2021 (12) TMI 1472 - AT - Income Tax

Undisclosed LTCG - entering into a joint development agreements - transfer of capital asset u/s 2(47) - assessee submitted he did not transfer the immoveable property as per the provisions of Section 2(47) r.w.s.53A of the T.P Act and had only entered into joint development agreement wherein she is supposed to receive a portion of constructed area in view of the land contributed by her - HELD THAT - Assessee has only entered into a joint development agreement with the promoter of the project. As a result the assessee has contributed her land for joint development and by virtue of the agreement she is entitled to receive 32.30% of the total saleable constructed/developed area in the project. Hence it is evident that during the relevant assessment year the assessee has contributed her immoveable property for the joint development of the property and eventually when her share in the developed property is sold she will be benefited by gain or loss as the case may be unless the assessee opts to retain the developed property. If the assessee opts for sale of her developed property provisions of Section 45(2) of the Act may apply and Long-Term Capital Gain for the sale of the land as well as profit from the sale of the developed property would be computed in accordance with the provisions of Section 45(2) r.w.s.48 of the Act and under the head Income from business respectively. And if the assessee opts to retain her share in the developed property then long term capital gain shall accrue to the assessee when the transfer of the immovable property pertaining to the share of land assigned to developer takes place. Amount received by the assessee of Rs.7 crores is only an interest-free refundable security deposit for ensuring the project to be completed as per the terms of the agreement. Further it is also obvious that the assessee has only permitted the developer to develop the project in her land. Therefore it cannot be construed that the possession of the immoveable property of the assessee is vested with the joint developer as per the provisions of the Act. Thus it is apparent that the assessee shall not be liable to be taxed for entering into a joint development agreement when neither the assessee have received any consideration nor handed over possession of the immovable property during the relevant assessment year. It is Ordered accordingly. Hence the appeal of Revenue is devoid of merits.

Summary

Issues Involved:
1. Deletion of addition under the head 'capital gains' amounting to Rs. 6,69,92,266/-.
2. Applicability of Section 2(47)(v) read with Section 53A of the Transfer of Property Act.
3. Determination of whether possession of property was handed over.
4. Interpretation of the Joint Development Agreement (JDA).
5. Consideration of judicial precedents and their applicability to the case.

Issue-Wise Detailed Analysis:

1. Deletion of Addition under 'Capital Gains':
The crux of the Revenue's appeal was the deletion of the addition made by the Assessing Officer (AO) under the head 'capital gains' amounting to Rs. 6,69,92,266/-. The AO had computed undisclosed Long Term Capital Gains in the hands of the assessee based on a Joint Development Agreement (JDA) with a developer, M/s. Ramky Estates & Farms (P) Limited.

2. Applicability of Section 2(47)(v) read with Section 53A of the Transfer of Property Act:
The AO observed that the JDA dated 07-04-2012 indicated a transfer of immovable property, thereby attracting long-term capital gains as per Section 2(47)(v) read with Section 53A of the Transfer of Property Act. The AO argued that the possession of the property was handed over to the developer, triggering the capital gains tax liability.

3. Determination of Whether Possession of Property was Handed Over:
The assessee contended that no possession of the property was handed over, nor was any consideration received during the relevant assessment year. The assessee argued that the developer failed to secure the necessary approvals, and thus, the conditions for a valid transfer under Section 53A were not fulfilled. The AO, however, maintained that the possession was given, and the agreement was operational, thereby resulting in a transfer.

4. Interpretation of the Joint Development Agreement (JDA):
The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the JDA was not implemented during the year under reference as no municipal sanctions were obtained. The CIT(A) noted that the developer neither started construction nor obtained the required permissions during the relevant year, thus the capital gains could not be presumed to have arisen. The CIT(A) relied on judicial precedents which indicated that mere signing of a JDA and granting a license to enter the land does not constitute a transfer unless all conditions, including possession and consideration, are met.

5. Consideration of Judicial Precedents:
The CIT(A) referred to several judicial decisions, including the case of Potla Nageswara Rao vs. DCIT, where the High Court of Andhra Pradesh held that possession and agreement are necessary for a transfer under Section 2(47) of the Income Tax Act. However, the CIT(A) distinguished the present case by noting the lack of municipal approvals and the developer's inability to perform the contract during the relevant year. The CIT(A) also cited decisions from the ITAT Hyderabad, which supported the view that transfer is not complete without the developer's willingness and necessary approvals.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, concluding that the assessee did not transfer the immovable property as per the provisions of Section 2(47) r.w.s. 53A of the Transfer of Property Act. The Tribunal noted that the assessee had only entered into a JDA and had not received any consideration or handed over possession during the relevant assessment year. Consequently, the addition made by the AO was deemed unjustified, and the Revenue's appeals were dismissed.

Final Order:
All the appeals of the Revenue were dismissed, and the order was pronounced in the open court on 22nd December 2021.