Capital gain tax in JDA is in the year of receipt of constructed area and not in year of entering into joint development agreement – ITAT
In a recent judgment, ITAT has confirmed that capital gain tax in the case of a joint development agreement is in the year of receipt of constructed area and not in year of entering into agreement – ITAT
ABCAUS Case Law Citation:
ABCAUS 3893 (2024) (03) ITAT
Important Case Laws relied upon by parties:
Mrs. Aarti Sanjay Kadam 172 ITD 362 (Mum.)
Chaturbhuj Dwarkadas 260 ITR 491 (Bom.)
Fibars Infratech Pvt. Ltd. 98 DTR 281
Capital gain tax in the case of a joint development agreement is in the year of receipt of constructed area
In the instant case, Revenue has challenged the order passed by the Commissioner of Income Tax (Appeals) in deleting the addition made by the Assessing Officer (AO) on account of Long Term Capital Gain in respect of development agreement by holding no transfer of capital asset u/s. 2(47)(v) of the Income Tax Act, 1961 (the Act).
A search and seizure action u/s 132 of the Act was conducted in the case of a Developer. During the said search a joint development agreement (JDA) entered between assessee and others and the Developers was seized.
In pursuance of the same a notice u/s 153A r.w.s. 153C of the Act was issued requesting the assessee to file return of income. The assessee filed a letter enclosing return of
income previously filed stating it to be treat the same as in response to the notice u/s. 153A r.w.s. 153C of the Act.
Regarding the joint development agreement, the AO opined that the assessee had given possession of the land to the developer and all the conditions of sub-clause (v) of section 2(47) of the Act were satisfied constituting transfer u/s 2(47) of the Act.
Accordingly, the AO determined Long Term Capital Gain in the hands of the assessee vide its order passed u/s. 143(3) r.w.s. 153C of the Act.
Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A).
The assessee contended that no transfer of land was affected during the year under consideration as per the Joint Development Agreement and no consideration was also received in the year under consideration.
Considering the same, the CIT(A) placing reliance on the order of Co-ordinate Benches which in turn, considering the decision of Hon’ble High Court held that the assessee therein was liable to tax for capital gain in the year of receipt of constructed area and not in the year of entering entering into development agreement, the CIT(A) directed the AO to delete the addition made by holding that the same cannot be assessed to tax in the year under consideration.
Before the Tribunal, the Revenue contended that the CIT(A) failed to appreciate that the provisions u/s. 2(47) r.w.s. 45 which indicates that the capital gain is taxable in the year in which such transactions are entered. It was submitted that the CIT(A) failed to appreciate that in terms of section 45(1) of the Act, the transfer of capital asset would attract the capital gain tax, is not depend upon the receipt of consideration.
On the contrary, the assessee contended that it had declared Long Term Capital Gain in the return of income for A.Y. in which consideration was received and the revenue had also assessed the capital gain in the hands of the assessee for the said A.Y. and the assessee had been subjected to tax.
He vehemently argued that the appellant-revenue cannot agitate the capital gain should be assessed in the year under consideration as the Joint Development Agreement entered therein, if so, it will amount to double taxation of income.
The question before the ITAT was whether any transfer of property effected, if so, in which year the Long Term Capital Gain is to be assessed, whether it is in the assessment year in which the Joint Development Agreement was executed or in the year where the assessee received his share in the form of constructed area which was offered to tax.
The Tribunal observed that as per JDA, assessee had given a property for development to the developer and the developer shall construct building for owners with his own expenses which clearly establishes that no consideration was paid on to the assessee in the year under consideration and the assessee will get his share only the constructed area.
It was further observed that as per JDA, the owners had given registered general power of attorney to the developer in respect of the said property giving all the general power in respect of obtaining sanction of the layout and building plan and to appear before the various authorities for mutation and sanction on behalf of the owners which clearly shows that no possession whatsoever given by the assessee to the developer and it was only general power of attorney to obtain requisite permissions and sanctions on behalf of the assessee to carry out the development. Also, the assessee had the first choice of reserving their percentage of built-up area which also supported the arguments.
The Tribunal noted that the Hon’ble High Court held that section 53A of the Transfer of Property Act, 1882 would not be attracted in a case where a license was given to another for the purpose of development of flats and selling the same and granting such license could not be said to be granting possession within the meaning of section 53A of the Transfer of Property Act, 1882.
The Tribunal noted that in the present case also, JDA clearly shows that the owners which includes the assessee confirmed the license and permission given to the developer by the previous owner to enter into upon the said property. The said license to the developer was personal and under no circumstances the developer shall transfer the same to any third party. Therefore, the argument of the Revenue was not acceptable that the license and permission is a right itself gives rise transfer of property u/s. 2(47)(v) of the Act. Further, said
agreement establishes that the developer shall construct a portion of building for the owners in proportion of a percentage out of total built up area of the proposed building which supports the case of the assessee no capital gain arose in the year under consideration, but it could be in the year in which possession of share of assessee in the proposed building is given.
The Tribunal was of the view that as per the said agreement, the owners had permitted the said developer to develop the property belonging to the owners only as a licensee which did not have the effect of transfer of property to the licensee.
The Tribunal opined that the facts and circumstances of the case before the Hon’ble High Court was similar and the ratio laid down by the Hon’ble Court is applicable to the facts on hand. Thus, there was no infirmity in the order of CIT(A) in holding that there is no transfer u/s. 2(47)(v) of the Act and no capital gain is chargeable thereon in the year under consideration.
Accordingly, the appeal of Revenue was dismissed.
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