Case Law Details
Vasudeva Rao Vs ITO (ITAT Hyderabad)
In this case, the assessee entered into a Joint Development Agreement (JDA) and the Assessing Officer taxed ₹66.31 lakh as capital gains, treating the agreement as a “transfer” under Section 2(47). The CIT(A) upheld the addition.
The ITAT examined the terms of the JDA and found that possession was given only for a limited purpose of development, and not as contemplated under Section 53A of the Transfer of Property Act. Further, it was undisputed that no consideration was received by the assessee during the relevant year.
Relying on the Telangana High Court decision in Smt. Shantha Vidyasagar Annam, the Tribunal held that unless consideration is received and possession is handed over in the legal sense, no “transfer” occurs for capital gains purposes. Since both conditions were absent, the essential trigger for taxation under Section 45 failed.
Accordingly, the ITAT deleted the entire capital gains addition, holding that no taxable event arose in the year of JDA execution. The appeal was allowed in full
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by Shri Vasudeva Rao Dhannavada, (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals) National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 24.09.2025 for the A.Y 2014-15.
2. The assessee has raised the following grounds of appeal:
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3. The brief facts of the case are that the assessee is an individual who had not filed any return of income for Assessment Year 2017–18. Based on the information available on record, the Learned Assessing Officer (“Ld. AO”) observed that during the year under consideration, the assessee, along with seven other persons, had entered into a Joint Development Agreement (“JDA”) dated 21.11.2013 in respect of immovable property situated at Habsiguda for a proposed value of Rs.5,30,50,000/-. The share of the assessee in the said value was 1/8th, amounting to Rs.66,31,250/-. Since the assessee had not filed any return of income, the case of the assessee was reopened under section 147 of the Income Tax Act, 1961 (“the Act”), and notice under section 148 of the Act was issued by the Ld. AO on 31.03.2021. In response to the notice under section 148 of the Act, the assessee filed return of income on 27.04.2021 declaring total income of Rs.11,029/- as interest income.
During the reassessment proceedings, the assessee denied any liability to capital gains tax on account of execution of the JDA. However, the Ld. AO computed the 1/8th share of the proposed consideration at Rs.66,31,250/- and treated the same as long-term capital gain in the hands of the assessee. Accordingly, assessment of the assessee was completed by the Ld. AO under section 147 r.w.s. 144B of the Act on 29.03.2022.
4. Aggrieved with the order of the Ld. AO, the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT (A) upheld the action of the Ld. AO and dismissed the appeal of the assessee.
5. Aggrieved with the order of the Ld. CIT (A), the assessee is now in appeal before the Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that though multiple grounds have been raised by the assessee in the appeal, the primary issue is that no taxable event of “transfer” within the meaning of section 2(47) of the Act had taken place during the year under consideration. It was contended that the assessee had not received any consideration whatsoever during the year of execution of the JDA. Further, the possession of the property was handed over only for the limited purpose of enabling the developer to undertake development activities and not in the nature of possession contemplated under section 2(47)(v) of the Act read with section 53A of the Transfer of Property Act, 1882. The Ld. AR placed reliance on the decision of the Hon’ble jurisdictional High Court of Telangana in the case of Smt. Shantha Vidyasagar Annam vs. ITO (170 taxmann.com 754), wherein it has been held that where no consideration is received and possession is handed over only for limited purpose of development, no capital gains can be said to accrue in the year of execution of the JDA. Accordingly, it was submitted that the addition made by the Ld. AO is liable to be deleted.
6. Per contra, the Learned Departmental Representative (“Ld. DR”) relied upon the orders of the Ld. AO and the Ld. CIT(A) and submitted that execution of the JDA itself constitutes “transfer” within the meaning of section 2(47)(v) of the Act. It was contended that once the development agreement is executed, the provisions of section 45 of the Act get attracted and therefore, the Ld. AO has rightly brought the capital gains to tax.
7. We have carefully considered the rival submissions and perused the material available on record. We have also gone through para nos.1 to 3 of the JDA, which is to the following effect:
8. On perusal of the above, it is evident that the possession of the property has been handed over by the assessee to the Developer only for the limited purpose of development of the property and not as an absolute transfer of possession in terms of section 53A of the Transfer of Property Act, 1882. There is also no dispute about the facts that the assessee has not received any consideration from the developer on account of the said JDA during the year under consideration. We have further gone through para nos.17 and 18 of the judgment of the Hon’ble jurisdictional High Court of Telangana in the case of Smt. Shantha Vidyasagar Annam vs. ITO (supra), which is to the following effect:
“17. Thus, from the aforementioned facts, it is evident that even though there is a contract to transfer the immovable property, which is signed by the parties, yet the contract has not been executed for consideration. A sum of Rs.2,00,000/- mentioned in paragraph 6 of the development agreement is only the performance guarantee which is refundable. The aforesaid amount of Rs.2,00,000/- has not been paid by way of consideration of the transaction. The developer has been handed over the possession for the limited purpose of carrying out the development work. Therefore, in pursuance of the development agreement, the possession of the immovable property has not been handed over to the developer as contemplated under Section 53A of the Transfer of the Property Act, 1882. Therefore, the same does not fall within the definition of ‘transfer’ under Section 2(47) of the Act.
18. Insofar as reliance placed by the learned Senior Standing Counsel for the Revenue in Potla Nageswara Rao (supra) is concerned, the same is an authority for the proposition that element of factual possession and agreement are contemplated as transfer within the meaning of Section 2(47) of the Act. It has further been held that when the transfer is complete, the consideration mentioned in the agreement for sale has to be taken into consideration for the purpose of assessment of income. In the instant case, under the development agreement there is no transfer and the consideration has also not been paid. Therefore, the aforesaid decision of the Division Bench has no application to the fact situation of the case. Similarly, in the case of Arvind S Phake (supra), the possession was handed over to the developer and the entire consideration was paid. In the instant case, consideration has not been paid. Therefore, the Division Bench decision of the Bombay High Court also does not apply to the fact situation of the case. In. Harbour View (supra), the Division Bench of Kerala High Court on the facts of the case found that the possession of the property was handed over under Section 53A of the Transfer of Property Act, 1882. Therefore, the aforesaid decision also has no application to the fact situation of the case.”
9. On a perusal of the above, we find that the Hon’ble jurisdictional High Court has categorically held that unless consideration is received by the assessee or possession is handed over in the manner contemplated under section 53A of the Transfer of Property Act, no “transfer” can be said to have taken place for the purpose of section 45 of the Act. In the present case, the Revenue has not brought on record any material to demonstrate that the assessee has received any consideration, whether monetary or otherwise, during the year of execution of the JDA. Further, there is no material to show that the possession was handed over to the developer in a manner other than for the limited purpose of development. In the absence of these essential conditions, the very foundation for invoking section 45(1) of the Act in the year under consideration fails. Respectfully following the binding judgment of the Hon’ble jurisdictional High Court of Telangana in the case of Smt. Shantha Vidyasagar Annam vs. ITO (supra), we hold that no taxable capital gain arises in the hands of the assessee during the year under consideration. Accordingly, we direct the Ld. AO to delete the addition of Rs.66,31,250/- made on account of long-term capital gain.
10. Since we have allowed the appeal of the assessee on this primary issue on merit, the other issues raised by the assessee in the grounds of appeal are not adjudicated and are kept open.
11. In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 17th April, 2026.
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