Section 2(47)(v) — Since the assessee had not received full consideration nor handed over possession of the property, capital gains cannot be assessed in the year of execution of the development agreement.
Facts:
The assessee, B. V. Kodre (HUF), entered into a development agreement on 26-6-2003 with M/s. Deepganga Associates, whereby the HUF gave rights of development of an agricultural land to M/s. Deepganga Associates. The development agreement was stamped under Article 5(ga) of Schedule I of the Bombay Stamp Act, 1958. Under the said article stamp duty was leviable @ 1%. The said article applied if possession of the property was not handed over. In cases where possession of property is handed over, the instrument would be covered by Article 25 and the stamp duty leviable would be 5%. Clause 10 of the agreement provided that possession would be given to the developer on receipt of full payment of consideration. Of the total consideration of Rs.60 lakhs the amount of Rs.38,48,150 was given by the developers to the assessee.
The assessee submitted that since it has not handed over possession of the property and also entire consideration has not been received, there was no transfer. Mere registration of development agreement does not give rise to a transfer. It was contended that since there was no transfer, capital gain is not chargeable to tax in the year under consideration. The AO did not agree with the contentions of the assessee. He noted that transfer u/s.2(47)(v) is wider than that as per the Transfer of Property Act, 1882. He noted that clause 5 of the development agreement allowed the developer to amalgamate, divide, plan and construct. According to him, this indicated that it was a transaction u/s.2(47)(v) of the Act. He charged capital gain to tax.
Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.
Aggrieved, the assessee preferred an appeal to ITAT where it relied on the ratio of the following decisions:
(a) General Glass Company (P.) Ltd., 14 SOT 32 (Bom.)
(b) ITO v. Smt. Satyawati Devi Verma, (2010) 124 ITD 467 (Del.)
(c) Smt. Raja Rani Devi Ramna v. CIT, (1993) 201 ITR 1032 (Pat.) Held: The Tribunal noted that it has not been rebutted by the Revenue that the development agreement has been stamped under Article 5(ga) of Schedule I of the Bombay Stamp Act and not under Article 25. It also noted that clause 10 of the development agreement provides that property as stated in clause 1 of the agreement will be transferred and the purchase deed will be executed only after the receipt of the payment of entire consideration of Rs.60 lakhs and payment of stamp duty. The Tribunal held that registration is prima facie proof of an intention to transfer but it is no proof of an operative transfer, if there is a condition precedent as to payment of consideration. The transfer u/s.2(47) of the Act must mean any effective conveyance of capital asset to the transferee. Accordingly, where the parties had clearly intended that despite the execution and registration of the sale deed, transfer by way of sale would become effective only on payment of the entire sale consideration, it had to be held that there was no transfer made. Upon considering the ratio of the 3 decisions relied upon by the assessee, the Tribunal observed that the agreement in question does not establish that a transaction of sale of property was completed in terms of provisions of section 2(47)(v) of the Act r.w.s. 53A of the Transfer of Property Act, as neither the sale consideration was paid, nor the possession of the property was handed over to the vendor, and so, the capital gain worked out by the AO and added to the income of the assessee was not justified. The amount received out of the agreed consideration, during the year, at best can be treated as advance towards the agreed consideration of the transaction.
The Tribunal further held that it is an established proposition of the law that the AO is required to make just and proper assessment as per the law based on the merits of the facts of the case before it. Just assessment does not depend as to what is claimed by the assessee, but on proper computation of income deduced based upon the provisions of law. An AO cannot allow the claims of the assessee if the related facts and provisions of law do not approve it and similarly it is also the duty of the AO to allow even those benefits about which the assessee is ignorant but otherwise legally entitled to it.
The facts of the present case are distinguishable from the facts before the Apex Court in the case of Goetze (India) Ltd. v. CIT. In the case before the Apex Court the assessee subsequent to filing of return of income, claimed a deduction by filing a letter. The AO disallowed it on the ground that there was no provision in the Act to allow an amendment in the return without revising it. The action of the AO was upheld. In the present case the question is whether there was a transfer u/s.2(47) of the Act to make an assessee liable to pay capital gains tax. There is no estoppels against proper application of the law.
The Tribunal allowed the appeal filed by the assessee.
