Principal Commissioner of Income Tax, Kolkata
Vs.
Infinity Infotech Parks Limited
18th July 2018
Merely because de-facto possession of land was made over to the Developer for the purpose of construction thereon, it would not imply that the possession was made for enjoyment of the property; no transfer under Section 2(47) arises.
The assessee had entered into a joint development agreement (JDA) on 07-02-2007 which envisaged that the developer would construct upon the land and would be entitled to retain 61 per cent of the land as well as the proportionate constructed area while the balance 39 per cent of the land together with the construction thereon would belong to the assessee.
The Commissioner invoked the revisionary power under Section 263 and noted that since the possession of the land was made over by the assessee to the developer at or immediately upon the execution of the agreement of 7th February 2017, the transfer is deemed to have taken place at such point of time in view of Section 2(47)(v) of the Act. However, ITAT ruled in favour of the assessee.
Aggrieved, the Revenue appealed before the Calcutta High Court. High Court observed that when the owner of a land enters into an agreement with a developer for the purpose of developing the land, the terms of the contract indicate when the transfer would take place. There could be rate situations where the transfer may be simultaneous with the execution of the agreement, but where the owner retains any right in the constructed area that may come up in future, it would scarcely be a case of a transfer taking place at the time of the execution of the agreement. Merely because de facto possession of the land is made over to a mason or a civil engineer for the purpose of construction thereon, it would not imply that the possession is made over to the mason or the civil engineer for enjoying the property. Such persons would be in de facto possession under the de jure possession of the owner and only for the purpose of undertaking the construction at the land in question.
As per JDA, the Developer was to get 61 per cent of the land and the proportionate share in the constructed area whereas the assessee was to get the balance 39 per cent of the land and the proportionate constructed area thereupon. High Court held that till such time that the construction came up and 39 per cent of the constructed area was made over the assessee, it could not be said that possession of the balance land, in the sense that the expression carries in Section 2(47)(v), had been made over by the assessee to the developer.
High Court held that it was only after the apportionment of the areas upon the construction on the land being completed that the developer could have rightfully retained possession of the developer’s 61 per cent share and resisted dispossession by discharging his obligation under the agreement and seeking refuge in terms of Section 53A of the Act of 1882 despite the formal conveyance pertaining to the developer’s entitlement not having being executed. Accordingly, High Court held that the right of the developer to retain possession and protect such possession under Section 53A of the Act of 1882 could never have arisen prior to the construction being completed and the apportionment effected.
High Court also noted Section 45(1) which provides the expression “chargeable to income tax under the head Capital Gains”, operates on “Any profits or gains arising from the transfer of a capital asset…” and held that there can be no tax payable unless there is any profit or gain that has arisen and it could never have been the Revenue’s case that there was any monetary profit or gain that accrued to the assessee at the time of the execution of the agreement of 7th February 2007.
Separately, with respect to the issue regarding depreciation on 39 per cent area leased by the assessee, High Court held that the Commissioner could not have reopened this matter under Section 263 since authorities superior to the Commissioner had already dealt with this aspect.
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