A mere agreement to sell immovable property isn’t deemed as a transfer if possession isn’t given to buyer: ITAT

Case Details: Godha Realtors (P.) Ltd. v ACIT - [2022] 135 taxmann.com 24 (Bangalore - Trib.)

Judiciary and Counsel Details

• • N.V. Vasudevan, Vice President and B.R. Baskaran, Accountant Member
  • V. Srinivasan, A.R. for the Appellant. 
  • Sumer Singh Meena, D.R. for the Respondent.

Facts of the Case

The assessee was a private limited company engaged in real estate development. It won the bid for a property admeasuring 2 acres and 15 guntas during the year 2008-09. Since the assessee didn’t have sufficient funds to satisfy the bid, it approached Shri. Reddy and offered to sell 80% of the undivided share in the auctioned property. Shri Reddy accepted the offer and paid an amount of Rs. 7.20 crores to the assessee.

AO took the view that the assessee had transferred 80%, i.e., undivided share in the land to Reddy in the assessment year 2008-09 itself. Accordingly, the capital gain arising on the transfer of 80% of the land is assessable in the hands of the assessee in AY 2008-09. The assessee contended that it had entered into only an “Agreement to Sell” with Shri. Reddy, and it didn’t transfer the title of the land to him. Thus, AO wasn’t correct in law in stating that 80% of the undivided share in the land was sold. However, AO rejected the assessee’s contention.

ITAT Held

On appeal, the CIT(A) upheld the view taken by AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

The Bangalore Tribunal has referred the ruling of the Gujarat High Court in the case of Ushaben Jayantilal Sodhan [2018] 93 taxmann.com 453 (Gujarat). The issue before the Hon’ble Gujarat High Court was pertaining to the deduction claimed under section 54. However, the Court had to decide whether the “Agreement to sell” would result in transfer of property to the buyers. The High Court had held that the mere agreement to sell would not result in the transfer of the property to the prospective buyers, even under Income-tax Act.

In the instant case, the AO didn’t hold that the provisions of section 53A of the Transfer of Property Act would apply to the impugned transaction. The assessee didn’t give possession of the property to Shri Reddy. Hence, what was entered by the assessee with the above-said person was a mere “agreement to sell”.

Since there was no extinguishment of any right in the land held by the assessee, the question of assessing any capital gains didn’t arise. Thus, the order passed by CIT(A) and AO concerning the computation of capital gain was to be set aside.