ITO WARD-1(3)(1) AHMEDABAD, AHMEDABAD vs. NASRIN MOHAMADFAROOQ MEMON, AHMEDABAD

The brief facts of the case are that the assessee is an individual filed her return of income for the year declaring total income of Rs.3,26,020/-. Subsequently, information was received by the Assessing Officer that the assessee, along with four other co-owners, had entered into a Joint Development Agreement dated 12.06.2013 with M/s. Universal Construction for development of jointly owned land. Under the agreement, an irrevocable General Power of Attorney was executed in favour of the developer, possession of the land was handed over for development and the co-owners were entitled to receive their agreed share in the developed project. The Assessing Officer held that the execution of the Joint Development Agreement resulted in transfer of a capital asset within the meaning of section 2(47)(v) of the Act read with section 53A of the Transfer of Property Act, 1882. Accordingly, assessment was reopened u/s 147 of the Act and completed u/s 147 read with section 144B by bringing to tax long-term capital gain of Rs.2,96,29,264/- in the hands of the assessee.

Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) upheld the validity of the reassessment proceedings but deleted the addition on merits after holding that the ownership of the land continued to remain with the assessee and the developer was merely granted development rights for construction.

Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before the Tribunal.

Before us, the Ld. DR supported the assessment order and submitted that execution of the Joint Development Agreement, handing over of possession and execution of irrevocable General Power of Attorney clearly constituted transfer under section 2(47)(v) of the Act. It was argued that substantial rights in the property stood transferred in favour of the developer and, therefore, the Assessing Officer rightly brought the capital gains to tax in Assessment Year 2014-15. ITO Vs. Nasrin Mohamadfarooq Memon Asst.Year : 2014-15 - 3–

The Ld. AR, on the other hand relied upon the order of the Ld. CIT(A). The Ld. AR submitted that the Development Agreement merely permitted the developer to enter upon the land for the limited purpose of development and construction. The Ld. AR contended that the ownership of the land remained with the assessee throughout and the possession contemplated under the agreement was only permissive possession and not possession in part performance as envisaged under section 53A of the Transfer of Property Act. Reliance was placed upon the judgments of the Hon'ble Supreme Court in CIT v. Balbir Singh Maini (398 ITR 531) and Seshasayee Steels (P.) Ltd. v. ACIT (421 ITR 46) besides the decision of the Hon'ble Bombay High Court in Late Bharat Jayantilal Parekh, to contend that no transfer had taken place on execution of the JDA.

We have heard the rival submissions and carefully perused the orders of the authorities below as well as the material available on record. The only issue before us is whether the execution of the Joint Development Agreement (JDA) dated 12.06.2013 resulted in a transfer of the capital asset within the meaning of section 2(47)(v) of the Act, thereby giving rise to taxable capital gains in the year under consideration.

1 On perusal of the Development Agreement, we find that the ownership of the land continued to remain with the assessee and the other co-owners. The agreement merely permitted the developer to enter the land for the purpose of development and construction. Clause 3.1 specifically provides that the status of the owners shall remain as owners. Clause 3.4 further states that the developer would hold possession only as a representative of the owners. Thus, the possession given to the developer was only for carrying out the development work and not as possession in part performance of a contract of sale.

2 The Hon'ble Supreme Court in the case of CIT v. Balbir Singh Maini (398 Asst.Year : 2014-15 - 4– such possession does not amount to possession under section 53A of the Transfer of Property Act. Consequently, section 2(47)(v) of the Act is not attracted. In the present case also, the terms of the Development Agreement clearly show that the developer was only authorized to develop the property and the ownership remained with the assessee. Therefore, we agree with the finding of the Ld. CIT(A) that no transfer of the capital asset took place during the relevant previous year. The Revenue has not brought any material before us to controvert the findings recorded by the Ld. CIT(A). For an individual entering into a specified development agreement, capital gains are generally taxable in the year in which the completion certificate is issued, not merely on execution of the JDA, subject to the conditions of Section 45(5A). We, therefore, find no reason to interfere with the impugned order of the Ld. CIT(A) deleting the addition of Rs.2,96,29,264/- made on account of long-term capital gains.

In the result, the appeal filed by the Revenue is dismissed.