The Jaipur bench of the Income Tax Appellate Tribunal (ITAT) has held that the capital gain tax would not attract merely based on the fact that the sale deed is registered and the transfer could not be completed due to non-fulfillment of payment obligations.
The assessee transferred his land through a registered sale deed for a consideration of Rs 3.40 crores paid by cheques. Out of these cheques, two were dishonored and returned unpaid to the assessee.
The Revenue, while completing the assessment against the assessee demanded income tax from the assessee holding that the transfer of land has been done through these two registered sale deeds wherein the sales consideration was mutually agreed upon, accepted and deemed to be received before signing and registering the sale deed before the Registering Authority and deduction for not receiving any part of sales consideration in the future is not acceptable from the full value of consideration under the provisions of Act and the transaction is subject to levy of capital gains tax.
However, the assessee held that registration is not a proof of an operative transfer and where the parties had intended that despite execution and registration of sale deed, transfer by way of sale will become effective only on payment of the entire consideration amount, then in such a scenario, the transfer will be effected only on payment and receipt of full sale consideration and not at the time of execution and registration of sale deed.
The Tribunal noted that the intention of the parties which can, therefore, be gathered from the reading of the sale deed and the conduct of the parties is that the effective transfer of title in the land shall happen only on encashment and clearance of both the cheques and not at the time of execution and registration of the sale deed.
“Therefore, mere handing over the cheques which have been subsequently dishonored and returned unpaid to the assessee cannot be held to be a discharge of full sale consideration at the time of execution of the sale deed and there is clearly a violation of the terms of sale deed by Shri Rajeev Singh where he has failed to discharge the full sale consideration so agreed and stated in the sale deed. Further, the matter has again been contested under the Negotiable Instruments Act for the dishonor of cheques and separately before the Civil Court for cancellation of sale deed due to breach of contract which further proves that at the time of entering into the sale deed, the intention was that the transfer will be effective only on receipt of the full sale consideration,” the Tribunal said.
Relying on the decision of the Apex Court in the case of CIT V/s. ShoorjiVallabhdas& Co, the Tribunal held that “We are therefore of the considered view that though the sale deed has been registered, given that the terms of the sale deed and the intention of the parties at the time of entering into the said sale deed have not to be adhered to whereby full sale consideration has not been discharged, there is no transfer of the impugned land and no income accrues and consequently, no liability towards capital gains tax arises in the hands of the assessee. This brings us to the concept of real income which can only be brought to tax and there cannot be any levy of tax on hypothetical income which has neither accrued/arisen or received by the assessee.”