Merely because the assessee wrongly included the income in its return of income for a particular year, it could not confer jurisdiction to the department to tax that income in that assessment year, even though legally such income did not pertain to that year

ARMATIC ENGINEERING (P) LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX

(2021) 61 CCH 0176 BangTrib

Short Overview:

 Capital gains

Exemption of capital gain on transfer of assets in case of shifting of industrial undertaking from urban area

Assessee a Private Limited Company, engaged in manufacture of Engineering Products filed return of income

Assessee in order to explore possibility of commercial conversion of their factory building entered into a Development Agreement dated 24.10.2007 with a Developer for demolishing & constructing a commercial complex to be rented out jointly by Developer as well as assessee company

Though Registered JDA was entered on 24.10.2007, said developer got Plan approved for demolishing of old building and constructing commercial complex only during Sept.2008

As per jurisdictional High Court order of Dr. Dayalu Capital Gains in respect of property given under JDA should have been considered as taxable during Asst. Year 2009-10

However, assessee company offered Capital gains during Asst. Year 2012-13

Assessment order was passed by AO with a net taxable income, which is entirely deemed Capital Gains

CIT(Appeals) observed that assessee has got registered sale deed on 18.7.2011 relevant to FY 2011-12 (AY 2012-13), as such capital gain has to be brought to tax in year of registration of Sale Deed

CIT(A) observed that investment is required to be done within 3 years from date of deemed sale of factory and shifting of factory and in this case, capital gain has arisen due to registration of Sale Deed on 18.7.2011, as such assessee is not entitled to deduction u/s. 54G

Held that the developer’s rights under GPA shows that Developer has better control and possession in said property which on a higher pedestal than a mere Developer who apportions built-up area with land Ownr

Exclusive possession is not necessary for purpose of satisfying condition laid down in section 2(47)(v)

Registered GPA executed by assessee along with JDA in favour of Developer must be regarded as a transaction in eye of law, which allows not only possession of property, but also various rights as mentioned above and it could be rightly considered as part performance of contract as per section 53A under Transfer of Property Act

Having regard to terms of JDA and GPA executed on 24.10.2007, it could be regarded as “transaction involving allowing of possession” of land to be taken in part performance of contract and therefore, “transfer” within meaning of section 2(47)(v) must be deemed to have taken place on date of execution of JDA along with GPA on 24.10.2007

Since JDA along with GPA was executed on 24.10.2007 relevant to FY 2007-08, capital gain must have arisen in relevant AY 2008-09, and not in AY 2012-13

Assessee being owner of property entered into JDA along with GPA with Developer in terms of which Developer was given possession of property along with bundle of rights and assessee is entitled to receive 50% area of super built-up area in building; 50% of car parking areas in Basement floor and Ground Floor and other levels wherever they are provided in Schedule Property; 50% of Terrace rights; and 50% of all benefits arising out of development and built as per specifications detailed in Annexure attached thereto

Assessee was liable to pay capital gains tax in year in which said JDA along with GPA was signed and not afterwards

Though assessee has offered capital gain in AY 2012-13, but there is no estoppel under Income-tax Act

Assessee having itself challenged validity of taxing capital gain during AY 2012-13 and CIT(Appeals) having rejected same without giving a categorical finding, assessee had objected taxing of capital gain in AY 2012-13, which was mainly offered while filing return of income

Further, it is incumbent upon revenue authorities to find out whether particular income was assessable in a particular year or not—Merely because assessee wrongly included income in its return of income for a particular year, it could not confer jurisdiction to department to tax that income in that assessment year, even though legally such income did not pertain to that year

CBDT Circular No. 14(XL-35) of 1955, dated 11.4.1955 as per which lower authorities should have guided assessee as to correct proposition of law regarding taxability of capital gain

Assessee’s appeal allowed.