Benefit of S. 80IB(10) can be granted If Capital Asset was converted to Stock-in-Hand before entering into JDA: ITAT [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has held that the assessee can avail the benefit of Section 80IB(10) of the Income Tax Act if the capital asset has been converted to stock-in-hand before entering into the Joint Development Agreement.

The appellant entered into JDA with SJR Builders under which they offered their land to the builder namely SJR Builders for construction of residential apartments. As per the agreement, the builder undertakes to put up a superstructure on that part or portion of land retained by the appellant in consideration of transfer of remaining part.

The appellant claimed deduction under section 80IB(10) of the Income Tax Act by claiming that in the development agreement, the appellant has permitted the builder for construction of multistoried residential complex and not in the capacity of buyer but only as a builder. However, the AO rejected the claim.

On second appeal, the Tribunal noted that the appellant was also engaged in the construction activities though at minimal. “Appellant has contributed its land to the JDA for its development and the developer has made the investment in construction of flat. The details of flats were also filed before us where from we find that almost 58 flats fell in the share of first party i.e., the appellant and 193 flats fell in the share of the second party. Meaning thereby, share of the appellant may be less but it does not mean that the appellant was not engaged in the construction activity,” the Tribunal said.

While remanding the matter back to the files of the Assessing Officer, the Tribunal observed that “if the assessee succeeds in demonstrating that land held as capital asset was converted into stock-in-trade before entering into JDA and the assessee itself has offered the capital gain accrued on conversion of capital asset into stock-in-trade while filing the return along with the claim of exemption of business profit earned on sale of flat of his share under section 80IB(10) of the Act. If the assessee succeeds in proving that capital asset was converted into stock-in-trade, before entering into JDA, claim of exemption of deduction under section 80IB(10) be allowed.”