ACIT vs. Upper India Paper Mills Co Pvt. Ltd (ITAT Lucknow)

As per project development agreement, the possession was given for construction/development of project with certain conditions stipulated in the agreement. Whatever amount was received, it was simply interest free advance to meet certain expenses to be borne by the assessee in order to discharge certain responsibilities conferred upon it through the agreement. The said advance would be refundable at different phases stipulated in the agreement. The Assessing Officer has invoked the provisions of section 2(47)(v) of the Act and treated this handing over of the possession of vacant land to the second party i.e. M/s Arif Industries Ltd. for the purpose of construction of residential/commercial towers as a transfer of capital asset and computed the capital gain in the hands of the assessee. The provisions of section 2(47)(v) of the Act can only be invoked where absolute possession of capital asset was given to the buyer against certain consideration, but in the instant case no consideration was ever fixed for handing over the possession to the developer and whatever amount was received it was received as interest free advance to meet the expenses to be incurred in discharging certain responsibilities agreed upon in this agreement. Therefore, from any angle there is no transfer of asset as per provisions of section 2(47) of the Act and capital gain would only be chargeable in the years in which stock-in-trade would be sold (Chaturbhuj Dwarkadas Kapadia vs. CIT, 260 ITR 491 (Bombay), R. Gopinath (HUF) vs. ACIT 133 TTJ 595 (Chennai) & DCIT vs. Crest Hotels Ltd., 78 ITD 213. followed)