Incidence of Taxation

Deletes capital gains under JDA; Lays down law on Sec 2(47) & Sec 53A 

1.

[TS-5389-HC-2015(PUNJAB & HARYANA)-O]

HC reverses ITAT order [TS-353-ITAT-2013(CHANDI)-O]

and grants relief to the taxpayer, lays down law on interpretation of Sec 53A of Transfer of Property Act ('TOPA') in context of definition of 'transfer' u/s 2(47); Assessee received part amount under JDA towards his share in land & offered proportionate capital gains to tax, AO on the other hand, taxed entire monetary consideration due under JDA as well as the fair value of the built-up area to be received; Absent registration of JDA, it was not enforceable under general law and transaction would not fall u/s 2(47)(v); Society or members never parted with the possession under JDA and special power of attorney, developer was given rights to mortgage the property; At best, possession was given to developers as 'licensee' only and not in the capacity of transferee; HC also notes that eventually JDA was terminated by society, HC therefore observes "willingness to perform their part of the contract was absent on the part of the developers or it could not be performed by them which was one of the condition precedent for applying Section 53A". 

Chandigarh ITAT had held that capital gains on land taxable in the year in which the JDA is entered and JDA alongwith irrecoverable power of attorney and handing over of possession, results into transfer of capital asset.

Date of JDA = Date of transfer; Passing of control over property relevant 

2.

[TS-1-HC-2003(BOM)-O]

 Bombay HC held that date of JDA may be construed as date of transfer if, read as a whole, it indicates passing of complete control over the property; HC observed that if the developer applies for permissions from various authorities under the Power of Attorney or otherwise, and if the contract read as a whole indicates passing or transferring of complete control over the property in favour of the developer, such a Development Agreement could be construed as an agreement of sale; Court held that in such a case, the AO is entitled to take the date of the contract as the date of transfer and the effective date of possession may decide the taxable event; Court further held that "a dichotomy is contemplated between limited power of attorney authorising the developer to deal with the property 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 a limited power of attorney is intended to be given to the developer to deal with the property, then the date of the contract would be the relevant date to decide the date of transfer under s. 2(47)(v)."

Performance of contract by developer

3.

[TS-5356-ITAT-2014(HYDERABAD)-O]

Hyderabad ITAT held that JDA cannot be construed as a transfer u/s 2(47)(v) in absence of performance of contract by the developer; Handing over possession & receiving advance not relevant.

Land-JDA deal not taxable; Deemed transfer inapplicable to stock-in-trade

4.

[TS-6073-ITAT-2014(BANGALORE)-O]

Bangalore ITAT rules on taxability of income in the hands of assessee-land owner, who entered into a JDA with developer towards a piece of land held as stock in trade; Reverses CIT(A)'s conclusion of taxing land-deal pursuant to JDA as 'business income' by applying deemed transfer definition u/s 53A of Transfer of Property Act; Holds that once land is held as stock in trade, it ceases to be a 'capital asset' u/s 2(14) and thus, provisions regarding 'transfer' and 'capital gains' are not attracted; Rejects Revenue's reliance on Karnataka HC ruling in Dr T K Dayalu and Bombay HC ruling in ChaturbhujKapadia which are in the context of capital gains & 'transfer' u/s 2(47); Holds that land-deal cannot be taxed as business income; Further holds thatagainst land (held as stock in trade) assessee received "right to sell" constructed area, which would again be in the nature of "stock in trade" for assessee's business; Profit from sale of such rights inconstructed area taxable only when such rights are actually exercised by the assessee (unlike taxability for land held as capital asset); Until such rights in constructed area are sold, it would be regarded as inventory in the business and shall be valued at cost price (being lesser than its actual market price); Observes that "The principles of conservatism, and considerations of prudence, in theaccounting treatment require that no anticipated profits be treated as income until the profits are realized", irrespective of certainty to make such profits.

Date of execution of irrevocable PoA

5.

[TS-14-AAR-2007-O]

AAR rules that date of execution of irrevocable PoA, allowing builder to take possession in part performance, relevant to decide date of transfer.

Transfer under ‘will’

6.

[TS-5018-SC-2011-O]

SC reiterates “immovable property could be legally and lawfully transferred/conveyed only by a registered deed of conveyance”; States two essential characteristics of a will are 1) it is intended to come into effect only after the death of the testator and 2) is revocable at any time during the life time of the testator; Further holds an SA/GPA/WILL transaction does not convey any title nor create any interest in an immovable property; Transactions of the nature of 'GPA sales' or 'SA/GPA/WILL transfers' do not convey title and do not amount to transfer, nor can they be recognized or valid mode of transfer of immoveable property; the courts will not treat such transactions as completed or concluded transfers or as conveyances as they neither convey title nor create any interest in an immovable property and cannot be recognized as deeds of title, except to the limited extent of section 53A of the TOPA; However provides if the documents relating to 'SA/GPA/WILL transactions' had been accepted acted upon by DDA or other developmental authorities or by the Municipal or revenue authorities to effect mutation, they need not be disturbed, merely on account of this decision

Any transaction involving allowing of possession of immovable property

7.

[TS-5892-ITAT-2014(BANGALORE)-O]

Bangalore ITAT rules that "Transfer" u/s 2(47) also envisages execution of registered deed in such circumstances. Capital gains become liable to be charged to tax only if they arise as a result of "transfer" of capital asset and the date on which they arise is date of "transfer"; If as a result of mutual arrangement by parties or otherwise, no registered deed is executed even after transaction is completed by delivery of possession and receipt of consideration, capital gains tax would escape assessment altogether or if such execution of registered sale-deed is postponed, the capital gains tax would also be postponed; In several cases it suited parties to complete such transactions without execution of registered deed and thereby evade payment of tax on capital gains; In order to plug this loophole that cl. (v) was inserted in section 2(47) to lay down that transfer would include any transaction involving allowing of 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 TOPA.

Taxability of capital-gains and consideration receipt

8.

[TS-5685-HC-2013(ALLAHABAD)-O]

Allahabad HC upholds ITAT's order, rules that capital gain can be charged only on receipt of the sale consideration and not otherwise; Remarks that "How can a person pay the capital gain if he has not received any amount"; In relevant AY assessee only signed the JDA but received no money and also when flats/areas were sold and consideration was received in subsequent years same was shown as capital gain; With reference to facts observes that when no money received in AY then same cannot be assessed as capita gain.

9.

[TS-338-HC-2014(AP)-O] and [TS-5609-ITAT-2011(CHENNAI)-O]

Andhra Pradesh HC upholds ITAT's order, capital gains on land transfer taxable in year of entering into development agreement between assessee and developer; Invokes deemed 'transfer' u/s 2(47)(v) with respect to part performance of contract mentioned u/s 53A of Transfer of Property Act (TPA); Rejects assessee's argument of non-receipt of sale consideration as Sec. 53A of TPA does not contemplate any payment of consideration; By entering into development agreement and parting with land possession, assessee received right to receive consideration on a later date, being enough to attract exigibility to capital gains tax.

Chennai ITAT held that in a JDA no transfer takes place on the date of execution of the agreement as at that stage the right of the landlord is an inchoate right and the transfer if any takes place only when the built up area is given to the landlord by the developer. Therefore, there is no transfer with the meaning of Sec. 2(47).

10.

[TS-5000-HC-2014(KERALA)-O]

Kerala HC held that capital gains ought to be computed during the year in which a substantial portion of the amount was received by the assessee; Notes that if assessee was entitled to any benefit u/s 11A, necessary provision ought to be made as per law. Thereby HC set aside ITAT order.

Handing over possession

11.

[TS-6077-HC-2014(ALLAHABAD)-O]

Allahabad HC rules that capital gain assessable in year when possession was handed over by assessee; Observes that except title all other rights (including right to enjoy the property) were transferred and thus capital gain to be computed on the basis of transfer and in the year in which possession was handed over by assessee; HC opines that “had the possession not been given prior to a reasonable period, then the date of launching of the scheme, the builder could not have been in a position to launch the scheme”; Further opines that demolition of old building and acquiring of the land for construction not being a childish job, was to take sufficient time and therefore, the assessee's plea is that the possession of land was handed over latest by 23.11.2001 is liable to be accepted.

Land contribution to AOP under JV-agreement not taxable u/s 45(3) absent transfer

12.

[TS-5553- ITAT-2016(Pune)- O]

Pune ITAT allows assessee’s appeal (individual land-owner) for AY 2009-10, deletes addition on account of capital gains on receipt of security deposit pursuant to a joint venture agreement (‘JVA’); Revenue assessed value of security deposit as capital gains on the ground that assessee’s contribution of land to the AOP (formed for development of land) amounted to transfer of capital asset; On perusal of the JVA, ITAT notes that assessee had not transferred land to the AOP but it was a case of joint pooling of resources by three different parties wherein assessee contributed land (on which development was to be carried out) whereas other members contributed TDR rights, finance, etc.; Also notes that security deposit was subsequently refunded by the assessee to the developer, further the transaction as such was accepted by the Revenue in the hands of one of co-owners of land; With regards to CIT(A)’s action of invoking Sec.45(3) (which provides for taxability of gains arising on transfer of asset by a member to the AOP by way of capital contribution) rules that “where the asset held by the assessee has not been transferred to the AOP, there is no question of charging any income from capital gains in the hands of assessee in this regard under section 45(3) of the Act.”

Computation of Capital Gains

Builders construction cost as full value consideration

13.

[TS-6072-ITAT-2014(BANGALORE)-O]

Bangalore ITAT holds assessee liable for capital gains tax upon execution of JDA, pursuant to which assessee divested land possession to the developer in lieu of receiving constructed area; Rejects assessee's stand that it was mere exchange of asset and 'transfer' would materialize when assessee would receive constructed portion; Holds " assessee had relinquished his rights in the land upon which developer has incurred cost of construction and develop the property&The moment the owners have handed over the possession to the developer a right to receive the developed area would accrue to the owners."; Relies on Madras HC ruling in T.V. SundaramIyengar& Sons Ltd. and SC ruling in AlapatiVenkataramiah; Further rejects assessee's stand that FMV of land shall be full value consideration ('FVC') for purpose of computing gains, determines cost of construction incurred by builder as Full Value of Consideration.

FMV of land under JDA relevant for capital gains, not construction cost

14.

[TS-5405-ITAT-2016(BANGALORE)-O]

Bangalore ITAT adopts fair market value of land instead of cost of construction as deemed consideration for computing capital gains in the hands of assessee-land owner on transfer of land pursuant to a joint development agreement (‘JDA’) for AY 2010-11; Assessee-land owner was entitled to receive certain area of constructed building in lieu of transfer of land; Rejects Revenue’s argument that cost of construction ought to be treated as sale consideration as the true value of asset was construction cost, which was the actual money spent in bringing the assets to life; Distinguishes Revenue’s reliance on Hyderabad ITAT ruling in Prathima Reddy as the controversy therein was with regards to the year of taxability and not with regards to the determination of sales consideration; Relies on Karnataka HC ruling in Dr. T.K.Dayalu, rules that “at the time of signing JDA the capital gain has to be computed only on the guidance value of the land”.

Deduction of compensation expenses

15.

[TS-6951-ITAT-2013(DELHI)-O]

Delhi ITAT allows deduction for compensation payment by assessee (engaged in sale and purchase of plots/land ) on account of surrender back of plots; Rejects Revenue’s stand that such expenses were not payment of any compensation by the assessee, but they were in the nature of sale consideration for re-purchase of the plots.In a business, when compensation is paid in respect of stock in trade for non-performance of a contract, the compensation paid is always considered as revenue expenditure; Observes that merely an advance was received from the buyers which were repaid with compensation, holds that there is no transfer of title till a sale deed is executed or possession of the premise given in pursuance to part performance u/s 53A of the TOPA.