2016 (5) TMI 370 - AT - Income Tax

Capital gain - valid transfer or not - existence of no conveyance deed or registered agreement for sale - Held that - In this instant case , the MOU dated 29.12.2004 entered with GCB is not registered and hence it does not convey any title or ownership rights u/s. 53A of the Transfer of Property Act,1882 in respect of the property as per the newly inserted section 17(1A) of the Registration Act,1908. Thus with regard to the transfer of the property in the instant case as per factual matrix of the case as set out above, there is no valid transfer u/s. 53A of the Transfer of Property Act,1882 had taken place as contemplated u/s. 2(47) of the Act as the MOU dated 29.12.2004 is an unregistered document , no title has been transferred in part performance of the contract as it had not affected the immovable property comprised there-in, hence capital gain cannot be brought to tax. We have also noticed in the instant case that possession is handed over for the limited purpose of demolition and reconstruction of the property for constructing seven storey s of residential building on this property , and it is not that the assessee and the other coowners of the property in execution of the MOU have handed over the possession of the property in lieu of the part consideration received from GCB in the capacity of the buyer of the said property, rather the possession of the afore-stated property was handed over to GCB as licensee only for limited purpose of demolition of the existing bungalow and for reconstruction of the said property by constructing seven storey s residential building on the said property. The assessee and the co-owners continue to enjoy the possession as and in the capacity as the owners of the afore-stated property while concurrent possession was with GCB as licensee for limited purposes of demolition of bungalow and for construction of seven stories and hence in our considered view, income there-of cannot be brought to tax in the hands of the assessee and the co-owner during the impugned assessment year as transfer as contemplated u/s 2(47) of the Act read with Section 53A of the Transfer of Property Act ,1882 is not been effected as the possession in fact was never been transferred from the assessee and the co-owners to the GCB in its capacity as buyer of the fourth and fifth floor to be constructed in lieu of constructing rest of five floors for the assessee and the other co-owners as also on payment of ₹ 1.65 crores by GCB to the assessee and other co-owners as per facts and circumstances of the case as set out above. The agreement has already been terminated by the assessee and the co-owners on15.10.2007 for deficiency and discrepancies in performance by GCB in terms of the MOU dated 29.12.2004 with respect to the quality of construction and time of completion and the matter being sub-judice whereby Hon ble Bombay High Court is seized of the suit filed by GCB with respect to the dispute between the assessee and co-owners on the one hand and the GCB on the other hand. Complete performance of the MOU has not allegedly been done by the builder as it is also on record that only 90% of the work was claimed to have been finished by GCB and no conveyance deed or registered agreement for sale has been registered in favour of GCB by the assessee and the other coowners. The additions made by the AO and as confirmed by the CIT(A) in view of our above reasoning and discussions as set out above are not - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of notice served on AOP/BOI/co-owner.
2. Proper jurisdiction for the assessment order.
3. Legitimacy of "assumed Long Term Capital Gains" on substantive and protective bases.
4. Assessment of capital gains in the hands of individual co-owners versus AOP/BOI.
5. Validity of reopening assessments under Section 147/148 of the Income Tax Act.

Detailed Analysis:

1. Validity of Notice Served on AOP/BOI/Co-Owner:
The assessee contended that no valid and legal notice was served on the AOP/BOI/co-owner. The Tribunal noted that no such claim was made during the assessment proceedings. The CIT(A) observed that the property was inherited by family members, and the ownership did not lead to the formation of an AOP. The shares of the respective co-owners were definite and ascertainable, and the income from the property was to be assessed in the hands of the co-owners, not as an AOP.

2. Proper Jurisdiction for the Assessment Order:
The assessee argued that the assessment order was passed without proper jurisdiction. The Tribunal upheld the CIT(A)'s decision, stating that the AO had jurisdiction over the individual co-owners and not over an AOP, as no AOP was formed. The property was inherited, and the shares were definite and ascertainable, making the assessment in individual capacity valid.

3. Legitimacy of "Assumed Long Term Capital Gains":
The AO treated the amount received from GCB as income from capital gains, asserting that the possession of the property was handed over to GCB, which constituted a transfer under Section 2(47) of the Act. The CIT(A) upheld this view, noting that the possession was handed over for demolition and reconstruction, and the compensation was received. However, the Tribunal found that the MOU was unregistered and thus did not constitute a valid transfer under Section 53A of the Transfer of Property Act, 1882, as amended by the Registration Act, 1908. Consequently, no capital gains could be brought to tax.

4. Assessment of Capital Gains in the Hands of Individual Co-Owners versus AOP/BOI:
The Tribunal agreed with the CIT(A) that the income should be assessed in the hands of the individual co-owners and not as an AOP. The property was inherited, and the shares were definite and ascertainable. The Tribunal rejected the assessee's contention that the income should be assessed in the hands of an AOP.

5. Validity of Reopening Assessments Under Section 147/148:
In the cases of Mr. Rajiv D. Dave and Ms. Ansuya H. Dave, the AO reopened the assessments based on new and tangible material indicating that the respective assessees had not disclosed their share of long-term capital gains. The Tribunal upheld the reopening of assessments, noting that the AO had a direct and live link with the formation of belief that income had escaped assessment. The reopening was done within four years from the end of the assessment year, making it valid and proper.

Conclusion:
The Tribunal allowed the appeal in ITA No. 1038/Mum/2013, concluding that no valid transfer of property occurred under Section 53A of the Transfer of Property Act, 1882, due to the unregistered MOU, and thus, no capital gains could be taxed. The appeals in ITA No. 155 & 156/Mum/2015 were partly allowed, upholding the reopening of assessments under Section 147/148 but rejecting the substantive assessment of capital gains in the hands of the respective assessees.