2018 (9) TMI 474 - AT - Income Tax

Disallowing the claim of exemption u/s. 54 - LTCG - purchase of new residential property - agreement to sell is an unregistered documents - Whether vendee can seek decree of specific performance on the basis of unregistered agreement to sell? - Held that - It is not the case of the AO/Ld. CIT(A) that the vendee as per agreement to sale is not the vendee when the registration of conveyance deed was executed on 26.12.2011 and, therefore, as per the ratio laid in Sanjeev Lal (2014 (7) TMI 99 - SUPREME COURT), we find force in the claim made by the assessee to claim exemption u/s. 54 of the Act and we hold that once an agreement to sale is executed in favour of vendee, the said vendee gets a right to get the property transferred in his favour by filing a suit under Specific Performance Act and, therefore, some right in respect of the said property (old residential property) belonging to the assessee had extinguished and some rights have been created in favour of the vendee/transferee when the agreement to sale has been executed. Thus, a right in respect of the capital asset (old residential property in question) has been transferred by the assessee in favour of the vendee/transferee on 16.09.2011 and, therefore, since purchase of the new property on 04.10.2010 which fact has been disputed by the AO/Ld. CIT(A) the purchase of the property is well within one year from the date of transfer as per sec. 2(47) of the Act, therefore, we allow the appeal of the assessee. CIT(A) erred in understanding the ratio decidendi laid by the Hon ble Supreme Court in Sanjeev Lal, supra and, therefore, he erred in passing the impugned order, so we set aside the order of the Ld. CIT(A) and we allow the appeal of the assessee and direct AO to grant exemption u/s. 54 of the Act in accordance to law. We are of the opinion that though the agreement to sell is not registered, the vendee can seek decree of specific performance on the basis of unregistered agreement to sell - Decided in favour of assessee

Summary

Issues:
Disallowance of claim for exemption u/s. 54 of the Income-tax Act, 1961.

Analysis:
The appeal was against the decision of the Ld. CIT(A) confirming the AO's disallowance of the assessee's claim for exemption u/s. 54 of the Act for LTCG of ?15,04,361. The AO held that since the new property was not purchased within one year from the date of transfer of the old asset, the claim was denied. The Ld. CIT(A) upheld this decision, leading to the appeal.

The key contention was the interpretation of the term "transfer" under sec. 2(47) of the Act. The assessee argued that the agreement to sell created a right in favor of the buyer, extinguishing certain rights in the old property. Citing the Supreme Court decision in Sanjiv Lal, the assessee claimed that the agreement date should be considered the transfer date, not the registration date as held by the AO/Ld. CIT(A).

The Tribunal noted that to avail sec. 54 benefits, a new asset must be purchased within a specific timeframe related to the old asset's transfer. Considering the definition of "transfer" under sec. 2(47) and the facts of the case, it was concluded that the agreement to sell extinguished rights in the old asset, constituting a transfer. The Tribunal emphasized that the agreement date was crucial, as it created rights in the buyer's favor, aligning with the Sanjiv Lal decision.

Regarding the admissibility of the unregistered agreement to sell, the Tribunal referenced the Registration Act and relevant court decisions. It was established that while such documents may not be admissible for certain purposes, they could be used as evidence for specific performance suits. Citing precedents, the Tribunal affirmed that the unregistered agreement could support a decree of specific performance in accordance with the law.

In conclusion, the Tribunal allowed the appeal, directing the AO to grant exemption u/s. 54 of the Act. The decision was based on the understanding that the agreement to sell constituted a transfer, aligning with the Supreme Court's interpretation and legal provisions. The Tribunal's analysis encompassed the legal definitions, precedents, and the specific circumstances of the case, ensuring a thorough and detailed evaluation leading to the favorable outcome for the assessee.