2009 (10) TMI 621 - HC - Income Tax

Whether Transfer of land from the assessee to the society is transferred u/s 2(47) or not. - Date of transfer - receipt of compensation - amendment w.e.f. 1.4.1988 - Held that -the submission advanced by learned counsel for the Revenue that registration would relate back to the date of execution of the agreement, which was the date when the agreement was signed and attested and continued to be valid in the eyes of law till the date of registration on December 7, 1984, is not sustainable - there is no evidence of transfer of land to societies existed, the question of capital gains would not arise, and the same would be leviable within the meaning of section 45, as and when compensation is actually received by assessee.

Issues Involved:
1. Whether there was a valid transfer of land from the assessee to the society on December 7, 1984.
2. Whether capital gains tax is applicable on the alleged transfer of land.
3. The applicability of section 45 of the Income-tax Act, 1961, and section 2(47) of the Income-tax Act, 1961, both prior to and post-amendment by the Finance Act, 1987.
4. The relevance of section 53A of the Transfer of Property Act, 1882, in the context of the transaction.

Issue-wise Detailed Analysis:

1. Valid Transfer of Land:
The court examined whether there was a valid transfer of land from the assessee to the society on December 7, 1984. The sale deed was executed on December 7, 1984, and registered on January 22, 1986. The court noted that the sale deed stipulated that the entire sale consideration was to be paid by December 31, 1987, failing which the sale deed would be null and void. As the sale consideration was not paid by the stipulated date, the sale deed became null and void, and thus, no valid transfer occurred.

2. Applicability of Capital Gains Tax:
The court addressed whether capital gains tax was applicable on the alleged transfer of land. The Assessing Officer initially did not consider the issue of capital gains but later issued a notice under section 148(1) of the Act to assess capital gains. The Commissioner of Income-tax (Appeals) and the Tribunal subsequently deleted the capital gains, noting that the sale deed had become null and void due to non-payment of the sale consideration, and no compensation was received by the assessee.

3. Applicability of Section 45 and Section 2(47) of the Income-tax Act, 1961:
The court analyzed the provisions of section 45 and section 2(47) of the Income-tax Act, 1961. The definition of "transfer" under section 2(47) prior to the amendment by the Finance Act, 1987, required registration of the sale deed for levying capital gains tax. The amendment effective from April 1, 1988, included clauses (v) and (vi), which allowed for capital gains tax on handing over possession and part performance as per the agreement, without the need for registration. The court held that the amendment was prospective and not applicable to the assessment year 1985-86.

4. Relevance of Section 53A of the Transfer of Property Act, 1882:
The court examined the relevance of section 53A of the Transfer of Property Act, 1882, which deals with part performance of a contract. The court noted that prior to the amendment by the Finance Act, 1987, section 53A did not play a role in deeming a transaction as a transfer for capital gains tax purposes under the Income-tax Act. The court referenced the case of Nathulal v. Phoolchand, where the apex court outlined the conditions for part performance under section 53A, but emphasized that these conditions did not equate to a transfer of title for tax purposes before April 1, 1988.

Conclusion:
The court concluded that there was no valid transfer of land from the assessee to the society on December 7, 1984, as the sale deed became null and void due to non-payment of the sale consideration. Consequently, no capital gains tax could be levied on the alleged transfer. The court upheld the Tribunal's order, dismissing the Revenue's appeal and affirming that capital gains would only be chargeable when compensation is actually received by the assessee. The appeals were dismissed accordingly.

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