The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that permissible possession given to a developer for construction does not constitute a transfer.
The assessee, Pankaj Enterprises is a partnership firm and they show income under various heads including “income from house property” and “income from other sources”. The assessee disclosed a long-term capital gain (LTCG) of ₹21,08,973/- on the sale of development rights of a plot of land.
The assessee treated total sale consideration on transfer of an interest in the Development Agreement (DA) based on the cost of the constructed area at 42% of ₹5,46,27,440/- including ₹4,28,96,000/- for allowing loading of TDR, which was claimed as exempt and further treated the consideration received in the form of constructed area to the extent relatable to loading of TDR as not taxable.
It was clear from the agreement that possession was permissible possession and the developer was not authorised to exercise the right as owner thereof and enjoy such plot of land without interference on the part of the owner, then provisions of section 2(47)(4) are not attracted.
It was evident from precedent that a development agreement granting permission to start advertising, selling and construction permitted to execute of sale agreements to the developer and such permission was not possession under section 53A of the transfer of property Act.
Shri Om Prakash Kant, AM and Shri Pavan Kumar Gadale, JM held that “the capital asset of the assessee cannot be treated as transferred under section 2(47)(4) of the Act read with section 53A of the Transfer of Property Act in the assessment year 2009-10. We do not find any error in the finding of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same as far as the year of taxability of capital gain is concerned.”
The Tribunal observed that the assessee failed to establish that said borrowing from ECL finance Ltd incurred for acquisition or construction of house property, income from which was offered under the head ‘income from house property’. The assessee has admitted that the expenditure of ₹ 1.3 lakh was incurred and failed to explain the source of the said expenditure. The appeal of the revenue and cross objections were dismissed and the appeal of the assessee for the assessment year 2012-13 was partly allowed.
The assessee was represented by Mr Shankarlal L. Jain and the revenue was represented by Mr Jasdeep Singh.
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