The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that capital gain can’t be taxed when actual possession of the property is not transferred as per the agreement
The assessee, Mr Mahesh D. Saini challenged the order of the CIT(A) confirming the addition of Rs.1,05,37,002/- as long-term capital gain (LTCG) treating the purported capital asset as transfer given the provisions of Section 2(47) (v) of the Income Tax Act, 1961 r.w. Section 53A of the Transfer of Property Act, 1882 (4 of 1882) (“TOPA”).
Assessee jointly with his two (2) brothers, viz Shri Formal Dedrajmali alias Sainik/Siani and Shri Kailash Dedraj Mali alias Sainik/Saini, entered into sale Cum Development Agreement on 21.10.2010 with the Developer cum Purchasers, viz. Bhupatbhai Ravjibhai Lukhi and Shri rameshhai Ravjibhai Lukhi, for transfer of their ancestral property.
Consideration was received by the assessee for transfer of his 1/3rd right, title, and interest in the said property was Rs. 36 Lac and a right in the house property of Rs. 2,500/sq. feet built-up area wall to wall flat.
The AO issued a show cause notice demanding tax on capital gain on the ground that the transfer of immovable property has taken place since the developer has been given possession of the property.
The counsel for the assessee, Shri Haresh B. Shah contended that based on the agreement executed by the assessee with the developer cum purchasers, the incident of tax has not taken place in the relevant assessment year, and therefore no capital gain could have been charged in this assessment year. The representative of the department, Dr. Pratap Narayan Sharma relied on the order of CIT(A).
As per the sale-cum-developments agreement dated 20.10.2010 the possession of the property to the transferee will be only after he obtains the IOD from MCGM where the IOD (the intimation of disapproval) was issued by the MCGM only on 15.04.2013.
The Tribunal noted that AO/ CIT(A) misinterpreted the agreement dated 20.10.2010 and applied the law erroneously, so their impugned action cannot be sustained. That there was no evidence/material before AO/LD CIT(A) to suggest that the assessee has given possession of the property to the developer before the IOD was issued by the MCGM and any way that is not the case of AO/Ld. CIT(A).
In the light of the facts, while allowing the appeal, Shri Pramod Kumar, VP, and Shri Aby T Varkey, JM held that “there was no transfer of immovable property, so no capital gain could have been taxed in the hands of the assessee in this assessment year, therefore, the assessee succeeds.”
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