2013 (9) TMI 161 - AT - Income Tax

Taxability of capital gain - Long Term Capital Gain u/s 45 - transfer u/s 2(47) - vacant land - Possession given by the society to the developer under joint development agreement - taxability in the year in which sales consideration Received or Actual Sales (accrual basis) Taxability in the hands of individual members or society - Held that - As per Section 45 of IT Act, income-tax was to be charged under the head capital gain on transfer of a capital asset and shall be deemed to be the income of the previous year in which transfer took place - The year of transfer was the crucial year and not the time of the receipt - Accrue means to arise or spring as a natural growth or result , to come by way of increase - Arising means coming into existence or notice or presenting itself both the words were used in contradistinction to the word receive and indicate a right to receive - They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income, which was more or less inchoate and which was something less than a receipt - An unenforceable claim to receive an undetermined or undefined sum does not give rise to accrual - it was not only the money which has been received by the assessee which was required to be taxed but the consideration which had accrued to the assessee was also required to be taxed. Receipt of consideration and registration of property relevant or not - Difficulty in availing Exemption u/s 54 or 54EC - Agreement subject to approvals and permissions Condition for transfer of land conditions and encumbrances Past consideration recievable towards the proposed transfer - Computation of Capital Gain Part performance of contract u/s 53A of TPA registration of the terms of agreement - Held that - It was not necessary to get the instrument of transfer registered for the purpose of Income-tax Act when a person had got a valid legally conveyed after complying with the requirements of the law - Technically it can be said that the developer had purchased the membership of the Members in the society which would lead to enjoyment of the property and in that technical sense, clause (vi) of Section 2(47) is applicable. Reference has been made only to Section 54 and Section 54EC - Section 54 deals with deduction in case the assessee being an individual or HUF, transfers the residential house - the assessee had transferred the plot thus it cannot be said that deduction u/s 54F and 54 was same - no ground had been raised for deduction u/s 54F - Following decision of Charanjit Singh Atwal Versus Income-tax Officer, Ward -VI (1), Ludhiana 2013 (8) TMI 364 - ITAT CHANDIGARH , Commissioner of Income-Tax Versus Podar Cement Pvt. Limited And Others 1997 (5) TMI 2 - SUPREME Court and Mysore Minerals Ltd. v. CIT 1999 (9) TMI 1 - SUPREME Court - Decided against assessee.

Summary

Issues Involved:
1. Reopening of the assessment.
2. Taxability of capital gain.
3. Denial of deduction u/s 54F of the Act.

Issue-wise Detailed Analysis:

1. Reopening of the Assessment:
The first issue regarding reopening of the assessment was not pressed before the Tribunal and was decided against the assessee.

2. Taxability of Capital Gain:
The Tribunal examined whether the assessee was liable to capital gain tax in the assessment year 2007-08 due to a Joint Development Agreement (JDA). The charging section for capital gains is Section 45, which requires profits or gains arising from the transfer of a capital asset. The Tribunal noted three essential ingredients for charging capital gains: profit, transfer, and capital asset. The dispute centered on whether the transfer could be covered under clauses (ii), (v), and (vi) of Section 2(47) to bring the entire consideration into the picture.

The Tribunal referred to Section 48 for the mode of computation, which includes the full value of the consideration received or accruing as a result of the transfer. The definition of 'transfer' under Section 2(47) includes various forms such as sale, exchange, relinquishment, and any transaction allowing possession of immovable property in part performance of a contract (Section 53A of the Transfer of Property Act, 1882).

The Tribunal discussed the legislative intent behind inserting clauses (v) and (vi) to Section 2(47) to prevent avoidance of capital gains liability through Power of Attorney arrangements. The Tribunal cited the case of Chaturbhuj Dwarkadas Kapadia v CIT, where the Bombay High Court held that capital gains are taxable in the year such transactions are entered into, even if the transfer of immovable property is not effective or complete under general law.

The Tribunal also referred to the Authority for Advance Ruling (AAR) in the case of Jasbir Singh Sarkaria, emphasizing the meaning of 'possession' in the context of Section 2(47)(v). The Tribunal concluded that the possession given to developers need not be exclusive; concurrent possession with limited rights for the owner is sufficient.

The Tribunal found that the assessee had handed over possession to the developer through an irrevocable Power of Attorney, which included rights to develop, mortgage, sell, and transfer the property. This constituted a transfer under Section 2(47)(v).

The Tribunal rejected the argument that the money received at the time of the JDA was an advance, noting that Section 45 taxes the entire consideration received or accrued upon the transfer of a capital asset. The Tribunal also dismissed the contention that the amendment to Section 53A of the Transfer of Property Act requiring registration should affect the interpretation of Section 2(47)(v).

The Tribunal held that the assessee's vested right to receive flats as part of the consideration had accrued upon execution of the JDA, making the entire consideration taxable in the year of transfer. The Tribunal rejected the argument that the JDA was terminated or the Power of Attorney revoked, noting that the irrevocable nature of the Power of Attorney and the absence of evidence of consent from the developer.

3. Denial of Deduction u/s 54F of the Act:
The Tribunal noted that the issue of deduction u/s 54F was not raised before the CIT(A) and was not part of the grounds of appeal. Therefore, the Tribunal refused to entertain this issue and dismissed the ground.

Conclusion:
The appeal of the assessee was dismissed, and the Tribunal upheld the taxability of the entire consideration arising from the transfer of the capital asset under the JDA in the assessment year 2007-08. The Tribunal also confirmed the denial of deduction u/s 54F due to procedural grounds.