By Jagdish T. Punjabi | Prachi Parekh
Chartered Accountants | Devendra Jain
Advocate
27. [2020] 122 taxmann.com 169 (Hyd.)(Trib.) Santosh Kumar Subbani vs. ITO
A.Y.: 2007-08 Date of order: 13th November, 2020
Section 45 – In a case where notional income has been received by the assessee as per development agreement and no real income has been received as the developer vanished and there was neither any development nor any area received by the assessee, capital gains will not be chargeable to tax if the possession is taken back by the assessee and there was no development
FACTS
For A.Y. 2007-08, the assessee had not filed his original return of income. The A.O., having received information with regard to transfer of property by the assessee through a sale-cum-development-agreement-cum-GPA with M/s 21st Century Investments & Properties Ltd., vide document No. 5126/2007 dated 26th March, 2007, issued a notice u/s 148, in response to which the assessee filed the return of income admitting to total income of Rs. 74,380 from other sources and agricultural income of Rs. 1,65,340.
As per the information received by the A.O., under the development-agreement-cum-GPA, the assessee transferred the land, admeasuring 0.15 guntas, at Nizampet. The agreement provided that the developer has to complete the development within 24 months and the assessee has to receive 5,000 square feet built-up area.
The assessee submitted before the A.O. that the developer did not perform the construction activity and argued that there is no case of capital gains. The A.O. conducted inquiries through an Inspector and found that no development had taken place on the said land. However, since, the assessee has handed over the property as per the agreement dated 26th March, 2007 to the developer, in the view of the A.O. it was hit by section 2(47)(v) and accordingly he assessed the SRO value of Rs. 11,89,883 as sale consideration and determined a short-term capital gain of Rs. 4,38,029.
Aggrieved, the assessee preferred an appeal to the CIT(A) who dismissed the appeal.
HELD
The Tribunal noted that after entering into the agreement, the developer has vanished and no real development took place till date as verified and confirmed by the A.O. through the Departmental Inspector and hence no developed area was received by the assessee. It is clear that there was no real income except notional income as per the development agreement which has never been received by the assessee. According to the Tribunal, the issue which decides the taxability of capital gains is whether the possession is lying with the developer or taken over by the assessee. During the course of appeal proceedings, upon inquiry by the Tribunal, the AR submitted that till date the development agreement was not cancelled and no public notice was issued by the assessee for cancellation of the same.
The Tribunal held that the issue is required to be remitted back to the file of the A.O. with a direction to decide the capital gains after verifying whether or not the possession is taken back by the assessee and whether the assessee has cancelled the development agreement. In case the possession is taken back by the assessee and there has been no development, the assessee succeeds in the appeal.
