2007 (8) TMI 48 - AAR - Income Tax

Chargeability of Income attributable to capital gains under collaboration agreement - Amount to be received in installments spread over years - Transfer within the meaning of Sec 2(47)(v) must be deemed to have taken place on the date of executing irrevocable GPA

Issues Involved:
1. Year of chargeability of income attributable to capital gains.
2. Identification of the previous year in which the deemed transfer within the meaning of clause (v) of section 2(47) of the Income-tax Act had taken place.
3. Whether capital gains arise during the financial year 2006-07, 2007-08, or proportionately over multiple years.

Issue-wise Detailed Analysis:

1. Year of Chargeability of Income Attributable to Capital Gains:
The primary issue revolves around determining the year in which the income from capital gains should be charged. The applicant contends that the transfer occurs only when the entire consideration of Rs. 42 crores is received, while the Commissioner of Income-tax argues that capital gains arise during the year in which specific activities take place, such as obtaining permission for change of land use, construction/development of land, or receipt of payments. The ruling clarifies that the actual receipt of the entire sale consideration during the year of "transfer" is not necessary for computing capital gains. The profits or gains that have arisen are treated as the income of the previous year in which the transfer was effected or deemed to have taken place.

2. Identification of the Previous Year in which the Deemed Transfer within the Meaning of Clause (v) of Section 2(47) of the Income-tax Act had taken place:
To determine the year of transfer, the ruling examines the definition of "transfer" under section 2(47) of the Income-tax Act, which includes any transaction involving the allowing of possession of immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882. The ruling emphasizes that possession need not be exclusive; concurrent possession of the owner and the developer can satisfy the requirements of clause (v). The transaction that allows possession to be taken in part performance of the contract is crucial. In this case, the execution of the irrevocable General Power of Attorney (GPA) on May 8, 2006, is considered the transaction that allows possession to be taken, thus marking the date of transfer.

3. Whether Capital Gains Arise During the Financial Year 2006-07, 2007-08, or Proportionately Over Multiple Years:
The ruling concludes that the transfer within the meaning of clause (v) of section 2(47) took place during the financial year 2006-07, corresponding to the assessment year 2007-08. The capital gains, including those attributable to the installment amount remaining unpaid by March 31, 2007, have arisen during the financial year 2006-07. Consequently, the capital gains must be subjected to tax for the assessment year 2007-08.

Summary of Conclusions:
1. The date of entering into the agreement cannot be considered the date of transfer if the agreement does not provide for immediate transfer of possession.
2. It is not necessary for the entire sale consideration to be received by the owner to attract clause (v) of section 2(47).
3. In this case, the execution of the irrevocable GPA is regarded as the transaction involving the allowing of possession, marking the date of transfer as May 8, 2006.
4. The actual date of taking physical possession need not be probed into if the transferee has the right to enter upon and exercise acts of possession effectively by virtue of the transaction.

Ruling:
The capital gains arise during the financial year 2006-07 and shall be subjected to tax for the assessment year 2007-08. Consequently, the questions regarding capital gains arising during the financial year 2007-08 or proportionately over multiple years are answered in the negative.

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