2018 (8) TMI 1249 - AT - Income Tax

Long term Capital gain (LTCG) - transfer of property under a development agreement - assessment year in which taxable - as per the agreement developer will complete the project within 18 months and in return the developer will hand over 35% of the residential area of the project. - Held that - So, until the project comes into existence it cannot be said that the consideration, which the assessee is to receive in terms of the development agreement exists. That being the case, in the absence of any consideration received by the assessee in the impugned assessment year the assessee cannot be subjected to long term capital gain on execution of development agreement. The assessee cannot be charged to long term capital gain in the impugned assessment year. Hence, the addition made on account of long term capital gain is deleted. - Decided in favor of assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Determination of capital gain on the alleged transfer of immovable property under a development agreement.
3. Applicability of Section 50C of the Income Tax Act, 1961.
4. Accrual of capital gain in the assessment year under consideration.

Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee filed the appeal with a delay of 11 days. The tribunal, after hearing the submissions, found a reasonable cause for the delay and condoned it, allowing the appeal to proceed.

2. Determination of Capital Gain on Alleged Transfer of Immovable Property:
The main issue was whether the assessee was liable for capital gain tax on the transfer of immovable property under a development agreement. The assessee entered into a development agreement on 05.09.2013, stipulating that the developer would complete the project within 18 months and hand over 35% of the residential area to the assessee. The assessee contended that since no monetary consideration was involved and the project was incomplete, no capital gain arose in the assessment year 2014-15.

The Assessing Officer (AO) disagreed, considering the stamp duty value of the land (?83,16,000) as the sale consideration and determined a long-term capital gain of ?75,11,316. The CIT(A) upheld the AO's decision, relying on the case of Chaturbhuj Dwarkadas Kapadia vs. CIT.

3. Applicability of Section 50C of the Income Tax Act, 1961:
The AO applied the provisions of Section 50C, which deals with the valuation of the capital asset for the purpose of computing capital gains. The assessee argued that since the consideration was in the form of a developed area and not monetary, Section 50C should not apply.

4. Accrual of Capital Gain in the Assessment Year Under Consideration:
The tribunal considered the facts and submissions, noting that the assessee had not received any monetary consideration and the project was incomplete. It highlighted that the developer failed to adhere to the project timeline, leading to legal proceedings initiated by the assessee. The tribunal observed that for capital gain to accrue, the consideration must be received or accrued, which was not the case here due to the project's incomplete status.

The tribunal referenced Section 45(5A) of the Act, introduced w.e.f. 01.04.2018, indicating that capital gain should be assessed on project completion. It also cited several judicial precedents, including CIT vs. M/s. Chemosyn Ltd., CIT vs. Smt. Najoo Dara Deboo, ITO vs. M/s. Ronak Marble Industries, and M/s. Fibars Infratech Pvt. Ltd. vs. ITO, supporting the view that capital gain accrues only upon receipt of consideration.

The tribunal concluded that merely entering into a development agreement does not constitute a transfer under Section 2(47)(v) of the Act if the developer has not fulfilled their contractual obligations. It emphasized that the conditions of Section 53A of the Transfer of Property Act, 1882, were not met as the developer did not perform their part of the contract. Consequently, no capital gain accrued in the impugned assessment year.

Conclusion:
The tribunal held that the assessee was not liable for long-term capital gain in the assessment year 2014-15 due to the non-receipt of consideration and the incomplete status of the project. The addition made on account of long-term capital gain was deleted. The other ancillary grounds raised by the assessee were deemed academic and not adjudicated.

Order:
The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 21st August 2018.