2015 (4) TMI 294 - AT - Income Tax

Development agreement entered by the assessee with a developer under the head Long term capital gain - CIT(A) deleted the addition - whether all that ingredients of transfer within the meaning of the section 2(47) of the IT Act and Section 53 of the Transfer of Property Act, 1882 have been fulfilled in the case? - Held that - The reading of Clauses 1,5 and 6 of the Development Agreement clearly indicate that the assessee had given only the licence to enter into the land for development of the same in terms of the Development Agreement. The Developer neither started the construction nor took permission for construction till the date of the assessment. The property was inspected by the Inspector and it was noticed that there was no development in the land and it remained the same as it existed at the time of the Development Agreement. The possession of the land was not taken by the Developer as he did not initiate any development. The land in question continues to be agricultural land and the assessee has been carrying out cultivation on this land consisting of 1 acre 14 guntas 83 sq. yards. Thus it is very clear that the agreement has not been implemented by constructing flats on the land. Further it is clear that the Developer was not willing to fulfil his part of contract till date. Till date no construction has come up in the property and even the conversion of the land from agricultural land to housing plot has not been done. Provisions of deemed transfer u/s 2(47)(v) cannot be invoked on the facts of the present case and for the A.Y in dispute before us. The assessee has not received any consideration except for refundable deposit of ₹ 3.00 crores and there is no evidence brought on record by the Revenue to show that actually some construction has taken place at the impugned property in the previous year relevant to the A.Y under consideration and the right to receive the sale consideration has actually accrued to the assessee. The assessee is not exigible to capital gains on the entire sale consideration without the accrual of the consideration to the assessee We are also fortified by the decision of the Coordinate Bench in the case of Bhavya Construction Ltd & Others (2015 (4) TMI 295 - ITAT HYDERABAD). The ratio of the decision is that unless there is willingness on the part of the Developer to perform his part of the Contract, there cannot be a transfer of capital assets as envisaged u/s 2(47)(v) r.w.s. 53A of the Transfer of the Property Act. The ratio laid down as above squarely applies to the facts of the present case as the Department has failed to controvert the findings of the ld CIT (A) by bringing material on record to show that the developer has taken steps towards developmental activities. Hence, the capital gain cannot be brought to tax in the year under appeal. - Decided against revenue.

Summary

Issues Involved:
1. Whether the Development Agreement resulted in taxable capital gains.
2. Applicability of Section 2(47)(v) of the Income Tax Act and Section 53A of the Transfer of Property Act.
3. The relevance of judicial precedents and previous tribunal decisions.

Issue-wise Detailed Analysis:

1. Whether the Development Agreement resulted in taxable capital gains:
The core issue was whether the Development Agreement entered into by the assessee with the Developer resulted in taxable capital gains in the year of the agreement. The assessee argued that no liability to capital gains tax arose because no development had taken place, nor had any consideration accrued. The Assessing Officer (AO) disagreed, determining capital gains based on the fair market value of the land and citing various judicial precedents.

2. Applicability of Section 2(47)(v) of the Income Tax Act and Section 53A of the Transfer of Property Act:
The AO opined that the Development Agreement resulted in a transfer under Section 2(47)(v) of the Income Tax Act, which includes transactions where possession is given in part performance of a contract as per Section 53A of the Transfer of Property Act. The assessee contended that the possession given was only for development purposes and did not constitute a transfer. The CIT (A) agreed with the assessee, stating that since no construction had begun and no permissions were obtained, the conditions of Section 53A were not met. The tribunal supported this view, emphasizing that "willingness to perform" is a crucial element under Section 53A, which was not demonstrated by the Developer.

3. The relevance of judicial precedents and previous tribunal decisions:
The tribunal considered various judicial precedents, including the Bombay High Court's decision in Chaturbhuj Dwarkadas Kapadia vs. CIT, which the AO relied upon. However, the tribunal distinguished this case by noting that the conditions of Section 53A were not satisfied in the present case. The tribunal also referred to its own decisions in similar cases, such as M/s. Fibars Infratech (P) Ltd vs. ITO and K. Radhika & Others vs. DCIT, where it was held that capital gains could not be taxed if the developer had not performed or shown willingness to perform its contractual obligations. The tribunal concluded that mere receipt of a refundable deposit did not constitute consideration for capital gains tax purposes.

Conclusion:
The tribunal upheld the CIT (A)'s decision, stating that the Development Agreement did not result in a transfer under Section 2(47)(v) of the Income Tax Act. The tribunal emphasized that the Developer's lack of action towards development and the absence of any accrued consideration meant that no capital gains tax liability arose for the assessee in the assessment year in question. The appeal filed by the Revenue was dismissed.