Case Law Details
DCIT Vs Clean City Estates Pvt. Ltd. (ITAT Hyderabad)
The issue under consideration is whether in case of real estate, tax liability will be arise when land was sold or when same was contributed for development under JDA?
ITAT states that, the land, which is a subject matter of MoU/JDA is treated as stock-in-trade by the assessee. The AO has observed that the assessee has given the said land for development and has given possession of the same to the builder for the said purpose and, therefore, he held it to be a transfer. ITAT find that as rightly pointed out by the ld. CIT(A), the provisions of section 2(47) would apply to the transfer of a capital asset and not to the transfer of stock-in-trade. In the case of a capital asset, if it is transfer under any of the provisions of section 2(47), coupled with handing over of possession of the capital asset, capital gain is to be offered on mercantile basis in the year in which the possession is given. As rightly pointed out by the ld. CIT(A) in the case of the assessee, the land has been treated as stock-in-trade and the assessee has only contributed its portion of land to the JDA and is liable to offer business income in the year in which the stock-in-trade is sold. The CIT(A) has observed that the assessee has offered business profits in the AYs 2015-16 and 2016-17 i.e. the years in which the Villas have been sold. Since the stock-in-trade has only been contributed and has not been sold during the relevant AY, there is no receipt or accrual of business receipt during the relevant AY. What the assessee has got is only a right to sell of constructed area in the Alexandria project and the profits, howsoever certain they may appear to be, will only fructify and be realized, and can even be quantified, only when this right is exercised- in part or in full. That stage has not yet come, and until that stage comes, in our considered view, such profit cannot be taxed. Unlike in a case of a capital gain which arises on parting the capital asset at the first stage itself, it is a case of business transaction which is completed when the rights so acquired by the assessee are exercised; none can make profits by dealing with himself, as is the settled legal position in the light of the settled legal position in the case of Sir Kikabhai Premchand Vs CIT [(1953) 24 ITR 506 (SC)]. It is for this reason that ITAT are unable to uphold the action of the authorities below on the facts of this case. Accordingly the appeal filed by revenue is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal filed by the Revenue against the order of CIT(A) – 12, Hyderabad, dated 10/08/2016 for AY 2012-13.
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