₹90 Lakh Received for Transferring Rights in Land without Registered Title Taxable as Income from Other Sources: ITAT [Read Order]

The assessee, Hiren Rameshbhai Patel had filed his return of income for Assessment Year (AY) 2016–17 declaring a total income of ₹54,59,950. The case was selected for complete scrutiny, and during assessment proceedings, the Assessing Officer (AO) found that the assessee had entered into an agreement to sell in 1992–93, along with other co-owners for acquiring a plot of land.

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However, the purchase deed was not registered, as the title of the land could not be received in the hands of Lalchand Cooperative Society due to certain objections.

In the financial year 2015–16, the assessee and the other co-owners came to know that the Lalkar Co-op Housing Society was in the process of selling the same plot of land. Since the assessee had already made payment towards the land back in 1992–93, and had rights over it. Therefore, the appellant and the co-owners objected to the sale. The assessee received ₹90,00,000 to relinquish title over such land so that they can sell the land to a prospective buyer.

The AO observed that the assessee’s bonafide claim lacked a valid registered document, and therefore, the property could not be considered a mandatory asset under Section 2(14) of the Income Tax Act, 1961. Since there was no transfer of ownership, the ₹90,00,000 received was treated as income from other sources under Section 56(2)(vii)(b) of the Act rather than capital gains.

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The assessee contended that even though there was no registered sale deed, symbolic possession was with him and that he rightfully offered the amount under long term capital gains

He relied on a Gujarat High Court decision in the case of Taraben D/o. Nanubhai Kasanbhai Patel vs. Saileshbhai (2012) wherein it upheld the validity of banachitthi (written letter) to argue that the “banakhat” (legal agreement made between a buyer and a seller for the sale of property) that is agreement to sale had legal sanctity.

However, the Tribunal comprising Dr. BRR Kumar (Vice President) and Suchitra Kamble (Judicial Member) noted that the assessee has not submitted any details in the form of the settlement agreement or the deed of relinquishing of right in the property either before the AO or before the Commissioner of Income Tax (Appeals) ( CIT (A) ). Even the payment proof has not been submitted.

The Tribunal concluded that it cannot be said as long term capital gain but as income from other sources, as treated by the AO since it was merely a right transferred, and not ownership per se.

The assessee was represented by Biren Shah, while B.P. Srivastava represented the revenue.

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