2019 (7) TMI 948 - AT - Income Tax

Computation of LTCG - Transfer u/s 2(47) - possession of property not yet handed over - applicability 50C on transfer of Development Rights - HELD THAT - We find that the ld AO had addressed a letter to ld CIT DR, ITAT , Mumbai submitting the report on the factual position on handing over possession of 57 bungalows by the assessee society to the Developer, enclosing the Inspector‟s Report who personally visited the site. In the said report, the Ex-Secretary of the assessee society had categorically stated that the possession of land and 57 Bungalows were not handed over to the Developer. Hence it is categorically clear that possession is not handed over to the Developer by the assessee society. Hence there cannot be any transfer within the meaning of section 2(47)(v) read with section 53A of Transfer of Property Act, 1882, even based on part performance of the contract. We find that the ld CITA had also observed that possession was not handed over to the Developer by the assessee society. This fact was not controverted by the revenue before us. Accordingly, there cannot be any incidence of capital gains. Hence the answer to question no. a) raised hereinabove, is decided in favour of the assessee. Even if the property is not transferred, then there is a right created by the Land Development Control Rules, 1991 attached with the land embedded in it. No detriment is created to cost of land by granting transfer of such rights. There is no element of cost in acquiring such right which had been transferred. Hence if there is no cost, there cannot be any element of capital gains. Since both the questions raised hereinabove are decided in favour of the assessee, the question of applicability of provisions of section 50C of the Act to the same does not arise at all. In any case, the provisions of section 50C of the Act can be applied only for transfer of land or building or both and not for Rights in Development Agreement‟. Reliance in this regard has been rightly placed on the co-ordinate bench of this tribunal in the case of Voltas Ltd vs ITO 2016 (10) TMI 936 - ITAT MUMBAI . We find that the AO had placed reliance on the decision of Chaturbhujdas Dwarikadas Kapadia 2003 (2) TMI 62 - BOMBAY HIGH COURT . We find that in that case, the issue was the year in which the capital gains was taxable and the effect of insertion of clause (v) and (vi) of section 2(47) of the Act with effect from 1.4.2008. This is not the issue in dispute before us. Hence the same is factually distinguishable with the assessee‟s case We find no no infirmity in the order of the ld CITA. Accordingly, the grounds raised by the revenue are dismissed.

Summary

Issues Involved:
1. Whether the Commissioner of Income Tax (Appeals) was justified in deleting the addition made on account of long-term capital gains.
2. Whether there was a transfer of a capital asset within the meaning of section 2(47) of the Income Tax Act.
3. Applicability of section 50C of the Income Tax Act in the context of the transaction.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Long-Term Capital Gains:
The primary issue in this appeal was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition made by the Assessing Officer (AO) on account of long-term capital gains. The AO had determined the total income of the assessee, a cooperative housing society, representing long-term capital gains at ?34,69,55,000, based on the stamp duty valuation of a Development Agreement. The CIT(A) deleted this addition, concluding that there was no transfer of a capital asset by the society to the developer, as the possession of the property was not handed over, and hence, no capital gains could be computed.

2. Transfer of Capital Asset:
The AO argued that the society had transferred development rights to the developer, which constituted a transfer of a capital asset under section 2(47) of the Income Tax Act. However, the CIT(A) and the Tribunal found that the society had not handed over possession of the property to the developer, and the development agreement was merely an executory contract. The Tribunal noted that the developer had filed a suit for specific performance, indicating that possession was not given. Therefore, there was no transfer within the meaning of section 2(47)(v) of the Act read with section 53A of the Transfer of Property Act, 1882.

3. Applicability of Section 50C:
The AO applied section 50C, which mandates the adoption of the stamp duty valuation as the full value of consideration for the transfer of land or building. However, the CIT(A) and the Tribunal concluded that section 50C was not applicable in this case. The Tribunal emphasized that section 50C applies only to the transfer of land or building, not to the transfer of development rights. The Tribunal cited various judicial precedents, including the case of Voltas Ltd vs ITO, to support this view, highlighting that section 50C's scope is restricted to "land or building or both" and does not extend to development rights.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition made on account of long-term capital gains, concluding that there was no transfer of a capital asset by the society to the developer, and hence, no capital gains could be computed. The Tribunal also affirmed that section 50C was not applicable to the transfer of development rights. Consequently, the appeal of the revenue was dismissed, and the cross-objection of the assessee was also dismissed.