Capital gains

This query is : Resolved

BOBBY (Querist)
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26 April 2010 Dear sir,

Land given for development in December, 2009 under G.P.O. for the consideration of four Apartments to be built by the developer in 15 months. In this case :
1. Whether it can be considered as 'Transfer' for the purpose of Capital Gains.(Please clarify as the consideration is neither in existence nor received in which case whether sec.2(47)(v)is attracted. Kindly give citations if any.

taxindiaconnect

taxindiaconnect (Expert)
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27 April 2010 According to me the transaction involves “ Transfer” under section 2(47)(v) of IT Act. I have not analyzed the case laws, but making a general statement on the basis of the following case laws reported at page no 4.41Direct tax Manual volume 3. Please let me know if you have the same view or not. If not, lets us reconnect and discuss it again sharing each others detailed view.

Relinquishment

Relinquishment is included within the meaning of the word ‘transfer’ only for the purpose of levying capital gain tax - Relinquishment is included within the meaning of the word ‘transfer’ only for the purpose of assessment to be made for levying capital gain tax and not for other purposes - Tamil Nadu Civil Supplies Corporation Ltd. v. CIT [1997] 228 ITR 399 (Mad.).
Property must continue to exist - A relinquishment takes place when the owner withdraws himself from the property and abandons his rights thereto; it presumes that the property continues to exist after the relinquishment - CIT v. Rasiklal Maneklal (HUF) [1989] 177 ITR 198/43 Taxman 259 (SC).
When agreement for purchase of property is later cancelled, there is relinquishment of right - Where the assessee initially paid advance under an agreement for the purchase of a property, reserving right to specific performance of the agreement, and later received consideration under another agreement under which the earlier agreement was cancelled and the vendor was allowed to sell the property to any person at any price, there was a relinquishment of right by the assessee which amounted to ‘transfer’, and the resulting gain was assessable as capital gains. Since the assessee had paid a sum for acquiring the right to acquire the sale deed, it could not be said that there was no cost of acquisition so as to take the view that there could be no assessment to capital gains - K.R. Srinath v. Asstt. CIT [2004] 141 Taxman 268 (Mad.).
Extinguishment of right
Amalgamation is covered - The definition of ‘transfer’ in section 2(47) clearly contemplates the extinguishment of rights in a capital asset distinct and independent of such extinguishment consequent upon the transfer itself. Therefore, in a scheme of amalgamation, the rights of the assessees in the capital asset, being their shares in the amalgamating company stood extinguished upon the amalgamation of the amalgamating company with the amalgamated company. There was therefore a transfer of shares in the amalgamating company within the meaning of section 2(47) - CIT v. Grace Collis [2001] 115 Taxman 326/248 ITR 323 (SC).
Compulsory acquisitions are not excluded - If an existing title in a capital asset is extinguished and a new one created, there is within the meaning of section 12B(1) of the 1922 Act [corresponding to section 45 of the 1961 Act] a ‘transfer’ of a capital asset. The fact that the investiture of title takes place under a law relating to compulsory acquisition of property would make no difference - Mangalore Electric Supply Co. Ltd. v. CIT [1978] 113 ITR 655 (SC).
Surrender of tenancy right in exchange for an ownership flat in another building does not attract the liability to capital gains - CIT v. Mrs. Shirinbai P. Pundole [1981] 129 ITR 448 (Bom.)/Nila Products Ltd. v. CIT [1984] 148 ITR 99 (Bom.).
Asset must exist during process of transfer - Position prior to 1-4-2000* - Whatever the mode by which transfer is brought about, the existence of the asset during the process of transfer is a pre-condition. Unless the asset exists in fact, there cannot be a transfer of it. When an asset is destroyed, there is no question of transferring it to others. The destruction or loss of the asset, no doubt, brings about the destruction of the right of the owner or the possessor of the asset in it. But it is not on account of transfer, it is on account of the disappearance of the asset - Vania Silk Mills (P.) Ltd. v. CIT [1991] 59 Taxman 3/191 ITR 647 (SC)/Marybong & Kyel Tea Industries Ltd. v. CIT [1997] 91 Taxman 11/224 ITR 589 (SC).
Giving up right to claim specific performance amounts to ‘extin¬guishment’ - The expression ‘property of any kind’ in section 2(14) is of wide import. When the said expression is read along with the expression ‘extinguishment of any rights therein’ occur-ring in section 2(47), there is no doubt that giving up of right to claim specific performance by an assessee to get conveyance of immovable property in lieu of receiving consideration results in extinguishment of right in property, thereby attracting the rigour of section 2(14) read with section 2(47) - CIT v. Smt. Laxmidevi Ratabi [2005] 147 Taxman 642 (MP).
Sub-clause (v) - In order that case would fall under extended meaning of word ‘transfer’ possession is essential element to be considered - Ajay Kumar Shah Jagati v. CIT [2008] 168 Taxman 53 (SC)
To attract sub-clause (v) of section 2(47), it is not necessary that entire sale consideration up to last instalment should be received by owner - Jasbir Singh Sarkaria, In re [2007] 164 Taxman 108/294 ITR 196 (AAR - New Delhi).
On a fair and reasonable interpretation and on adopting principle of purposive construction, it can be said that possession contem¬plated by sub-clause (v) of section 2(47) need not necessarily be sole and exclusive possession; once it is held that the transac¬tion of the nature referred to in sub-clause (v) of section 2(47) has taken place on a particular date, the actual date of taking physical possession need not be probed into; it is enough if the transferee has, by virtue of that transaction, a right to enter upon and exercise the acts of possession effectively - Jasbir Singh Sarkaria, In re [2007] 164 Taxman 108/294 ITR 196 (AAR - New Delhi).
Section 2(47)(v) could come to the aid of the Department only if the condi¬tions of section 53A of the Transfer of Property Act are satis¬fied. From a reading of section 53A, it is clear that unless there is a written agreement, section 53A of the Transfer of Property Act will not come into operation - CIT v. G. Saroja [2008] 301 ITR 124 (Mad.).