Capital gain under JDA chargeable during the previous year, in which the certificate of completion for the whole or part of the project is issued by the competent authority.
Capital gain under a Joint Development Agreement shall be chargeable to income-tax as income of the previous year, in which the certificate of completion for the whole or part of the project is issued by the competent authority. Omission on part of assessee and his developer in obtaining completion certificate, does not give rise to any question of law. – Supreme Court dismisses SLP of the assessee.
ABCAUS Case Law Citation:
4659 (2025) (07) abcaus.in SC
Important Case Laws relied upon by Parties:
Seshasayee Steels (P.) Ltd. Vs. ACIT
CIT Vs. Balbir Singh Maini
Smt. V. Kalpagam Vs. ITO,
The assessee was an individual. She entered into Joint Development Agreement (JDA) with a builder in FY 2011-12 and handed over the physical possession of the property to the developer for construction. The assessee further executed a distribution agreement in FY 2014-15 according to which the land of the assessee was given to the developer for construction of multistoried building and as per distribution agreement, in consideration the assessee is entitled for 26% area in the constructed building.
During the relevant Assessment Year (AY 2017-18) the assessee received four flats as the sale consideration being 26% of the newly constructed building. Out of the said four flats the assessee had sold two flats and while filing the return of income had claimed deduction u/s 54F of the Income Tax Act, 1961 (the Act) out of the capital gains computed on the transfer of the land.
The case of the assessee was taken up for limited scrutiny for reason of capital gain/loss on sale of property. The assessment was completed wherein the Assessing Officer (AO) allowed the deduction u/s 54F of the Act on one flat and also computed short-term capital loss on sale of two flats against the capital gain declared by the assessee and not allowed the set off of such loss against the capital gains.
In the first appeal, the CIT(A) allowed part relief in the appeal of the assessee. Not satisfied, the assessee preferred a second appeal to ITAT.
Before the Tribunal, it was submitted by the assessee that against such transfer of land under JDA the assessee was entitled for 26% of the constructed area comprising of four flats, which was received in the impugned year, therefore, he was eligible for deduction u/s 54F of the Act for all the four flats received by her and the AO had wrongly disallowed deduction claimed u/s 54F of the Act with respect to three flats.
It was contended that she had entered into JDA in the FY 2011-2012 and handed over the physical possession of the property to the developer, capital gain, if any, has to be calculated and subject to tax in the assessment year 2012-2013 and not in the year under appeal, as the transfer was taken place at the time of execution of the development agreement when the assessee had handed over the physical possession of the property to the builder. In support of this contention she relied upon the judgment of the Hon’ble Supreme Court that where the Joint Development Agreement was executed, for the purpose of capital gain, incidence of tax arisen in the same year. He further placed reliance on the judgment of ITAT Chennai where the incidence of tax in respect of the land transferred through Joint Development Agreement is explained by the Chennai Bench.
The Tribunal observed that out of the said four flats received, the assessee had sold two flats to two different parties during the relevant Assessment Year
The Tribunal opined that the claim of the assessee that against the transfer of the land to the builder in terms of development agreement the capital gain, if any, is to be charged to tax in the assessment year 2012-2013 when the Joint Development Agreement got executed was not acceptable for the reason first that no capital gain was declared by the assessee himself in the assessment year 2012-2013 as a result of the development agreement. Secondly, the contentions for completion of transfer in terms of Section 53A of the Transfer of Property Act, all the conditions for transfer were not met out since the assessee had not received the sale consideration in the shape of her share of 26% area in constructed building.
The Tribunal observed that the Hon’ble Supreme Court had held that the incidence of tax for capital gain on the transfer of capital asset has arisen when Joint Development Agreement is executed between the parties. However, the tax has to be paid in the year when all the conditions of Section 53A of the Transfer of Property Act were completed i.e. in the present case, when the assessee had got possession of the 26% of her share as a consideration towards the handing over of the land to be builder for construction of the building.
The Tribunal further explained the taxation resulting from the JDA stating that (i) the capital gain from the transfer of the land is to be computed on the date when Joint Development Agreement was executed between the parties treating the prevailing circle rate of the land as on that date as the sale consideration and out of the said amount of sale consideration, deduction towards the indexed cost of acquisition and indexed cost of improvement is to be allowed. (ii) Thereafter the said sale consideration become the cost in the hands of the assessee and if the assessee has sold any portion of her share in the developed property, the difference between the proportionate cost of such shares sold and the final sale consideration received from the sale of such share would be the business income of the assessee as it construed adventure in the nature of the trade and, therefore, construction activity is termed as the business income in the hands of the assessee.
The Tribunal opined that in view of the above fact since in the present case the assessee had not declared any capital gain in the assessment year 2012-2013, when she had entered into the Joint Development Agreement no relief could be granted on this score to the assessee for taxation of capital gain in that year, however, it was also a matter of fact that the assessee had received the constructed portion of her share in the developed property in the year under appeal, therefore, the same has to be taxed in the hands of the assessee when the transfer as per Section 53A of the Transfer of Property Act is completed.
The Tribunal observed that in the instant case, neither the assessee nor the AO nor even the CIT(A) had computed the income of the assessee in this manner which has been prescribed by the Hon’ble Apex Court. Therefore, taxability of capital gain to be examined based on the return of income filed by the assessee and as assessed/decided by lower authorities.
The Tribunal held that since the assessee herself had declared capital gains from the transfer of land in the impugned year, the capital gains is charged to tax in AY 2017-18 only.
With regard to deduction u/s.54F of the Act, the Tribunal observed that the assessee had accepted four flats in consideration which are four different residential units, thus the deduction u/s 54F of the Act as allowed was also under question, however, the lower authorities have already allowed deductions u/s 54F of the Act to assessee on one flat and no appeal was filed by revenue against such findings. Therefore, no interference was to be made into the allowability of deduction as allowed to assessee u/s.54F of the Act on one flat only.
The Tribunal held that the assessee was entitled for deduction u/s 54F of the Act on one flat only out of the four allotted flats looking to the fact that the assessee herself had sold two flats out of such four flats, therefore, all the four flats were to be considered as separate residential units.
Accordingly, all the grounds taken by the assessee were dismissed by the Tribunal.
Not satisfied with the dismissal of appeal by the Tribunal, the assessee challenged the order of ITAT before the Hon’ble High Court contending that there could not be assessment of income in the assessment year 2017-18. However, revenue, unable to reopen assessment for AY 2012-13, had resorted to this procedure to illegally tax the assessee.
The Hon’ble High Court observed that the possession certificate was issue in year 2016. The Hon’ble High Court observed that as per the provisions of sub-section (5-A) under section 45 of the Act, capital gain shall be chargeable to income-tax as income of the previous year, in which the certificate of completion for the whole or part of the project is issued by the competent authority. Omission on part of assessee and his developer to follow through after possession obtained in year, 2016, in obtaining completion certificate, does not give rise to any question of law. As a result, the Hon’ble High Court dismissed the appeal of the assessee.
Still not satisfied, the assessee challenged the order of the High Court by way of filing a Special Leave Petition (SLP) before the Hon’ble Supreme Court. However the Apex Court dismissed the SLP with following observation,
“We are not inclined to interfere with the impugned judgment and order of the High Court; hence, the Special Leave Petition is dismissed.”
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