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2022 (2) TMI 283 - AT - Income TaxTransfer of property and accrual of capital gain - Year of transfer of capital asset - whether the Agreement to sell entered by the assessee with Shri Ramaiah Reddy to sell 80% of undivided share in the land having an extent of 2 acres and 15 guntas would result in transfer of asset or not? - as per AO transaction entered between the assessee and Shri Ramaiah Reddy is akin to extinguishment of rights in the capital asset as per the definition of the term transfer given in sec.2(47) - As per assessee mere entering of Agreement to Sell will not result in transfer of asset - HELD THAT - We notice that issue whether the Agreement to sell would result in transfer of asset or not was examined by Hon ble Gujarat High Court in the case of Ushaben Jayantilal Sodhan 2018 (5) TMI 1275 - GUJARAT HIGH COURT It is not the case of the AO that the provisions of sec. 53A of the Transfer of Property Act would apply to the impugned transaction. In fact, it is the submission of the assessee that the possession was never given to Shri Ramaiah Reddy. Hence, what was entered by the assessee with the above said person was mere Agreement to sell . In the above said decision, the Hon ble Gujarat High Court has held that the agreement to sell will not result in transfer of asset. In that case, there is no question of any extinguishment of right, as held by the AO and confirmed by Ld CIT(A). Hence the question of assessing any capital gain in AY 2008-09 does not arise. In that view of the matter, we are unable to approve the computation of capital gain made by the AO in AY 2011-12 also. Accordingly, the computation of capital gain made by the assessee in AY 2011-12 is upheld. - Decided in favour of assessee.
Issues Involved:
1. Year of transfer of property and accrual of capital gain. Detailed Analysis: 1. Year of Transfer of Property and Accrual of Capital Gain: The main issue in both appeals relates to determining the year of transfer of property and the subsequent accrual of capital gain. The assessee claims the property was transferred in the assessment year 2011-12, while the Assessing Officer (A.O.) asserts the transfer occurred in the assessment year 2008-09. The facts reveal that the assessee, a private limited company engaged in real estate development, won a bid for a property in Hudi village in an auction conducted by the Hon’ble High Court of Karnataka for ?9.00 crores. The High Court directed the official liquidator to execute a registered sale deed in favor of the assessee, which was done on 20.10.2010. The assessee arranged the bid amount through own funds and an advance from Shri Ramaiah Reddy, a director in the assessee company, as per an agreement for sale entered on 11.10.2007. The A.O. noticed that the assessee had shown the cost of land at ?9.00 crores as a fixed asset in the Balance Sheet, and the amount received from Shri Ramaiah Reddy was shown as a liability. The entire parcel of land, including adjacent lands, was sold for ?113 crores on 18.1.2021 to M/s. Total Environment Habitat Pvt. Ltd., with the sale consideration pertaining to the 2 acres and 15 guntas of land being ?18.05 crores, divided between the assessee and Shri Ramaiah Reddy. The assessee computed long-term capital loss for the assessment year 2011-12, but the A.O. took the view that the transfer of 80% undivided share in the land to Shri Ramaiah Reddy occurred in the assessment year 2008-09, based on the reasoning that the transaction was akin to "extinguishment of rights" in the capital asset as per the definition of "transfer" in section 2(47) of the Act. Consequently, the A.O. computed long-term capital gain for the remaining 20% of land in the assessment year 2011-12 and short-term capital gain for the sale to Shri Ramaiah Reddy in the assessment year 2008-09. The assessee challenged the assessment orders for both years before the Ld. CIT(A), who upheld the A.O.'s view that the transfer to Shri Ramaiah Reddy took place in the assessment year 2008-09. However, the Ld. CIT(A) deleted the computation of short-term capital gain for the assessment year 2008-09, citing a clerical error. Aggrieved, the assessee filed appeals for both years. The assessee's representative argued that the "Agreement to Sell" with Shri Ramaiah Reddy did not transfer the title of the land, and only a registered sale deed would result in a transfer of the asset. The representative cited the decision of the Hon’ble Gujarat High Court in Ushaben Jayantilal Sodhan vs. ITO, which held that an agreement to sell does not result in the transfer of property under the Income Tax Act. The representative contended that the transfer of 80% of the property occurred in the assessment year 2011-12 when the property was sold to M/s Total Environment. The Department's representative supported the orders of the Ld. CIT(A), arguing that the agreement to sell would also transfer the property. Upon hearing rival contentions and perusing the record, the Tribunal noted that the issue boils down to whether the "Agreement to Sell" would result in the transfer of the asset. The Tribunal referred to the Hon’ble Gujarat High Court's decision in Ushaben Jayantilal Sodhan, which concluded that an agreement to sell does not transfer the property. The Tribunal observed that the A.O. did not argue that section 53A of the Transfer of Property Act applied to the transaction and noted the assessee's submission that possession was never given to Shri Ramaiah Reddy. Therefore, the Tribunal held that the agreement to sell did not result in the transfer of the asset, and there was no extinguishment of rights as held by the A.O. and confirmed by the Ld. CIT(A). The Tribunal concluded that the computation of capital gain made by the A.O. in the assessment year 2011-12 was incorrect and upheld the computation of capital gain made by the assessee in the assessment year 2011-12. Consequently, the Tribunal set aside the orders passed by the Ld. CIT(A) and the A.O. for both years regarding the computation of capital gain. In the result, both appeals of the assessee were allowed. Order pronounced in the open court on 2nd Feb, 2022.
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