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2015 (7) TMI 878 - HC - Income TaxTransfer exigible to tax by reference to Section 2(47)(v) of the Income Tax Act, 1961 read with Section 53-A of the Transfer of Property Act, 1882 - JDA entered by assessee - Whether there was grant and assignment of various rights in the property by the appellant in favour of THDC alongwith handing over physical and vacant possession, the same tantamount to transfer ? - Whether ITAT has ignored rights emanating from the JDA, legal effect of non registration of JDA, its alleged repudiation etc.? - Held that - Perusal of the JDA dated 25.2.2007 read with sale deeds dated 2.3.007 and 25.4.2007 in respect of 3.08 acres and 4.62 acres respectively would reveal that the parties had agreed for pro-rata transfer of land. No possession had been given by the transferor to the transferee of the entire land in part performance of JDA dated 25.2.2007 so as to fall within the domain of Section 53A of 1882 Act. The possession delivered, if at all, was as a licencee for the development of the property and not in the capacity of a transferee. Further Section 53A of 1882 Act, by incorporation, stood embodied in section 2(47)(v) of the Act and all the essential ingredients of Section 53A of 1882 Act were required to be fulfilled. In the absence of registration of JDA dated 25.2.2007 having been executed after 24.9.2001, the agreement does not fall under Section 53A of 1882 Act and consequently Section 2(47)(v) of the Act does not apply. In view of cancellation of JDA dated 25.2.2007, no further amount has been received and no action thereon has been taken. It was urged that as and when any amount is received, capital gains tax shall be discharged thereon in accordance with law. In view of the aforesaid stand, while disposing of the appeals, we observe that the assessee appellants shall remain bound by their said stand. The issue of exigibility to capital gains tax having been decided in favour of the assessee, the question of exemption under Section 54F of the Act would not survive any longer and has been rendered academic. The Tribunal and the authorities below were not right in holding the assessee-appellant to be liable to capital gains tax in respect of remaining land measuring 13.5 acres for which no consideration had been received and which stood cancelled and incapable. - Decided in favour of assessee.
Issues Involved:
1. Scope and legislative intent of Section 2(47)(ii), (v), and (vi) of the Income Tax Act. 2. Essential ingredients for applicability of Section 53A of the Transfer of Property Act, 1882. 3. Meaning to be assigned to the term "possession." 4. Whether any taxable capital gains arise from the transaction entered by the assessee. 5. Whether amount yet to be received can be taxed on a hypothetical assumption. Detailed Analysis: 1. Scope and Legislative Intent of Section 2(47)(ii), (v), and (vi) of the Income Tax Act: Section 2(47) of the Income Tax Act defines 'transfer' in relation to a capital asset, which includes: - The extinguishment of any rights therein (Section 2(47)(ii)). - Any transaction involving the allowing of possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 (Section 2(47)(v)). - Any transaction which has the effect of transferring, or enabling the enjoyment of, any immovable property (Section 2(47)(vi)). The legislative intent behind incorporating clause (v) was to include transactions where possession is given or allowed to be retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, thus widening the net of taxation of capital gains. 2. Essential Ingredients for Applicability of Section 53A of the Transfer of Property Act, 1882: Section 53A of the Transfer of Property Act, 1882, provides protection to a transferee who has taken possession of the property in part performance of the contract. The essential conditions include: - There must be a contract to transfer for consideration any immovable property. - The contract must be in writing, signed by the transferor. - The transferee must have taken possession of the property or any part thereof in part performance of the contract. - The transferee must have performed or be willing to perform his part of the contract. The amendments brought by the Registration and Other Related Laws (Amendment) Act, 2001, mandate that such contracts must be registered to be enforceable under Section 53A. 3. Meaning to be Assigned to the Term "Possession": The term "possession" in the context of Section 2(47)(v) need not necessarily mean exclusive possession. It is sufficient if the transferee is enabled to exercise general control over the property and make use of it for the intended purpose. Concurrent possession of the owner and the transferee is possible, where the owner retains limited possessory rights while the transferee has general control. 4. Whether Any Taxable Capital Gains Arise from the Transaction Entered by the Assessee: The assessee had entered into a Joint Development Agreement (JDA) with developers, where the developers were to make payments and provide built-up property in consideration for development rights. The Tribunal held that the provisions of Section 2(47)(v) read with Section 53A of the Transfer of Property Act were applicable, and thus, the entire consideration receivable under the JDA was taxable as capital gains. However, the High Court found that: - The JDA was not registered, and thus, it did not meet the requirements of Section 53A of the Transfer of Property Act. - The possession delivered was as a licensee for development purposes, not as a transferee. - The developers had defaulted on payments, and disputes had arisen, leading to the termination of the JDA. Therefore, the High Court concluded that the transaction did not result in taxable capital gains under Section 2(47)(v) of the Income Tax Act. 5. Whether Amount Yet to be Received Can be Taxed on a Hypothetical Assumption: The High Court emphasized that income tax cannot be levied on hypothetical income. Income accrues when it becomes due and must be accompanied by a corresponding liability of the other party to pay the amount. Since the developers had defaulted on payments and the JDA was terminated, no income had accrued to the assessee that could be taxed. Conclusion: 1. The JDA dated 25.2.2007 and the subsequent sale deeds indicated pro-rata transfer of land. 2. No possession was given by the transferor to the transferee in part performance of the JDA. 3. The possession delivered was as a licensee for development purposes, not as a transferee. 4. The JDA was not registered, and thus, it did not meet the requirements of Section 53A of the Transfer of Property Act. 5. The developers had defaulted on payments, and the JDA was terminated, leading to no taxable capital gains arising from the transaction. The High Court allowed the appeals, holding that the assessee was not liable to capital gains tax on the remaining land for which no consideration had been received. The issue of exemption under Section 54F was rendered academic.
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