If possession is taken back and no development carried on than No capital gain

What is section 2(47) of the Income tax act?

Section 2(47) contained definition related to Transfer with relation to capital asset. As per section 2(47) “Transfer“ in relation to a capital asset includes:

(i) the sale, exchange or relinquishment of the asset; or

(ii) the extinguishment of any rights therein; or

(iii) the compulsory acquisition thereof under any law; or

(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or

(v) the maturity or redemption of a zero-coupon bond; or

(vi) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882; or

(vii) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

Fact and issue of the case

The assessee did not file the return of income for the AY 2007-08.The AO having received the information with regard to transfer of property through Sale cum development agreement -cum-GPA with M/s 21st Century Investments & Properties Ld. vide document No. 5126/2007, dated 26/03/2007 issued the notice u/s 148 on 29/03/2014 and in response to which, the assessee filed the return of income on 23/02/2015 admitting the total income of Rs. 74,380/- from other sources and agricultural income of Rs. 1,65,340/-. The case was taken up for scrutiny and details were called for. As per the information received by the AO, the assessee had entered into development agreement-cum-GPA with M/s 21st Century Investments & Properties Ltd., vide document No. 5126/2007, dated 26/03/2007 and transferred the land admeasuring 0.15 guntas at survey No. 343 located at Nizampet Village, RR Dist. The developer has to complete the development within 24 months and the assessee has to receive 5000 square feet bult-up area. The assessee before the AO submitted that the developer did not perform the construction activity, and hence, argued that there is no case of capital gains. The AO conducted the enquiries, through Inspector and found that no development was taken place on the said land. However, since, the assessee has handed over the property as per the agreement dated 26/03/200 to the developer, the AO viewed that it was hit by section 2(47)(v) of the IT Act and accordingly, assessed the SRO value of Rs. 11,89,883/- as sale consideration and accordingly determined the short term capital gains.

Observation of the Tribunal

The court has heard both the parties and perused the material on record. In the instant case, the assessee has entered into development agreement for construction of duplex houses and assessee was to receive the constructed area of 5000 sq.ft by virtue of development agreement. However, after entering into agreement, the developer has vanished and no real development took place till date as verified and confirmed by the AO through the Departmental Inspector. It appears that neither development has taken place nor developed area was received by the assessee. This fact was confirmed by the AO himself. From the above, it is clear that there was no real income except notional income as per the development agreement, which has never been received by the assessee.

In the light of the above facts, the question whether the possession is lying with the developer or taken over by the assessee is the issue, which decides the taxability of capital gains. It appears that till date development agreement was not cancelled and no public notice was issued by the assessee for cancellation of development agreement as stated by the Learned Authorised Representative during the course of appeal proceedings. Therefore, tribunal is of the opinion that the issue is required to be remitted back to the file of the AO with a direction to decide the capital gains after verifying whether the possession is taken back by the assessee or not and the assessee cancelled the development agreement or not.

In case, the possession is taken back by the assessee and there was no development, the assessee succeeds in appeal. Accordingly, tribunal remit the matter back to the file of AO to decided the issue fresh as per the directions given in this order. It is needless to say that the AO must afford reasonable opportunity to the assessee. Accordingly, the grounds raised by the assessee are treated as allowed for statistical purposes.