ITAT Upholds Capital Gains on Transfer of Development Rights under JDA: Remands to AO to Allow Indexed Cost of Acquisition [Read Order]

The Patna Bench of the Income Tax Appellate Tribunal (ITAT) allowed the appeal, upholding the capital gains assessed on the transfer of development rights under a Joint Development Agreement (JDA), but remanding the matter back to the Assessing Officer (AO) to allow the indexed cost of acquisition, which had been overlooked during assessment.

The assessee, Sunil Kumar owned land measuring 0.22 acres, which he handed over to the developer under a registered Development Agreement-cum-General Power of Attorney dated 02.12.2014.

As per the agreement, the developer was to construct residential flats and provide the assessee a 40% share in the constructed area. The AO treated this handing over of possession as a transfer within the meaning of Section 2(47)(v) read with Section 53A of the Transfer of Property Act, and computed long-term capital gains at ₹15,78,968.

The assessee argued before the CIT(A) that no taxable transfer had occurred because the developer had not begun construction and no consideration was received. The CIT(A), however, held that once possession is handed over under a registered JDA, the transfer is complete for capital gains purposes, and upheld the AO’s action.

Before the Tribunal, the assessee again contended that there was no transfer and that the AO had wrongly invoked Section 2(47)(v). He also argued that the AO took the sale value but failed to allow the indexed cost of acquisition, leading to an inflated computation of capital gains.

The Bench comprising Sonjoy Sarma (Judicial Member) and Rakesh Mishra (Accountant Member) examined the JDA and noted that the assessee had indeed handed over possession to the developer through a registered and enforceable agreement, which clearly triggered transfer under Section 2(47)(v). The Tribunal therefore upheld the finding that capital gains were rightly chargeable.

However, the Tribunal found merit in the assessee’s contention that the indexed cost of acquisition was not allowed. Since the AO had failed to examine and grant the benefit of indexation before computing long-term capital gains, the ITAT held that the computation was incomplete.

The Tribunal therefore set aside the issue of computation and remanded the matter to the AO with a direction to verify the indexed cost of acquisition and recompute the capital gains in accordance with law.

The appeal was thus partly allowed for statistical purposes.

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