2025 (10) TMI 301 - AT - Income Tax

No 'transfer' under section 2(47)(v) where agreement of sale not a conveyance deed; no capital gains under section 45

ITAT BANGALORE - AT held that there was no 'transfer' under section 2(47)(v) of the Act for AY 2012-13. The tribunal found the agreement of sale is not a ... LTCG - transfer of immovable property by way of sale -'transfer' of an immovable capital asset u/s 2(47) - HELD THAT:- Agreement of sale is not a sale deed and therefore it does not confer a valid title of the plaintiff as it is not a deed of conveyance. In the present case, there is not even an agreement of sale is available. Similarly, insofar as the POA, it was held that the POA would not change the character of the document transforming it into a Conveyance Deed. Therefore based on the POA, the authorities cannot come to a conclusion that there was a transfer as per section 2(47)(v) of the Act. We hold that there is no transfer as per section 2(47)(v) of the Act contemplating capital gains u/s 45 of the Act for the A.Y. 2012-13. ISSUES PRESENTED AND CONSIDERED 1. Whether a 'transfer' of an immovable capital asset occurred in the relevant year within the meaning of section 2(47)(v) of the Income-tax Act, thereby attracting capital gains tax. 2. Whether section 53A of the Transfer of Property Act (part performance) is attracted in the absence of a registered contract, having regard to the post-2001 amendment to the Registration Act and Section 53A. 3. Whether an unregistered Power of Attorney and commencement of construction/licence/commencement certificate and payment of instalments can, independently or cumulatively, operate as a transfer or confer a right of ownership for purposes of section 2(47)(v). 4. Whether the factual acts of possession, commencement of construction, and ostensible receipt of consideration, absent a registered enforceable contract, are sufficient to conclude relinquishment of rights and consequent chargeability to capital gains. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Existence of 'transfer' under section 2(47)(v) of the Income-tax Act Legal framework: Section 2(47)(v) includes within 'transfer' any transaction involving allowing possession of immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. Section 53A confers protection to a transferee in part performance where there is a contract in writing signed by the transferor, with terms ascertainable with reasonable certainty, and the transferee has taken or continued possession and done some act in furtherance. Precedent Treatment: The Tribunal relied on binding Supreme Court authorities (as explained in the judgment) holding that after the 2001 amendments a contract required to invoke section 53A must be a registered document; absent registration such agreement has no effect for the purpose of section 53A and consequently cannot ground a 'transfer' under section 2(47)(v). Interpretation and reasoning: The Tribunal analyzed the statutory text and the post-2001 amendments to the Registration Act and Section 53A, concluding that the legislative scheme makes registration essential for any contract to be recognized for section 53A purposes. The Tribunal found no registered contract in the relevant year and no evidentiary material establishing a registered instrument that could give rise to part performance protection or effect a transfer under section 2(47)(v). Ratio vs. Obiter: Ratio - where no registered contract of the nature contemplated by section 53A exists, subsection (v) of section 2(47) is not attracted and no 'transfer' for capital gains arises in that year. The reasoning follows binding apex court principle and is applied as the operative ratio. Conclusion: No transfer occurred in the year under appeal under section 2(47)(v); capital gains are not chargeable for that year on that basis. Issue 2 - Effect of post-2001 amendments to Section 53A and the Registration Act Legal framework: Amendments removed language that previously permitted unregistered contracts to be considered for section 53A; sections 17 and 49 of the Registration Act were amended to render unregistered contracts ineffective for section 53A purposes for documents executed on or after the amendment. Precedent Treatment: The Tribunal applied Supreme Court exposition that, post-2001, the efficacy of section 53A depends on registration; an unregistered contract has no effect for section 53A and therefore cannot satisfy the statutory prerequisite embedded in section 2(47)(v). Interpretation and reasoning: The Tribunal held that the statutory amendment meaningfully altered the law: registration is a precondition to attract part performance protection. Where the contract is unregistered, it is not a contract 'in the eye of law' for section 53A purposes; consequently, any purported part performance cannot be treated as effecting transfer under income-tax provisions. Ratio vs. Obiter: Ratio - registration requirement is determinative; absence of registration precludes invocation of section 53A and thereby precludes operation of section 2(47)(v). Conclusion: The post-2001 registration requirement excludes unregistered instruments from operating as contracts under section 53A; absent a registered contract, part performance/transfer cannot be legally recognized for capital gains taxation. Issue 3 - Legal status and effect of an unregistered Power of Attorney and related acts (commencement certificate, construction, payments) Legal framework: A Power of Attorney creates an agency relationship; it authorizes the grantee to act for the grantor but does not, by itself, transfer ownership or operate as a deed of conveyance. Section 54 of the Transfer of Property Act and related authorities establish that a contract of sale/agreement does not of itself effect transfer of title - conveyance by registered sale deed is required to pass ownership. Precedent Treatment: The Tribunal relied on Supreme Court pronouncements distinguishing agency and licence from conveyance, and holding that POA or agreement alone (if unregistered) does not change the character of the instrument into a conveyance or transfer of ownership. Interpretation and reasoning: The Tribunal found the POA in the instant facts to be unregistered and to have been executed to enable preliminary work; licence/commencement certificate and commencement of construction were evidentiary of activity but not of transfer of ownership. Payments and commencement did not convert POA or licence into a registered contract or a conveyance. The Tribunal rejected the view that acts amounting to development work or receipt of instalments can, without a registered enforceable contract, demonstrate relinquishment of title. Ratio vs. Obiter: Ratio - an unregistered POA/licence and commencement of development, even coupled with part payments, do not amount to a transfer under section 2(47)(v) where no registered contract or conveyance exists. Obiter - factual indicia (commencement certificate, works) are insufficient in law to create title where statutory formalities are absent. Conclusion: The POA and attendant acts did not effect a transfer; they are insufficient to attract section 2(47)(v) or to treat the owner as having relinquished rights for capital gains purposes. Issue 4 - Sufficiency of factual possession, commencement certificate, and payments to constitute relinquishment of asset Legal framework: Section 53A requires a written, registrable contract; factual possession or acts in furtherance of development may support a claim of part performance only where the contract exists as recognized by law. Income-tax liability under section 45 depends on whether a 'transfer' as defined in section 2(47) has occurred. Precedent Treatment: The Tribunal adhered to the apex court view that possession and development, absent a registered enforceable contract, cannot be elevated to a transfer of ownership or a contract enforceable under section 53A. Interpretation and reasoning: The Tribunal examined the record - unregistered instruments, POA, commencement certificate, licence and payments - and found no registered contract or evidence of relinquishment of rights. It held that statements, commencement of works and payments cannot substitute for the statutory requirement of registration and conveyance to establish transfer in law. Ratio vs. Obiter: Ratio - factual possession and commencement of construction do not, in themselves, amount to transfer for capital gains where formal statutory requisites (registration/conveyance) are absent. Obiter - references to inconsistencies in statements and lack of documentary proof bolster factual findings but are not determinative where statutory formalities are missing. Conclusion: Factual acts (possession, commencement of construction, licence, instalment payments) do not establish relinquishment of the asset or trigger capital gains in the absence of a registered contract or conveyance; therefore capital gains for the year in question are not exigible. Overall Conclusion The Tribunal held that, on the facts and in law, no transfer under section 2(47)(v) took place in the relevant year because there was no registered contract of the nature required by section 53A; an unregistered Power of Attorney and commencement of development/receipt of instalments did not effect transfer or relinquishment of ownership. The appeal was allowed on that ground.