2014 (12) TMI 888 - AT - Income Tax

Land transferred to the developer under the JDA as per section 2(47)(v) or not - Computation of Capital gain - Whether on execution of joint development agreement by the assessee along with his brother Mr. Nandish Reddy on 9.8.2006 with M/s. Akme Projects Ltd the land comprising 2 acres and 48 guntas was transferred to the developer or not Held that - The assessee and his brother have executed an irrevocable license in favour of the builder to enter into the scheduled property and develop the same by putting up the construction - assessee has divested the possession of the land to the developer and in lieu of that he along with his brother would receive consideration in the shape of 50% constructed area the similar issue has been decided in Additional Commissioner Of Income-Tax AP Versus GM Omar Khan 1977 (9) TMI 12 - ANDHRA PRADESH High Court - the moment the owners have handed over the possession to the developer a right to receive the developed area would accrue to the owners - it is a consideration in kind which has a value which can be worked out. Assessee contended that the market value of the land to be transferred to the developer as on the date of the joint development agreement should be adopted as a consideration - full consideration is the cost of construction incurred by the builder on the assessee s share of constructed area because the assessee would receive constructed area in lieu of the land share - whatever is the expenditure incurred for constructing that area is a consideration in kind to the assessee - there cannot be any fault in the computation of capital gain made by the AO thus CIT (A) was not justified in holding that no capital gain has accrued to the assessee on account of transfer of land in this year thus the order of the CIT (A) is set aside and that of the AO is restored decided in favour of revenue.

Issues Involved:
1. Whether the land was transferred to the developer upon execution of the joint development agreement.
2. The computation of Long Term Capital Gain (LTCG) upon the transfer of the land.
3. The validity of the Assessing Officer's computation of LTCG.
4. The applicability of Section 2(47) of the Income Tax Act and Section 53A of the Transfer of Property Act.

Issue-wise Detailed Analysis:

1. Whether the land was transferred to the developer upon execution of the joint development agreement:
The primary issue was whether the execution of the joint development agreement on 9.8.2006 constituted a transfer of land to the developer, M/s. Akme Projects Ltd. The Assessing Officer argued that the assessee and his brother had surrendered their rights to the extent of 50% in the land in lieu of 50% constructed area, thus constituting a transfer under Section 2(47)(v) of the Income Tax Act. The CIT (A) held that no transfer occurred upon entering the agreement and executing the power of attorney, suggesting that the transfer would only crystallize when the built-up area was handed over to the landowners.

2. The computation of Long Term Capital Gain (LTCG) upon the transfer of the land:
The Assessing Officer computed the LTCG by adopting the value of the cost of construction at Rs. 800 per sq. ft., considering the sale consideration received/receivable as Rs. 6,00,00,000, and deducting the indexed cost of land (Rs. 4,76,026), resulting in an LTCG of Rs. 5,95,23,974. The assessee challenged this computation, arguing that the joint development agreement did not amount to a transfer and that the market value of the built-up area should be considered for computing LTCG when the area is handed over.

3. The validity of the Assessing Officer's computation of LTCG:
The CIT (A) observed that the market value of the built-up area should be considered as consideration for computing LTCG in the year the built-up area is handed over. However, the Tribunal found that the moment the owners handed over possession to the developer, a right to receive the developed area accrued to the owners, which constituted consideration in kind. The Tribunal upheld the Assessing Officer's computation, stating that the cost of construction incurred by the builder on the assessee's share of the constructed area was the full consideration.

4. The applicability of Section 2(47) of the Income Tax Act and Section 53A of the Transfer of Property Act:
The Tribunal examined 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. The Tribunal concluded that the assessee had divested possession of the land to the developer and, in return, would receive 1.50 lakh sq. ft. of constructed area. The Tribunal noted that the right to receive the constructed area accrued upon handing over possession, thus constituting a transfer under Section 2(47).

Conclusion:
The Tribunal dismissed the assessee's cross-objection and allowed the Revenue's appeal, holding that the execution of the joint development agreement constituted a transfer of land, and the computation of LTCG by the Assessing Officer was valid. The Tribunal set aside the CIT (A)'s order and restored the Assessing Officer's order, affirming that the cost of construction incurred by the builder represented the full consideration for the transfer. The Tribunal emphasized that the actual receipt of the constructed area was immaterial for determining the transfer and computation of LTCG.

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