In a recent ruling, the ITAT Mumbai bench held that the handing over of possession of the land to a developer for the limited purpose of developing the land will not give rise to capital gains tax under the provisions of Income Tax Act, 1961. While upholding the order of the first appellate authority, the Tribunal further observed that the transfer of land on the basis of an unregistered agreement cannot constitute “transfer” under section 2(47)(v) of the Income Tax Act.
In the instant case, the assessing Officer found that the asessee has earned long term capital gain on account of a development agreement entered into by the assessee with a partnership firm with respect to land owned by the assessee. The AO observed that the assessee is liable to pay capital gain tax since the said transfer is covered by section 2(47)(v) of the Income Tax Act. The assessee, on the other hand, denied all these findings by submitting that the impugned development agreement does not give effect to transfer of impugned land for various legal and factual reasons. on appeal, the Commissioner of Tax(Appeals) allowed the appeal.Aggrieved with the order of the CIT(A), the Revenue preferred an appeal before the Appellate Tribunal.
The Tribunal found that physical possession has not been handed over to the developer by the assessee due to non-fullfillment of certain conditions specified in the development agreement. Therefore, it was concluded that no transfer under section 2(47)(v) has taken place.Further, section 2(47)(v) cannot be invoked on the basis of an unregistered agreement.
While dismissing the appeal, the Tribunal observed that “For the purpose of determining the actual date of transfer of the land by the land owner, all these stages / events needs to be collectively analsysed and after evaluating overall effect of the same we can determine the actual date of transfer. These stages /events may be described as date of entering into JDA, date of executing power of attorney authorising the developer for taking various approvals / permissions etc., handing over the possession of the land to the developer for various purposes, receipt of part / full sale consideration from the developer, date of execution of power of attorney in favour of developer authorising him for the sale of developed units to the customers at his absolute discretion; and transfer of developed units to the customers etc. There may be few more stages /events to complete the transaction. Though, one single event may trigger the process of transfer but may not necessarily complete it also. Whether the transfer has, in substance, taken place, can be determined by analysing the inter-play and effect of all these stages / events combined and put together.”
“when the possession is given along with other legal rights to the developer resulting into entitlement of the developer for full use and enjoyment of the property as well as its further sale after converting it into developed units at its full, own and sole discretion, then it may result into ‘transfer’ provided other conditions also suggest so. Thus, handing over of the possession has to be necessarily coupled with the intention of transferring the rights of ownership and enjoyment of the property to the developer. Handing over of the possession for the limited purpose of developing the land while still retaining the ownership and control of various legal rights upon the property by the land owner would not fall in clause (v) of section 2(47).”
Read the full text of the order below.
