2018 (12) TMI 213 - HC - Income Tax

Computation of capital gains u/s 48 - value of the 1/12 undivided share of land that was agreed to be transferred as per the agreement - right conferred on the tranferee - possession as handed over in pursuance to the agreement for sale as contemplated under Section 53A of the TP Act - Held that - Tribunal went wrong in holding that the possession was not handed over in pursuance to the agreement for sale as contemplated under Section 53A of the TP Act. Once the sale agreement comes under the provisions of Section 53A of the TP Act, handing over of possession takes place and the provisions under Section 2(47) would squarely apply. That apart, the argument of the learned Senior Counsel for the assessee that contract was subsequently rescinded will not be of any help because the contract was rescinded only subsequent to the assessment year and what we are concerned for the purpose of the Act is the transactions which took place during the assessment year. The fact that the contract was subsequently terminated on mutual consent will not improve the case of the assessee to wriggle out of the the purview of Section 2(47) of the Act and the liability to pay tax on short term capital gains under Section 45 of the Act. Returns were filed there was a right conferred on the tranferee as per Section 53A of the T.P. Act. The transferor though subsequently was absolved from the rigour of Section 53A; in the close of assessment year was obliged to return the capital gains as per Section 2(47) (v). The IT Act by the definition clause includes a transaction in accordance with Section 53A as a transfer in relation to a capital asset. The consequence flowing from the inclusive definition has to be given effect as on the subject assessment year and the transferor being absolved subsequently from the rigour of Section 53A as against the transferee is of no consequence in applying the rigour under the taxation enactment. The transaction failed and the parties settled between themselves, but the voluntary act of the parties cannot efface the tax liability. We hence answer the questions of law on the facts arising in the above case against the assessee and in favour of the revenue. It is however pertinent to note that capital gains can be calculated only after computing the value of the 1/12 undivided share of land that was agreed to be transferred as per the agreement, and computation made in accordance with Section 48 of the Act. Hence, the appeal is only to be allowed setting aside the order of the Appellate Authority and the Tribunal. The matter is remitted to the Assessing Officer for the sole purpose of computation of capital gains under section 48 after taking into account the value of 1/12th share in the landed property that was agreed to be sold.

Issues Involved:
1. Exigibility of income tax for short-term capital gains in the assessment year 1999-2000.
2. Consideration of events and circumstances beyond the previous year relevant to the assessment year 1999-2000 in light of Section 2(47)(v) of the Income Tax Act read with Section 53A of the Transfer of Property Act.
3. Justification of the Tribunal's interference with the order of assessment.

Detailed Analysis:

1. Exigibility of Income Tax for Short-Term Capital Gains:
The Revenue challenged the findings of the Income Tax Appellate Tribunal, which dismissed the addition of ?1.87 crores as concealed income under short-term capital gains for the assessment year 1999-2000. The assessee, a partnership firm later registered as a company, had agreed to sell a constructed area of 4,300 sq.ft. to M/s. Sai Sales and Services (later MAPL) for ?2.58 crores. Despite receiving ?1.25 crores as advance, the sale was not completed, and the agreement was later rescinded. The AO considered the possession handed over to MAPL as part performance under Section 53A of the Transfer of Property Act, thus attracting Section 2(47)(v) of the Income Tax Act.

2. Consideration of Events Beyond the Relevant Assessment Year:
The Tribunal's decision to consider events beyond the assessment year 1999-2000 was challenged. The Tribunal held that the rescission of the agreement and refund of ?1.25 crores meant no transfer occurred, thus no capital gains arose. However, the court noted that possession was handed over during the relevant assessment year, and the subsequent rescission does not negate the tax liability for that year. The court emphasized that the transaction as per Section 53A of the Transfer of Property Act and Section 2(47)(v) of the Income Tax Act had occurred, making the assessee liable for short-term capital gains.

3. Justification of Tribunal's Interference with the Order of Assessment:
The Tribunal's interference was based on the argument that possession was not explicitly mentioned in the sale agreements (Annexures-A and B) and that the agreements were not registered as required under Section 17(1A) of the Registration Act, 1908. The court clarified that the requirement for registration under Section 17(1A) was introduced in 2001 and does not apply retrospectively to the agreements in question. The court also noted that both parties admitted to the transfer of possession, fulfilling the conditions of part performance under Section 53A of the Transfer of Property Act.

Conclusion:
The court concluded that the Tribunal erred in its findings and that the transfer of possession during the assessment year 1999-2000 attracted the provisions of Section 2(47)(v) of the Income Tax Act. The subsequent rescission of the contract does not absolve the assessee from tax liability for that year. The court allowed the Revenue's appeal, setting aside the Tribunal's order and remitting the matter to the Assessing Officer for computation of capital gains under Section 48 of the Act, considering the value of the 1/12th undivided share in the land.

Judgment:
The appeal is allowed, the orders of the Appellate Authority and the Tribunal are set aside, and the matter is remitted to the Assessing Officer for computation of capital gains. No order as to costs.

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