I-T - No capital gains tax can be attached in respect of land sold under JDA, if no consideration was received and JDA stood cancelled
By TIOL News Service
CHANDIGARH, APRIL 14, 2017: THE ISSUE IS - Whether an assessee can be held liable to capital gains tax in respect of land sold under JDA, if no consideration was received and JDA stood cancelled or rendered incapable of performance. NO is the verdict.
Facts of the case:
The assessee is an individual, and was one of the members of the Punjabi Cooperative Housing Building Society Limited. The Society consisting of 95 members was the owner of 21.2 acres of land in village Kansal. It had allotted plots measuring 500 square yards to its 65 members, 1000 square yards to its 30 members and 4 plots of 500 square yards each were retained by it. It entered into a tripartite Joint Development Agreement (JDA) dated 25.02.2007 with Hash Builders Private Limited, Chandigarh (HASH) and Tata Housing Development Company Limited, Mumbai (THDC). Under the JDA, it was agreed that HASH and THDC shall undertake development of 21.2 acres of land owned and registered in the name of the society in respect of which it would give development rights in lieu of consideration. The agreed consideration was to be disbursed by THDC through HASH to each individual member of the society having plot size of 500 square yards partly in monetary and balance in terms of built up property. Clause 4 of the JDA provided details of the payments. The assessee had been allotted 500 square yards plot in the society. He was entitled to receive monetary consideration of Rs. 82,50,000/- and one furnished flat of 2250 square feet in kind. The total cost of one furnished flat was Rs. 1,01,25,000/-. Thus, the total consideration accruing to the assessee was Rs.1,83,75,000/-. However, the assessee received proportionate amount of Rs. 33,00,000/- during the A.Ys 2007-08 & 2008-09. The assessee thereafter filed his return for the A.Y 2007-08 declaring total income of Rs. 17,08,129/- plus agriculture income at Rs. 1,80,000/-.The return was processed u/s 143(1). Later on, the case of assessee was selected for Scrutiny and assessment u/s 143(3) was completed at the returned income. Further, vide Order u/s 154, income of assessee was rectified at Rs.18,67,947/-. Thereafter, proceedings u/s 147/148 were initiated by issuing notice, as the assessee had not declared entire Long Term Capital Gain. Finally, the assessment was completed by the AO at an assessed income of Rs.1,64,29,860/- plus agriculture income of Rs.1,80,000/-, after adding long term capital gain amounting to Rs. 1,47,21,731/- to the returned income of assessee.
The AO was of the view that since as per the JDA, there was grant and assignment of various rights in the property by the assessee in favour of THDC along with handing over physical and vacant possession, the same tantamount to transfer. The AO applied the provisions of Section 2(47)(v) r/w/s 53A of the Transfer of Property Act. Since the JDA was signed during the A.Y 2007-08, the AO computed chargeable capital gains in that year. It was also held that there was transfer within the meaning of sub sections (ii) and (vi) of Section 2(47).
On appeal, the HC held that,
++ it is to be noted that matter is no longer res integra. In C.S. Atwal’s case, the issue involved in this appeal stands decided by this Court. In the said case, various issues emerged for consideration, as to (i) Scope and legislative intent of Section 2(47)(ii), (v) and (vi) of the Act; (ii) The essential ingredients for applicability of Section 53A of 1882 Act; (iii) Meaning to be assigned to the term "possession"? and (iv) Whether in the facts and circumstances, any taxable capital gains arises from the transaction entered by the assessee? After considering the relevant statutory provisions and the case law, the Apex Court concluded that: "....(1) Perusal of the JDA dated 25.02.2007 read with sale deeds dated 2.03.2007 and 25.04.2007 in respect of 3.08 acres and 4.62 acres respectively would reveal that the parties had agreed for pro-rata transfer of land; (2) No possession had been given by the transferor to the transferee of the entire land in part performance of JDA dated 25.02.2007 so as to fall within the domain of Section 53A of 1882 Act; (3) The possession delivered, if at all, was as a licencee for the development of the property and not in the capacity of a transferee; (4) Further Section 53A of 1882 Act, by incorporation, stood embodied in section 2(47)(v) of the Act and all the essential ingredients of Section 53A of 1882 Act were required to be fulfilled. In the absence of registration of JDA dated 25.02.2007 having been executed after 24.09.2001, the agreement does not fall u/s 53A of 1882 Act and consequently Section 2(47)(v) does not apply; (5) It was submitted by counsel for the assessee that whatever amount was received from the developer, capital gains tax has already been paid on that and sale deeds have also been executed. In view of cancellation of JDA dated 25.02.2007, no further amount has been received and no action thereon has been taken. It was urged that as and when any amount is received capital gains tax shall be discharged thereon in accordance with law. In view of the aforesaid stand, while disposing of the appeals, we observe that the assessee appellants shall remain bound by their said stand; and (6) The issue of exigibility to capital gains tax having been decided in favour of the assessee, the question of exemption u/s 54F would not survive any longer and has been rendered academic...."
++ the Tribunal and the authorities therefore were not right in holding the assessee to be liable to capital gains tax in respect of remaining land measuring 13.5 acres for which no consideration had been received and which stood cancelled and incapable of performance at present due to various orders passed by the Supreme Court and the High Court in PILs. Therefore, the question answered in favour of assessee.
(See 2017-TIOL-724-HC-P&H-IT )
