Part-performance transfer and returned-income interest limits shape capital gains and surcharge liability under the Income-tax Act.
Delivery of possession under a written agreement for sale, after receipt of the agreed consideration and satisfaction of section 53A of the Transfer of Property Act, constitutes a transfer under section 2(47) of the Income-tax Act for capital gains purposes, and later sale deeds executed by attorney-holders do not negate that earlier transfer. Interest under sections 234A, 234B and 234C is confined to income returned and cannot be levied on income assessed but not returned.
Issues: (i) Whether delivery of possession to the proposed vendee upon receipt of the agreed consideration amounted to a transfer under section 2(47) of the Income-tax Act for the relevant assessment year. (ii) Whether interest under sections 234A, 234B and 234C could be levied on income assessed but not returned.
Issue (i): Whether delivery of possession to the proposed vendee upon receipt of the agreed consideration amounted to a transfer under section 2(47) of the Income-tax Act for the relevant assessment year.
Analysis: The agreement covered the entire property, the agreed consideration was received, possession was delivered, and the transaction had been cleared under Chapter XX-C of the Income-tax Act. These facts satisfied the ingredients of section 53A of the Transfer of Property Act, 1882, so that the assessee had allowed the property to be taken in part performance of the contract. The later execution of sale deeds by the attorney-holders in favour of third parties did not undo the earlier transfer for capital gains purposes.
Conclusion: The transfer took place in August 1993 and the capital gain was rightly brought to tax for the assessment year 1994-95; this issue was decided against the assessee.
Issue (ii): Whether interest under sections 234A, 234B and 234C could be levied on income assessed but not returned.
Analysis: In view of the binding decision of the Supreme Court in Ranchi Club Limited, interest under these provisions is leviable only with reference to the income returned and not on income subsequently assessed.
Conclusion: The levy of interest under sections 234A, 234B and 234C was liable to be set aside; this issue was decided in favour of the assessee.
Final Conclusion: The writ petition succeeded only in respect of the interest demand, while the challenge to the capital gains assessment failed.
Ratio Decidendi: Where possession is delivered pursuant to a written agreement for sale after receipt of the agreed consideration, and the requirements of section 53A of the Transfer of Property Act, 1882 are satisfied, the transaction constitutes a transfer under section 2(47) of the Income-tax Act for capital gains purposes; interest under sections 234A, 234B and 234C is confined to returned income.