2019 (2) TMI 702 - AT - Income Tax

Computation of long term capital gains - transfer of a capital asset - part performance of the contract - whether land in question stands within the definition of the term transfer as envisaged in the provisions of section 2(47)? - possession of the property was under dispute and the assessee had obtained injunction from the Civil Court to stop any further transfer of the disputed property by the purchaser - Held that - As per sale deed sale consideration was to be paid as per Schedule A to the said agreement for which postdated cheques were issued which were to be encashed as per the conditions mentioned for encashment of cheques. As per clause 8 of the sale deed the purchasers had given postdated cheques to sellers and it was their responsibility to see that the postdated cheques get cleared for payment. In view of the said cheques being stopped for payment and the dispute arising between the parties and even the dispute being who is in possession of the said property reflects that even part performance of the contract has not been settled. In such circumstances we find guidance from the ratio laid down by the Apex Court in CIT Vs. Balbir Singh Maini 2017 (10) TMI 323 - SUPREME COURT OF INDIA that where the transaction has not materialized then no profit or gain which arises from the alleged transfer of capital asset could be brought to tax under section 45 r.w.s. 48 of the Act. The grounds of appeal raised by assessee are thus allowed.

Summary

Issues Involved:
1. Legality of assessing Long Term Capital Gain (LTCG) on the transfer of ancestral land.
2. Impact of non-receipt of full consideration on the transfer of property.
3. Validity of the sale deed and its implications on LTCG.
4. Civil disputes and their effect on the assessment of LTCG.
5. Condonation of delay in filing the appeal.
6. Levy of interest under sections 234B/234C of the Income-tax Act.

Detailed Analysis:

1. Legality of Assessing LTCG on Transfer of Ancestral Land:
The primary issue is whether the Assessing Officer (AO) was justified in assessing LTCG on the transfer of the assessee's 1/4th share in ancestral land. The assessee contended that the transfer did not occur as possession was not handed over, and full consideration was not received. The AO, however, held that the property was transferred under section 2(47) of the Income-tax Act, which defines 'transfer,' and thus LTCG was applicable.

2. Impact of Non-Receipt of Full Consideration:
The assessee argued that the non-receipt of full consideration is crucial for the transfer of immovable property. The Civil Court granted a Permanent Injunction restraining the purchasers from creating any third-party interest until full consideration was received. The AO's assessment of LTCG was challenged on the grounds that the sale deed did not result in an actual transfer of property as per sections 2(47)(v) and 53A of the Transfer of Property Act.

3. Validity of the Sale Deed and Its Implications on LTCG:
The sale deed was executed and registered, but the cheques for the consideration were not encashed. The CIT(A) held that the ownership transferred upon execution of the sale deed, and the sale deed was valid despite the non-encashment of cheques. The CIT(A) concluded that the sale deed was not null and void, and the LTCG was assessable. However, the Tribunal noted that the sale transaction did not culminate due to non-payment and disputes, thereby questioning the applicability of LTCG.

4. Civil Disputes and Their Effect on the Assessment of LTCG:
The matter was subjudice, with ongoing litigation in the Bombay High Court. The Tribunal observed that the possession of the property had not been transferred, and the sale consideration was not received. The Tribunal referenced the Supreme Court's decision in CIT Vs. Balbir Singh Maini, which held that hypothetical income from a non-materialized transaction could not be taxed. Therefore, the Tribunal concluded that the conditions for assessing LTCG were not met.

5. Condonation of Delay in Filing the Appeal:
The appeal was filed after a delay of 417 days. The assessee provided an affidavit explaining the delay due to ongoing litigations. The Tribunal found merit in the reasons provided and condoned the delay, allowing the appeal to be heard.

6. Levy of Interest Under Sections 234B/234C:
The Tribunal did not specifically address the issue of levying interest under sections 234B/234C, as the primary contention regarding the non-assessment of LTCG was resolved in favor of the assessee.

Conclusion:
The Tribunal allowed the appeal, holding that the conditions for assessing LTCG were not fulfilled due to non-receipt of full consideration and non-transfer of possession. The appeal was allowed, and the assessment of LTCG was quashed. The Tribunal's decision was based on the factual matrix, legal provisions, and the Supreme Court's precedent in CIT Vs. Balbir Singh Maini.