2004 (12) TMI 320 - AT - Income Tax

Tribunal Confirms Taxability of Capital Gains in 1992-93, Citing Broader Definition of Transfer Despite No Physical Handover.

The Tribunal upheld the AO's decision, confirming the taxability of capital gains for the assessment year 1992-93, based on the agreement dated 7-9-1991. ... Capital Gains - Assessment of income - Applicability of section 53A of the Transfer of Property Act and section 2(47)(v) of the Income-tax Act -Validity of agreement of transfer all the rights and entire interest in the property by the agreement - HELD THAT:- As the parties have acted on the basis of this agreement, it is a final document between them. To repeat, even the possession had been taken by virtue of the provisions and stipulations of this agreement. Thus, the transfer of the property by the co-owners to the purchasers has to be traced, connected and correlated with this agreement alone. It is true that there was delay in payment and also in obtaining permission from Ceiling Department etc. but on the basis of such delay neither the agreement was cancelled nor any claim was made by the co-owners by treating this agreement as revoked. The power of attorney was also executed on behalf of the co-owners for taking further steps and although this power of attorney was cancelled subsequently, the agreement was not cancelled or revoked. Thus, between the parties to this agreement, it remained a valid document. It may be pointed out that on the basis of this agreement, M/s. Agarwal's Associates even sold some shops in subsequent years and this act of M/s. Agarwal's Associates was not challenged by the assessees, which indicates that the assessee treated M/s. Agarwal's Associates as owners of the property by virtue of this agreement. The owners had already made arrangements for delivery of the possession and for all other necessary acts under the agreement. Thus, the transfer of rights of ownership by the owners stood concluded by this agreement. From the above, it is clear that the transferors i.e., the co-owners had done everything on their part to convey the title to the transferor. The intention of the parties to the agreement has also to be seen while construing the document. In the present case, clear intention of parties was to change hands over the property. So far as the present matter is concerned in view of clause (vi) of section 2(47) read with section 269UA(d) that capital gain would be taxable in the year in which the transaction is made in any manner which has the effect of transferring or enabling the enjoyment of any immovable property even if the transfer of property is not effected or completed under the general law. As the owners made arrangement by irrevocable agreement and gave the transferees complete control over the title to property to the purchasers, the date of contract between the owner of the purchaser becomes relevant and not the date of delivery of possession. The ld. CIT(A) has considered the provisions of section 2(47)(v) for holding that as at the time of execution of agreement dated 7-9-1991 the possession was not handed over, no transfer took place under the said agreement or by virtue of the said agreement. He has also considered section 53A of the Transfer of Property Act, which relates to part performance of the contract and possession taken under such contract. In our considered opinion, the ld. CIT(A) has mis-directed himself in invoking the provisions of section 2(47)(v) of the Income-tax Act because in the present case the possession was not delivered in pursuance of the agreement. Hence, we are unable to uphold the findings of the ld. CIT(A) and after setting aside the same, we hold that the transfer of the capital asset, took place by virtue and under the agreement dated 7-9-1991 in the financial year 1991-92 (assessment year 1992-93) and as such, the Assessing Officer was fully justified in levying the capital gain in assessment year 1992-93. The Assessing Officer is directed to compute capital gain accordingly. Thus, we allow ground Nos. 1 to 3 taken by the revenue in the above three appeals. Issues Involved:1. Taxability of capital gain on the transfer of property u/s 2(47) of the Income-tax Act.2. Validity of agreement dated 7-9-1991 and its implications on the transfer of property.3. Applicability of section 53A of the Transfer of Property Act in the context of possession and transfer.Summary:Issue 1: Taxability of Capital Gain on the Transfer of Property u/s 2(47) of the Income-tax ActThe main contention revolves around whether the capital gain is taxable based on the agreement dated 7-9-1991, where the ownership and possession of the property were purportedly transferred. The Assessing Officer (AO) concluded that the capital gain was leviable in the assessment year 1992-93, as the co-owners had transferred their rights in the property to M/s. Agarwal's Associates. The AO based this on the fact that payments were made and the property was sold on an 'as is where is' basis, indicating a transfer of ownership rights.Issue 2: Validity of Agreement Dated 7-9-1991 and Its Implications on the Transfer of PropertyThe assessees argued that the agreement dated 7-9-1991 was not valid for transferring the property since the possession remained with the purchasers from the 1974 agreement. They claimed that the agreement was conditional, and several conditions remained unfulfilled, including the dishonoring of cheques and the non-obtainment of necessary permissions. The CIT(A) accepted these arguments, holding that the AO was not justified in levying capital gain as the possession was not transferred to M/s. Agarwal's Associates.Issue 3: Applicability of Section 53A of the Transfer of Property Act in the Context of Possession and TransferThe CIT(A) considered section 2(47)(v) of the Income-tax Act, which involves possession taken or retained in part performance of a contract under section 53A of the Transfer of Property Act. The CIT(A) concluded that since possession was not handed over per the 1991 agreement, no transfer took place. However, the Tribunal found that the CIT(A) misdirected himself by not considering the broader definition of transfer under section 2(47)(vi), which includes any transaction enabling the enjoyment of immovable property.Tribunal's Conclusion:The Tribunal upheld the AO's view, stating that the transfer of ownership and rights in the property was effectively completed by the agreement dated 7-9-1991. The Tribunal emphasized that the agreement represented a final arrangement between the parties, and the transfer of rights did not necessarily require the physical delivery of possession. The Tribunal rejected the arguments regarding the insufficiency of stamp duty and the non-registration of the sale deed, stating that for income tax purposes, the definitions in section 2(47) and section 269UA(d) are applicable.Decision:The Tribunal set aside the CIT(A)'s findings and held that the capital gain on the property transfer was rightly levied in the assessment year 1992-93. The AO was directed to compute the capital gain accordingly. Ground Nos. 1 to 3 of the revenue's appeal were allowed.