S. 2(47)(v): A development agreement by which possession is transferred to developer is not a “transfer” for capital gains purposes if developer’s willingness to perform his part of the contract is not ascertainable with certainty
The
assessee entered into a Development Agreement-cum-GPA with MAK Projects
on 15.12.2006 (AY 2007-08). The agreement provided the MAK would
construct a villa township in 30 months and that the assessee was
entitled was entitled to a certain portion (16 villas) of the developed
area as consideration for the transfer of the land. Though possession of
the property was handed over to the developer, the assessee claimed
that the
transaction did not give rise to capital gains in AY 2007-08 on
the basis that (a) the consideration was neither received nor
quantified, (b) the project was at the conception stage and even the
building plan approvals were not received & (c) the developer had
not incurred any expenditure on the project. The AO & CIT(A) relied
on
Chaturbhuj Dwarakadas Kapadia 260
ITR 491 (Bom) where it was held that the execution of a development
agreement amounted to a transfer u/s 2(47)(v) and gave rise to capital
gains. On appeal by the assessee to the Tribunal HELD allowing the
appeal:
S. 2(47)(v) provides that the term ‘transfer‘ includes “any
transaction involving the allowing of, the possession of any immovable
property to be taken or retained in part performance of a contract of
the nature referred to in s. 53A of the Transfer of Property Act”. In order to be “of the nature referred to in s. 53A of the Transfer of Property Act”, the necessary precondition is that the transferee should be willing to perform his part of the contract. The “willingness”
has to be absolute and unconditional. If willingness is studded with a
condition, it is no more than an offer and cannot be termed as
willingness. On facts, the “willingness”
of the developer to perform his part of the obligations is not
ascertainable in AY 2007-08 because (a) the consideration was not paid
to the assessee, (b) the building plans had not been approved, (c) there
was no progress with regard to development in the AY, (d) there was no
investment by the developer in the construction activity during the AY.
It is not possible to say whether the developer is prepared to carry out
those parts of the agreement to their logical end. The fact that the
assessee has given possession is not relevant. Consequently, s. 2(47)(v)
does not apply and the capital gains is not assessable to tax (Chaturbhuj Dwarakadas Kapadia 260 ITR 491 (Bom) explained/ distinguished)
Contrast with
Charanjit Singh Atwal vs. ITO (ITAT Chd) (
order attached) where a contrary view was taken following
Chaturbhuj Kapadia260 ITR 491 (Bom) but without appreciating the fine point regarding certainty of developers’ “
willingness” to perform his part of the bargain