2016 (2) TMI 493 - AT - Income Tax

Gain for taxation on actual sale consideration - expression capital asset - Transfer of asset - genuity - addition by the AO on the ground that the assessee has sold land i.e. capital asset in this year and failed to offer gain for taxation on actual sale consideration in her return of income for this assessment year - Held that - The rights acquired by SDS under the agreement dated 4.4.2008 are of capital nature. In other words the rights assigned by the assessee by virtue of this agreement are of capital nature and this agreement was enforceable in law under the Specific Relief Act. The time limit for filing of the suit for specific performance of the contract has been provided in Schedule-II of the Indian Limitation Act 1905. This time is three years from the date of execution of the agreement. The assessee was bound by this agreement and if she violates this agreement she could be exposed to civil as well as criminal proceedings. Her right in the property after the execution of this agreement has been curtailed or encumbrance has been created. On an analysis of various case laws it emerges out that clause (v) and (vi) were included in section 2(47) with an intention to cover those cases of transfer of ownership where the prospective buyers becomes owner of the property by becoming a member of company cooperative society or to include those transactions that closely resembles transfer but are not treated as such under general law. Under section 2(47)(v) of the Act any transaction involving allowing of possession referred to section 53A of the Transfer of Property Act would come within the ambit of transfer. Even arrangement conferring privileges of ownerships without transfer of title would come within the ambit of section 2(47)(v) of the Act. The whole scheme for introduction of clauses (v) and (v) in section 2(47) of the Act was that the capital gain is taxable in the year in which such transactions are entered into even if the transfer of immovable property is not effective or complete under the general law.Thus in the present cases we are of the view that on execution of agreement dated 2.3.2009 when the possession was also handed over the transfer within the meaning of section 2(47)(v) and (vi) was complete. The parties to the agreement are not challenging the genuineness of the agreements. An analysis of all the facts and circumstances discussed by the ld.Revenue authorities we are of the view that setting of surrounding facts and circumstances even as a whole does not suggest that agreement dated 4.4.2008 or 2.3.2009 are sham or bogus. Their enforceability in the law cannot be ignored. The alleged gains on sale of property calculated in the hands of the assessee are not sustainable. We allow the appeal of the assessee and delete the addition from the hands of the assessee. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the rights of capital nature were assigned by the assessee through the agreement dated 4.4.2008.
2. Whether the transaction on 2.3.2009 constituted a transfer resulting in capital gains under section 2(47) of the Income Tax Act r.w.s. 53 of the Transfer of Property Act, 1882.
3. Whether the cumulative circumstances justify ignoring the agreements and considering the transfer of land only on the execution of the sale deed dated 27.1.2010.

Issue-wise Detailed Analysis:

Issue No. (i):
The primary question is whether the rights of capital nature were assigned by the assessee through the agreement dated 4.4.2008. Section 2(14) of the Income Tax Act defines "capital asset" as property of any kind held by an assessee. The assessee argued that the agreement with SDS granted enforceable rights at law, which could be pursued for specific performance under the Specific Relief Act. Various judgments were cited to support this view, including the ITAT Madras Bench in K.R. Srinath Vs. ACIT and the Bombay High Court in CIT Vs. Tata Services Ltd., which recognized that rights acquired under an agreement to purchase property are capital assets. The Tribunal concluded that the rights acquired by SDS under the agreement dated 4.4.2008 are of capital nature and enforceable under the law, implying that the assessee's rights in the property were extinguished upon entering the agreement.

Issue No. (ii):
The second issue addressed whether the transaction on 2.3.2009 constituted a transfer under section 2(47) of the Income Tax Act r.w.s. 53A of the Transfer of Property Act, 1882. Section 2(47) includes transactions involving the allowing of possession of immovable property in part performance of a contract. The Tribunal referred to several judgments, including the Madras High Court in CIT Vs. K. Jeelani Basha and the Bombay High Court in Chaturbhuj Dwarkadas Kapadia Vs. CIT, which clarified that such transactions are deemed transfers even if the transfer of immovable property is not effective under general law. The Tribunal concluded that the transfer was complete on 2.3.2009 when possession was handed over, making the transaction taxable under section 2(47)(v) and (vi).

Issue No. (iii):
The final issue examined whether the cumulative circumstances justified ignoring the agreements and considering the transfer only on the execution of the sale deed dated 27.1.2010. The CIT(A) argued that the agreements were invalid due to non-registration under sections 17 and 49 of the Indian Registration Act. However, the Tribunal noted that the proviso to section 49 allows unregistered documents to be received as evidence in a suit for specific performance. The Tribunal also addressed the argument that the agreements were sham due to the rapid increase in land value and the involvement of related parties. It was concluded that the agreements were genuine and enforceable, and the transactions should not be ignored based on the surrounding circumstances. The Tribunal emphasized that the genuineness of agreements should be determined independently of the tax implications.

Conclusion:
The Tribunal allowed the appeal, deleting the addition of Rs. 6,83,09,792/- from the assessee's income, and concluded that the agreements dated 4.4.2008 and 2.3.2009 were genuine and enforceable, resulting in the transfer of capital assets and corresponding capital gains in the relevant assessment year.