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2008 (8) TMI 7 - HC - Income TaxHUF - agreement for sale dated 24.06.77 was substituted by the collaboration agreement dated 6.10.81 & the agreement to sell dated 6.10.81- There was no interest, much less, any right transferred in the property in favour of SSPL by the assessees - and hence, there was no transfer of a right in property as contemplated u/s 2 (47) - Tribunal was right in holding that there was no transfer of a capital asset within the meaning of Section 2(47) and hence no capital gain has arisen to the assessee
Issues Involved:
1. Whether there was a transfer of a capital asset within the meaning of Section 2(47) of the Income-Tax Act, 1961. 2. Whether any capital gains accrued to the assessees. Detailed Analysis: Issue 1: Transfer of a Capital Asset The primary legal question was whether the transaction between the assessees and Skipper Sales Private Limited (SSPL) constituted a "transfer of a capital asset" under Section 2(47) of the Income-Tax Act, 1961. The court examined the agreements and the circumstances surrounding them. 1. Original Agreement (24.06.1977): The first assessee agreed to sell his 1/6th share in the property to SSPL for Rs. 16 lacs. However, this agreement did not culminate in a registered conveyance deed. 2. Subsequent Agreements (06.10.1981): Due to various reasons, the parties substituted the original agreement with a collaboration agreement and a new agreement to sell. The collaboration agreement aimed at constructing a multi-storeyed commercial building, with the first assessee receiving 6000 sq. ft. of built-up area and three garages in return. The first assessee would then sell 4000 sq. ft. and two garages to SSPL for Rs. 11 lacs. 3. Legal Estate vs. Equitable Estate: The court noted that in India, a legal estate remains with the seller until a registered conveyance deed is executed. Thus, the legal estate in the property remained with the first assessee, creating only an equitable estate in favor of SSPL, giving them the right to seek specific performance. 4. No Registered Conveyance Deed: The absence of a registered conveyance deed meant that no legal transfer of the property occurred. The court cited the Supreme Court case of Nawab Sir Mir Usman Ali Khan v. CWE Hyderabad, where it was held that the legal and real ownership remains with the seller until a registered sale deed is executed. 5. Permissive Right to Build: The collaboration agreement granted SSPL a permissive right to build on the land, which did not amount to a transfer of a capital asset. The court emphasized that this permissive right did not extinguish the first assessee's rights as a perpetual lessee. Issue 2: Accrual of Capital Gains The court examined whether any capital gains accrued to the assessees under Section 45 of the Income-Tax Act, 1961. 1. Section 45 and Section 2(47): Under Section 45, capital gains are chargeable to income tax if profits or gains arise from the transfer of a capital asset. Section 2(47) defines "transfer" to include sale, exchange, relinquishment, or extinguishment of rights in the asset. 2. Conditions for Capital Gains: The court noted that capital gains would accrue only if there was a transfer of a capital asset, which necessitates the existence of the asset and its transfer. 3. Non-Existence of the Proposed Building: The court observed that the proposed multi-storeyed building was not constructed, and thus, the property subject to the agreement to sell did not come into existence. Consequently, no transfer of the capital asset could occur. 4. Advance Payments: The payments received by the first assessee were treated as security or advance, which could only be appropriated upon the performance of the collaboration agreement. Since the building was not constructed, there was no occasion for the first assessee to transfer the allocable area to SSPL. 5. No Extinguishment of Rights: The court concluded that there was no extinguishment of the first assessee's rights in the property, as the collaboration agreement did not result in the transfer of any existing property. The rights would crystallize only if and when the building came into existence. 6. Distinguishing Case Law: The court distinguished the present case from CIT v. Laxmi Devi and Ratni Devi and Ors, where relinquishment of a right in property resulted in capital gains. In the present case, no such relinquishment or transfer occurred. Conclusion: The court upheld the decision of the ITAT, concluding that no capital gains accrued to the assessees as there was no transfer of a capital asset within the meaning of Section 2(47) of the Income-Tax Act, 1961. The question referred to the court was answered in favor of the assessees and against the Revenue.
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