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2025 (4) TMI 797 - AT - Income TaxLTCG - Transfer of capital asset u/s 2(47) - Year of assessment - AO was of the view that since the development agreement was signed during the period under consideration the property is said to be transferred during this period only accordingly not satisfied with the reply of the assessee - HELD THAT - Considering the totality of the facts of the case and judgement passed in the case of Bharat Jayantilal Patel 2023 (2) TMI 428 - BOMBAY HIGH COURT we are of the considered opinion that capital gains income does not arise to the assessee on transfer of development rights in its land to a developer since assessee had merely granted licence to permit construction on land to such developer but not given any possession in land as contemplated under section 53A of T.P. Act 1882 there was no transfer as per section 2(47)(v) giving rise to any capital gain in hands of assessee. Thus we direct the AO to delete the addition made on account of capital gains. Thus the ground raised by the assessee in this appeal is allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issue in this case was whether the execution of a development agreement and a supplementary agreement constituted a transfer of property under section 2(47) of the Income Tax Act, thereby giving rise to capital gains in the assessment year 2012-13. The Tribunal also considered whether the capital gains should instead be recognized in the subsequent assessment year 2013-14 when the flats were actually received and sold by the assessee. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The primary legal framework involved section 2(47) of the Income Tax Act, which defines "transfer" in relation to a capital asset. Additionally, section 53A of the Transfer of Property Act, 1882, was relevant as it pertains to the concept of part performance and possession in the context of property transfer. The Tribunal also considered precedents from the Bombay High Court and the Supreme Court, particularly the case of Bharat Jayantilal Patel, which dealt with similar facts and legal questions. Court's Interpretation and Reasoning The Tribunal interpreted that for a transfer to be recognized under section 2(47)(v), there must be a transfer of possession as per section 53A of the Transfer of Property Act. The Tribunal noted that the development agreement only granted a license to the developer to construct on the land, which did not amount to a transfer of possession. The Tribunal relied on the precedent set by the Bombay High Court in Bharat Jayantilal Patel, where it was held that granting a license for construction does not constitute possession under section 53A, and thus, does not trigger a capital gains event under section 2(47)(v). Key Evidence and Findings The Tribunal considered the development agreement dated 05.05.2011 and the supplementary agreement dated 23.07.2012. It was found that the flats were received by the assessee in the assessment year 2013-14, and the commencement certificate was issued in the same year. The Tribunal noted that the assessee had shown the capital gains in the assessment year 2013-14, consistent with the actual receipt and sale of the flats. Application of Law to Facts The Tribunal applied the legal principles from the case of Bharat Jayantilal Patel, concluding that since the development agreement did not transfer possession but merely granted a license, there was no transfer of property in the assessment year 2012-13. Therefore, the capital gains should be recognized in the assessment year 2013-14 when the flats were actually received and sold. Treatment of Competing Arguments The Tribunal considered the Revenue's argument that the development agreement constituted a transfer of property in the assessment year 2012-13. However, it found this argument unpersuasive in light of the legal precedent and the nature of the agreements, which did not effectuate a transfer of possession as required by section 53A. Conclusions The Tribunal concluded that the capital gains did not arise in the assessment year 2012-13 as there was no transfer of property under section 2(47)(v). The capital gains should be recognized in the assessment year 2013-14 when the flats were received and sold by the assessee. SIGNIFICANT HOLDINGS The Tribunal held that the development agreement did not constitute a transfer of property under section 2(47)(v) of the Income Tax Act, as it merely granted a license for construction without transferring possession. The Tribunal quoted the Bombay High Court's reasoning that "such license cannot be said to be 'possession' within the meaning of section 53A, which is a legal concept, and which denotes control over the land and not actual physical occupation of the land." The Tribunal established the principle that a development agreement granting a license for construction does not trigger a capital gains event under section 2(47)(v) unless there is a transfer of possession as contemplated by section 53A of the Transfer of Property Act. The final determination was to set aside the order of the CIT(A)/NFAC and direct the Assessing Officer to delete the addition made on account of capital gains of Rs. 1,00,76,000/-, recognizing that the capital gains should be assessed in the subsequent assessment year 2013-14.
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