Unregistered agreement cannot shift sale-tax liability where registered deed and consideration remain in assessee's hands.

An unregistered agreement could not be used to treat a third party as the deemed owner of immovable property or to shift sale consideration away from the assessee where the registered sale deed stood in the assessee's name and the consideration was received under that deed. The analysis held that, after the 2001 registration amendments, such an agreement could not be enforced for section 53A of the Transfer of Property Act, and section 2(47) of the Income-tax Act was not the correct basis for characterising the business receipt. An enhancement for notional interest also failed because it depended entirely on the same rejected arrangement and therefore had no independent foundation.

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Issues: (i) Whether the assessee could treat the third party as the deemed owner of the property on the basis of an unregistered agreement and exclude the sale consideration received on execution of the registered sale deed from its business income; (ii) Whether the enhancement made by the first appellate authority towards notional interest income could survive.

Issue (i): Whether the assessee could treat the third party as the deemed owner of the property on the basis of an unregistered agreement and exclude the sale consideration received on execution of the registered sale deed from its business income.

Analysis: The agreement relied upon by the assessee was unregistered. In view of the law laid down on the effect of the 2001 amendments to the Registration Act, an unregistered contract cannot be enforced for the purposes of section 53A of the Transfer of Property Act, 1882, and therefore cannot be treated as creating a transfer in law on that basis. The appellate authority had proceeded on section 2(47) of the Income-tax Act, 1961, but that provision governs transfer in relation to a capital asset and was not the correct basis for deciding the character of the business receipt in the present case. The sale deed stood in the assessee's name and the consideration was received pursuant to that deed, so the attempt to attribute the major part of the receipt to the third party on the strength of an unregistered arrangement was not sustainable.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether the enhancement made by the first appellate authority towards notional interest income could survive.

Analysis: The enhancement was entirely dependent on acceptance of the same agreement as creating enforceable rights in favour of the third party and on the premise that the assessee had delayed receipt of consideration in terms of that arrangement. Once the agreement was not accepted as the legal foundation for treating the third party as owner or for shifting the sale proceeds, the basis for the notional interest addition also disappeared.

Conclusion: The enhancement towards interest income was deleted and this issue was decided in favour of the assessee.

Final Conclusion: The Revenue succeeded on the principal question relating to taxability of the sale consideration, while the assessee succeeded on the deletion of the enhancement, and both appeals were ultimately disposed of in that mixed manner.

Ratio Decidendi: An unregistered agreement cannot, by itself, be used to treat a third party as the owner for shifting tax liability where the registered sale deed and receipt of consideration stand in the assessee's hands; any enhancement that depends entirely on that rejected premise also cannot survive.

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