Tenancy rights and capital gains: no transfer arises without possession under an executory tripartite agreement.

Tenancy rights are not treated as transferred for capital gains merely because a tripartite agreement contemplates a future surrender and staged payment. Where the agreement remains executory, possession has not passed, the assessee continues in occupation and rent payment, and the purchaser confirms no possession was delivered, section 53A of the Transfer of Property Act and section 2(47)(v) of the Income-tax Act do not apply. The capital gains addition was therefore deleted. As the disputed demand arose only from that addition and no advance tax liability survived in view of brought-forward and current losses, interest under sections 234B and 234C was also cancelled.

---

---

Issues: (i) Whether the assessee surrendered its tenancy rights during the relevant previous year so as to attract capital gains tax on the amount receivable under the tripartite agreement; (ii) Whether interest under sections 234B and 234C was leviable in the circumstances of the case.

Issue (i): Whether the assessee surrendered its tenancy rights during the relevant previous year so as to attract capital gains tax on the amount receivable under the tripartite agreement.

Analysis: The agreement showed that the transaction was executory and that several substantive steps remained to be completed before possession could pass and the tenancy could be surrendered. Payment of instalments was linked to regulatory approvals, settlement with workers and sub-tenants, and other future contingencies. The assessee continued in possession, continued to pay rent, and the purchaser itself confirmed that no possession had been given during the relevant year. On the facts, there was no physical or constructive handing over of possession, and the doctrine of part performance under section 53A of the Transfer of Property Act, 1882, as incorporated in section 2(47)(v) of the Income-tax Act, 1961, did not apply.

Conclusion: The assessee had not surrendered its tenancy rights during the relevant previous year, and the capital gains addition failed.

Issue (ii): Whether interest under sections 234B and 234C was leviable in the circumstances of the case.

Analysis: The assessed demand arose only because of the disputed capital gains addition, whereas the assessee had brought forward losses and a loss for the year under appeal was also accepted. In these circumstances, there was no advance tax liability on the assessee.

Conclusion: Interest under sections 234B and 234C was not leviable and was cancelled.

Final Conclusion: The addition of capital gains was deleted and the consequential interest demand was also set aside, leaving the assessee successful on the principal tax issue and on the levy of interest.

Ratio Decidendi: A tenancy right is not surrendered for capital gains purposes merely because a tripartite agreement contemplates a future surrender and part-payment of consideration; transfer under section 2(47)(v) arises only when possession is actually allowed to be taken or retained in part performance of the contract.

---