In ITO v. Raj Kaiwar, a division bench of the ITAT Chennai held that mere license to enter into the property for preparing plan & to carry on necessary formalities for construction cannot be treated as transfer of Possession for the purpose of determining capital gain under the provisions of the Income Tax Act.
In the year 2010, assessee entered into a joint development agreement as per which, he handed over the possession of the property to the developer. As per this agreement, the assessee is entitled for 70% of the constructed area and remaining 30% will go to the share of the developer. If the assessee gets anything more than 70%, the assessee shall pay for the excess constructed area at the rate of `9500/- per sq.ft. The project was not completed within three years due to delay in getting approval from the coastal zone regulation authority, who granted the same to the developer only in 2012. Assessee
Assessee earned Rs. `8,46,12,019/- towards capital gain and claimed exemption under section 54 of the Income Tax Act for the entire amount.
The bench noted the fact that the physical possession of the property was handed over to the assessee only after the developer obtained the permission from the authority. It was, therefor held that, a mere license to enter into the property for preparing plan and to carry on necessary formalities for the purpose of constructing the building cannot be construed as handing over of physical possession of the property.
“If the joint developer could not get the plan approved from Chennai Metropolitan Development Authority, the assessee would continue to be in the physical possession of the property. In other words, no part of property was handed over to the joint developer as per agreement which would enable him to continue in possession. As per the agreement, the assessee would continue the physical possession of property till the developer get approval from Chennai Metropolitan Development Authority. After the approval, the physical possession of the property was handed over, which ultimately falls in assessment year 2013-14. Therefore, the assessee filed a revised return to claim exemption under Section 54 of the Act. This Tribunal is of the considered opinion that when the assessee handed over the entire land on the basis of arrangement that the developer could retain 30% of land in proportionate to constructed area, there was transfer of property in the assessment year 2013-14.”
Dismissing the departmental appeal, the bench observed that the cost of 30% of undivided share of land would be deemed as the cost of 70% of constructed area at the rate of `9500/- per sq.ft since the assessee has not received any money from the developer. “The cost of 30% of undivided share of land would be deemed to be invested and deposited with developer on transfer of 30% of undivided share of land to the developer, for the assessment year 2013-14. Since the cost of 30% share of undivided land was deemed to be invested with the developer for construction, this Tribunal is of the considered opinion that the assessee is eligible for exemption under Section 54 of the Act,” it said.
Read the full text of the Order below.