Court rules possession transfer determines tax liability for property income

The court ruled in favor of the assessee, holding that income from a property, intended for transfer but not completed through a registered sale deed, should be assessed in the hands of the intending purchaser once possession is delivered. Despite only partial payment being made as earnest money, the court applied the legal principle that possession and receipt of income by the intending purchaser establish ownership for tax purposes. The decision aligned with the precedent set in Sahay Properties' case, concluding that the income should not be assessed in the assessee's hands.

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Issues involved: Interpretation of tax liability on income from property when transfer is not completed through a registered sale deed.

Summary:
The case involved a reference u/s 256(1) of the Income-tax Act, 1961, where the question was whether income from a property, intended to be transferred but not yet done through a registered sale deed, should be assessed in the hands of the assessee. The assessee had entered into an agreement for sale of a property and claimed that the rent was receivable by the intending purchaser. The Income-tax Officer assessed the income on the assessee, but the Appellate Assistant Commissioner and the Tribunal ruled in favor of the assessee based on possession being delivered to the intending purchaser.

The Tribunal relied on the decision in Sahay Properties' case and held that once possession is delivered to the intending purchaser, ownership stands transferred to them, making them liable for tax on the property's income. The Department argued that the case was distinguishable from Sahay Properties' case, as only part of the consideration money had been paid as earnest money in this instance.

The court analyzed the facts and concluded that the part payment of consideration money did not alter the application of the legal principle. It emphasized that once the intending purchaser is in possession and receiving income, they should be deemed the owner for tax purposes. The court found no significant difference between this case and Sahay Properties' case, upholding the Tribunal's decision.

In conclusion, the court answered the question in favor of the assessee, affirming that the income from the property should not be assessed in the hands of the assessee despite the transfer not being completed through a registered deed. The decision of Sahay Properties' case was deemed applicable to the present case.

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