Incidence of Tax for Joint Development Agreement is Different from Incidence of Tax for Subsequent Sale of Flats: ITAT [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has ruled that the tax incidence for joint development agreements differs from the tax incidence for subsequent flat sales and observed that the Assessing Officer had made a fundamental mistake in computing capital gains for assessment year 2013-14 based on the date of sale of flats, even though the date of joint development agreement and supplementary agreement falls under assessment year 2011-12 & 2012-13.

The assessee, V. Kalpagam and builders entered into a joint development agreement in 2011, and the flats were sold in 2013. The Assessing Officer computed capital gains for 2013-14 based on the sale date of flats. The assessee challenged the order of the Assessing Officer before the ITAT.

The assessee argued that the tax incidence for the joint development agreement differed from the tax incidence for the subsequent sale of flats. They argued that the joint development agreement was a capital asset and the capital gains should be taxed in the assessment years 2011-12 or 2012-13, while the subsequent sale of flats was a business transaction and should be taxed in the assessment year 2013-14.

The revenue argued that the tax incidence for the joint development agreement and subsequent flat sale was the same, and that the assessee had not made any capital gains from the agreement, and therefore, the capital gains should be taxed in the 2013-14 assessment year.

The ITAT observed a significant error in the Assessing Officer’s computation of capital gains for 2013-14, despite the date of joint development agreement and supplementary agreement falling under assessment years 2011-12 & 2012-13.

The Two member bench comprising V. Durga Rao (Judicial Member) and Manjunatha. G (Accountant Member) upheld the assessee’s appeal and remanded the matter to the Assessing Officer for recalculating capital gains for the joint development agreement and subsequent flat sale. The ITAT ruled that the tax incidence for the joint development agreement differed from the subsequent flat sale.

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