Capital Gains Taxable in Year of Development Agreement Execution, Not Sale Deed: ITAT

The Income Tax Appellate Tribunal (ITAT), Mumbai, has ruled that the capital gains arising on the transfer of land property are taxable in the year in which the development agreement was executed, and full consideration was received, not in the year in which the sale deed was executed.

The assessee, Mr Zarir Rustom Joshi, received the 1/12th share from the sale of a jointly owned land in 2008, amounting to Rs 26,95,000 out of Rs 3,23,40,000. The AO alleged that the land was within the limit of the municipal corporation and the assessee was liable to pay capital gains tax on it. The AO therefore passed an assessment order making an addition on the LTCG of Rs 19,19,000 towards the LTCG on the sale of property for AY 2009-10. The assessee approached the CIT(A), which rejected its appeal. Therefore, the assessee filed an appeal before the ITAT.

The assessee argued that the assessee had entered into a development contract in the year 2000, where the vendors agreed to sell the land to the developer for Rs 66,00,000 consideration. The assessee submitted that this developer agreement was an irrevocable ownership to the developer, and vendors also gave a general Power of Attorney. As per the assessee, this was a transfer of land under section 2(47)(v) and (vi) of the Income Tax Act. The consideration for the land was received in the year 2000, on which the assessee had paid capital gains and claimed exemption under Section 54EA of the Income Tax Act.

The Tribunal relied on an identical case, Late Burzor Rustum Joshi through Legal Heirs vs. ITO, where the bench had held that the transfer was completed in the year the consideration was received. Upholding the same, the Tribunal held that the transaction occurred in the year 2000, in which the assessee and the co-sharers had received the full consideration of land and had transferred their rights in the property. Therefore, the year of transfer was 2000, in which the full consideration was paid under the development agreement and not in 2008 as per the registered sale deed. The assessee’s appeal was allowed.