2018 (6) TMI 1542 - AT - Income Tax

Income from capital gain - Enhancement of income - Transfer of ancestral property - JDA - hypothetical income - assessee has entered into an agreement to sell the property during the year and has received part payment and has also given part possession - Co-ownership - assessee had 30% share in the ancestral property - cancellation of agreement - Held that - We do not find any force in the conclusion of the ld. CIT(A) because in our understanding of law qua the facts in issues provisions of section 2(47)(v) of the Act the r.w.s 53A of the Transfer of Property Act 1882 are not applicable because this issue is now well settled by the judgment of the Hon ble Supreme Court in the case of CIT Vs. Balbir Singh Maini CS Atwal 2017 (10) TMI 323 - SUPREME COURT OF INDIA wherein held a reading of the JDA in the present case would show that the owner continues to be the owner throughout the agreement and has at no stage purported to transfer rights akin to ownership to the developer. At the highest possession alone is given under the agreement and that too for a specific purpose -the purpose being to develop the property as envisaged by all the parties. We are therefore of the view that this clause will also not rope in the present transaction. The income from capital gain on a transaction which never materialized is at best a hypothetical income. It is admitted that for want of permissions the entire transaction of development envisaged in the JDA fell through. In point of fact income did not result at all for the aforesaid reason. This being the case it is clear that there is no profit or gain which arises from the transfer of a capital asset which could be brought to tax under Section 45 read with Section 48 of the Income Tax Act. The assessee did not acquire any right to receive income inasmuch as such alleged right was dependent upon the necessary permissions being obtained. This being the case in the circumstances there was no debt owed to the assessee by the developers and therefore the assessees have not acquired any right to receive income under the JDA. This being so no profits or gains arose from the transfer of a capital asset so as to attract Sections 45 and 48 of the Income Tax Act. - Decided in favour of assessee.

Summary

Issues:
Cross appeals by the assessee and revenue against the order of the ld. CIT(A) regarding alleged transfer of ancestral property and income addition based on seized cash. Notice for enhancement of income invoked by ld. CIT(A) under section 2(47)(v) r.w.s. 53A of the Transfer of Property Act, 1882. Dispute over whether transfer of property took place and applicability of section 53A.

Analysis:

1. Alleged Transfer of Ancestral Property:
- The case involved cross appeals by the assessee and revenue regarding the alleged transfer of ancestral property. The co-owners had agreed to sell the property to a buyer, leading to a dispute and subsequent cancellation of the agreement. The Assessing Officer made an addition to the assessee's income based on the seized cash.

2. Notice for Enhancement of Income:
- The ld. CIT(A) issued a notice for enhancement of income under section 2(47)(v) r.w.s. 53A of the Transfer of Property Act, 1882, contending that the property transfer had taken place based on the agreement to sell and partial payments received. The assessee opposed this notice, leading to an appeal.

3. Applicability of Section 53A:
- The ld. CIT(A) invoked the provisions of section 53A of the Transfer of Property Act, 1882, based on the partial payments received and possession taken by the buyer. However, the Tribunal disagreed with this interpretation citing a judgment of the Hon'ble Supreme Court which clarified that unregistered agreements have no effect in law for the purposes of section 53A.

4. Decision and Conclusion:
- The Tribunal held that the transferee was not willing to perform his obligations under the agreement, leading to the cancellation of the agreement. Citing the Supreme Court judgment, it emphasized that unregistered agreements cannot be enforced under section 53A. Therefore, the Tribunal directed the deletion of the impugned additions, dismissing the Revenue's appeal and allowing the appeals of both assessees.

By analyzing the facts and legal provisions, the Tribunal clarified the applicability of section 53A in the context of unregistered agreements, ultimately ruling in favor of the assessee and setting aside the income additions. The judgment highlights the importance of legal formalities in property transactions and the significance of performance of contractual obligations in determining the enforceability of agreements under the law.