Mere License to Enter into Property for Preparing Plan & to Carry on Necessary Formalities for Construction would not amount to Transfer of Possession
In ITO v. Raj Kaiwar, a division bench of the ITAT Chennai held that mere license to enter into the property for preparing plan & to carry on necessary formalities for construction cannot be treated as transfer of Possession for the purpose of determining capital gain under the provisions of the Income Tax Act.
In the year 2010, assessee entered into a joint development agreement as per which, he handed over the possession of the property to the developer. As per this agreement, the assessee is entitled for 70% of the constructed area and remaining 30% will go to the share of the developer. If the assessee gets anything more than 70%, the assessee shall pay for the excess constructed area at the rate of `9500/- per sq.ft. The project was not completed within three years due to delay in getting approval from the coastal zone regulation authority, who granted the same to the developer only in 2012.
Assessee earned Rs. `8,46,12,019/- towards capital gain and claimed exemption under section 54 of the Income Tax Act for the entire amount. The bench noted the fact that the physical possession of the property was handed over to the assessee only after the developer obtained the permission from the authority. It was, therefor held that, a mere license to enter into the property for preparing plan and to carry on necessary formalities for the purpose of constructing the building cannot be construed as handing over of physical possession of the property.
Article referred: http://www.taxscan.in/mere-license-enter-property-preparing-plan-carry-necessary-formalities-construction-not-amount-transfer-possession-itat/9237/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+Taxscan+%28Top+Stories+%E2%80%93+Taxscan+%7C+Simplifying+Tax+Laws%29
In the year 2010, assessee entered into a joint development agreement as per which, he handed over the possession of the property to the developer. As per this agreement, the assessee is entitled for 70% of the constructed area and remaining 30% will go to the share of the developer. If the assessee gets anything more than 70%, the assessee shall pay for the excess constructed area at the rate of `9500/- per sq.ft. The project was not completed within three years due to delay in getting approval from the coastal zone regulation authority, who granted the same to the developer only in 2012.
Assessee earned Rs. `8,46,12,019/- towards capital gain and claimed exemption under section 54 of the Income Tax Act for the entire amount. The bench noted the fact that the physical possession of the property was handed over to the assessee only after the developer obtained the permission from the authority. It was, therefor held that, a mere license to enter into the property for preparing plan and to carry on necessary formalities for the purpose of constructing the building cannot be construed as handing over of physical possession of the property.
Article referred: http://www.taxscan.in/mere-license-enter-property-preparing-plan-carry-necessary-formalities-construction-not-amount-transfer-possession-itat/9237/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+Taxscan+%28Top+Stories+%E2%80%93+Taxscan+%7C+Simplifying+Tax+Laws%29
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