INCOME TAX ACT, 1961

Section 54 read with Section 14

Capital gains - Deduction under section 54 - Land transferred developer, under a Joint Development Agreement - Business income vis-s-vis capital gains

Assessee owned a land and he transferred same to developer, under a Joint Development Agreement. Consideration for transfer of land was to be received by assessee as percentage of sale consideration of flats that were going to be constructed by developer. AO alleged that transaction in question was taxable as income from business and not capital gains. AO also denied claim of deduction under section 54.Held: Assessee did not carry on any venture or business activity by so transferring land. On contrary, it was developer, which was carrying on business activity. The role of the assessee was restricted to transferring land and receiving consideration. There was no dispute with regard to fact that land was held by assessee as 'capital asset' only. Therefore, transfer of land would give rise to capital gains only as per the provisions of the Act. It was agreed that assessee would be receiving amounts as and when flats were sold. CIT(A) rightly observed that receipt of consideration over a period on sale of a capital asset did not change true nature of transactions from capital gains to business. Irrespective of timing of receipt of sale consideration, the transfer of a capital asset would give rise to capital gains only. However, matter was remanded to AO as there was no occasion for AO to examine claim for deduction under section 54, since AO assessed receipts as business income.

REFERRED :

FAVOUR : Matter remanded.

A.Y. : 2013-14 to 2015-16

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