Incomplete Construction Cost Treated as Consideration if Developer can’t Complete Project under JDA: ITAT

Case Details: Pulikkaparambil George Jacob v. Income-tax Officer - [2023] 150 taxmann.com 314 (Cochin-Trib.)

Judiciary and Counsel Details

• • Sanjay Arora, Accountant Member & Sandeep Gosain, Judicial Member
  • V.M. Veermani, CA for the Appellant.
  • J.M. Jamuna Devi, Sr. DR for the Respondent.

Facts of the Case

Assessee and other co-owners entered into an unregistered joint venture (JV) agreement with Developer for building construction on their land. Assessee retained 26.09 per cent of the land and transferred the remaining portion to the Developer. However, 10 per cent of the construction was left incomplete by Developer.

During the assessment proceedings, the Assessing Officer (AO) treated the JV agreement as amounting to ‘transfer’ under section 2(47)(v) in view of part performance as defined under section 53A of TP Act, 1882.

The assessee contended that there was no transfer under section 2(47)(vi) as the possession to the Developer was only for the limited purpose of carrying out construction, with no cash component involved in the transaction. Furthermore, the project failed, and thus, no transfer in law could have occurred or capital gain arose. Unsatisfied, AO proceeded to make additions to the income of the assessee.

The matter reached the Cochin Tribunal.

ITAT Held

The Tribunal held that if the Developer has been subsequently unable to complete the project for any reason, the same can only be understood as a failure to deliver the consideration of the transfer. The provisions of section 2(47)(vi) would squarely apply irrespective of the fact that construction remained incomplete.

Since the assessee transferred the portion of land for the transferee’s disposal in its capacity as an owner, construction by such transferee on the portion of land belonging to the transferor would amount to consideration for said transfer of land to him.

List of Cases Referred to

• • Chaturbhuj Dwarakadas Kapadia of Bombay v. CIT [2003] 129 Taxman 497/260 ITR 491 (Bom.) (para 3)
  • CIT v. Dr. T.K. Dayalu [2011] 14 taxmann.com 120/202 Taxman 531 (Kar.) (para 3)
  • Jasbir Singh Sarkaria, In re [2007] 164 Taxman 108/294 ITR 196 (AAR – New Delhi) (para 3)
  • Sardar Govindrao Mahadik v. Devi Sahai AIR 1982 SC 989 (para 3)
  • Patel Natwarlal Rupji v. Kondh Group Kheti Vishayak AIR 1996 SC 1088 (para 3)
  • CIT v. Balbir Singh Maini [2017] 86 taxmann.com 94/251 Taxman 202/398 ITR 531 (SC) (para 3)
  • Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC) (para 4.2).