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2016 (4) TMI 646 - ITAT MUMBAI

2016 (4) TMI 646 - ITAT MUMBAI - TMI - Capital gain - selection of assessment year - whether the “transfer” of property took place in the year relevant to the assessment year 2003-04 and hence the capital gains assessed in AY 2007-08 was not in accordance with the law? - Held that:- The factors such as “date of possession, substantial compliance of the contract etc.” are not relevant in the case of development agreements. The aim of the builder under the development agreement was to make profits .....

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nto the statute to plug this kind of loop hole. Thus by considering the object of the Development Agreements and also the purpose of introduction of section 2(47)(v) of the Act,finally held that the year of chargeability in the case of Development Agreements is the year in which the contract was executed.

In view of the foregoing discussions, we are of the view that the assessees herein succeed in the additional ground urged by them. Accordingly we hold that the capital gain arising o .....

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are directed against the orders passed by Ld CIT(A). All these appeals were heard together and are being disposed of by this common order, for the sake of convenience. 2. Even though both the parties have urged grounds relating to computation of capital gains in the original grounds of appeal, they have filed an additional ground contesting therein the capital gains is not assessable in AY 2007-08, since the transfer has taken place in the year relevant to the assessment year 2003-04 in terms o .....

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rothers. Thus each son inherited 1/5th share in the land. They entered into an agreement on 10-10-2002 with M/s Brickworks Trading Pvt. Ltd. for development of the land and accordingly executed a power of attorney on 10-10-2002. According to the assessees the possession of the land was handed over to the developers at that point of time itself. 4. The assessees herein had declared long term capital gain in the return of income filed for assessment year 2007-08. The department noticed during the .....

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08. Hence the assessing officer reopened the assessment of the assessees herein for AY 2007-08 to assess the capital gain arising therefrom. In the reopened assessment, he varied the capital gains declared by these assessees. In the appeals filed by them before Ld CIT(A), they got partial relief. Hence the revenue as well as assessees are in appeal before us assailing the decision rendered by Ld CIT(A) against each of them. 5. The main contention urged in the additional ground filed by these ass .....

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ted that the assessees have got their respective share only in the year relevant to the AY 2007-08 and they have also declared the same in their respective returns of income. Accordingly he submitted that the assessees are precluded from taking a different stand at this point of time. 7. We have heard the rival contentions and perused the record. It is a well settled proposition of law that there is no estoppel against law and hence we are of the view that the assessees herein are entitled to co .....

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favour of the developer has been registered in Oct., 2002. Hence there is merit in the submissions of the assessees that the possession was handed over to the developer at that point of time itself. 8. In this regard, we may refer to the provisions of sec. 2(47), which defines the word transfer . For the sake of convenience, we extract below the provisions of clause (v) and (vi) of sec. 2(47) of the Act:- 2(47) transfer , in relation to a capital asset, includes, ...... (v) any transaction invol .....

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t of, any immovable property. In the instant case, by virtue of development agreement, the assessee has handed over the possession of the impugned land during the FY 2002-03. Hence, in terms of sec.2(47)(v) and 2(47)(vi) of the Act, the taxability of Capital gain has to be considered in AY 2003-04. Our view gets support from the decision rendered by Hon ble Bombay High Court in the case of Chaturbhu Dwarkadas Kapadia Vs. CIT ( 260 ITR 491). 9 The legal position of development agreement vis-&agra .....

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d transfer under section 2(47)(v). In this matter, the agreement in question is a development agreement. Such development agreements do not constitute transfer in general law. They are spread over a period of time. They contemplate various stages. The Bombay High Court in various judgments has taken the view in several matters that the object of entering into a development agreement is to enable a professional builder/contractor to make profits by completing the building and selling the flats at .....

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with section 45 which indicates that capital gains is taxable in the year in which such transactions are entered into even if the transfer of immovable property is not effective or complete under the general law. In this case that test has not been applied by the department. No reason has been given why that test has not been applied, particularly when the agreement in question, read as a whole, shows that it is a development agreement. There is a difference between the contract on one hand and .....

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(47(v) of the Act. …… …….. In this case, the agreement is a development agreement and in our view, the test to be applied to decide the year of chargeability is the year in which the transaction was entered into. We have taken this view for the reason that the development agreement does not transfer the interest in the property to the developer in general law and, therefore, section 2(47)(v) has been enacted and in such cases, even entering into such a contract could .....

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view of section 2(47(v)….. We do not find merit in the argument of the assessee that the court should go only by the date of actual possession and that in this particular case, the court should go by the date on which irrevocable licence was given. 10. We feel it necessary to discuss about the facts of the case of Charubhuj Dwarkadas Kapadia, referred supra, in order to understand the legal proposition laid down by the Hon ble Bombay High Court. In that case, the assessee entered into an .....

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ration. The power of attorney was executed in favour of the builder on 12.3.1999. The assessee offered the capital gains in the assessment year 1999-2000, since the licence and power of attorney were given in the financial year 1998-99. The AO and ITAT held that the capital gains is assessable in the assessment year 1996-97 since substantial compliance of terms of agreement has taken place before 31.3.1996. However the High Court held that the impugned sale agreement is only a Development agreem .....

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