Section 2(47)(v)

Section 2(47)(v) — the law in short

What the courts have decided on section 2(47)(v), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Seshasayee Steels P Ltd v ACIT Supreme CourtHelps department
  I signed a development agreement and a power of attorney years ago and let the builder start construction. The Department says my capital gain arose only later, when the settlement money came in. Which year is right?
  The later year. The Supreme Court dismissed the assessee's appeal and held the transfer took place in assessment year 2004-05. Permission to a builder to enter and construct is a licence, not possession under section 53A of the Transfer of Property Act, so section 2(47)(v) was not attracted on the 1998 agreement to sell. Nor was section 2(47)(vi), because on that date the owner's rights were intact both in ownership and in possession. What effected the transfer was the memorandum of compromise of July 2003, under which the whole consideration was received and the owner's rights were extinguished on encashment of the last cheque.
• CIT v Balbir Singh Maini Supreme CourtHelps taxpayer
  Our JDA was never registered and the project collapsed. Am I still taxed on capital gains?
  No. After the 2001 amendment to the Transfer of Property Act, a s.53A contract has no effect in law unless registered, so an unregistered JDA is not a transfer under s.2(47)(v); s.2(47)(vi) was not attracted either because the owners kept ownership. Independently, with the permissions never obtained, no enforceable right to receive income accrued and the gain was hypothetical.
• Coromondel Cabeles P Ltd v ACIT High CourtCuts both ways
  The Department has taxed my housing project income as business profit. Can I claim the section 80-IB(10) deduction now, in appeal, when I never claimed it in my return?
  Not for years governed by section 80AC. The Madras High Court held that where section 80AC applies, the deduction cannot be allowed unless the return was filed by the due date and the claim was made in it. The assessee had made no claim under section 80-IB in its return, so for assessment years 2007-08 to 2011-12 the benefit was refused, section 80AC having been inserted by the Finance Act 2006 with effect from 1 April 2006. For assessment year 2006-07 the question was answered in the assessee's favour. The Court recorded a prima facie view that the requirement may be directory, but held it could say so only under Article 226 and not in a section 260A appeal.
• Pankaj Kumar v CIT (Patna High Court) — section 45(5A) is prospective; a joint development agreement signed before 1 April 2018 is taxed in the year of transfer under section 2(47)(v) High CourtHelps department
  I signed a joint development agreement before April 2018 and the project completion certificate came much later. Can I claim the benefit of section 45(5A) and defer my capital gain to the completion year?
  No. The Patna High Court held that sub-section (5A) of section 45, inserted by the Finance Act 2017 and expressly made effective from 1 April 2018, cannot be treated as retrospective — neither by its express words nor by any necessary intendment. A joint development agreement entered into by an individual or HUF before 1 April 2018 continues to be governed by the pre-amendment law, that is by section 2(47)(v) read with sections 45 and 48, so the gain falls in the previous year in which the transfer was effected.
• DIT (Exemption) v Charanjiv Charitable Trust High CourtHelps departmentSuperseded by amendment
  My trust paid an advance to a company in which the trustees are interested, under an agreement to buy land, and the deal was later cancelled. Is that a s.13(1)(c) violation even though no money went out in the year in question?
  Yes, on these facts. The Delhi High Court held that where trust funds remain with a s.13(3) person without interest or security, that is a direct use of the funds for the benefit of a prohibited person, and s.13(2)(a) makes clear that it is enough that the money continues to be lent during the previous year — no fresh advance in that year is needed. The agreements to sell were treated as a device to take the payments out of the word 'lent', and exemption under s.11 was denied for both years.
• CIT v Radhe Developers High CourtHelps taxpayer
  I developed a housing project on land I had agreed to buy but never got title to, and the local authority's approval stands in the landowner's name. Can I still claim section 80-IB(10)?
  Yes. The Gujarat High Court held that ownership of the land is not a condition of section 80-IB(10). What matters is whether the assessee developed and built the project at its own risk and cost. Here the developer took every decision, invested its own funds, engaged the agencies, bore the entire risk of profit or loss, and paid the landowner a fixed price - so it was not a works contractor. The Court added that in any event, having taken possession under a development agreement and an agreement to sell, the developer was the owner for this purpose by virtue of section 2(47)(v) read with section 53A of the Transfer of Property Act.
• CIT v Rajesh Kumar Jalan High CourtHelps taxpayer
  I did not put the unused capital gain into the capital gains account scheme by the due date under section 139(1). Have I lost the section 54 exemption?
  Not necessarily. The Gauhati High Court dismissed the Revenue's appeal and upheld the exemption for the whole gain of Rs 29,73,048. Section 54(2) requires the unutilised gain to be deposited before the date of furnishing the return of income under section 139, and section 139 there cannot mean only section 139(1); it means all the sub-sections, including sub-section (4). So an assessee who utilises the gain before the time allowed by section 139(4) has complied. The Court applied the settled rules that a beneficial provision is construed to advance its purpose and that no words are to be added to a plain provision.
• Chaturbhuj Dwarkadas Kapadia v CIT High CourtCuts both ways
  I signed a development agreement years ago but the builder only got the approvals and paid the last instalment later. Which year do I pay capital gains tax in?
  The year the contract was entered into, if the contract read as a whole passes complete control of the property to the developer. The Bombay High Court held that section 2(47)(v) exists precisely because a development agreement transfers no interest under the general law, so capital gains can fall due before conveyance and even before physical possession. Where the agreement itself contemplates a limited power of attorney letting the developer deal with the property, the date of that agreement fixes the year of chargeability, and what the developer did afterwards is beside the point. On the facts the assessee's appeal was allowed, because the transfer did not fall in assessment year 1996-97.
• ACIT v Lakkanna Durgappa (ITAT Bangalore) — the Revenue cannot use section 45(5A) either: a pre-2018 JDA gain cannot be shifted to the completion-certificate year ITATHelps taxpayerNo later treatment found
  My joint development agreement was signed in 2012 and the completion certificate came in the year under assessment. The Assessing Officer has taxed the whole capital gain in this later year by invoking section 45(5A). Can he?
  No. The Tribunal held that where the JDA was executed and possession handed over in FY 2012-13, the transfer within the meaning of section 2(47)(v) occurred in that year and the gain was chargeable in AY 2013-14 under the law then in force. Section 45(5A), inserted with effect from 1 April 2018, is prospective, so the gain cannot be shifted to AY 2020-21 merely because the completion certificate was received in that year. All four of the Revenue's appeals were dismissed.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.