By TIOL News Service

COCHIN, FEB 28, 2019: THE ISSUE IS - Whether merely by signing the joint development agreement, capital gains provisions do not get attracted as the assessee did not receive any consideration and construction was also not done in the relevant year. YES IS THE ANSWER.

Facts of the case

The assessee an Individual had filed return for relevant AY. There was a search and seizure operation u/s 132 of the Act, in the premises of M/s. Artech Realtors Pvt. Ltd. During the course of search, a copy of the Joint Development Agreement (JDA) executed between the assessee and M/s. Artech Realtors Pvt. Ltd. was seized. The JDA was executed for developing land owned by the assessee at Trivandrum. A notice u/s 153C of the Act was issued. During assessment, the AO made an addition of Rs. 3,81,59,200/- as long term capital gains. On appeal, CIT(A) deleted the addition made by the AO. It was held by the CIT(A) that the consideration of total built-up area of 20,000 sq. ft. to be handed over to the assessee on signing MOU and Joint Development Agreement had not taken place during the relevant assessment year. Aggrieved Revenue filed appeal before Tribunal.

On appeal, Tribunal held that,

++ as per the JDA, the construction should have completed and the share of build up area marked for the assessee ought to have been handed over within 36 months of obtaining necessary sanction. The developer could not complete the construction as per the JDA due to their internal problems and working capital issues and 20,000 sq. ft. of buildup area was handed over to the assessee only on 12.04.2016 after a gap of seven years. Therefore, the assessee has given the possession of the property for limited purpose of construction as per the JDA and the assessee continue to retain the ownership of the property. In other words, the assessee has the right to take back or reclaim property at any time, if the 20,000 sq.ft. builtup area is not handed over to the assessee in time. As per the provisions of section 53A of the Transfer of Property Act, transaction would constitute "transfer" for the purpose of capital gain only if all following conditions are satisfied, (i) There should be a contract in writing. (ii) The transferee has paid consideration. (iii) The transferee is willing to perform his part of the contract. (iv) The transferee should have taken possession of the property. In this case, other than entering into the Agreement, no other condition stipulated u/s 53A as stated above is complied with. The provisions of deemed transfer u/s 2(47)(v) cannot be invoked in the assessee’s case since she did not receive any consideration and also no construction actually took place during the Asst.Year 2009-2010. The permission from Trivandrum Corporation to construct the building was issued only during the next financial year on 08.06.2009;

++ as per the newly inserted sub-section (5A) to section 45 to the Income Tax Act, 1961, by the Finance Act, 2017, capital gains in case of a joint development agreement arises only in the previous year in which the certificate of completion for the whole or the part of the project is issued by the competent authority. The stand of the assessee that just by signing the joint development agreement capital gains will not be attracted is now accepted by way of this newly inserted sub-section (5A) to section 45 of the Income-tax Act;

++ JDA was not a registered document. The general Power of Attorney executed by the assessee in favour of her husband is the only registered document. Even construction agreement dated 21.06.2009 is not registered. The Apex Court in the case of CIT v. Balbir Singh Maini, has held that after amendment of Registration Act, 1908 in the year 2001, unless the document containing the contract to transfer any immovable property is registered, it shall not have any effect in law. Thus the CIT(A) is justified in deleting the addition of Long Term Capital Gain during the relevant assessment year. In the result, the appeal of the Revenue is dismissed.

(See 2019-TIOL-531-ITAT-COCHIN)