In a significant ruling, the ITAT, Hyderabad bench held that a sale agreement between son and father cannot be deemed as invalid as long as both the parties are competent to enter into a contract.
In the instant case, the assessee who is a non-resident left India in the year 2005. Before leaving India, he executed a sale agreement in favour of his father as per which he sold his property for a consideration of around 4 lakhs. After delivering the possession of the property to his father, he also executed a General Power of Attorney to his father.
Assessee maintained that the agreement of sale cum GPA has been entered only to save the stamp duty which could be refunded when the final sale deed has been entered into but according to him, the entire sale consideration has been received by the assessee and therefore, the transfer is complete.
The department noted that in the final registered sale deed, the assessee is shown as vendor represented by his father, i.e, GPA holder. The Revenue though accepted the final deed, refused to accept the validity of the registered agreement of sale.
The bench noted that as per the final deed, the property has been sold for a consideration of Rs.11,40,000 which has been paid through cheques and the stamp duty paid on the agreement of sale cum GPA has been adjusted against the stamp duty paid on the final sale deed.
“A document has to be either accepted or rejected in to-to and cannot be considered as partly in favour and partly against the assessee. The agreement of sale cum-GPA is one single document and is also a registered document. Both the agreement of sale cum GPA and the final sale deeds are registered documents and the assessee’s contention that there is a transfer of property in the A.Y 2005-06 cannot be said to be an afterthought. There is no prohibition against the sale of property between a son and his father as long as both the parties are competent to enter into a contract. As long as it is not a prohibited transaction, the doubts raised by the Revenue cannot be sustained without any appropriate evidence.”
“By virtue of agreement of sale, with handing over of the possession, there is a valid transfer u/s 2(47)(v) of the I.T. Act though the legal title gets transferred only on the registration of the sale deed. Therefore, the assessee has to be shown as the vendor in the subsequent and final sale deed executed in favour of the three persons. Therefore, the mere mention of the assessee in the sale deed as the vendor does not confer any title on him which he has already transferred to his father by virtue of the agreement of sale cum GPA.”
The bench also refused to accept the alternative contention of the department seeking a direction to tax the father who is the ultimate owner under the provisions of section 153(3) of the Income Tax Act. Relying on the Apex Court decision in Rajinder Nath vs. CIT, the bench said that the finding that the income represents the income of another person requires a proper enquiry and for that purpose, an opportunity of being heard was necessary under Explanation 3 to section 153(3) of the Act.
Read the full text of the Order below.
