2018 (9) TMI 1163 - AT - Income Tax

Capital gain - JDA or agreement for sale - eligible transfer u/s 2(47) - as submitted by assessee possession in question of the impugned property was never handed over to the purchaser, hence, there was no part performance of the contract as per the terms of section 53A of the Transfer of Property Act - Held that - The agreement for sale dated 12. 12. 2008 and the cancellation of agreement dated 04. 05. 2011 are on record. Clauses of agreement for sale states that the possession of the property is to be handed over to the buyer only when the entire sale consideration is paid by the purchaser. In the instant case, the entire sale consideration was never paid by the purchaser. The sale agreement dated 12. 12. 2008 was cancelled vide agreement dated 04. 05. 2011 and prior to the cancellation of sale agreement, substantial portion of advance received by the assessee was refunded to the intended purchaser. The agreement for sale is not a registered document. As held in the case of CIT v. Balbir Singh Maini (2017 (10) TMI 323 - SUPREME COURT OF INDIA) that after amendment of Registration Act, 1908 in the year 2001, unless the document containing the contract to transfer any immovable property is registered, it shall not have any effect in law. In the instant case, there is no Joint Development Agreement (JDA), but only an unregistered sale agreement, which could not be fulfilled due to external reasons and there was no handing over of possession at any point of time to the purchaser. The property in question as on the date is still with the assessee and there is no transfer of the impugned property at any point of time. Therefore, the addition made by the Assessing Officer is uncalled for and we uphold the finding of the CIT(A). - Decided against revenue

Summary

Issues:
1. Whether the agreement for sale resulted in capital gain taxation.
2. Whether possession of the property was handed over to the buyer.
3. Whether the unregistered sale agreement is legally valid.
4. Whether the capital gain should be taxed.

Analysis:
1. Issue 1 - Capital Gain Taxation:
The Revenue contended that there was constructive possession given to the buyer, leading to capital gain taxation. The Assessing Officer issued a notice under section 148 of the Income Tax Act, alleging escapement of income. The assessee argued that the property was not sold, and the advance amount received was refunded. The CIT(A), following the Supreme Court judgment in CIT v. Balbir Singh Maini, held that since possession was not handed over and the property remained with the assessee, there was no transfer giving rise to capital gain. The CIT(A) emphasized that a substantial portion of the sales consideration had been refunded, and possession was never handed over.

2. Issue 2 - Possession of Property:
The Revenue argued that possession was handed over based on the assessment order findings, while the assessee contended that possession was never transferred to the buyer. The Tribunal examined the clauses of the agreement and found that possession was to be handed over only upon full payment, which did not occur. The unregistered sale agreement was canceled, and a significant portion of the advance was refunded to the buyer. The Tribunal upheld the CIT(A)'s finding that no possession was transferred, and the property remained with the assessee.

3. Issue 3 - Legality of Unregistered Sale Agreement:
The Revenue relied on the assessment order, emphasizing the unregistered sale agreement as evidence of possession transfer. However, the CIT(A) and the Tribunal referred to the Supreme Court's ruling that unregistered agreements have no legal effect after the 2001 amendment to the Registration Act. The Tribunal held that the unregistered agreement, not being a Joint Development Agreement, did not result in a transfer of property, especially since possession was not handed over.

4. Issue 4 - Taxation of Capital Gain:
The Revenue challenged the CIT(A)'s decision to not tax capital gains, arguing that the property transfer was complete. However, the Tribunal, after examining the agreement clauses and refund of advance, concluded that no transfer occurred due to non-payment of full consideration and lack of possession transfer. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal and ordering the case in favor of the assessee.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that no capital gain tax was applicable due to the absence of possession transfer and the unregistered nature of the sale agreement as per the legal interpretations provided by the Supreme Court.