BY TIOL News Service

KOLKATA, JULY 23, 2018: THE issue before the bench was whether mere signing of agreement & payment of consideration is sufficient to imply transfer of immovable property. NO is the answer. In this matter, the Bench also held that a valid transfer of immovable property would be affected only when the property is handed over to the transferree.

Facts of the case

The assessee owned some land which was later handed over to a developer. As per an agreement between the two, the developer would construct upon the land and in lieu of such work undertaken it would be entitled to retain 61% of the land and the proportionate constructed area, while the balance 39% of the land together with the construction thereon would belong to the assessee. On assessment for the relevant AY, the Revenue claimed that tax on capital gains was payable by the assessee. The other issue arose regarding the treatment of that portion of the construction which was owned by the assessee. In the assessment order, the AO held the building & office spaces owned by the assessee as being its fixed assets. However, the CIT exercised power of revision u/s 263 and held that such constructions were in fact classifiable as current assets. Thus the CIT directed fresh adjudication of the matter on grounds that the Revenue had suffered loss of tax revenue due to the erroneous classification done by the AO. Such findings were thereafter reversed by the Tribunal, which held such property to be fixed assets.

On appeal, the High Court held that,

++ There could be myriad situations. There could be an agreement between a developer and a prospective purchaser of a flat under which the purchaser would make some payment or even the full payment and the developer would promise to construct and make over a flat at a future date. Merely because the consideration is paid and the agreement is executed, it would not imply that a transfer would take place. The transfer in such a situation would take place upon the possession of the relevant flat being made over to the purchaser, irrespective of whether the deed of conveyance is executed or not. In another situation, A may agree to sell an immovable property at an agreed consideration to B, subject to such consideration being paid. If B is then put in possession of the property and a part of the consideration is received, as long as B is willing to discharge B's obligation under the agreement, A cannot dispossess B from the relevant property notwithstanding the conveyance in respect thereof not being executed. That is the essence of Section 53A of the Act of 1882. The transfer in such a case would be at the time of the possession of the property being made over to the transferee;

++ it is the undeniable position that under the agreement, the land and the construction thereon were to be divided in a certain ratio as between the developer and the assessee. It was also the developer's obligation under the agreement to make the construction or cause such construction to be made on the land. The possession that was made over by the assessee to the developer was not of the developer's share as envisaged in the agreement, but of the entirety of the land for the construction to be made thereon. It is true that the developer could have retained possession of the land and declined to return possession thereof to the assessee since the developer was in physical control thereof. But such resistance of the developer would not have been protected under Section 53A of the Act of 1882. It was only after the apportionment of the areas upon the construction on the land being completed that the developer could have rightfully retained possession of the developer's 61% share and resisted dispossession by discharging his obligation under the agreement and seeking refuge in terms of Section 53A of the Act of 1882 despite the formal conveyance pertaining to the developer's entitlement not having being executed. In any view of the matter, the right of the developer to retain possession and protect such possession under Section 53A of the Act of 1882 could never have arisen prior to the construction being completed and the apportionment effected.

(See 2018-TIOL-1430-HC-KOL-IT)