Section 2(47) of The Income-tax Act, 1961 Where assessee enters into a development agreement of land with a developer in terms of which developer has to develop property and deliver a part of constructed area to assessee, capital gains cannot be brought to tax in year of signing of development agreement if developer does not do anything to discharge obligations cast on it and it is only upon receipt of consideration in the form of developed area by the assessee in terms of the development agreement, the capital gains becomes assessable in the hands of the assessee.
Facts: • The assesee gave its plot of Land for development and had received a refundable deposit in the relevant year. According to Development Agreement-cum-General Power of Attorney, the developer had to develop the property, according to the approved plan from the competent authority, and deliver to the assessee 38% of the constructed area in the residential part.
• No development activity was carried out by the developer in the year of the agreement and accordingly, assessee did not offer the sum for tax.
• The Assessing Officer was of the view that, in terms of the development agreement, the transfer has taken place during the year under appeal and the assessee was liable to pay capital gain taxes on the date of transfer.
• The CIT (A) confirmed the view of assessing officer and, therefore aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
• Tribunal observed the following:-
The assessee has executed a ‘Development Agreement- cum-General Power of Attorney’ which indicates that the assessee has given a permissive possession to developer.
The refundable deposit received by the assessee is to be refunded on the complete handing over of the area falling to the share of the assessee and in the event of the failure on the part of the assesee, the same shall be adjusted at the time of final delivery.
It is undisputed that there is no development activity carried out in the said relevant year. Even the approval of plan was not obtained and the process of construction has not been initiated.
• Considering specific clauses in the agreement, all abovementioned facts and circumstances and the reading of section 2(47)(v) of the Income-tax Act, 1961 alongwith section 53A of The Transfer of property Act, 1882, Tribunal held that the assessee had fulfilled its part of obligation under the development agreement but the developer had not done anything to discharge the obligations cast on it under the development agreement, the capital gains could not be brought to tax in the year under appeal, merely on the basis of signing of the development agreement .
It is only upon receipt of consideration in the form of developed area by the assessee in terms of the development agreement, the capital gains becomes assessable in the hands of the assessee.
