Capital gains on transfer of property when transfer took place in earlier years- some practical aspects and discussion of a recent order of tribunal.

[CA DEV KUMAR KOTHARI]

2019 (3) TMI 1067 - ITAT DELHI -SHRI VINOD KUMAR CHUGH VERSUS ITO, WARD 33 (4). NEW DELHI.

Section 53A of the Transfer of Property Act.

Section 2 (47) (v), of the income-tax Act, 1961.

Provisions relevant, though not mentioned in order of Tribunal:

Section 45, and section 48 of the income-tax Act, 1961.

Sale of property by way of agreement to sell:

Sale of property can be completed by way of entering into an agreement to sell and giving possession. The buyer can pay consideration in terms of agreement to sale. In case full payment is not made, then buyer undertakes to make balance payment as per agreement.

Once possession is given, and buyer has made payment or undertaken to make payments as per agreement sale is complete.

 Registration of conveyance deed is a legal requirement to make the buyer legal owner in records of concerned department of government.

Till registration of conveyance deed is completed, the real owner is buyer, though seller remain or continue as a registered or legal owner in government records. In such cases, as per general trade practices, seller undertake to execute conveyance deed and register it on request of buyer either in name of buyer or in name of nominee of buyer.

Refusal to register – buyer can enforce specific performance:

In case seller do not register or refuse to register or in case of his death, his legal heirs refuse to register conveyance deed, the buyer can approach appropriate court for SPECIFIC PERFORMANCE.  The Court can on satisfaction of documents, facts and circumstances and after allowing opportunity to represent to sellers, direct the seller or his legal heirs to execute conveyance deed in favor of buyer. In case seller or his legal heirs fails to do so, the court can appoint an officer to execute and register conveyance deed.   

Ground realities:

In trade circles as well as from reported judgments we can notice that selling property under agreement to sell, receiving consideration including allowing credit to buyer, and giving possession are common practices. Generally, when buyer calls the seller to register deed, seller do so. However, in some cases due to dishonesty ( which may be developed at any time due to several reasons) seller refuses to register the conveyance deed, the buyer has effective remedy to get the conveyance deed registered by filing a title suit  for enforcing specific performance. Though it may be a long drawn process.

This shows that under laws also sale under agreement is a well-recognized ground reality. Provisions have been made for handling different circumstances.

Good faith and trust:

A buyer who purchase property from a seller under sale agreement, do so in good faith in belief that the seller shall , as a gentleman , will register conveyance deed on reasonable notice and as per  mutual convenience. Therefore, buyer shows utmost good faith in the seller in this regard.

Breach of Trust:

 In case the seller refuses to register conveyance deed, a breach of trust also take place and for that criminal action can also be taken against the seller, depending on entirety of facts and circumstances and terms and conditions etc.

A property earlier transferred cannot be transferred again:

If a property is transferred under an agreement to sell, it cannot be transferred again except to previous buyer. Only on request of previous buyer the seller may register the conveyance deed in favor of other person on behalf of the original buyer.  In such cases, consideration at the time of subsequent sale, is also received by original buyer.

Therefore, registration of sale document will not result to a fresh sale, when property was actually sold earlier by execution of agreement to sale.

Recent case decided by ITAT:

In case of SHRI VINOD KUMAR CHUGH (supra.) Delhi ITAT has considered a case in which:

Property was purchased by assessee through agreement to sale in 1987. The assesse also obtained power of attorney from the seller.

Assessee sold the property through an agreement to sell in 1991 and gave possession to the buyer.

From submissions of assesse  it is found that the said agreement was also registered. However, sale deed was executed in 2009 and it was executed as a power of attorney holder and not as an owner ( because he was not a registered owner because conveyance deed  was not registered in his name)

The transferee has taken possession in the year 1991 and has continued to be in possession of the property, and this has been confirmed by the buyer.  The transferee also filed documentary evidences to show that the address of property so bought was her registered address in various official documents like bank account Depository etc. Therefore, transfer was complete long back  in the year 1991 in view of clause (v) of section 2(47) of the Income Tax Act.

On the basis of information received through AIR,  about registration of conveyance deed, the AO assessed income in the year of registry and also applied section 50C to deem value determined by stamp authority as consideration accrued on transfer of property.

Honorable Tribunal held that when sale was completed in 1991, the transaction cannot be taxed in the year of registration of document for sale. Provision of section 50C cannot be invoked.