THE issue before the Bench is - Whether when there is no willingness on part of the developer to perform his part of the contract, it will still be treated as a transfer of capital asset u/s 2(47)(v). NO is the answer.
Facts of the case
The assessee company is engaged in real estate business. It had filed its return, declaring income at Rs. 2,97,79,960. A search was conducted and consequently a notice u/s 153A was issued. In response to the said notice, assessee filed his return showing the same income as was declared
originally. During assessment, the AO noticed assessee along with 33 others had entered into a development agreement with a developer and as per the agreement, the land owners had handed over the possession of the entire land for development. The market value for the entire project as per the registered document was Rs. 720 crore with sharing ratio of 35% with the land owners on the built up area and undivided land. Therefore, the developer had given a total advance to all land owners at Rs. 21,26,15,000. The AO, thus held that there being a transfer of capital asset under the development agreement, assessee was subject to capital gain. Whereas the assessee submitted that the land transferred by the assessee was an agricultural land, which also remained as agricultural land at the time of transfer to the developer. Hence, the property transferred not being a capital asset as per section 2(14) of the Act, was exempt from capital gain. It further submitted that the developer was also neither willing to perform his part of the contract, therefore, the entire agreement had failed and there cannot be any transfer within the meaning of section 53A of the Transfer of Property Act. The AO rejected such submissions and held that as the assessee had delivered possession of the property to the developer there is a transfer within the meaning of section 2(47)(v). Accordingly, the AO proceeded to compute short term capital gain of Rs. 64,10,52,596 after allowing deduction towards cost of land as shown in the balance sheet.
On appeal, the Tribunal held that,
++ unless there is willingness on the part of the developer to perform his part of the contract, there cannot be a ‘transfer' of capital asset as envisaged u/s 2(47)(v) read with section 53A of the TP Act. The ratio laid down as above squarely applies to the facts of the present case as the department has failed to controvert the finding of the CIT(A) by bringing material on record to show that the developer has taken any steps towards development activity. Further, we may observe, though the AO referring to the development agreement has inferred that possession of the property was handed over to the developer, however, on going through the pleadings and prayer of the plaintiffs in the plaint filed in Civil Court, it appears assessee along with others are still having physical possession over the property. Be that as it may, after careful consideration of facts and materials on record, we are of the view, CIT(A)'s order being well founded and well reasoned needs to be upheld. Another crucial aspect which needs to be commented upon is the CIT(A) has also held that the transaction will not attract capital gain as the asset transferred being an agricultural land is not a capital asset as defined u/s 2(14) of the Act. This finding of the CIT(A) remains unchallenged and uncontroverted by the Department. For this reason also, short term capital gain computed by the AO cannot be sustained.
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