Capital Gain to Be Computed in Year of Builder’s Consent If Transfer of Booking Rights in Property Was Subject to It

Case Details: R. C. Nirula & Sons HUF vs. ACIT - [2024] 164 taxmann.com 308 (Delhi-Trib.)

Judiciary and Counsel Details

• Saktijit Dey, Vice President & M. Balaganesh, Accountant Member
• Gaurav Jain, Adv. & Praveen Kumar, CA for the Appellant.
• Manish Kumar Davas, Sr. DR for the Respondent.

Facts of the Case

The assessee had booked one Villa with the builder vide allotment letter in 2005. However, before the property was completed and possession handed over to the assessee, the assessee agreed to sell the booking rights in March 2008. As per agreement, the transfer was to take place after receipt of the entire consideration and receipt of NOC from the builder.

The Assessing Officer (AO) contended that the transfer of rights in the said property took place in the Assessment Year (AY) 2008-09. On appeal, the CIT(A) confirmed the assessment of the capital gain in AY 2008- 09, applying section 2(47)(vi). Aggrieved by the order, an appeal was filed to the Delhi Tribunal.

ITAT Held

The Tribunal held that as per section 2(47) of the Act, “transfer” in relation to a capital asset includes the sale, exchange or relinquishment of the asset or the extinguishment of rights therein. It speaks about transfer, which involves transferring or enabling the enjoyment of any immovable property. The capital asset here being ‘booking rights of Villa’, transfer of the same happens on the extinguishment or transfer of the rights therein in favour of the other person, which on facts of assessee’s case happened in AY 2009-10.

Mere receipt of advance in terms of an agreement to sell subject to conditions precedent cannot possibly be treated on the same footing as sale or extinguishment or transfer at the time of agreement to sell under any of the clauses of section 2(47). The extinguishment of the rights of the assessee in respect of the said capital asset and the transfer thereof took place in the year when:

• Full and final payment towards sale consideration was received in April 2008, and original documents were handed over to the buyer; and
• The assessee wrote to the Builder to substitute its name by the name of the buyer, which the builder confirmed in May 2008

The agreement to sell was not a transfer and was subject to compliance with conditions by the buyer and by the Builder. The transfer was only to take place after compliance by the buyer of the buyer’s obligations and after permission to transfer by the builder.

In the agreement to sell, it was stated that upon the builder’s refusal of the transfer, the assessee had the right to cancel the agreement and refund the advance to the buyer. Further, even if permission is granted by the Builder, the seller has the right to refuse the transfer of the booking right on payment of double the advance received. This shows that the agreement was cancellable.

Thus, there was no transfer in the totality of facts and circumstances of the assessee’s case. The assessee was vested with all rights in the property until consideration was received and the Builder issued NOC. Thus, there was no extinguishment/ relinquishment of the rights of the assessee. If this Agreement to sell is transferred, then capital gains shall be leviable on all the agreements to sell, even on receiving small advance/earnest money, which is not the case.

The transfer of booking rights contemplated in the agreement to sell was dependent upon the builder’s permission, which was granted only in May 2008. Thus, the transfer of booking rights would be completed only in AY 2009-10. Therefore, AO was directed to delete the capital gain addition.

List of Cases Reviewed

• CIT v. Balbir Singh maini (supra) (para 20) followed.

List of Cases Referred to

• Smt. Shail Moti Lal v. CIT [2013] 35 taxmann.com 46/218 Taxman 298 (Punjab & Haryana) (para 11)
• CIT v. Balbir Singh Maini [2017] 86 taxmann.com 94/251 Taxman 202/398 ITR 531 (SC) (para 14)
• Ushaben Jayantilal Sodhan v. ITO [2018] 93 taxmann.com 453/255 Taxman 454/407 ITR 276 (Gujarat) (para 14)
• Asstt. CIT v. Shree Ami Office Owner’s Association [2023] 148 taxmann.com 130/199 ITD 670 (Ahmedabad – Trib.) (para 14).