2014 (12) TMI 686 - HC - Income Tax

Capital gain accrue or arise or not in the present AY or not - Transfer took place on 30.04.2005 or not Trasnfer u/s 2(47) - Held that - There was the transfer of land to the builder in lieu of cost of construction as per specification of the agreement for Plot No. 14/138 - there was transfer of the capital assets - This transfer had taken place at the time of execution of the development agreement on 24.06.1999, whereby the builder had been vested with extensive powers by execution of power of attorney executed on same day i.e. on 24.06.1999 to deal with property for the purpose of development as stipulated by principal development agreement. So far as Plot No. 14/143 is concerned, it did not provide any transfer of land, but this plot was in the name of the brother of the assessee. The builder had launched its scheme of booking of flats by advertising in various well know newspaper on 20.04.2002 from 1.4.2002 - This evidence has also remained uncontroverted by the Revenue and explanation of assessee being plausible, had the possession not been given prior to a reasonable period, then the date of launching of the scheme, the builder could not have been in a position to launch the scheme on 21.4.2002 and demolition of old building and acquiring of the land for construction being not a childish job, was to take sufficient time and therefore, the assessee s plea is that the possession of the land was handed over latest by 23.11.2001 is liable to be accepted - the land was transferred in all manner except title to the builder by the assessee. The Tribunal rightly observed that as per terms and conditions of the agreement date 24.06.1999 the transfer was effective from that very day and not in the year of 2005 as wrongly observed by the AO - the capital gain is applicable in the year when the possession was handed over by the assessee - the assessee s all other rights, except title, stood transferred and the capital gain was to be computed on the basis of transfer and in the year of the transfer - the partial possession was given in the year 1999 - The title was transferred on 30.04.2005, so no capital gain could have been accrued on 30.04.2005 for the AY 2006-07, as wrongly claimed by the revenue - the transfer of the land under reference did not take place on 30.04.2005 thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues Involved:
1. Validity of the notice under Section 143(2) in the absence of any return.
2. Accrual of capital gains for the assessment year 2006-07.

Issue-wise Detailed Analysis:

1. Validity of the notice under Section 143(2) in the absence of any return:

The court did not delve deeply into this issue as it became academic after deciding the matter on merit. The technicality of the notice under Section 143(2) was rendered moot because the primary issue concerning the capital gains was resolved in favor of the assessee. Therefore, no specific answer was provided for this question of law.

2. Accrual of capital gains for the assessment year 2006-07:

The primary contention revolved around whether capital gains accrued to the assessee in the assessment year 2006-07 due to the transfer of property. The facts reveal that the assessee entered into an agreement with M/s. Shilpi Builders Limited in 1999 for the development of a property. A supplementary agreement followed in 2002, and a completion agreement was signed on 30.04.2005.

The Department argued that the capital gains tax was chargeable in the assessment year 2006-07 because the completion agreement dated 30.04.2005 indicated the transfer of property. They relied on Section 2(47)(v) of the Income Tax Act and Section 53A of the Transfer of Property Act, emphasizing that the possession and control over the property were transferred to the builder, thus completing the transaction in 2005.

However, the assessee contended that the transfer effectively occurred in 1999 or at the latest in 2001 when the building plan was sanctioned. The assessee had handed over possession and executed a power of attorney in favor of the builder, indicating that substantial control was transferred much earlier than 2005.

The Tribunal found that the transfer was effective from the date of the original agreement in 1999, and not in 2005. The court upheld this view, noting that all rights except the title were transferred to the builder in 1999. Consequently, the capital gains should have been computed based on the transfer date in 1999, not in 2005. The court referenced the Tribunal's observation that the possession was handed over by the assessee in 1999, and thus, the capital gains could not have accrued in the assessment year 2006-07.

The court also considered precedents such as Jasbir Singh Sarkaria, In re [2007] and Chaturbhuj Dwarkadas Kapadia vs. CIT (260 ITR 491), which supported the view that capital gains tax is applicable in the year when the possession enabling substantial control is transferred, not necessarily when the title is transferred.

Conclusion:

The court concluded that the transfer of the land did not take place on 30.04.2005, and hence, no capital gains accrued during the assessment year 2006-07. The Tribunal's decision to delete the addition of capital gains for that year was upheld. Consequently, both the appeals filed by the revenue and the assessee were dismissed, with the primary question of law being answered in favor of the assessee.