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December 19, 2022

Agreement for sale of property not registered, no liability to pay capital gains tax

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Agreement for sale of property not registered, no liability to pay capital gains tax

Facts and issue of the case

Pursuant to an un-registered agreement, possession of the property was handed over by the assessee to a company engaged in development of housing projects wholly owned by the State of West Bengal. In an order dated December 29, 2011, the Assessing Officer concluded the assessment, concluding that the Assessee had accepted possession of property. The assessee filed an appeal before the Commissioner of Income Tax (Appeals)-XII, Kolkata [CIT(A)] challenging the aforementioned conclusion, arguing in particular that possession was not transferred and that the agreement was later cancelled in 2011 and all sums paid were returned by the assessee. However, CIT(A) did not proceed on the basis of any concession being given by the assessee stating that possession of the property was handed over to the developer but proceeded to hold that in the agreement payment has been received by the assessee from the developer and the agreement also stipulates that the developer has legally enforceable right to take possession of the said land from the assessee on payment of the balance amount Therefore, the CIT(A) held that the full amount payable under the agreement has accrued to the assessee in the relevant assessment year, 2009-10. Challenging the said finding the assessee preferred an appeal before the Tribunal.

Observation of the case

The Tribunal took note of the factual position and, more particularly, that the case arose much after the amendment to Section 53A of the Transfer of Property Act which was amended by the Amendment Act, 2001 which stipulates that if an agreement like the joint development agreement is not registered, then it shall have no effect in law for the purposes of Section 53A of the TP Act. Accordingly, the assessee’s appeal was allowed and addition deleted

On appeal by the Revenue, the Calcutta High Court upheld the decision of the Tribunal and held as under:

  1. The Transfer of Property Act, 1882 was amended by the Registration and Other Related Laws (Amendment) Act, 2001 stipulate that an agreement, such as a joint development agreement, shall not be enforceable in accordance with section 53A of the 1882 Act if it is not registered. The Supreme Court in CIT vs. BALBIR SINGH MAINI [2017] 398 ITR 531 (SC), held that in order to qualify as a “transfer” of a capital asset u/s. 2(47)(v) of the Income-tax Act, 1961 there must be a “contract” which can be enforced in law u/s. 53A of the 1882 Act. The expression “of the nature referred to in section 53A” in section 2(47)(v) was used by the Legislature ever since sub-clause (v) was inserted by the Finance Act of 1987, with effect from April 1, 1988. All that is meant by this expression is to refer to the ingredients of applicability of section 53A to the contracts mentioned therein. This expression cannot be stretched to refer to an amendment that was made years later in 2001, so as to then say that though registration of a contract is required by the 2001 Act, yet the aforesaid expression “of the nature referred to in section 53A” would somehow refer only to the nature of contract mentioned in section 53A, which would the in turn not require registration. There is no contract in th eye of law in force u/s. 53A after 2001 unless the contra is registered.

2. Since the development agreement was not registered it would have no effect in law for the purposes section 53A which bodily stood incorporated in section 2(47)(v) of the Income-tax Act, 1961

Conclusion

After Hearing to the both parties Court decided, the Tribunal was right in allowing the assessee’s appeal and grant the relief sought for, namely deletion of the addition income of the consideration received on transfer of land for development

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