Mahesh D. Saini Vs ITO (ITAT Mumbai)
Held that as per agreement, the assessee will hand over physical possession of the property only after the purchaser obtains Intimation of Disapproval. Hence, till the property is not transferred as per the terms of agreement, capital gain on the same cannot be taxed.
Facts-
The assessee is challenging the order of the CIT(A) confirming the addition of Rs.1,05,37,002/- as long-term capital gain (LTCG) treating the purported capital asset as transfer in view of the provisions of Section 2(47) (v) of the Income Tax Act, 1961 r.w. Section 53A of the Transfer of Property Act, 1882 (4 of 1882).
Notably, assessee jointly entered into sale Cum Development Agreement on 21.10.2010 with the Developer cum Purchasers for transfer of their ancestral property. Accordingly, consideration received by the assessee for transfer of his 1/3rd right, title, and interest in the said property was Rs. 36 Lac and a right in the house property of Rs. 2,500/sq. feet built-up area wall to wall flat.
AO issued a show cause notice to the assessee as to why the LTCG in respect of property may not be taxed in the hands of the assessee.
AO computed LTCG of Rs. 1,05,37,002/- which was confirmed by CIT(A). Being aggrieved, the assessee preferred the present appeal.
Conclusion-
Having perused the sale-cum-developments agreement dated 20.10.2010 it is noted that as per the terms of the ibid agreement, the assessee shall hand over physical possession of the property to the purchaser cum developer after the purchaser cum developer obtain IOD (i.e. Intimation of Disapproval) from the competent authority for the purpose of development. IOD has to be issued by the local authority Municipal Corporation of Greater Mumbai (MCGM). As per the agreement, the assessee only has to hand over possession of the immovable property in the event the transferee obtains the IOD from the MCGM.
So it is noted that the possession of property to transferee will be only after he obtains the IOD from MCGM and in this case, the IOD (the intimation of disapproval) was undisputedly issued by the MCGM only on 15.04.2013 (i.e. in AY. 2014-15). Thereafter only assessee need to hand over the vacant and peaceful possession of the property to the transferee/developer i.e, only on or after 15.04.2013.
Held that there was no transfer of immovable property, so no capital gain could have been taxed in the hands of the assessee in this assessment year, therefore, the assessee succeeds.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-46, Mumbai dated 28.02.2020 for assessment year 2011-12.
2. The main grievance of the assessee is against the action of the Ld. CIT(A) in confirming the addition of Rs.1,05,37,002/- as long term capital gain (LTCG) treating the purported capital asset as transfer in view of the provisions of Section 2(47) (v) of the Income Tax Act, 1961 (hereinafter “the Act”) r.w. Section 53A of the Transfer of Property Act, 1882 (4 of 1882) (hereinafter in short as “TOPA”).
3. Brief facts of the case as noted by the Ld. CIT(A) is that the AO noticed that during the year, the assessee jointly with his two (2) brothers, viz Shri Formal Dedrajmali alias Sainik/Siani and Shri Kailash Dedraj Mali alias Sainik/Saini, entered into sale Cum Development Agreement on 21.10.2010 with the Developer cum Purchasers, viz. Bhupatbhai Ravjibhai Lukhi and Shri rameshhai Ravjibhai Lukhi, for transfer of their ancestral property being Plot No. 135, bearing CTS No. 97-A-29/1 and 97A-29 of village Chincholi, admeasuring 1053 square yards equivalent to 880.31 square meters together with the construction existing there on. And that all the three brothers had equal undivided share in the said property. And as consideration for transfer of his share in the aforesaid property, Shri Kailash Dedraj Mali alias sainik/Saini agreed to transfer/sell his 1/3rd right, title and interest in the said property for a consideration of Rs. 1,90,00,000/-. However, for transfer of their respective rights, title, the assessee and Shri Tormal Dedraj Mali alias Sainik Saini jointly received Rs. 70 Lac and a right in the house property of 5000 sq. feet built up area wall to wall cost fully developed constructed flats without any obligation in the projects to be constructed by the developer at the Plot No. 135, mentioned above. Accordingly, consideration received by the assessee for transfer of his 1/3rd right, title and interest in the said property was Rs. 36 Lac and a right in the house property of Rs. 2,500/sq. feet built up area wall to wall flat. Taking note of the aforesaid facts, the AO noticed that the assessee has not offered any capital gains in his return of income for A.Y. 2011-12 [in respect of transfer of his 1/3rd share in the ancestral property as mentioned above].
4. Therefore, the AO issued show cause notice to the assessee as to why the LTCG in respect of property may not be taxed in the hands of the assessee in this relevant AY 2011-12. The assessee in response brought to the notice of AO that there was an agreement dated 20.10.2010 which was executed by the assessee (Vendor no. 3) along with his two brothers (Vendor no. 1 and Vendor no. 2) each having 1/3rd share in the property (ancestral property being Residential Bungalow) with the Developer cum Purchasers (Bhupatbhai Lukhi & Rameshbhai Lukhi). According to the assessee, the transfer of the property/their 1/3rd share in the property did not take place in the assessment year under consideration. And therefore it was pleaded that neither any capital gain arose this year nor it could be taxed in this year. However, the AO did not agree with the contention of the assessee and according to him, the transfer [of immovable property] has taken place, since the developer has been given possession of the property, so by virtue of Section 53A of transfer of property Act, tranfer has taken place. Therefore, as per AO since the incident of tax (transfer of capital asset) having taken place, the assessee was bound to offer the capital gain on it. And therefore he held as under: –
“4.6 As regards the applicability of section 50C of the Act, the AR has not furnished any specific submission. It is stated that section 50C of the Act is a deeming provision of the Act and it is a settled law that the deeming provision of the Act has to be applied strictly. In this case, the Stamp Duty Authority has computed fair market value of the entire property at Rs.3,63,00,000/-. The assessee was having undivided one third share in the land and construction existing there on as mentioned in the Sale Cum Development Agreement dated 20.10.2010. Accordingly, the fair market value of the assessee’s share in the right title of the property is computed at Rs.1,21,00,000/-. Hence the deemed consideration of the said transfer of the share of the assessee comes to Rs.1,21,00,000/-. Accordingly, long term capital gains arisen out of transfer of the 1/3 right title of the share of the assessee in the property covered in the Sale-Cum -Development Agreement is computed as under:
