2008 (10) TMI 256 - AT - Income Tax

Capital Gains - Sale of property - selection of assessment year - Whether the agreement dt. 19th Oct. 1995 constituted a sale deed or mere agreement to bind the vendor to sell and the vendee to buy on the terms and conditions governing the proposed sale of property by the vendor to the vendee/purchasers at future date. HELD THAT - The agreement dt. 19th Oct. 1995 only contained the terms and conditions to be adhered to and complied with at the time of sale of the property by the vendor and purchaser of the property at specified future date without any future addition or modification of the conditions. As there was neither transfer nor extinguishment of any right vendor remained lawful owner of the property and paid all the municipal taxes from the year of agreement to all subsequent years till date. Therefore It is proved that the registered sale deed dt. 20th Dec. 2007 executed by and between the same parties indicating that the earlier agreement dt. 19th Oct. 1995 was only an agreement to sell and not a sale deed transferring the capital asset in favour of the buyer. Applying the ratio of decision in the case of Smt. Maniben Hirji Jadavji Bhatt Smt. Saraswati Jayantilal Hirjibhai Bhatt Smarak Shri Copal Krishna Trust vs. ITO 1997 (1) TMI 116 - ITAT AHMEDABAD-B it is held that the agreement dt. 19th Oct. 1995 does not establish that the transaction of sale of property was completed in terms of provisions of s. 2(47)(v) 1961 r/w s. 53A of the Transfer of Property Act and so the capital gain worked out by the AO and added to the income of the assessee in AY 1996-97 was not justified. Therefore the CIT(A) has rightly deleted the impugned addition by reversing the order of AO. Accordingly the order of CIT(A) is upheld and the grounds of appeal taken by the Revenue are rejected. Hence AO is at liberty to take appropriate action on the basis of the registered sale deed dt. 31st Dec. 2007 in case on verification he finds that the assessee has not declared the capital gain in the return in relevant assessment year he may take action for working out the capital gain if any as permitted under law. In the result the appeal filed by the Revenue and cross-objection filed by the assessee are dismissed.

Summary

Issues Involved:
1. Whether the agreement dated 19th October 1995 constituted a sale deed or a mere agreement to sell.
2. Whether there was a transfer of property within the meaning of Section 2(47)(v) read with Section 53A of the Income Tax Act, 1961, and whether capital gains tax was leviable on the assessee for the assessment year 1996-97.
3. Legitimacy of the initiation of proceedings under Section 147 and the assessment order dated 1st November 2001.

Detailed Analysis:

1. Agreement as Sale Deed or Agreement to Sell:
The Tribunal examined whether the agreement dated 19th October 1995 constituted a sale deed or merely an agreement to bind the vendor to sell and the vendee to buy on future terms. The agreement specified that the vendor agreed to sell and the purchasers agreed to buy the property on an 'as is where is basis' for Rs. 71,00,000, with specific payment terms outlined. However, the agreement also included clauses indicating that the sale would be completed at a future date, subject to certain conditions, including obtaining necessary permissions and the full payment of the purchase price. The Tribunal concluded that the agreement was not a sale deed but an agreement to sell, as the title deed had not passed to the buyer, and the sale was contingent on future events.

2. Transfer of Property and Capital Gains Tax:
The Tribunal analyzed whether the transaction constituted a transfer of property under Section 2(47)(v) read with Section 53A of the Income Tax Act, 1961. Section 2(47)(v) includes transactions where possession of the property is given in part performance of a contract as referred to in Section 53A of the Transfer of Property Act, 1882. However, in this case, the Tribunal found that the possession of the property was not handed over to the buyer, and the buyer had not performed their part of the contract, nor were they willing to perform it due to non-payment of the balance amount. Consequently, the essential requirements of Section 53A were not met, and there was no transfer of property. Therefore, the capital gains tax of Rs. 32,54,326 computed by the AO was not justified, and the CIT(A) correctly deleted the addition.

3. Legitimacy of Proceedings under Section 147:
The assessee had filed a cross-objection against the initiation of proceedings under Section 147 and the assessment order dated 1st November 2001. However, the assessee withdrew these cross-objections during the appellate proceedings. Consequently, the Tribunal dismissed the cross-objections as withdrawn.

Conclusion:
The Tribunal upheld the CIT(A)'s order, concluding that the agreement dated 19th October 1995 did not constitute a transfer of property within the meaning of Section 2(47)(v) read with Section 53A of the Income Tax Act, 1961. Therefore, the capital gains tax addition of Rs. 32,54,326 made by the AO was not justified. The appeal filed by the Revenue was dismissed, and the cross-objection filed by the assessee was also dismissed as withdrawn. The Tribunal also noted that the AO could take appropriate action based on the registered sale deed dated 31st December 2007 if the assessee had not declared the capital gain in the relevant assessment year.