2023 (9) TMI 624 - HC - Income Tax

Capital gain - transfer u/s 2(47) - unregistered JD agreement - appellant had not received any consideration under the two Joint Development Agreements - Whether in light of S. 17 (I)-A r/w S.49 of the Registration Act, 1908 the unregistered agreement can be construed as a document effecting transfer of the subject properties in terms of S. 2(47) of Income Tax Act? - HELD THAT - Admittedly, the Joint Development Agreements dated 31.12.2008 were not registered, though they were required to be compulsorily registered under Section 17 (I-A) of the Registration Act post the introduction of this provision by the Registration and Other Related Laws (Amendment) Act, 2001. The Amendment Act of 2001 made simultaneous amendments in Section 53(A) of the Transfer of Property Act and Sections 17 and 49 of the Registration Act. By these amendments, the words the contract, though required to be registered, has not been registered, or in Section 53(A) of the IT Act have been omitted. Simultaneously, Sections 17 and 49 of the Registration Act were also amended, clarifying that unless the document containing the contract to transfer for consideration any immovable property (for the purpose of Section 53A of the TP Act) is registered, it shall not have any effect in law, other than being received as evidence of a contract in a suit for specific performance or as evidence of any collateral transaction not required to be effected by a registered instrument. The impact of the amendments to the Registration Act and the TP Act on the provisions of Section 2(47) of the IT Act was explained by the Hon'ble Supreme Court in Balbir Singh Maini 2017 (10) TMI 323 - SUPREME COURT held Section 2(47) of the IT Act makes it clear that any transaction involving the allowing of the possession of any immovable property to be taken or retained in part-performance of a contract of the nature referred to in Section 53A of the TP Act will amount to a transfer in relation to a capital asset. The Court reasoned that since an unregistered agreement involving the transfer of possession of an immovable property would not qualify as a contract of the nature referred to under Section 53A of the TP Act, no transfer could be presumed based upon an unregistered agreement. The Court held that in order to qualify as a transfer of a capital asset under Section 2(47)(v) of the IT Act, there must be a contract that could be enforced in law under Section 53A of the TP Act. This reasoning would squarely apply to the facts of the present case. Substantial question of law in favour of the appellant and against the Revenue.

Summary

Issues Involved:
1. Whether the Income Tax Appellate Tribunal (ITAT) misconstrued the agreement dated 31.12.2008 as a "Transfer" under Section 2(47)(v) of the Income Tax Act.
2. Whether an unregistered agreement dated 31.12.2008 can be construed as a document effecting transfer under Section 2(47) of the Income Tax Act in light of Section 17 (I)-A r/w Section 49 of the Registration Act, 1908.
3. Whether the appellant can be made liable to pay tax on capital gains in the absence of income accrued under the agreement dated 31.12.2008.

Summary:

Issue 1: Misconstruction of Agreement as "Transfer"
The appellant argued that the Joint Development Agreements (JDAs) dated 31.12.2008 should not be regarded as agreements for transfer under Section 2(47) of the Income Tax Act. The clauses relating to possession indicated that possession was to be handed over only for the limited purpose of undertaking development, and the developed areas were to be shared by the co-developers. Hence, there was no transfer as defined under Section 2(47) of the IT Act, and consequently, no capital gains tax was applicable. The ITAT had erred in reversing the Commissioner's order which had set aside the assessment order and tax demand.

Issue 2: Unregistered Agreement as Document Effecting Transfer
The Court found that the JDAs dated 31.12.2008 were not registered, which is a mandatory requirement under Section 17 (I-A) of the Registration Act, 1908. The Supreme Court's decision in Balbir Singh Maini was cited, which clarified that an unregistered agreement involving the transfer of possession of immovable property does not qualify as a contract under Section 53A of the Transfer of Property Act. Therefore, no transfer could be presumed based on an unregistered agreement, and Section 2(47)(v) of the IT Act was not applicable. The Court concluded that the appellant must succeed on this substantial question of law, rendering it unnecessary to decide the other two questions.

Issue 3: Liability to Pay Tax on Capital Gains
The appellant contended that no income was received or accrued under the JDAs dated 31.12.2008. However, the Court did not delve into this issue, as it had already decided in favor of the appellant based on the second substantial question of law.

Judgment:
The Court answered the second substantial question of law in favor of the appellant and set aside the ITAT's impugned order, restoring the Commissioner of Income Tax (Appeals)'s order dated 24.03.2015. The appeal was allowed, and no order for costs was made.