2003 (7) TMI 51 - HC - Income Tax

Property sale income deemed short-term capital gain due to legal transfer & possession.

The High Court held that the income derived from the sale of property, where the appellant-assessee entered into an agreement to purchase and later ... 'Whether in view of the fact that the ownership of the appellant over the said property having been accepted by the Tribunal, the Tribunal was legally justified and correct in holding that the income derived from the sale of the said property by the appellant should be treated as income from other sources solely on the ground that the title deed to the said property was not registered?' - Once the interest in the property is transferred to the assessee under the agreement, a further transfer of its interest in the property in favour of the Government of Mizoram would be transfer of the capital asset and the profit earned on such transfer would be a short-term capital gain of the assessee – Thus, we are of the view that the income accrued on account of transfer of the property would be the short-term capital gain – Question is answered in negative Issues:Interpretation of the definition of 'transfer' under section 2(47) of the Income-tax Act, 1961 in relation to a capital asset; Whether the income derived from the sale of property should be treated as income from other sources solely on the ground that the title deed was not registered.The judgment pertains to a case where the appellant-assessee entered into an agreement to purchase a property and later transferred it to the Government of Mizoram for a profit. The main issue was whether the income earned should be considered as short-term capital gain or income from other sources. The Assessing Officer contended that since no registered sale deed was executed, the income should be considered as from other sources. The Commissioner of Income-tax (Appeals) held that the agreement to sell constituted a transfer under section 2(47) of the Income-tax Act and the income was short-term capital gain. However, the Tribunal disagreed, stating that the property was not transferred to the assessee due to the absence of a registered sale deed.The High Court analyzed the definition of 'transfer' under section 2(47) of the Income-tax Act, which includes transactions involving allowing possession of immovable property as part performance of a contract under section 53A of the Transfer of Property Act. The court found that the agreement to purchase satisfied the requirements of section 53A, as it was in writing, signed by the transferor, and the assessee was placed in possession. Therefore, the property was deemed to be transferred to the assessee, making the subsequent transfer to the Government of Mizoram a transfer of the capital asset, resulting in short-term capital gain.Additionally, the court considered the power of attorney executed by the transferor, authorizing the transfer of the property to the assessee or its nominee. It was concluded that the transfer to the Government of Mizoram was in accordance with the direction given by the assessee through the power of attorney holder. As the income accrued from this transaction was deemed to be from the property transferred, the court held that the income derived from the sale of the property should be treated as short-term capital gain. The court answered the substantial question of law accordingly in favor of the assessee.In conclusion, the High Court's judgment clarified that the income earned from the transfer of the property should be considered as short-term capital gain based on the provisions of the Income-tax Act and the Transfer of Property Act. The court's decision emphasized the importance of meeting the legal requirements for transfer and possession in determining the nature of income derived from such transactions.