As per Section 2(14)(iii), agricultural land outside specified limit is not capital asset and hence there can be no capital gain on transfer of such agricultural land. Hence it is important to determine whether land is agriculture land or not. A few case laws relevant to the subject:

In Gemini Pictures Circuit (P.) Ltd. v. CIT [1981] 130 ITR 686/6 Taxman 42 (Mad.) it was held that onus is on the department to prove that land is non agricultural or that it forms part of business assets. Once the assessee proves that the land is raagricultul land the burden of proving that it is not agricultural land is on the revenue.

In case of Gordhanbhai Kahandas Dalwadi v. CIT [1981] 127 ITR 664 (Guj.), it was held that the correct test that has to be applied is whether on the date of sale the land was agricultural land or not. Just because after the sale the purchaser was going to put the land to non-agricultural use, it does not mean that the land had ceased to be agricultural land on the date of sale.

In case of CIT v. Borhat Tea Co. Ltd. [1982] 138 ITR 783/[1981] 7 Taxman 388 (Cal.), it was held that for the purpose of land being agricultural land, actual agricultural operations or cultivation or tilling of the land is not necessary. What is to be seen is whether such land is capable of agricultural operations being carried on.

In case of CIT v. Modhabhai H. Patel [1994] 208 ITR 638/77 Taxman 408 (Guj.), it was held that if a land is recorded as agricultural land in the revenue records and if till the date of its sale it is used and exploited as agricultural land, and if the owner of the land has not taken any step which would indicate his intention to exploit the land thereafter as non-agricultural land, then such a piece of land would have to be regarded as agricultural even though it was included within the municipal limits or it was sold on a per square yard basis and not acreage basis.

The purpose for which such a land is sold, though not relevant, will not have that much importance and weight as it would have in a case where the land has remained a spadatar or idle or is used for agricultural purposes only by way of a stop-gap arrangement.

Where assesse enters into agreement to sell agri land. There after makes an application to the authorities to permit to covert the land into farm houses and authority replies that no such conversion required for farm houses and there after the sale deed with buyer is registered. Whether the land ceases to be agricltual land on the date of registration of sale deed. What is the relevant date of transfer, the date of agreement or date of registration of sale deed?

As per Section 2(14)(iii), agricultural land outside specified limit is not capital asset and hence there can be no capital gain on transfer of such agricultural land. Hence it is important to determine whether land is agriculture land or not.

Where assesse enters into agreement to sell agri land. There after makes  an application to the authorities to permit to covert the land into farm houses  and authority replies that no such conversion required for farm houses and there after the sale deed with buyer is registered. Whether the land ceases to be agricltual land on the date of registration of sale deed. What is the relevant date of transfer, the date of agreement or date of registration of sale deed?

Held by Jaipur Tribunal in Megh Chand Meena, HUF [2016] 70 taxmann.com 374 (Jaipur - Trib.) MAY  17, 2016  that  it was clear that there was no conversion of agricultural land and what had been transferred by assessee continued to be agricultural land beyond 8 Kms. of municipal limits. it was not a capital asset under section 2(14)(iii) . therefore, sale consideration was not liable to capital gains tax under section 45.

Delhi High Court strikes down service tax on Sale of flats before Construction in Suresh Kumar Bansal [2016] 70 taxmann.com 55 (Delhi) dtd 03-06-2016

Delhi High Court strikes down service tax on Sale of flats before Construction in Suresh Kumar Bansal [2016] 70 taxmann.com 55 (Delhi) dtd 03-06-2016. Held That

For Investment u/s 54 F funds other than from transfer of capital asset can also be used. Section 54F does not put any restriction in this regard-Held by Punjab and Haryana High Court in Kapil Kumar Aggarwal ITA 12/2015 dtd. 04-11-2015. P&H High Court relied upon K.C. Gopalan 107 taxman 591(Ker); Anandraj 56 taxmann.com 176 (karnatka); Rajesh Kumar jalan 286 ITR 274 (Gau) and V.R. Desai 197 taxman 52 (Ker). In Anand Raj the assessee used borrowed funds, still exemption was held allowable.[Page 13 Para 18]

The appellants had collected certain amounts from their customers under the heading 'common area maintenance deposit', which was required to be utilized for maintenance of common area of the society, such as stairs, terrace, parking, water charges, municipal taxes, etc. Till the society is formed of the flat owners, the appellant would maintain a separate account of such collection and outgoings and transfer whatever balance amounts (with interest) available to the society. The amount was collected from the flat owners under the provisions of Maharashtra Ownership Flats (Regulation of the Promotion of Construction, sale, management and transfer) Act, 1963. Cestat Mumbai in Goel Nitron Constructions[2015] 62 taxmann.com 333 JULY 7, 2015 following Kumar Beheray Rathi Appeal Nos. ST/137, 138, 139 & 140/2008 - Mum, dated 18-11-2013 held that no service tax is leviable on such one time maintenance charges till housing society is formed

Held by Bombay HC in Ramesh Babu Lal Shah (23.07.14) 53 TMC 277, where assessee entered into agreement for purchase of land later sold by seller to some other person for development and amount received by assessee in consent degree of court is business receipt if disputed transaction was adventure in nature of trade.

Where land given for development, the capital gain shall arise in the year in which constructed flats handed over to land owner and not when Construction completed and accordingly exemption u/S 54/54F allowable in the year of taking flats.DR. S. VENKATESWARE PRASAD2015) 44 CCH 0563 HydTrib 28-08-2015

The Mumbai ITAT in Vardhman Developers Ltd vs. ITO has held that expenditure towards repair and renovation of leased premises is capital in nature. It has also explained the method for allocation of common expenses to different WIP projects of a builder - [2015-ITRV-ITAT-MUM-111]

The Mumbai ITAT in Fardeen Khan vs. ACIT has held that land ceases to be a capital asset on date of application for conversion into N. A. land. Pursuant to amendment to s. 53A of TOP Act , non-registered development agreement does not result in transfer u/s 2(47)(v). Law in Chaturbhuj Dwarkadas Kapadia 260 ITR 461 (Bom) does not apply after amendment to s. 53A - [2015-ITRV-ITAT-MUM-121]

Sale of Property- unsigned agreement seized- Decided in favour of assessee

SARAL TALWAR (2015) 44 CCH 0391 HydTrib Jul 22, 2015

 It needs to be mentioned, assessee from the very initial stage of the proceeding has denied of receiving any cash amount from Mr. Suresh Chand Agarwal towards the sale of property. It is also evident that apart from the receipts and the unsigned document, there is no other evidence in the possession of the department to conclusively prove that the assessee has actually received the amount of Rs.2.66 crores from Mr. Suresh Chand Agarwal.

Land although outside the specified distance from limits of one municipality but with in limits other municiplality is capital asset u/s 2(14)

CIT vs Smt Anjana Sehgal ITA 276/2004 decided on 01-03-2011
CIT vs Smt Neeru Aggarwal ITA 209/2012 decided on 29-04-2013
The followings factors are irrelevant to determine whether land is capital asset or not:
i) Land is situated in some other state while municipality is situated in some other state (As per Anajna Sehgal)

ii) Land is boyond specified limit from municipality in whose revenue records land appears while the land is in municipal limits or with in specidied distance from another municipality (whose revenue records do not cover that land in quastion) (As per Neeru Aggarwal)

Service Tax and Vat on Builders and Developers

Builders and Developers How the controversy arose

•         Supreme Court in case of K.Raheja Development Corporation (2005) 2 STT 178 SC which was a case on Karnataka General Sales Tax Act held that where developer was undertaking construction on behalf of prospective flat owners, it tantamounts to works contract and exigible to sales tax

•         In this case , the assessee had entered into development agreements with land owners. Developer to there after get the plan approved and after completion flats were to be handed over to those land owners who were to get undivided interest in the land also. There after owners to transfer flats to housing society. It was in this case that transaction was held to be works contract

•         On the basis of decision of K.Raheja Development Corporation , DG Service tax , Mumbai vide letter dated 16-02-2006 (withdrawn since 23-08-2007) sought to impose service tax on service part of transaction.

Exemption under s.54/54F is available for several units of residential house

CIT Vs. Gita Duggal, ITA No. 1237/2011, Judgment delivered on: 21.02.2013, High Court of Delhi.
In this case asessee entered into development agreement and was to get multiple units. AO added cost of construction of residential units to sale consideration but allowed exemption under 54 for one unit only. However court allowed exmption for multiple units

Capital Gain on Development Agreements

Where  assessee enters into agreement with developer to surrender his plot or building in consideration of receiving back cash and/or constructed flat/building, the transaction becomes exigible to capital gain.But the moot point is point of taxation of transaction as to whether it is:
i) Point of entering into agreement
ii) registration of plot/building in favor of developer
iii) when new plot/flat/ building is allotted
iv) when possession of plot/flat/ building is  handed over.

Cancellation of sales of immovable property held as stock in trade entitles assessee to revise return under section 139(5)

[2012] 27 taxmann.com 15 (Mumbai - Trib.)

IN THE ITAT MUMBAI BENCH 'A'

Lok Housing and Constructions Ltd.

v.

Assistant Commissioner of Income-tax-8(3)(OSD)

Vat on Builders

The Bombay High Court today dismissed a bunch of petitions filed by builders against two circulars of the Maharashtra Sales Tax department which levied VAT on all property transactions between 2006 and 2010.

Where land sold by assessee to builder had been acquired by Government and assessee had received no compensation, no capital gains arose to assessee even though he received consideration from builder

Tej Singh [2012] 25 taxmann.com 573 (Agra - Trib.)
Anil Kumar Forma (HUF) v. CIT [2007] 289 ITR 245/163 Taxman 182 (Mad.) and CIT v. Karambir Singh [2008] 303 ITR 231/169 Taxman 85 (Punj. & Har.) (para 6.3) followed.

If developer has taken any steps in relation to construction of flats, on the basis of development agreement, then it has to be considered as transfer under section 2 (47)(v)

When an owner enters into an agreement for development of the property and certain rights are assigned to the developer who in turn has made the substantial payment and taken steps to construction of flats , then the transaction is held to be a transfer under section 2(47)(v). Legal ownership continued with the owner does not have bearing on taxability of capital gains. Though total profits received in later year for the purpose of capital gains tax the year of transfer is relevant. On the facts of the case the provisions of section 53A of Transfer of Property Act is held to be applicable
ACIT v. A. Rama Reddy ( 2012) 52 SOT 521 (Hyd.)(Trib.)

Additional Compensation and new house received for displacement from old house is not taxable

Kushal K. Bangia v. ITO(2012) 50 SOT 1 (Mum.)(Trib.)

The assessee was the member of a housing society. The housing society and it’s members entered into an agreement with a developer pursuant to which the developer demolished the building

owned by the housing society and reconstructed a new multistoried building by using the FSI

arising out of the property and the outside TDR available under Development Control

Regulations. The assessee, as a member of the housing society, received a larger flat in the new

building, displacement compensation of Rs. 6 lakhs (at Rs.34,000/- p.m. for the period of

construction of the new building) and additional compensation of Rs.11.75 lakhs. The Assessing

Officer &CIT(A) held that the said “additional compensation” was assessable as income in the

assessee’s hands. On appeal by the assessee, held allowing the appeal: