No Capital Gain Tax on Mere Development Agreement Without Possession

Balasaheb Popatrao Phadol Vs ITO (ITAT Pune)

Summary: The ITAT Pune allowed the appeal of Balasaheb Popatrao Phadol, holding that no capital gains tax is applicable in the assessment year 2012-13 solely based on the execution of a development agreement for his land with Shree Yashree Construction Pvt. Ltd. The Assessing Officer had assessed capital gains based on the initial development agreement in AY 2012-13, considering the property transferred then. However, the ITAT noted that a supplementary agreement was executed and registered in AY 2013-14, the commencement certificate was also received in AY 2013-14, and the assessee received the constructed flats in AY 2013-14, selling them and declaring capital gains in that year. Relying on the Bombay High Court’s decision in Late Bharat Jayantilal Patel, which held that granting a license for development doesn’t equate to possession under Section 53A of the Transfer of Property Act, the ITAT concluded there was no transfer in AY 2012-13. The ITAT set aside the CIT(A)’s order and directed the Assessing Officer to delete the capital gains addition, following the jurisdictional High Court’s precedent, which was also upheld by the Supreme Court.

Background: The assessee entered into a development agreement with M/s. Shree Yashree Construction Pvt. Ltd. in AY 2012–13 and a supplementary agreement in AY 2013–14. Under the agreement, the assessee was to receive 22 flats valued at ₹2.23 crore and cash of ₹10.11 lakh as consideration. The Assessing Officer taxed capital gains of ₹1.00 crore in AY 2012–13, treating the development agreement as transfer u/s 2(47)(v) of the Income Tax Act, 1961.