No Capital Gain if development got cancelled and possession taken back

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No Capital Gain if development got cancelled and possession taken back

 

 

 

Santosh Kumar Subbai v. ITO (2020) 122 taxman.com169/ (2021) 186 ITD 217 (Hyd) (Trib.)

Short Overview of the case:

S. 45 & Capital gains & Transfer

Development agreement

No real development took place till date

Assessee entered a Development agreements cum GPA with M/s 21st Century Investments & Properties Ltd., wherein he transferred the land admeasuring 0.15 guantas.

The developer had to complete the development within 24 months and the Assessee had received 5000 square feet built-up areas.

Since, the assessee has handed over the property as per the agreement to the developer, the AO was of the view that it was hit by section 2(47) (v) of the IT Act and accordingly, determined the short-term capital gains.

The Tribunal observed that after entering into agreement, the developer had vanished, and no real development took place till date as verified and confirmed by the AO through the Departmental Inspector.

Neither development has taken place nor developed area was received by the assessee and this fact was confirmed by the AO himself.

The Tribunal was of the view that there was no real income except notional income as per the development agreement, which had never been received by the assessee.

The Tribunal observed that till date development agreement was not cancelled and no public notice was issued by the assessee for the cancellation of development agreement. The Tribunal thus restored the matter back to AO to decide the capital gains after verifying whether the possession is taken back by the assessee or not the assessee cancelled the development agreement or not.

Conclusion:

  1. In case , the possession is taken back by the assessee and there was no development, there could be no capital gain. (IT A No. 1348 (HYD.) of 2017, dt. 13-11-2020 (AY. 2007-08)
  2. Matter restored to AO to decide the capital gains after verifying whether the possession is taken back by the assessee or not and the assessee cancelled the development agreement or not. [S.2(47) V]

 

 

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