SECTION 2(47),READ WITH SECTION 45 OF THE IT ACT, 1961 – TRANSFER -YEAR IN WHICH TRANSFER TOOK PLACE
Section 2(47), read with section 45 of the Income-tax Act, 1961 – Capital gains – Transfer -Year in which transfer took place
Where in terms of development agreement, assessee handed over physical possession of property to builder allowing it to enjoy 60 per cent of land in lieu of 40 per cent of constructed area, it was to be concluded that transfer took place in year in which said agreement was entered into Section 54F of the Income-tax Act, 1961 – Capital gains – Exemption of, in case of investment in residential house -Allotment of multiple flats
Where in terms of development agreement, assessee obtained multiple flats in lieu of cost of 60 per cent of land allotted to builder, still her claim for deduction under section 54F was to be allowed
[2015]- ITAT CHENNAI -Income-tax Officer, Business Ward- V (1), Chennai v. Mrs. P.A. Sarala
FACTS
The assessee along with other co-owners entered into an agreement for joint development of land on 8-12-2006 with one ‘S’. The joint venture agreement was for construction of a multi-storied building `within a period of 18 months. However, the builder could not complete the construction within 18 months and, therefore, the assessee entered into another agreement to extend the period of joint venture agreement for a period of twenty four months, on 1-7-2008.
As per the joint development agreement, the assessees were entitled to 40 per cent of the constructed area and the builder was entitled for 60 per cent of the constructed area.
In course of assessment, the Assessing Officer opined that since a revised agreement was entered into between the assessee and the builder extending the period of joint venture on 1-7-2008, the capital gain arose to the assessees only during the assessment year 2009-10. He further held that since the assessee was having multiple flats as his shares from the builder, the Assessing Officer disallowed the claim under section 54F.
The Commissioner (Appeals) found there was no transfer for the year under consideration. He thus directed the Assessing Officer to consider the date of completion of the construction of flats and its handing over to the assessees as the date of transfer for the purpose of determining the capital gain.
He also took a view that even though the assessee was having multiple flats, he was entitled for exemption under section 54F.
On Revenue’s Appeal, it was held by ITAT
The first issue arises for consideration is the year in which the capital gain arises for assessment on transfer of the land by all the assessees along with three others. The development agreement clearly says that the first party, namely, the assessee and three others shall hand over the possession of the property to the builder, namely, ‘S’. The period provided in the agreement is 18 months for completion of the construction.
The agreement has provided for execution of the Power of Attorney in favour of the builder to enable him to deal with property for getting approval of concerned Government authorities and sale of the same to the prospective purchasers. Since the construction could not be completed within 18 months as provided, the parties entered into another agreement for extension of the time providing for 24 months for completion of the construction.
The agreement dated 1-7-2008 clearly says that the construction has already commenced and it is in progress. Therefore, it is obvious that all the assessees handed over the vacant physical possession of the property on 8-12-2006. The agreement dated 1-7-2008 is only for extension of the time for completing the construction. Hence, vacant possession was given to the builder on 8-12-2006 in pursuance to the joint venture agreement entered between the parties on 8-12-2006.
Section 2(47)(i) treats the sale of the property ‘exchange’ or ‘relinquishment’ of the asset as ‘transfer’ within the meaning of section 2(47). Section 2(47)(vi) shows that any transaction by way of an agreement or arrangement in any manner which has the effect of transferring or enabling the enjoyment of immovable property also treats as transfer. In this case, the assessees in exchange of 40 per cent of the constructed area, transferred 60 per cent of the land to the builder and handed over the physical possession. Therefore, it is an exchange of property between the parties.
In other words, the assessee exchanged 60 per cent of the landed area for 40 per cent of the constructed area. Therefore, there is a transfer within the meaning of section 2(47)(i) on the date on which the agreement dated 8-12-2006 was executed. Even otherwise, the joint venture agreement has the effect of transferring 60 per cent of the landed area to the builder. The assessee cannot take back 60 per cent landed area on which the builder has commenced construction. At the best, the assessees would get only 40 per cent of the constructed area.
Therefore, the transaction between the assessees and the builder is by way of arrangement or agreement which has the effect of transferring the landed property for enjoyment of the builder. In other words, the assessees transferred 60 per cent of the land area to the builder for its enjoyment. Therefore, there was a transfer on 8-12-2006 within the meaning of section 2(47)(i) and 2(47)(vi). Therefore, the relevant transaction took place in the financial year 2006-07 which falls in the assessment year 2007-08. Hence capital gain, if any, is assessable only in the assessment year 2007-08 and certainly not in the year 2009-10.
The Commissioner (Appeals) proceeded to observe that the capital gain arises only on the date of completion of the construction of flats and its handing over to the assessees. This observation is totally contrary to the provisions of section 2(47). In fact, the assessees entered into an agreement and handing over the physical possession of the property to builder allowing it to enjoy 60 per cent of the land in lieu of 40 per cent of the constructed area. Thus, the transfer took place on 8-12-2006 and the assessee is liable for payment of capital gain tax in the assessment year 2007-08. Therefore, no capital gain tax arises in the year in which the construction was completed and the constructed area was handed over to the assessee. Accordingly, no capital gain arises for assessment year under consideration.
Coming to the issue of exemption under section 54F, the assessee entrusted the construction of the building to the builder in lieu of 60 per cent of the landed area transferred to the builder. Therefore, the assessee, from the date on which the transfer was made by entering into agreement for joint development, is in the process of constructing the residential house. Therefore, the assessee is entitled for exemption under section 54F. Now the objection of the department is that the assessee got multiple flats, almost eight flats each, in lieu of the land transferred to the builder. The question arises for consideration is when the assessee received eight flats/residential units from the builder in lieu of cost of the land transferred to the builder, whether the asseessee is entitled to exemption under section 54F.
In CIT v. Smt. V.R. Karpagam [2014] 226 Taxman 197 (Mag.)/50 taxmann.com 55 (Mad.), the assessee obtained five independent flats in a multi-storied construction and claimed exemption as independent unit under section 54F. The Madras High Court, after referring to the amendment made with effect from 1-4-2015, found that the assessee is eligible for exemption under section 54F. In view of the judgment of the Madras High Court, it is held that the assessee is eligible for exemption even though multiple flats were allotted to her in lieu of cost of 60 per cent of the land allotted to the builder.
In the result, revenue’s appeal is dismissed.
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