2013 (9) TMI 607 - AT - Income Tax

Long Term Capital Gain u/s 45 - transfer u/s 2(47) - whether assessee is liable to capital gain tax in the year under consideration i.e assessment year 2007-08 in view of the Joint Development Agreement. The assessee is a member of Defence Services Co-op House Building Society Ltd. The Society has transferred 27.3 acres of land to the Developer i.e. M/s Tata Housing Development Company Ltd. and M/s Hash Builders Pvt Ltd. A Member having plot of 500 sqyd was entitled to monetary consideration of Rs. 80 lakhs and furnished flat measuring 2250 sqft which has been estimated by the Revenue at Rs. 5000 per sqft. Principal issue of taxation decided against the assessee following the decision in Charanjit Singh Atwal Versus Income-tax Officer, Ward -VI (1), Ludhiana 2013 (8) TMI 364 - ITAT CHANDIGARH

Summary

Issues Involved:
1. Reopening of proceedings under Section 147/148.
2. Taxability of capital gains on notional consideration.
3. Inclusion of the cost of flats on an estimation basis.
4. Deduction under Section 54F.

Detailed Analysis:

1. Reopening of Proceedings under Section 147/148:
The assessee argued that the reopening of proceedings under Section 147/148 was invalid as no copy of the reasons recorded was furnished to the appellant. The tribunal found that the original return of income was processed under Section 143(1) and later a notice under Section 148 was issued based on information that the assessee, being a member of a cooperative society, had received consideration for land and was liable to pay capital gains tax. The tribunal upheld the reopening of the assessment, citing the Hon'ble Supreme Court's decision in Asstt. CIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (291 ITR 500), which held that at the stage of issuing a notice under Section 148, the only question is whether there was relevant material on which a reasonable person could form the requisite belief.

2. Taxability of Capital Gains on Notional Consideration:
The main issue was whether the assessee was liable to capital gains tax in the assessment year 2007-08 in view of the Joint Development Agreement (JDA). The tribunal referred to the case of Shri Charanjit Singh Atwal, where it was held that the transfer of property under Section 2(47)(v) occurs when possession is given to the developer in part performance of the contract. The tribunal found that the assessee had indeed transferred the land to the developer and received both monetary consideration and the right to receive flats, thus making the capital gains taxable in the year of transfer. The tribunal also discussed the implications of Section 45 and Section 48, which mandate that the full value of consideration received or accruing as a result of the transfer must be taxed.

3. Inclusion of the Cost of Flats on an Estimation Basis:
The assessee contended that the cost of flats should not be included on an estimation basis as no construction had commenced. The tribunal rejected this argument, stating that the right to receive flats had accrued to the assessee upon the execution of the JDA. The tribunal referred to the case of Jasbir Singh Sarkaria, where it was held that the possession given to the developer need not be exclusive for the purpose of Section 2(47)(v). The tribunal concluded that the value of the flats at Rs. 4,500 per sq. ft. was reasonable, considering the market rates and the terms of the JDA.

4. Deduction under Section 54F:
The assessee claimed a deduction under Section 54F for the investment in the new asset (flats). The tribunal found that the construction of the flats had not yet started, and therefore, the amount could not be considered as invested in a new residential house for the purposes of Section 54F. The tribunal upheld the CIT(A)'s decision to deny the deduction, as the conditions for claiming the deduction were not met.

Conclusion:
The tribunal dismissed the assessee's appeal on all grounds except for the valuation of the flats, which was directed to be revised to Rs. 4,500 per sq. ft. The tribunal upheld the reopening of the assessment, the taxability of capital gains on the full consideration (including notional consideration), and the denial of the deduction under Section 54F. The decision was based on the principles laid down in previous judgments and the specific terms of the JDA and the irrevocable Power of Attorney executed by the assessee.