2025 (6) TMI 1774 - HC - Income Tax

Taxability of capital gains in the assessment year 2007-08 - transfer of property u/s 2(47) - HELD THAT - Admittedly AO having accepted the transfer in the assessment year 2004-05 and levied tax thereon cannot sing a different tune in the assessment year 2007-08. In the assessment year 2004-05 the property in question was treated as transfer as per the definition of Section 2(47)(v) in the hands of the Assessee and consequently capital gains was also assessed in that assessment year. After treating all transfer of the property in the hands of the Assessee as transfer in the assessment year 2004-05 it is not open to the Revenue to again treat the same property as transfer by the same Assessee in the assessment year 2007-08 also. As submitted that under Section 50C of the Act if the consideration received is less than the value adopted by the same valuation authority for the purpose of payment of stamp duty in respect of such transfer the value adopted shall be deemed to be the full value of consideration received as a result of such transfer and stamp duty payable. The Section says all such transfer . Transfer admittedly happened in the assessment year 2004-05 and the Assessing Officer has accepted the value in the assessment year 2004-05 and has also levied capital gains tax. Therefore we would agree with the Tribunal that there is no merit in the stand taken by the AO and capital gains cannot be assessed in the assessment year 2007-08.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

(a) Whether the transfer of the immovable property took place in the previous year relevant to the assessment year 2004-05 pursuant to the agreement dated 20.11.2003, or only in the assessment year 2007-08 upon registration of the sale deed?

(b) Whether parting possession of the immovable property occurred in the previous year relevant to the assessment year 2004-05, despite possession and conveyance being given only after construction completion in the assessment year 2006-07?

(c) Whether the Tribunal was justified in relying on the agreement dated 20.11.2003 when the parties allegedly failed to carry out mandatory part performance of the contract, and whether the property was purchased for the purchaser's own use?

(d) Whether the transfer related only to 6.5 grounds of land and not to 9.75 grounds as claimed by the Revenue?

(e) Whether the Tribunal erred in not considering the Revenue's argument that the assessee and his brother were joint owners and that capital gains on the outright sale of 6.5 grounds was offered only in the brother's hands, not the assessee's?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Timing of Transfer and Possession

The relevant legal framework includes the definition of "transfer" under Section 2(47) of the Income Tax Act, 1961, and the principles of part performance under Section 53A of the Transfer of Property Act. According to Section 2(47)(v), transfer includes the granting of an irrevocable power of attorney conferring the right to transfer the property. Section 53A protects the transferee in possession under a contract for sale if certain conditions are met.

The Court examined whether the transfer was complete in the financial year 2003-04 (assessment year 2004-05) when the agreement and irrevocable power of attorney were executed, or only upon registration of the sale deed in 2006-07 (assessment year 2007-08).

The Tribunal and Commissioner of Income Tax (Appeals) found that all conditions under Section 53A were satisfied in 2003-04, including receipt of sale consideration and irrevocable power of attorney, indicating transfer was complete then. The subsequent registration in 2006-07 was held to be a mere formality. The Revenue's contention that possession and conveyance were only given after construction was rejected, as the possession for the purposes of Section 53A was deemed to have passed earlier.

Key findings included that the Revenue had already treated the transaction as transfer in assessment year 2004-05 and levied capital gains tax accordingly. The Court emphasized that once the Revenue accepted the transfer and assessed capital gains in 2004-05, it could not reassess the same transaction as a transfer in 2007-08.

The Court applied the law to the facts by holding that the transfer was complete in 2003-04, consistent with the principles of part performance and prior assessment. The competing argument that registration and possession occurred only in 2006-07 was rejected as a technicality insufficient to re-open assessment.

Conclusion: The transfer took place in the assessment year 2004-05, not in 2007-08.

Issue (c): Reliance on Agreement and Part Performance

The Tribunal relied on the agreement dated 20.11.2003 and the execution of a registered power of attorney to hold that the transfer was complete. The Revenue argued that mandatory part performance was not carried out, and that the purchaser acquired the property for its own use, implying the transfer was not complete.

The Court noted that the Revenue had accepted the transfer in 2004-05 and levied tax accordingly, which estopped it from denying the transaction's validity later. The execution of irrevocable power of attorney and receipt of consideration were sufficient to constitute transfer under Section 2(47)(v) and Section 53A of the Transfer of Property Act.

The Court found no merit in the Revenue's contention that the transfer was not complete due to lack of part performance or purchaser's use. The legal framework supported the Tribunal's reliance on the agreement and power of attorney as constituting transfer.

Conclusion: The Tribunal was justified in relying on the agreement dated 20.11.2003 and treating the transaction as a transfer.

Issue (d): Extent of Transfer - 6.5 Grounds vs. 9.75 Grounds

The Revenue contended that only 6.5 grounds were sold outright in 2003-04 and the balance 9.75 grounds were not transferred then. The assessee's case was that the 9.75 grounds were given for joint development and the sale deed executed in 2007 was a technical formality.

The Court observed that the total land involved was 27.38 grounds, with 6.5 grounds sold outright and 9.75 grounds subject to joint development agreement. The consideration for the joint development portion was partly in cash and partly by constructed area, received in 2003-04.

The Court accepted that the joint development agreement and power of attorney constituted transfer of the 9.75 grounds in the assessment year 2004-05, consistent with the prior assessment and payment of capital gains tax.

Conclusion: The transfer related to both 6.5 grounds and 9.75 grounds in the assessment year 2004-05, not only 6.5 grounds.

Issue (e): Joint Ownership and Capital Gains Admission

The Revenue argued that the assessee and his brother were joint owners and that capital gains on the outright sale of 6.5 grounds was offered only in the brother's hands, not the assessee's, which was improper.

The Court noted that in the brother's case, the Revenue had accepted the transfer and capital gains assessment for the same property and that order had attained finality. The Court held that the Revenue could not take inconsistent positions in the two cases or reassess the same capital gains in the assessee's hands again.

Conclusion: The Revenue's argument was rejected; the capital gains on the joint development and outright sale were properly assessed in assessment year 2004-05 in the hands of the respective owners.

3. SIGNIFICANT HOLDINGS

The Court held that:

"Admittedly, the Assessing Officer having accepted the transfer in the assessment year 2004-05 and levied tax thereon, cannot sing a different tune in the assessment year 2007-08."

"In the assessment year 2004-05, the property in question was treated as transfer as per the definition of Section 2(47)(v) of the Act in the hands of the Assessee and consequently, capital gains was also assessed in that assessment year. After treating all transfer of the property in the hands of the Assessee as transfer in the assessment year 2004-05, it is not open to the Revenue to again treat the same property as transfer by the same Assessee in the assessment year 2007-08 also."

"Section 50C of the Act says 'all such transfer'. The transfer admittedly happened in the assessment year 2004-05 and the Assessing Officer has accepted the value in the assessment year 2004-05 and has also levied capital gains tax. Therefore, we would agree with the Tribunal that there is no merit in the stand taken by the Assessing Officer and capital gains cannot be assessed in the assessment year 2007-08."

The Court established the principle that once the Revenue accepts a transfer and assesses capital gains in a particular assessment year, it cannot reassess the same transfer in a subsequent year merely because of technical formalities such as delayed registration. The doctrine of part performance under Section 53A of the Transfer of Property Act can effectuate transfer for income tax purposes even before registration. The Court also emphasized the finality of assessments and consistency in Revenue's approach.

All the questions of law were answered against the Revenue, and the appeal was dismissed.