In ITA No. 42/Bang/2023- ITAT - ITAT (Bangalore) holds Joint Development Agreement clause stated license to enter the property for the purpose of carrying out development, not possession; rejects invocation of Sec 2(47)(v) of Income Tax Act
Members Chandra Poojari (Accountant) & Beena Pillai (Judicial) [25-05-2023]

Read Order: Shri K.V. Satish Babu [HUF] v. The Income Tax Officer

LE Correspondent

Bangalore, May 26, 2023: The Bangalore bench of the Income Tax Appellate Tribunal has held that in the given case, clause 5.1 in the Joint Development Agreement (JDA) clearly stated that what was given was not possession as contemplated under section 53A of the Transfer of Property Act, 1882, but was merely a license to enter the property for the purpose of carrying out development. Therefore, the Tribunal concluded that invoking the provisions of Section 2(47)(v) of the Income Tax Act, based on clause 1.1 of the JDA was not appropriate in the facts and circumstances of the case.

Brief facts of the case were that the assessee owned an agricultural land in Belawadi Village, Mandya District. They entered into a Development Agreement with M/s. Dhatri Properties vide registered agreement dated 16.09.2010 for the formation of sites on the land. The assessee received a refundable interest-free deposit of Rs. 10,00,000. During the assessment proceedings, the assessee submitted that he did not give possession of the lands for commencement of any work on entering into Joint Development Agreement, as the lands continued to be Agricultural lands, and under Karnataka Land Reforms Act, unless lands were converted into non- agricultural purposes, the lands could not have been put to any non-agricultural use. He received the conversion orders from the Deputy Commissioner on 03.12.2012 and subsequently gave possession of the land to the developer. The Assessing Officer (AO) passed the assessment order under section 143(3) read with section 147 of the Act treating that the capital gains arose on the date of entering into JDA that is 16.09.2010 and assessed the same in the AY 2011-12.

The bench placed reliance on M/s Seshasayee Steels P. Ltd v. Assistant Commissioner Of Income Tax [LQ/SC/2019/1827] and held that in order to attract provisions of section 53A of the Transfer of Property Act, first and foremost, the transferee must, in part performance of the contract, have taken possession of the property or any part thereof and secondly, the transferee (developer) must have performed or be willing to perform his part of the agreement. It is only when these two important conditions, among others, are satisfied that the provisions of section 53A of the Transfer of Property Act can be said to be attracted on the facts of a given case.

The Tribunal held that there was no document or evidence to establish that possession of the property was delivered to the developer in part performance of the agreement. The Tribunal stated that the mere fact that development cannot be done without possession does not automatically imply that possession was delivered in accordance with the provisions of section 53A of the Transfer of Property Act.

The Tribunal held that based on the facts and circumstances of the case, there was no transfer of the property during the previous year relevant to the assessment year 2011-12. As a result, the capital gain on the transfer of the property cannot be assessed in that particular assessment year. Therefore, the assessment of capital gain in AY 2011-12 was deemed to be incorrect and was deleted by the Tribunal.