Let us look at an interesting situation:-
Well, in the given situation assessee is liable to pay capital gain tax in year in which said joint development agreement is entered into. This view is also upheld in the case study of Charanjit Singh Atwal by the Â Chandigarh Bench of ITAT.
In the above mentioned case, a housing society was formed to hold land of around 21.2 acres at a village near Chandigarh. The society entered into an agreement with the builders. As per the agreement, the society agreed to transfer the land to the builders and in return would receive consideration in cash and kind, i.e. fully furnished flats to its members. The society also passed a resolution that the members would surrender their rights in the land to the society and then the society would enter into an agreement with the builders on behalf of the members. In the given case, AO held that the land owner was liable to pay capital gains tax because there is transfer as per section 2(47)(v) of Income Tax Act. Moreover, the tax would be payable in the year in which the JDA was entered into.
Now, what were the views of the assessee? Firstly, the assessee contended that since the JDA was not registered, possession of the property was not transferred to the builders. Hence, there was no transfer. Moreover, the sum which was received at the time of JDA was just an advance payment.
However the tax department contended that:
- The society had passed a resolution that the members would surrender their rights in the land to the society and then the society would enter into an agreement with the builders on behalf of the members. Thus, through this resolution, possession of the property and original title deeds of the property were transferred to the developers.
- Moreover, not only was this a transfer as per section 2(47)(v), but also a transfer as per section 2(47)(vi). As per section 2(47)(vi) any transaction which has the effect of transferring and enabling the enjoyment of immovable property is transfer.
- Also, the assesseeâ€™s contention that the value of the flat which is not yet constructed cannot be included in the total consideration as that would amount to taxing notional income was also set aside by the department. As per the department, when JDA was entered into, it gave the members a right to receive such flats and therefore, such flats also form part of consideration.
Â After hearing both the views the tribunal came up with the following judgement :Â
- The tribunal held that when the transferee is entitled to enjoy the rights over a property then the date of such transaction is the date of transfer for the purpose of capital gains.
- Moreover, in the instant case, the society executed a special power of attorney in the favour of builders which transferred the overall control and rights to the builders of the land. Thus, when special power of attorney is given, and the same is duly registered, then the registration of the JDA is not important.
- The builders of the land had the right to not only enter the property for development but also had various other rights such as creating mortgage for raising funds, consolidating the project with others etc. Thus, there is a clear transfer of possession.
- Moreover, it was said that though the notional incomes are not generally taxed, yet when there are specific provisions in the act the same is taxed.
- Also, the capital gains tax would be chargeable in the hands of the members and not the society. Society had entered into the agreement on behalf of the members. Moreover, the consideration was also determined on â€˜per member basisâ€™ and the payment was made directly to the members.
Thus, where the rights over land are transferred to a developer under a JDA then there are two things which are to be noted. Firstly, entering into JDA would be treated as transfer of land. Secondly, tax shall arise in the year in which the JDA is entered into. The notional value of future consideration is to be considered for computing capital gain.
However, the taxability of JDA would depend on the facts and circumstances of each case, the terms of JDA, other related documents etc.