Capital gains tax – Application of Sec 2(47) is valid only if conditions of Transfer of Property act are satisfied

The Assessee in this case was the owner of a premises on which a housing project was promoted by M/s Kalpaga builders, a partnership firm, Assessee being mother in law of partnes. The premises were raided in consequence of which the authorities got to know of the above mentioned facts. The premises were acquired by Assessee in March 92 and the builders started construction on it in 10-2-95. Assessee got a sum of Rs.5,80,346 and six residential flats as part of consideration. There was no written agreement between her and the builders. However A.O., during the block assessment proceedings, held that there was a transfer of premises by the Assessee to the builders within the meaning of Sec.2(47)(v) of the Act which resulted in profit to her and in assessment for block period a sum of Rs. 22,02,723 was added for AY95-96 on account of short and long term capital gain.

Aggrieved by the order, Assessee took the matter to CIT(A) who did not give any relief to her.

Consequently she appealed before the Tribunal which allowed her appeal and set aside the order of the lower authorities.

Thus Revenue in turn brought the matter l to High Court which eventually decided the matter after taking into account and discussing the provisions of Sec. 2(47)(v) of IT Act and Sec.53A of Transfer of Property Act. It was argued by the representative of Assessee that Sec. 2(47)(v) cannot be invoked unless ingredients of Sec.53A of TPA are satisfied. There was no written agreement between the Assessee and the builder nor did she receive any consideration from the builder and what is shown is only receivables and nothing has actually been received by the Assessee. In view of this, ld. Counsel contended that since the basic requirement of Sec. 53A is not satisfied, there cannot be any transfer in the present case and hence no consequent profit can arise. On the other hand it was contended on behalf of the revenue that the builder had taken full control of the site and in the sale deeds executed by the Assessee one of the conditions was that the construction should be done by Kalpaga builders. This showed that there was transfer of the premises within the meaning of Sec.2(47)(v) and thus the profits are to be taken as capital gain which is rightly been done by the A.O.

Having heard the rival contentions, the Court dwelled on the two relevant provisions and on the case of Nathulal v. Phoolchand in which the Apex court had discussed the scope of Sec.53A of TPA and held that as per Sec.53A transferor contracts to transfer immoveable property for consideration in writing from terms of which it can be inferred that transfer was intended. As for Sec.2(47)(v) it noted that it regards transfer as transaction involving allowing of taking or retaining of possession of immoveable property in part performance of contract as contemplated in Sec.53A of TPA.

In view of the above, the Court noted that basic requirement of Sec.53A of TPA is a written agreement and Sec.2(47)(v) can be invoked only if conditions laid out in Sec.53A are fulfilled. In the instant case there was neither any written agreement between the Assessee and builder nor any consideration received by her thus 53A of TPA can’t come into play as a result of which 2(47)(v) can’t be invoked. Thus it held that there was no transfer in the instant case within the meaning of Sec.2(47)(v) of the Act and since there is no transfer, question of resulting profit and capital gain doesn’t arise.