2017 (12) TMI 1261 - AT - Income Tax

Capital gains consequent to the development agreement - year of assessment - Held that - As perused the development agreement-cum-GPA it shows that the builders and developers have to bear all the expenditure for preparation of the said plan, obtaining licenses, permissions as well as execution of work and thereafter the parties / land owners are entitled to 50% of the built up area; This shows that the assessees are merely entitled to a specified constructed space and not 50% of the land. The builders have taken over the possession of the entire land and in lieu thereof assessee was entitled to get only 2845.15 sft. It is also not in dispute that as per the developer, vide letter dated 06.01.2015, cost of construction was ₹ 1,450/- per sft but as per the registered document, for the purpose of allotting the constructed place, the cost of construction is mentioned at ₹ 1,083/- per sft (1,108/- in the case of Smt. Usha Rani) and therefore, A.O. as well as Ld. CIT(A) have taken that figure as the value obtained by the assessee in lieu of transfer of the land. A transfer can be said to have taken place in the year when the possession was handed over by the assessee. Thus, capital gains tax, if any, is attracted in the year of agreement and not in the later years. Since the developer has agreed to pay the assessee at the rate of ₹ 1,083/- per sft it is not appropriate to claim that only SRO value has to be adopted. If the assessee, purchased a land and the purchase consideration is not provided clearly, SRO value as per the Act as on specified date could have been taken into consideration whereas in the instant case the rate is specified by both the parties. Moreover we are not concerned with purchase cost. Under these circumstances, the concurrent findings of the A.O. as well as the Ld. CIT(A) do not call for any interference. - Decided against assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Determination of capital gains arising from a development agreement.
3. Validity of initiation of proceedings under Section 147 of the Income Tax Act.
4. Adoption of exchange value for computation of capital gains.

Issue-wise Detailed Analysis:

1. Condonation of Delay:
The appeal filed by the assessee was delayed by 32 days. The assessee explained that the delay was due to a misunderstanding regarding the necessity of signatures on the appeal documents. The Tribunal observed that the delay was supported by sufficient cause and condoned the delay, as there was no objection from the Revenue.

2. Determination of Capital Gains:
For the assessment year 2009-10, the assessees declared house property income, capital gains, and agricultural income. They entered into a development agreement with a developer but did not declare capital gains, resulting in notices under Section 148. The Assessing Officer (A.O.) noted that the development agreement led to the assessees receiving developed area in exchange for their land. The A.O. argued that capital gains arose upon entering the agreement, as the developer incurred significant expenditure, indicating the agreement was acted upon. The A.O. computed capital gains based on the exchange value specified in the development agreement, adopting a rate of ?1,108 per sq ft for Smt. Usha Rani and ?1,083 per sq ft for Smt. Parvathi Devi.

3. Validity of Initiation of Proceedings under Section 147:
The assessees challenged the initiation of proceedings under Section 147, arguing that no income had escaped assessment. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s decision, noting that the assessees had not filed returns of income, providing the A.O. with jurisdiction to reopen the assessments. The Tribunal found no material evidence to contradict the findings of the tax authorities.

4. Adoption of Exchange Value:
The assessees contended that the SRO rate should be adopted for computing capital gains, rather than the exchange value specified in the development agreement. The CIT(A) and A.O. relied on the jurisdictional High Court's decision in Potla Nageswara Rao vs. DCIT, which held that capital gains tax arises in the year of transfer of the capital asset, even if consideration is deferred. The Tribunal concurred, stating that the exchange value specified in the agreement should be used, as the assessees were entitled to a specified constructed space, not 50% of the land. The Tribunal found the concurrent findings of the A.O. and CIT(A) to be appropriate and dismissed the appeals.

Conclusion:
The Tribunal dismissed the appeals, upholding the A.O.'s computation of capital gains based on the exchange value specified in the development agreement and the validity of the initiation of proceedings under Section 147. The Tribunal also condoned the delay in filing the appeal, finding sufficient cause for the delay.