The Punjab and Haryana High Court has disposed of an income tax appeal concerning whether the execution of a joint development agreement (JDA) made the entire promised consideration taxable as capital gains in assessment year 2007–08, even though the landowner had received only part of the cash and no flat. 

The bench of Justice Deepak Sibal and Justice Rupinderjit Chahal has observed that noted that C.S. Atwal had examined the very same development agreement. That judgment addressed the scope of Section 2(47)(ii), (v) and (vi), the requirements of Section 53A of the Transfer of Property Act, the nature of possession delivered under the JDA, and whether the transaction gave rise to taxable capital gains.

Buy Now: Think Before You Pay Cash: 50+ Landmark Rulings on Section 40A(3) Of The Income Tax Act, 1961

The appellant/assessee is a member of the Punjabi Cooperative House Building Society Limited following her husband’s death. Her husband had held rights relating to a 500-square-yard plot in the society’s land at Village Kansal.

The society entered into a tripartite JDA with Hash Builders Private Limited and Tata Housing Development Company Limited for development of its land. Under the arrangement, members were to receive consideration in cash and built-up flats according to the size of their plots.

For the 500-square-yard plot, Dalam was entitled to ₹82.50 lakh and a flat measuring 2,250 square feet. According to the judgment, she actually received ₹33 lakh: ₹15 lakh during the relevant previous year and ₹18 lakh in the following year. Payments under the agreement stopped after the second instalment, and disputes arose between the society or its members and the developers. The judgment records that 7.7 acres were registered in Tata Housing’s favour.

The Assessing Officer treated execution of the JDA as a “transfer” under Section 2(47) of the Income Tax Act, 1961. The officer relied in particular on Section 2(47)(v), read with Section 53A of the Transfer of Property Act, 1882, referring to the rights granted and possession handed over to the developer. Clauses (ii) and (vi) of Section 2(47) were also invoked.

On that basis, the officer taxed the full promised monetary consideration of ₹82.50 lakh and valued the proposed flat at ₹1,01,25,000, using ₹4,500 per square foot. After deducting a cost of acquisition of ₹6,32,953, the officer assessed long-term capital gains of ₹1,77,42,047 for assessment year 2007–08.

The Commissioner of Income Tax (Appeals) upheld the assessment, and the Income Tax Appellate Tribunal dismissed Dalam’s further appeal. She then approached the High Court under Section 260A of the Income Tax Act.

Dalam’s central contention was that signing the JDA did not amount to a taxable transfer in the relevant assessment year. She also argued that consideration which had neither accrued nor been received could not be taxed as capital gains.

Because the present case involved the same JDA and an identical controversy, the Bench held that the findings in C.S. Atwal directly governed the appeal. It disposed of the matter in terms of that precedent.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: Income Tax Dept. Can’t Revise Refund Intimation Without Adjustments U/S 263: Karnataka High Court