1992 (7) TMI 118 - AT - Income Tax

Property transfer without deed not taxable; notional rent not taxable; interest income taxable.

The Tribunal held that the property was not transferred during the relevant year due to the absence of a registered deed, thus capital gains were not ... - Issues Involved:1. Reopening of assessment under Section 147 of the IT Act.2. Taxability of capital gains on the transfer of property.3. Inclusion of notional lease rent under 'other sources.'4. Taxability of interest received from the buyer under 'other sources.'Detailed Analysis:1. Reopening of Assessment under Section 147 of the IT Act:The original assessment for the assessment year 1986-87 was completed on 22nd July 1987. It was reopened under Section 147 of the IT Act to bring to tax capital gains arising from the transfer of a flat at Maker Towers, Bombay, to M/s Coromandal Indag Products Ltd., Madras. The reassessment was based on the agreement dated 17th July 1984, which outlined the terms of the sale and payment schedule.2. Taxability of Capital Gains on the Transfer of Property:The assessee entered into an agreement on 17th July 1984 for the sale of property for Rs. 25,74,000. The agreement stipulated that the seller would remain in possession until the sale was completed. Disputes arose due to delayed payments, and the sale deed was not executed and registered under the Transfer of Properties Act and the Registration Act. A compromise was recorded by the Bombay High Court on 5th Nov 1990, and the conveyance deed was executed only after 31st March 1991. The CIT(A) held that in the absence of a registered deed, the transfer of property did not take place during the relevant year, and thus, the addition of Rs. 25,74,000 under capital gains was deleted.3. Inclusion of Notional Lease Rent under 'Other Sources':The CIT(A) sustained the addition of Rs. 4,08,000 as income from other sources for the assessment year 1986-87 and Rs. 6,00,000 for the assessment year 1988-89, on the basis that the assessee continued to be the owner and was entitled to receipt of lease rent. However, the Tribunal held that no income arose or accrued to the assessee as no rent was paid by the vendee, and there was no stipulation for any monthly payment as a license fee. Therefore, the income could not be assessed under 'other sources.'4. Taxability of Interest Received from the Buyer under 'Other Sources':The CIT(A) upheld the addition of Rs. 1,65,389 under 'other sources' towards interest received from the buyer. The Tribunal agreed that the interest received was in the nature of income and upheld the addition for the assessment year 1986-87.Conclusion:The Tribunal concluded that the property was not transferred during the relevant previous year due to the absence of a registered deed, and thus, capital gains could not be taxed. The notional lease rent could not be taxed under 'other sources' as no actual income accrued to the assessee. However, the interest received from the buyer was taxable under 'other sources.' The appeal for the assessment year 1986-87 was partly allowed, and the appeal for the assessment year 1988-89 was allowed.