Right to Receive Builtup Area under JDA; ITAT directs AO to Examine Entire Gain has to be considered as Long-Term Capital Gain [Read Order]

The Bangalore Bench of Income Tax Appellate Tribunal ( ITAT ) with respect to the right to receive built-up area under the Join Development Agreement has directed Assessing Officer to examine the entire gain that has to be considered as a long-term capital gain.

The assessee, Mr. Muppala Bhasker Reddy along with Ms. Bejawada Swarupa purchased a property. After one year both of them along with two other people entered into a deed of partnership under which they agreed to carry on the business of the purchase of immovable properties and dealing with the same for construction, development, marketing, maintenance, etc. The property purchased by the assessee was not brought in firm as property of the firm.

The assessee and Ms. Bejawada Swarupa entered into a Joint Development Agreement (JDA) with Mr. T. Krishna Reddy whereby the property was given on a JDA basis to the developer. The assessee and Ms.Bejawada Swarupa were to get 40% of the built-up area. The assessee received a sale consideration of 5,46,78,839 from the sale of flats that he acquired under JDA.

The AO has held that the JDA was entered into as part of the business of the assessee and therefore income derived from sale of assessee’s share of built-up area which the assessee was to receive under the JDA had to be regarded as income from business. The CIT(A) however took the view that income from sale of built-up area has to be regarded as “Capital Gain”. Aggrieved revenue filed an appeal before ITAT.

The assessee submitted that the single or isolated transaction of entering into a JDA to acquire immovable property cannot be regarded as an adventure in the nature of trade. Further submitted by the assessee that, the right acquired under the JDA to receive flats has to be regarded as “Capital Asset” that was transferred and not the flats as such. Such right to receive flats under the JDA was held by the assessee for more than 36 months i.e., from the date of the JDA. The flats were sold even before the same was received by the assessee and what was sold was in effect right to receive flats from the Developer under the JDA. Since that right was with the assessee for more than 36 months i.e., from the date of entering into JDA, the capital asset transferred was a long-term capital asset.

The Coram of SRI N. V. Vasudevan, Vice President And Sri B. R. Baskaran, Accountant Member “we find that the AO has not examined the claim of the assessee under the head “Capital Gain” in accordance with the provisions relating to capital gain as given in the Act. We, therefore, remand the question of computation of Capital Gain to the AO after the due opportunity of being heard afforded to the assessee”.

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