Unregistered Banakhat with auto-extension clause creates valid property rights for Section 54B LTCG deduction

The ITAT Ahmedabad upheld the assessee's claim for deduction under Section 54B for LTCG. The AO denied the deduction arguing that an unregistered Banakhat (agreement of sale) valid for only 12 months did not confer property rights to the assessee. However, the ITAT found that clause 4 of the Banakhat automatically extended its tenure until title clearance and non-agricultural permissions were obtained. Since civil disputes were resolved and permissions secured, the subsequent registered sale deed showing the assessee as confirming party created valid property rights constituting a capital asset under Section 2(14). The tribunal dismissed the revenue's appeal, confirming the CIT(A)'s decision allowing the Section 54B deduction.

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Issues Involved:
1. Classification of income from the sale of agricultural land.
2. Validity of the Banakhat (Agreement of Sale) without registration.
3. Right created by the Banakhat in favor of the assessee.
4. Alleged scheme to lower tax liability.
5. Applicability of the Supreme Court's decision in Suraj Lamp and Industries Pvt. Ltd. case.
6. Deduction under sections 54B/54D/54G of the Income Tax Act.

Summary:

Issue 1: Classification of Income from Sale of Agricultural Land
The Revenue contended that the sale consideration received by the assessee as a Confirming Party in the sale transaction should be treated as "income from other sources" and not as a transfer of a capital asset. The CIT(A) disagreed, holding that the Banakhat clearly provided the assessee with rights over the property, making it a capital asset under section 2(14) of the Income Tax Act. The Tribunal upheld this view, confirming that the income should be classified as Long Term Capital Gain (LTCG).

Issue 2: Validity of the Banakhat Without Registration
The Assessing Officer argued that the Banakhat was not registered, making it invalid. The CIT(A) countered this by stating that as per the amended section 17 of the Registration Act, 1871, registration of the Banakhat was not mandatory. The Tribunal agreed, noting that the Banakhat was later registered on 01.06.2013, thus nullifying the Revenue's argument.

Issue 3: Right Created by the Banakhat in Favor of the Assessee
The Revenue claimed that the Banakhat did not create any enforceable right. The CIT(A) and the Tribunal found that the Banakhat included a clause extending its tenure automatically until the vendor provided a title clearance certificate. This clause, along with the subsequent registration and the payment received, confirmed that the assessee had a right in the property, making it a capital asset.

Issue 4: Alleged Scheme to Lower Tax Liability
The Assessing Officer suggested that the Banakhat was an afterthought to avoid tax. The CIT(A) found no evidence supporting this claim, noting that the parties involved were not related and that the assessee had genuinely utilized the amount received. The Tribunal upheld this finding.

Issue 5: Applicability of the Supreme Court's Decision in Suraj Lamp and Industries Pvt. Ltd. Case
The Revenue relied on the Supreme Court's decision in Suraj Lamp and Industries Pvt. Ltd. to argue that an unregistered agreement of sale does not create any charge on its subject matter. The CIT(A) and the Tribunal distinguished this case, noting that the decision was not applicable due to the extended meaning of "transfer" under section 2(47) of the Income Tax Act and the subsequent registration of the Banakhat.

Issue 6: Deduction under Sections 54B/54D/54G of the Income Tax Act
The CIT(A) allowed the assessee to claim deductions under sections 54B/54D/54G, which the Tribunal upheld, directing the Assessing Officer to allow the deductions if found otherwise allowable as per the provisions of the Act.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue, confirming that the income from the sale transaction should be treated as LTCG and that the assessee is entitled to claim deductions under the relevant sections of the Income Tax Act.

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