Unregistered property development agreements not taxable transfer under Section 2(47)(v); capital gains deferred for assessee

ITAT Delhi-AT allowed the non-resident assessee's appeal, holding that no taxable "transfer" arose under Section 2(47)(v) of the Income Tax Act for the relevant assessment year. The assessee had entered into a project development agreement and supplementary agreement, receiving part consideration in FY 2017-18 and the balance in FY 2018-19, for transfer of rights in immovable property. Relying on SC jurisprudence on amended Section 53A of the Transfer of Property Act and the Registration Act, the Tribunal held that, as neither agreement was registered, they had no legal effect under Section 53A, and consequently, capital gains could not be taxed in the impugned year.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, in the absence of registration of the Property Development Agreement and Supplementary Agreement, there was a "transfer" within the meaning of section 2(47)(v) of the Income-tax Act, 1961 during the relevant previous year so as to render capital gains taxable in the corresponding assessment year on the part consideration received.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Year of taxability of capital gains arising from Property Development Agreement

(a) Legal framework (as discussed)

2.1 The Court considered section 2(47) of the Income-tax Act, 1961, particularly section 2(47)(v), which covers as "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.

2.2 The Court referred to the ratio of the Supreme Court in the decision considering amended section 53A of the Transfer of Property Act and sections 17 and 49 of the Registration Act, under which an unregistered document containing a contract to transfer immovable property for consideration has no effect in law.

(b) Interpretation and reasoning

2.3 The factual matrix accepted was that: (i) the assessee, a non-resident, entered into a Property Development Agreement on 14.06.2017 and a Supplementary Agreement on 23.05.2018; (ii) both agreements were unregistered; (iii) part consideration (Rs. 3.39 crores) was received in FY 2017-18 and the balance in FY 2018-19; (iv) possession of the immovable property was handed over and the project completed in FY 2018-19; and (v) the assessee offered the entire capital gains to tax in AY 2019-20 after receipt of full consideration and handing over of possession.

2.4 The Revenue's contention was that, as part consideration had been received in FY 2017-18, capital gains to that extent should be taxed in AY 2018-19. The assessee contended that there was no "transfer" under section 2(47)(v) in FY 2017-18 in the absence of a registered development agreement, relying on the Supreme Court's decision.

2.5 Applying the Supreme Court's interpretation of section 53A of the Transfer of Property Act read with sections 17 and 49 of the Registration Act, the Court held that unless the contract for transfer of immovable property is contained in a registered document, it has no legal effect and cannot constitute a basis for invoking section 2(47)(v) of the Income-tax Act.

2.6 Since neither the original Property Development Agreement nor the Supplementary Agreement was registered, the transaction of transfer of rights in the immovable property under these unregistered agreements could not be treated as a "transfer" for the purposes of section 2(47) in the relevant previous year.

(c) Conclusions

2.7 The provisions of section 2(47)(v) were held inapplicable on the facts, as the relevant agreements were unregistered and therefore ineffective in law for the purpose of constituting a transfer under section 53A of the Transfer of Property Act.

2.8 Consequently, there was no taxable transfer giving rise to chargeable capital gains in FY 2017-18, and the question of taxing the part consideration of Rs. 3.39 crores in AY 2018-19 did not arise.

2.9 The assessment order seeking to tax capital gains in the impugned assessment year was set aside, and the appeal of the assessee was allowed.

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