ACIT v. Ijyaraj Singh [ITA Nos. 152, 91/JP/2019,
dt. 18-6-2020] : 2020 TaxPub(DT) 2606 (Jp.-Trib.)
Capital gains levy on cancellation of sale deed due to
non-payment of consideration -- Section 53A of Transfer of Property Act, 1882
interplay -- real income concept in capital gains
Facts:
Assessee had transferred certain agricultural lands to
various people. Of this transfer under section 2(47) by way of sale where the
conveyance was also done; one such purchaser bounced the cheques which were
issued as consideration for the transfer. To annul that conveyance deed
registered with the respective purchaser; assessee filed and obtained court
injunction invalidating the deed. Besides injuction, notice under section 138
of the Negotiable instruments act 1881 was also filed against the purchaser for
having bounced the cheques. Assessee returned the said cancelled transfer also
as capital gains in the original return of income and subsequently revised it
post bouncing of cheques by excluding the capital gains on said transfer in the
revised return. The assessing officer subjected the cancelled transfer also to
capital gains which was negated by the Commissioner (Appeals). An aggrieved
department went in higher appeal to the ITAT.
Held in favour of the assessee (against the department)
that the cancellation of the agreement by way of injunction meant there was no
transfer in the first place. Capital gains cannot be levied on a notional
hypothetical transaction.
The departmental plea for taxability was in reference to section
2(47)(v) where reference to part performance under section 53A of Transfer of
Property Act, 1882 is mentioned.
The ITAT held that to trigger section 53A both of the below
conditions ought to exist --
1. In the part performance,
there has to be willingness to perform his part of contract by the transferee.
2. The transferee should have
been put in possession in such part performance of the contract and the
transferor has agreed to transfer the property for consideration.
Here in this case there is no willingness to perform the
conveyance as manifested by the injunction suit and criminal complaint under
section 138 of NI Act. Though conveyance was done and cancelled no possession
was done. The injunction order obtained also confirmed non-possession by nullifying
the sale deed. Thus no transfer took place in this instance.
To tax income it has to be "real income" as held
in CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC) : 1962
TaxPub(DT) 0307 (SC).
In CIT v. Balbir Singh Maini (2017) 398 ITR 531(SC)
: 2017 TaxPub(DT) 4346 (SC) it was held that there must be a consideration
to tax a capital asset and the consideration must be real which was applied
here.
It is only the real gain which can be taxed and not the
notional gain which has not been received or accrued to the assessee thus it
was held in K.P. Verghese v. ITO (1981) 131 ITR 597 (SC) : 1981
TaxPub(DT) 0972 (SC).
A deed carries evidentiary value but it is possession with
conveyance which confirms the transfer. In the absence of possession but only
conveyance there is no invocation of section 53A of Transfer of Property Act,
1882.
Editorial Comment: The
topic of real income in capital gains is a vexed issue with certain takeaways
need to be remembered to examine capital gains applicability --
1. What is the intention of the
parties?
2. When is the contract
conclusion happening?
3. Conveyancing document is of
evidentiary value -- no doubt in this but is not the only evidence.
4. Were there developments which
created embargo on the property even post conveyancing or after receipt of
consideration?
5. Is there an income in the
first place? If yes, is it real or notional?
6. If notional is that income in
the deemed capital gain head?
It is the above points which were factually examined and
applied in the above decision.