Point of law : Transfer of property - An unregistered agreement cannot be treated as an agreement in the eye of law, as one referred to under section 53A of the TP Act. Section 53A of the TP Act, having been incorporated into section 2(47)(v) of the Act, by legislation, all essential ingredients of Section 53A of the TP Act are liable to be fulfilled to render such an agreement as transferring a capital asset.

JUDGMENT :

BECHU KURIAN THOMAS, J.

1. In this appeal filed under section 260A of the Income Tax Act, 1961, (for short ‘the Act’) the main issue raised for consideration through the six questions of law framed is whether an unregistered agreement for joint development of a property could be deemed to be a contract under section 53A of the Transfer of Property Act and treat the same as a transfer of a capital asset under section 2(47)(v) of the Act.

2. The issue involved in the instant case arises from the assessment year 2008-09. Pursuant to a notice under section 148 of the Act, alleging income escaped assessment, the assessing officer held, that, an unregistered joint development agreement entered into between the assessee and another entity for development of a property belonging to the assessee, as a transfer of a capital asset as defined in section 2(47)(v) of the Act and exigible to capital gains tax under section 45 of the Act. The Appellate Authorities, including the Tribunal, concurred with the finding of the assessing officer. The Tribunal found that the property was handed over to the developer on 17-07-2007 and in turn, as contemplated in the agreement, the developer constructed residential apartments and had independent rights to sell the same on the basis of the power of attorney executed in favour of the key personnel of the builder. On the basis of the afore factual findings, it was concluded that as per the joint development agreement, the parties to the contract have performed or are willing to perform their part of the contract and hence the Income Tax Authorities were justified in bringing to tax the short-term capital gains for the assessment year 2008-09.

3. Aggrieved by the order of the Tribunal, the assessee preferred this appeal, which was admitted on six questions of law: However after hearing the Counsel, we reframe the questions of law into a single question as follows: whether an unregistered agreement for joint development of a property could be deemed to be a contract under section 53A of the Transfer of Property Act, for treating the same as a transfer of a capital asset under section 2(47)(v) of the Act.

4. We have heard Adv. Arun Raj S. learned counsel for the appellant as well as Adv. Christopher Abraham, the learned Standing Counsel for Income Tax Department.

5. From the nature of the joint development agreement, as discernible from the orders of the assessing officer as well as the appellate authorities, it is understood that possession was handed over by the assessee to the developer on 17-07-2007 on the basis of the unregistered agreement. Pursuant to the said agreement, the acts of management, control, and supervision of the property were given to the developer for the purpose of developing the property by constructing a multi-storied residential building thereon, with a total built-up area of 11,116 ft. In consideration of the alleged ransfer, it was found that 2779 ft. of the total built-up area will be handed over to the owners of the property, on completion of the building and the remaining extent could be sold to the respective purchasers.

6. It can be understood from the aforesaid that, the unregistered agreement provided for an agreement to facilitate the development of the property by the developers building a multistoried residential building at their own cost and thereafter handover the same to the owners of the property and also sell part of the building to the respective purchasers. The short question that arises is whether the said unregistered joint development agreement can be treated as a transfer of a capital asset for the purpose of imposing capital gains.

7. The liability for capital gains under section 45 of the Act arises only when there is a transfer of a capital asset effected in the previous year. The word ‘transfer’ is defined in section 2(47) of the Act as encompassing six different types of transactions. The relevant transaction for the present case referred to in the s