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Ajay Kumar Shah Jagati v. Commissioner Of Income Tax .
Factual and Procedural Background
The assessee entered into a registered agreement dated 25-04-1988 to sell 7000 sq. m. of vacant land to M/s Kumaon Construction Ltd. for a total consideration of Rs 25 lakhs, receiving Rs 2 lakhs as advance. During Assessment Year 1989-1990 the assessee conveyed 24 sub-divided plots, drawn out of the same 7000 sq. m., to nominees of M/s Kumaon Construction Ltd. for an aggregate consideration of Rs 15,20,900 (inclusive of the advance).
The Assessing Officer (AO) invoked Sections 2(47)(v) of the Income-tax Act, 1961 and 53-A of the Transfer of Property Act, 1882, holding that the entire sale consideration of Rs 25 lakhs should be subjected to capital-gains tax because the contract had been partly performed. The Commissioner of Income Tax (Appeals) [CIT(A)] affirmed this view.
On second appeal, the Income-tax Appellate Tribunal (ITAT) reversed the revenue authorities, limiting the taxable amount to the actual consideration of Rs 15,20,900 received for the 24 plots. The High Court, in an appeal under Section 260-A of the Income-tax Act, upheld the ITAT’s decision.
The Revenue thereafter filed the present civil appeals before the Supreme Court, which constitute the opinion summarised here.
Legal Issues Presented
- Whether the assessee’s transaction falls within the extended definition of “transfer” in Section 2(47)(v) of the Income-tax Act, 1961, read with Section 53-A of the Transfer of Property Act, 1882, thereby rendering the entire agreed consideration of Rs 25 lakhs liable to capital-gains tax for Assessment Year 1989-1990.
- Whether, in the absence of findings on delivery of possession and related primary facts, the ITAT and the High Court were justified in limiting the taxable amount to the actual consideration received.
Arguments of the Parties
Assessee's Arguments
- Possession of the entire 7000 sq. m. was never handed over to the purchaser; the assessee retained possession of untransferred portions.
- Because complete possession was not transferred, Section 2(47)(v) read with Section 53-A was inapplicable, and capital-gains tax could be levied only on the consideration actually received for the 24 plots (Rs 15,20,900).
Revenue's Arguments
- A substantial portion of the land had already been sold; the agreement had been partly performed, bringing the transaction within Section 53-A and, by extension, Section 2(47)(v).
- Accordingly, capital-gains liability should be computed on the full contractual consideration of Rs 25 lakhs.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Supreme Court identified “possession” as the pivotal element for invoking Section 53-A and, consequently, Section 2(47)(v). It observed that neither the ITAT nor the High Court had recorded any findings on whether possession of the entire 7000 sq. m. or any part thereof had been delivered to M/s Kumaon Construction Ltd. Critical primary documents—such as the individual sale deeds for the 24 plots, subdivision plans, municipal or revenue records, and applications for subdivision—were never examined.
Without these foundational facts, the Tribunal could not lawfully conclude that Section 2(47)(v) was inapplicable. The Court emphasised that determining how many plots were conveyed, which plots were retained, whether possession was transferred, and how the indexed cost was computed are indispensable inquiries that must precede any legal conclusion on capital gains.
Because these factual lacunae undermined the Tribunal’s decision and were overlooked by the High Court, the Supreme Court found both lower-court orders to be unsustainable.
Holding and Implications
Appeals ALLOWED; judgments of the High Court and the ITAT SET ASIDE; matters REMITTED to the Tribunal for fresh consideration in accordance with law.
Immediate Effect: The ITAT must reconsider the case after permitting the assessee to furnish all relevant sale deeds, subdivision applications, plans, and municipal/revenue records pertaining to possession and cost of acquisition.
Broader Implications: The decision sets no new legal precedent but underscores the necessity of clear findings on possession and other primary facts before applying Section 2(47)(v) read with Section 53-A to determine capital-gains liability.
Order
1. Leave granted. In these civil appeals we are concerned with the scope of Section 2(47)(v) read with Section 53-A of the Transfer of Property Act, 1882.
2. The assessee entered into an agreement to sell 7000 sq m vacant land to M/s Kumaon Construction Ltd., Nainital, for Rs 25 lakhs. The agreement was registered with the Sub-Registrar, Nainital, and Rs 2 lakhs were received as advance.
3. In the period relevant to Assessment Year 1989-1990 the assessee claims to have transferred 24 plots to the nominees of M/s Kumaon Construction Ltd. for total consideration of Rs 15,20,900 inclusive of Rs 2 lakhs as advance.
4. The assessing officer called upon the assessee to show cause why capital gains should not be assessed with reference to total consideration of Rs 25 lakhs fixed in the agreement for sale. In his reply the assessee submitted that he has not given possession of the entire area of 7000 sq m of vacant land; that he continues to be in possession of the land not transferred and therefore Section 2(47)(v) was not applicable.
5. The AO did not agree with the contention of the assessee and accordingly worked out capital gains liability on the entire consideration of Rs 25 lakhs principally on the ground that a major portion of total land has already been sold and thus a part of contract was performed and accordingly the case stood covered by Section 53-A of the Transfer of Property Act. This view was confirmed by CIT (A).
6. The assessee then preferred second appeal before the Tribunal which was allowed by the Tribunal observing that the approach of the Revenue was erroneous. According to the Tribunal the order of the AO was based upon misconception of legal principles. According to the Tribunal in the period relevant to the assessment year under consideration, the assessee had transferred 24 plots to different persons (nominees of M/s Kumaon Construction Ltd.) for total consideration of Rs 15,20,900 and therefore the assessee was not liable to return capital gains on the sum of Rs 25 lakhs. This appears to be the reason given by the Tribunal for upholding the contention advanced on behalf of the assessee.
7. Aggrieved by the said decision, the Department carried the matter in appeal under Section 260-A of the Income Tax Act, 1961 to the Uttaranchal High Court which has upheld the judgment of the Tribunal. Hence these civil appeals.
8. Unfortunately, in the present civil appeals the basic facts are not on the record. It appears from the agreement dated 25-4-1988 that the assessee had agreed to sell to M/s Kumaon Construction Ltd., Nainital, land admeasuring 7000 sq m. That agreement is subsequently rescinded. However, between 25-4-1988 and the date of rescission (22-10-1990) the plot admeasuring 7000 sq m stood sub-divided. The sub-divided 24 plots were conveyed by the assessee to the nominees of M/s Kumaon Construction Ltd. None of the sale deeds have been produced by the assessee before the Department. In such cases it is very essential to look into the recitals mentioned in the sale deeds.
9. Briefly, it may be stated that in order that the case would fall under the extended meaning of the word “transfer”, possession is an essential element to be considered. That is the crux of the matter.
10. In the present case no finding qua possession has been recorded by the Tribunal. It may also be noted that there is nothing on record to indicate the name of the applicant who had applied for sub-division. No revenue or municipal records have been produced which could have indicated as to whether the area admeasuring 7000 sq m or a part thereof stood conveyed and delivered to M/s Kumaon Construction Ltd. at the relevant time. It is not clear as to how many plots stood conveyed and how many plots remained. In the absence of these basic facts which are primary facts, we are of the view that the Tribunal could not have allowed the appeal in favour of the assessee. What is the indexed cost of each plot is not mentioned. Unfortunately, none of the above aspects have been considered even by the High Court in its impugned judgment.
11. For the aforesaid reasons, we remit the matters to the Tribunal for fresh consideration in accordance with law. We make it clear that the assessee shall file all relevant documents including conveyance(s) in favour of the nominees of M/s Kumaon Construction Ltd., the relevant plan indicating sub-division of plots, copy of the application made to the competent authority for sub-division of the plots, and lastly, the municipal and revenue records in which the relevant entries are made regarding possession. Basically, the question would be how many plots have been conveyed, how many are retained, whether possession of the entire land was ever handed over to Kumaon Construction and how was cost calculated by the assessee.
12. For the aforestated reasons, the appeals stand allowed and the impugned judgments of the High Court and the Tribunal are set aside. The matters are remitted to the Tribunal for fresh consideration in accordance with law.
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