1987 (9) TMI 82 - AT - Income Tax

Summary

Issues Involved:
1. Whether there is any capital asset which could be transferred.
2. Whether the transfer has taken place during the year under consideration.
3. Whether the absence of registered documents makes the transfer incomplete.

Issue-wise Detailed Analysis:

1. Whether there is any capital asset which could be transferred:
The assessees were co-owners of property No. 22, Barakhamba Road, New Delhi, consisting of land and a residential bungalow. The Government of India declared the area a commercial zone, allowing for commercial use. The assessees entered into agreements with M/s. Skipper Sales P. Ltd. to convert the property into a commercial building. The agreements included a collaboration agreement where the builder would construct a multi-storeyed building, and the assessees would receive specific built-up areas and garages in return. The Income-tax Officer (ITO) concluded that these transactions amounted to a transfer of the property, resulting in capital gains. However, the Tribunal held that the assessees' rights as perpetual lessees were not extinguished, and the collaboration agreement only granted a license to build, not a transfer of the property.

2. Whether the transfer has taken place during the year under consideration:
The ITO and the Commissioner of Income Tax (Appeals) [CIT (A)] determined that the collaboration agreement constituted a transfer of the property, resulting in capital gains in the relevant assessment year. The Tribunal, however, concluded that no transfer occurred as the collaboration agreement did not result in the extinguishment of the assessees' rights in the property. The Tribunal emphasized that the right to build granted to the builder was a license, not a transfer of ownership, and the assessees retained their leasehold rights.

3. Whether the absence of registered documents makes the transfer incomplete:
The Tribunal noted that the transfer of immovable property requires a registered deed of conveyance. Since no such document was executed, the property could not be considered transferred to the builder. The Tribunal referenced the Supreme Court's decision in Nawab Sir Mir Osman Ali Khan v. CWT, which held that title to immovable property does not pass without a registered sale deed. The Tribunal concluded that the collaboration agreement did not amount to a transfer of the property, as it was not registered, and the assessees' rights were not extinguished.

Conclusion:
The Tribunal held that there was no transfer of property No. 22, Barakhamba Road, New Delhi, by the assessees to M/s. Skipper Sales P. Ltd. and, therefore, no capital gains arose. The amounts received by the assessees were considered advances towards the sale consideration of the proposed built-up area, which was yet to come into existence. Consequently, the Tribunal directed that the amounts included in the income of the two assessees on account of capital gains be excluded. The appeals of the assessees were allowed, and the chargeability of interest under sections 215/217 of the Income-tax Act was to be reconsidered by the ITO.