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Issues: (i) Whether consideration stated under an unregistered and subsequently cancelled development agreement could be brought to tax as income in the absence of transfer of possession and compliance with section 53A of the Transfer of Property Act, 1882 read with section 2(47)(v) of the Income-tax Act, 1961; (ii) Whether cash payments made towards registration expenses and stamp duty were disallowable under section 40A(3) of the Income-tax Act, 1961; (iii) Whether the cash payment made to the municipality was hit by section 40A(3) of the Income-tax Act, 1961 in the absence of proof bringing it within Rule 6DD of the Income-tax Rules, 1962.
Issue (i): Whether consideration stated under an unregistered and subsequently cancelled development agreement could be brought to tax as income in the absence of transfer of possession and compliance with section 53A of the Transfer of Property Act, 1882 read with section 2(47)(v) of the Income-tax Act, 1961;
Analysis: The agreement relied upon by the Revenue was executed after the amendment requiring registration and was admittedly unregistered. The material on record did not establish that possession of the land had been handed over to the developer in part performance. Since the essential ingredients of section 53A were not satisfied, section 2(47)(v) could not be invoked. In addition, the agreement was cancelled and the amounts received were repaid, so no real income had accrued or been received; taxation cannot rest on a hypothetical income.
Conclusion: The addition based on the development agreement was not sustainable and was deleted in favour of the assessee.
Issue (ii): Whether cash payments made towards registration expenses and stamp duty were disallowable under section 40A(3) of the Income-tax Act, 1961;
Analysis: The evidence showed that the major part of the impugned payments represented stamp duty and registration charges deposited through government challans, and the record supported the assessee's explanation. On the facts proved, the payments were not treated as attracting the disallowance provision.
Conclusion: The disallowance under section 40A(3) on this count was deleted in favour of the assessee.
Issue (iii): Whether the cash payment made to the municipality was hit by section 40A(3) of the Income-tax Act, 1961 in the absence of proof bringing it within Rule 6DD of the Income-tax Rules, 1962;
Analysis: The payment was admittedly made in cash, and no material was produced to show that the case fell within any exception under Rule 6DD. In the absence of such proof, the statutory prohibition under section 40A(3) remained operative.
Conclusion: The disallowance on this count was upheld against the assessee.
Final Conclusion: The appeal succeeded on the core addition relating to the development agreement and on the registration-related cash payments, but failed on the municipal cash payment issue; the matter was therefore disposed of as partly allowed.
Ratio Decidendi: An unregistered development agreement does not trigger section 2(47)(v) unless the requirements of section 53A of the Transfer of Property Act, 1882 are satisfied, and income cannot be taxed unless it has actually accrued or been received; cash payments remain disallowable under section 40A(3) unless a recognised exception is established.
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