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Income Tax Appellate Tribunal, SMC BENCH- B, BANGALORE
PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER :
This appeal by the assessee is directed against the order of Commissioner of Income-tax (Appeals) – 7 Bangalore dated 10.3.2016 and it pertains to the assessment year 2006-07.
ITA No.1198/B/16
The assessee entered in to a Joint Development Agreement
with a builder viz M/s Ramaraju Infrastructure and the said
agreement was registered on 23/11/2005. As per the said Joint
Development Agreement, the assessee agreed to transfer his
undivided 60% share in his property at No 87/15/638/2 CMC Khata
No 1176 at Arakere Village, Begur Hobli, Bangalore south to the
builder who agreed to construct and deliver 4990 sq ft (40% of
super built area) out of the total super built area of 12476 sq ft in
the form of building apartments along with 40% of other benefits including car parking.
The learned AO observed that the transaction mentioned
supra is in the nature of transfer of land and accordingly the
assessee is liable for Long term Capital Gains for the asst year
2006-07 taking in to account of the Joint Development Agreement
date ie 23/11/2005.
In view of the reasons mentioned supra, the learned AO
issued notice u/s 148 of the IT Act 1961 to the assessee on
ITA No.1198/B/16
3 27/203/2013. In response to notice u/s 148 for the IT Act 1961
issued, the assessee filed a Nil return of income which was filed on
17/07/2006.
During the reassessment proceedings, the assessee explained to the
learned AO that he had declared the capital gains arising on this transfer
in the return of income filed for the assessment year 2008-09 on the basis
of the date on which the buildings apartments were handed over to the
assessee and he had paid the taxes also. The assessee also explained to
the learned AO that the cost of acquisition of the site measuring 8806 sq
ft was Rs. 4,66,270/- including the cost of improvements as against Rs
1,81,270/- proposed by the learned AO.
The learned AO did not accept the contention of the assessee
relying on the decision of the Hon’ble High Court of Karnataka in
the case of CIT vs Dayalu 102 ITR Taxman 521 wherein it was
held that the data to be considered and relevant for attracting the
capital gains would be the data on which the possession was handed
over to the Developer on the basis of the Joint Development agreement. Accordingly, the learned AO came to a finding that the
ITA No.1198/B/16
4 capital gains are attracted for the assessment year 2006-07 as per
the Joint Development Agreement dated 23/11/2005.
The learned AO computed the capital gains adopting the cost
purchase of the said land at Rs 1,81,270/- in place of Rs 4,66,270/-
claimed by the assessee which included the cost of improvements
also. Similarly, the market value of the super built area of 4990.5
sq ft received by the assessee was computed by the learned AO at
Rs 31,02,475/- On the basis of these values, the learned AO
computed the Long term capital Gains at Rs 28,93,770/-
Against this computation of Long term capital Gains, the
assessee ahs preferred appeal for the AY 2006-07 before the
CIT(A).
The CIT(A) held that there is no dispute that the JDA was
executed on 23.11.2005 relevant to A.Y.2006-07. This issue under
consideration is applicability of capital gains whether the transfer in
terms of Section 2(47) of the I.T. Act took place at the time of JDA
or at the time when the builder commenced the construction. As
ITA No.1198/B/16
5 per the terms of the agreement, the Assessee agreed to transfer of
undivided share of 60% in the land and the Assessee will be
delivered by the builder the 40% of super built up area in the form
of Apartment and car parking and the other benefit in the
constructed area. The JDA was perused carefully and it does not
mention anywhere that the possession of the land will be handed
over on any prospective date. The Assessee has contended that
although the JDA was entered on 23.11.2005 but the actual
possession was given later during Financial Year 2007-08, relevant
to A.Y. 2008-09 when the builder finished construction and handed
over the apartment to the assessee.
The CIT(A) further held for the purpose to ascertain the
‘transfer’ and to levy the capital gains the section 2(47) of the I.T.
Act and Section 53A of the transfer of property act has to seen. The
Sec 2(47) of I.T. Act:
The CIT(A) observed that section 53A is acting subordinate
or explanatory provision to interpret section 2(47)(v) of the
ITA No.1198/B/16
6 Income tax Act, 1962. However, in the case of Assessee, the such
agreement has already taken place or even for argument sake if the
Assessee plea is considered then also the agreement has preceded
the possession.
The CIT(A) concluded that
“HIGH COURT OF KARNATAKA IN THE CASE OF COMMISSIONER OF INCOME TAX & ANR. Vs. DR.T.K. DAYALU (Supra) while deciding the following questions that “Whether the Tribunal was correct in holding that there was no transfer during the current assessment year despite the assessee handing over the possession of the immovable property to the builder who had in turn handed over the part of the consideration amount which would amount to transfer attracting capital gains tax? and Whether the Tribunal was correct in holding that the capital gains tax should be levied only on completion of the entire transaction when the super built-up area is handed over to the assessee as per the agreement?”
ITA No.1198/B/16
In view of the Hon’ble Karnataka High Court decision cited above, the CVIT(A) was of the view that although the Assessee has disclosed the capital gains, as per her own calculations in the A.Y. 2008-09 but it was liable to be taxed in the current A.Y. i.e. 2006-07 b because the JDA was executed in the F.Y. 2005-06 relevant to A.Y. 2006-07. The appeal of assessee was dismissed on this ground by the CIT(A).
Aggrieved, the assessee come up an appeal before us and has
raised the following grounds:
“1. The asst. order passed by the AO was without jurisdiction and bad in law and was liable to be quashed. The ld CIT(A)-7 has instead of quashing the order, erred in confirming the same.
ITA No.1198/B/16
8 2. The condition precedent for issue of notice u/s 148 of IT Act, 1961 being not present, the notice as issued was bad in law and consequently all proceedings being bad in law are to be quashed.
In any case, and without prejudice the notice u/s 148 having been issued without following the prescribed procedure in law is bad in law and is liable to be quashed.
Without prejudice to above, the AO erred in holding that the transfer took place in the pervious year relevant to year under appeal and in accordingly taxing as capital gain for the year under appeal and the ld CIT(A) has erred in confirming the same. The incident of transfer having not taken place during the previous year relevant to A.Y 2006-07, the taxing of capital gain in the year under appeal is not correct on the fact and circumstances of the case and law applicable, therefore the taxing of capital gain in the year under appeal being wrong is to be deleted.
5.1 In any case, the ld AO had erred in adopting the cost of acquisition at Rs.1,81,270/- as against the claim of the appellant of Rs.4,77,270/-.
ITA No.1198/B/16
9 On proper appreciation of facts and evidence available, the cost as adopted by the appellant being correct is to be accepted.
5.2 In any case and without further prejudice, the computation of Long Term Capital Gain is erroneous and excessive.
The AO has erred in levying interest. The appellant denies the liability to pay interest. The interest having been levied erroneously is to be deleted.
In view of the above and on the grounds to be adduced at the time of hearing it is requested that the impugned order be quashed or atleast income assessed under the head Long Term Capital Gain for the year under appeal be deleted, further suitable relied be allowed to the appellant and interest levied be also deleted.”
We heard both parties.
The ground No.l is general.
ITA No.1198/B/16
10 16. Ground No.2 and 3 are with respect to issue of notice u/s
148 of the IT Act.
We find that on verification of asst. records, it was found by
the AO that the assessee did not declare any capital gain to tax
therefore the asst. was reopened by issue of notice u/s 148 on
27.3.2013 after recording the reasons and obtaining necessary
approval from the competent authority by the AO. Hence, we are
of the opinion reopening is in accordance with law and ground No.
2 and 3 raised by the assessee are dismissed.
With respect to ground No.4 relying on the decision of the
co-ordinate bench in the case of ACIT Vs. Sarojini M Kushe, wherein it has been held as following:-
“We are of the view, because at the time of signing JDA the capital gain has to be computed only on the guidance value of the land. Even otherwise, if any capital gains to be accrued in future in favour of assessee after receiving the possession of the property. Certainly that would also be subject to capital gains. Therefore, in our final conclusion valuation of the capital gain should
ITA No.1198/B/16
11 be appropriate to adopt the FMV/asset as deemed consideration but not cost of the construction.
With the above observation we dismiss the appeal of the revenue.”
We also rely on this decision of Shri N Chandra Reddy,
wherein it has been held as follows:-
“Consideration of transfer of land from land-owner to the builder using the joint development agreement is the fair market value (FMV) of the asset to be received by the assessee and not the cost of construction of the built up area; Reassessment u/s 147 valid, since AO found out that capital gains arising out of JDA entered during the eyar at a later point of time – ITAT rules partly in assessee favour; Follows jurisdictional HC in Dr. TK Dayalu [TS-454-HC-2011 (KAR)-O] where it was held that when the possession was handed over to the developer at the time of entering into JDA, it constitutes transfer u/s 2(47)(v) and the capital gain is to be taxed in the year in which the JDA was entered into; Holds that when assessee did not offer such income and there was no original assessment, reopening of assessment based on the decision fo
ITA No.1198/B/16
12 jurisdictional HC is valid; On computation of capital gains, HC holds that ‘because at the time of signing JDA the capital gain has to be computed only on the guidance value of the land. Even otherwise, if any capital gains to be accrued in future in favour of assessee after receiving the possession of the property. Certainly that would also be subject to capital gains. Therefore, in our final conclusion valuation of the capital gain should be appropriate to adopt the FMV/asset as deemed consideration, but not cost of the construction.’ HC distinguishes ruling in Shri KM Nagaraj & Smt. Sathya Prema Vs. CIT [ts-5892-ITAT- 2014(Bangalore)-O], holds that ‘the Tribunal though taken a different view however the judgment of Hon’ble jurisdictional High Court int eh case of Dr. TK Dayalu (Surpa) was not taken into consideration as it was not brought to the notice of the Tribunal. “, Follows co-ordinate bench ruling in case of Shankar Vittal Motor Co. [TS-5405-itat- 2016 (Bangalore) remands the matter back to AO to compute the capital gains by taking consideration for transfer of land as on the date of JDA as market value of the asset to be received by the assessee.
ITA No.1198/B/16
13 20. Hence, we set aside the issue to the file of the AO to compute
the capital gains only on the guidance value of the land.
In the result, the appeal filed by the assessee is set aside for
statistical purpose.
Order pronounced in the open court on 8th September, 2016.
Sd/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER
Bangalore Dated : 8/09/2016
Vms Copy to :1. The Assessee 2. The Revenue 3.The CIT concerned. 4.The CIT(A) concerned. 5.DR 6.GF By order
Asst. Registrar, ITAT, Bangalore.