the final payment and execution of the second power of attorney occurred in FY 1995-96. The CIT(A) held that the capital gains had already been assessed for AY 1995-96 and could not be taxed again in AY 1996-97. The Tribunal affirmed the CIT(A)'s view, stating that the same amount of gain should not be taxed in two assessment years. The Tribunal found no force in the Revenue's grounds, especially since the action of the AO for AY 1995-96 had already been affirmed. Conclusion: Both the assessee's appeal and the Revenue's appeals were dismissed, affirming the decisions of the lower authorities on all issues.
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