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2009 (4) TMI 804 - AT - Income TaxAssessment completed u/S 143(3) r/w section 153A - Search and seizure action u/s 132 - Nature of transfer of capital asset - Short term capital gain or not? - Doctrine of part performance - Agreement was substituted by another agreement entered into between the assessee and MAPL - AO laid his hands on the agreement entered into between the assessee and MAPL for the sale of 4300 sq.ft. of built-up area in the ground floor of the hotel building of M/s. Harbour View - no written stipulation for transfer of possession of the property - no registration of the conveyance deed taken place - AO completed the assessment by fixing the total income in the nature of short-term capital gains - no transfer within the meaning of section 2(47) and section 53A of the Transfer of Property Act - CIT (A) held that there cannot be any case of transfer of property and no case of levy of capital gains - accordingly allowed the appeal of the assessee and deleted the income determined by AO by way of short-term capital gains. HELD THAT - In the present case, there is only one agreement and that agreement is the agreement to sell in which there is no written stipulation that the possession of the property shall be handed over to the transferee. In the absence of any such written stipulation, it is not permissible in law to presume that the conditions provided under section 53A of the Transfer of Property Act are satisfied. For invoking the equitable doctrine of part performance , there has to be a contract in writing from which the terms of transfer can be ascertained with reasonable certainty. There should be a stipulation in writing for the transfer of the possession of the property and there should be specific clause in the agreement to sell that the possession of the said property shall be transferred/handed over in part performance of the contract. In the light of the terms of the agreement entered into between the parties in the present case, the transfer of title in the property and the transfer of possession of the property go simultaneously hand-in hand on the execution and registration of conveyance deed. Therefore, in law, we find that there is no basis for the finding of AO that there was any part performance of the contract within the meaning of section 53A of the Transfer of Property Act, 1882 and thereby a transfer of asset within the meaning of section 2(47) of the Income-tax Act. Thereafter, the assessee has rescinded the contract. After retaining the non-refundable sum, the balance was returned to Sai Sales and Services. On the basis of that development, the assessee accounted the non-refundable part of the consideration by crediting its profit and loss account and thereafter offered it as income from other sources for the AY 2004-05. The assessee has clearly explained the receipt and disposal of money in pursuance of the aborted sale contract. The most important aspect to be seen in the present case is that on termination of the agreement to sell, no legal rights accrued to the vendee, MAPL. No cause of action was conferred on the vendee, MAPL as a result of the termination of the agreement. There is no case even for the Revenue that on termination of the agreement by mutual consent, the vendee, MAPL had returned possession of the property back to the assessee. Just like the agreement to sell that no stipulation is there regarding transfer of possession of the property, termination agreement also does not have any stipulation that possession of the property is retransmitted from vendee to vendor. This is a very important aspect of the case. One has to examine all the legal consequences flowing out of the termination of the agreement. There is no consequence at all except the repayment of part of the money received by the assessee in pursuance of the agreement. The assessee is not subjected to any further legal obligation under the earlier agreement or under the termination agreement. The vendee, MAPL is not advantaged by any benefits on termination of the agreement. Therefore it is to be seen that the agreements finally ended in money transactions only and agreements have nothing to do with the transfer of possession of the property from vendor to vendee or from vendee to vendor. Therefore, the materials were collected in the course of search and in the light of section 53A, we hold that AO has erred in making out a case of transfer of capital asset to compute short term capital gains in the hands of the assessee. CIT(A) has rightly deleted the same and set aside the assessment. Therefore, we find that this appeal filed by the Revenue is liable to be dismissed. Order accordingly.
Issues Involved:
1. Determination of short-term capital gains. 2. Application of Section 2(47) of the Income Tax Act, 1961. 3. Application of Section 53A of the Transfer of Property Act, 1882. 4. Validity of the termination of the agreement to sell. 5. Consideration of subsequent events in the assessment year. Issue-wise Detailed Analysis: 1. Determination of short-term capital gains: The primary issue in this case was whether the transaction between the assessee and M/s. Malabar Automobiles Pvt. Ltd. (MAPL) resulted in short-term capital gains. The assessing officer computed a total income of Rs. 1,87,00,000 as short-term capital gains based on the agreement to sell 4300 sq.ft. of built-up area. The Commissioner (Appeals) held that no possession was handed over to MAPL, and the agreement was rescinded by mutual consent, thus no capital gains were applicable. 2. Application of Section 2(47) of the Income Tax Act, 1961: Section 2(47) defines "transfer" in relation to a capital asset. The assessing officer argued that the possession of the property was taken over by MAPL, invoking Section 2(47) read with Section 53A of the Transfer of Property Act. However, the Commissioner (Appeals) and the Tribunal found that the possession was not transferred, and the agreement did not culminate in a sale deed, thus no transfer occurred under Section 2(47). 3. Application of Section 53A of the Transfer of Property Act, 1882: Section 53A deals with the doctrine of part performance. The assessing officer claimed that MAPL took possession of the property in part performance of the contract. However, the Commissioner (Appeals) and the Tribunal noted that there was no written stipulation in the agreement regarding the transfer of possession before the sale deed execution. Therefore, Section 53A was not applicable. 4. Validity of the termination of the agreement to sell: The assessee argued that the agreement was terminated by mutual consent, and the amount received from MAPL was partly returned and partly retained as non-refundable. The Commissioner (Appeals) accepted this argument, noting that the agreement was rescinded before the search and seizure action, and the property was subsequently rented out to HSBC. The Tribunal upheld this view, emphasizing that the termination of the agreement was valid and no legal rights accrued to MAPL. 5. Consideration of subsequent events in the assessment year: The assessing officer focused on the events up to 31-3-1999, ignoring subsequent developments. The Tribunal criticized this approach, stating that the entire chain of events, including the termination of the agreement and the subsequent rental arrangement with HSBC, should be considered. The Tribunal concluded that the assessing officer's piecemeal approach was against the law, and the full picture showed that no transfer of capital asset occurred. Conclusion: The Tribunal upheld the Commissioner (Appeals)' decision, finding that there was no transfer of possession or title of the property to MAPL, and no short-term capital gains arose from the transaction. The appeal filed by the revenue was dismissed.
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