Whether for availing Sec 54EC benefits, assessee earning capital gains on land transfer is required to count six months period from date of receipt of sale consideration or date of transfer of property - sale consideration, rules ITAT

 THE issues before the Tribunal are - Whether when assessee forms a JV with a builder for development of a property and enters into an irrevocable agreement, the date of agreement is to be treated as the relevant date for taxing the capital gains or the date of registeration of the deed - Whether when it was not possible for the assessee to have invested the amounts in the specified Bonds within a period of 6 months due to non receipt of consideration, the amount can be deposited within 6 months from the date of receipt of amount and the exemption will be allowed. And the verdict partly goes in favour of the assessee.

Facts of the case

A) Assessee owning a land jointly in 4 names entered into a joint venture development agreement with Developers on 12.7.2005 for a consideration of Rs. 250 lacs, which was registered later by way of confirmation deed dated 23.1.2007 and subsequently a correction deed was also entered into on 2.7.2007 by increasing the sale consideration to Rs 490 lacs. Out of the total sale consideration, assessee’s share was 1/4th. AO inferred that the Date of joint venture agreement, i.e.

12.7.2005 was the date of transfer for the capital asset, and the assessee was liable to be considered for computation of capital gain in assessment year 2006-07 as per the enhanced sale consideration of Rs. 490 lacs. The assessee objected to taxation of the capital gain in AY 2006-07 and contended that it should be considered in the AY 2007-08 since the joint venture agreement was registered on 23.1.2007 and only after which it was acted upon and implemented. However the AO did not consider the claim of the assessee and computed the capital gain in the impugned assessment year.

In appeal, CIT (A) agreed with the AO and held that the capital gain was taxable in the year of transfer and the date of entering into the development agreement with the builder was to be treated as date of transfer. Merely because the deed was registered in the next assessment year or that the consideration was in accordance with a correction deed made later, would not postpone the date of transfer of an asset. Capital gain can be charged only once and it cannot be taxed partly in this year and the remaining part in a later year.

Before ITAT, the assessee contended that the rights in the land had not been passed in favour of Builders as a transferee, but in terms of a joint venture agreement by which the assessee and Builders had come together to jointly develop the land and share the profits. Reference of certain clauses of the said agreement was made. The purpose of the agreement was that the parties wished to develop the land jointly and the respective obligations of the parties had also been provided for. Assessee had permitted Builder to enter upon the land and commence the development work alongwith the assessee jointly. Therefore, it was not a case of per se transfer of land/development rights to Builder as a transferee. As per agreement, the possession would be passed in favour of the ultimate buyers of the flats and what was allowed as a permission to the Builders was to be accepted as a license to commence construction. The value of the land had been determined at Rs 250 lacs and the assessee was entitled to a share in the profits from the development of the land jointly with Builder. The relation between the assessee and Builder was that of members of a joint venture whereby the assessee brings in the land and Builder undertakes construction of flats and the profits thereupon were shared by the members of the joint venture.

Revenue contended the the expression ‘transfer’ will include any transaction which allowed possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 and, therefore, in this case, the assessee granted possession with an irrevocable permission for development of the land in favour of the builder and therefore, the date of development agreement dated 12.7.2005 was to be treated as the date of transfer for the purpose of ascertaining the year of taxability of capital gains.

B) AO disallowed the exemption claimed by the assessee u/s 54EC observing that the amount was not deposited in the capital gains bonds within the stipulated period of 6 months from the date of transfer of land. Assessee contended that the investment was made within 6 months from the date of receipt of sale consideration and, therefore, it was entitled to exemption under section 54EC of the Act. The assessee was making the investments in the specified bonds only after receiving the payments from time to time. CIT (A) confirmed the order of the AO stating that the investment in the specified bonds for the purpose of section 54EC of the Act was not made within the stipulated period of 6 months from the date of transfer.

Assessee contended before the ITAT that the consideration had been received by the assessee on various dates falling beyond the period of 6 months from the date of transfer, and therefore, it was not possible for the assessee to have invested the amounts in the specified Bonds within a period of 6 months. Such investments had been made within a period of 6 months from the date of receipt of the consideration. CBDT clarified as per Circular No 791 the purpose and spirit of the sections 54EA, 54EB and 54EC and clarified that reliefs under the said sections were available even in cases where technically the assessee had not invested in specified Bonds within a period of 6 months.

After hearing both the parties, the ITAT held that,

A) ++ the agreement indeed envisages a transfer, is not disputed by the assessee. Only point disputed is the timing of transfer. The impugned agreement entered on 12.7.2005 which contemplates taking over of possession of the property by the Builder for development fulfills the requirements of section 2(47)(v) and therefore, ‘transfer’ in terms of section 2(47)(v) has taken place during the year under consideration. Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia held that in situations attracting clauses (v) and (vi) of section 2(47) of the Act, capital gains will be taxable in the year in which such transactions are entered into even if the transfer of the immovable property is not effected or complete under the general law. Any transaction involving allowing of possession to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act would come within the ambit of the expression ‘transfer’. For this purpose there should be a contract for consideration, it should be in writing, it should be signed by the transferor, it should pertain to transfer of an immovable property, transferee should have taken possession of the property, lastly, transferee should be ready and willing to perform the part of contract. The controversy on the timing of the taxability of capital gains in this case is liable to be held in favour of the Revenue.

B) ++ the interpretation placed by the CBDT in consultation with the Ministry of Law to the condition of making investment within six months from the date of transfer in section 54EC would support the claim of the assessee in this case also for exemption from capital gain with respect to the impugned sum of Rs 50 lakhs invested in specified assets on 3.8.2007 and 27.10.2007. Tthe impugned amount of sale proceeds has been received by the assessee much after the date of transfer i.e. 12.7.2005, so however, it is also emerging from the record that the investments of Rs 12,50,000/- and Rs 37,50,000/- made on 3.8.2007 and 27.10.2007 respectively have been made within six months of receipt of such consideration. Therefore, having regard to the interpretation placed by the CBDT to understand the requirement of making investment within six months from the date of transfer in section 54EC of the Act the plea of the assessee for exemption from tax on capital gains qua impugned amount of Rs 50 lakhs is upheld