Case Law Details

Case Name : G. Sreenivasan Vs Deputy Commissioner of Income-tax (ITAT Cochin)
Appeal Number : IT Appeal No. 188 (Coch.) of 2009
Date of Judgement/Order : 28/09/2012
Related Assessment Year :
Courts : All ITAT (4266) ITAT Cochin (62)

The year of taxability of the capital gain in the case of development agreements came to be considered by the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT [2003] 260 ITR 491. It is pertinent to note that the High Court also noted both clauses (v) and (vi) of sec. 2(47) extracted above in its decision. We feel it pertinent to extract below the relevant observations made by the Hon’ble Bombay High Court in that case.

“Before us, it was argued on behalf of the assessee that the date on which possession is parted with by the transferor is the date which should be taken into account for determining the relevant accounting year in which the liability accrues. It was argued on behalf of the assessee that in this case, irrevocable license was given in terms of the contract only during the financial year ending March 31, 1999, and, therefore, there was no transfer during the financial year ending March 31, 1996. On the other hand, it was argued on behalf of the Revenue that one has to go by the date on which the developer substantially performed the contract. It was argued on behalf of the department that since substantial payments were made during the financial year ending March 31, 1996, and since majority of permissions were obtained during that year, the liability to pay capital gains tax accrued during the assessment year 1996-97. 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 amount to transfer from the date of agreement itself. …..At the same time, if one reads the contract as a whole, it is clear that a dichotomy is contemplated between the limited power of attorney authorising the developer to deal with the property vide para. 8 and an irrevocable licence to enter upon the property after the developer obtains the requisite approvals of various authorities. In fact, the limited power of attorney may not be actually given, but once under clause 8 of the agreement a limited power of attorney is intended to be given to the developer to deal with the property, then we are of the view that the date of the contract, viz., August 18, 1994 would be relevant date to decide the date of transfer under section 2(47)(v) and, in which event, the question of substantial performance of the contract thereafter does not arise….. If the contract, read as a whole, indicates passing of or transferring of complete control over the property in favour of the developer, then the date of the contract would be relevant to decide the year of chargeability.”

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In the instant case also, the builder shall commence construction within 30 days from the date of entering the schedule property for the purpose of construction (clause 6.1). Further it is the responsibility of the builder to obtain necessary approvals. It is also mentioned in clause 2 of the agreement that the assessee has executed a registered general power of attorney in favour of the builder on the very same date, i.e., on 14.4.2002. Hence, the impugned agreement, being a development agreement, a mere mentioning in one of the clauses of the agreement to the effect that there is no handing over of possession, in our view, shall not take away the actual fact that the physical possession was handed over to the builder.

According to the assessee, sec. 53A of the Transfer of Property Act has under gone changes and according to amended section, the unregistered documents shall not fall in the purview of sec. 53A of the Transfer of Property Act. If we carefully read clause (v) of sec.2(47) of the Act, we can notice that the reference is to the “transactions …. of the nature” referred to in section 53A of the Transfer of Property Act, 1882., i.e., clause (v) talks about the type or nature of transaction only and it does not mandate invoking of the provisions of sec. 53A of the Transfer of Property Act fully. Thus, the stress in clause (v) is given to (or) the Income tax Act is concerned with “the type or nature of transaction referred to in sec. 53A of the Act” and hence the amendment brought into that section with regard to the registration of the document, in our view, shall not have any effect on clause (v) of sec. 2(47) of the Act. Even otherwise the contract entered into by the assessee would be hit by clause (vi) of sec. 2(47) of the Act and as per sec. 292B of the Act, the impugned assessment, being in substance and effect in conformity with or according to the intent and purpose of the Income tax Act, the assessment order is saved by the provisions of sec. 292B of the Act.

In view of the foregoing discussions, we are of the view that the Ld CIT(A) was right in law in confirming the action of the assessing officer in assessing the capital gain in the assessment year 2003-04, since the development agreement was entered into on 14.4.2002.

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