Unregistered agreement to sell amounts to transfer u/s 2(47) for capital gain purpose

In a recent judgment, ITAT Delhi has held that land possession given and major sales consideration received through unregistered agreement to sell  amounts to transfer u/s 2(47) of the Income Tax Act, 1961, though it was claimed that possession was taken back for non receipt of balance sales consideration.

Case Details:
ITA No.5521/Del/2015 (Asstt. Year: 2012-13)
ITAT Delhi, Circuit Bench at Meerut
Ashwani Kumar & Sons (HUF) vs. ITO

Brief Facts of the Case:
The assessee was Hindu undivided family (HUF) During the relevant assessment year, it had sold agricultural land through unregistered agreement of sale dated 21st of February 2012 on consideration of Rs. 19681600/-. As per the assessee initially the possession of the property was given but the purchaser was not able to give balance consideration of Rs. 2681600/- and therefore the possession was taken back on 15.03.2012. Therefore, there was no transfer in view of provisions of section 2(47) of the Income Tax Act, 1961. However tax authorities noted that eventually the possession of the property was handed over to the buyer. Since the assessee had received substantial consideration and has also parted with the possession of the property the Assessing Officer (AO) was of the view that there was a transfer of an asset and capital gain is chargeable to tax. Also the assessee had claimed deduction under section 54B which was denied on the ground that the deduction u/s 54B at the relevant time was available only to the individual assessee and not to HUFs.

Assessee preferred an appeal before CIT appeals who also confirmed the action of the assessing officer on taxation of capital gains on sale of land and secondly on denial of deduction under section 54B.

Excerpts from ITAT Judgment:

It is undisputed fact that assessee has entered into an agreement to sell with the buyer for consideration of Rs 1,96,81,600/- and received part of the consideration of Rs 1,70,00,000/- and the possession of the property was given to the buyer. According to the provisions of section 2(47)(v) of the act transfer includes any transaction involving the allowing of the possession of any 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, 1882.Therefore, in the transaction entered into by the assessee. All the ingredients of transfer are satisfied, and therefore we are of the view that though assessee might not have received the full consideration but transfer of property has occurred in view of handing over the possession of the property to the buyer. For repossession of property assessee produced a an undated notarised understanding on stamp paper of Rs 10/- .Merely because the possession of the property has been taken back by the seller on account of non payment of part of the consideration cannot save capital gain in the hands of the assessee when subsequently the same agreement was honoured. Furthermore for taking back the possession of the property assessee produced an undated notarised understanding on stamp paper of Rs 10/-. For repossession of the property assessee produced an undated notarised understanding on stamp paper of Rs 10/- between the buyer and seller However subsequently the transaction of sale has happened at the agreed price between the parties. Further it is difficult to appreciate that when assessee has received substantial consideration and only meagre consideration is outstanding how assessee has taken possession of the property back from the buyer without returning any payment to the buyer.

Hence we are of the view that the impugned assessement year is AY 2012-13 and assessee is HUF which is not entitled to deduction u/s 54 B of the act.