Rights Held By Taxpayer As Confirming Party In Sale Deed Is Capital Asset As Per Sec 2(14) And Liable For LTCG: Ahmedabad ITAT

The Bench of the ITAT comprising of T.R. Senthil Kumar (Judicial Member) and Annapurna Gupta (Accountant Member) observed that, “It is in the above registered Sale Deed, the respondents/assessees herein are shown as the Confirming Parties and received the consideration through various payment from the buyer/developer. Thus, the allegations and averments made by the Assessing Officer does not stand good in the eye of law namely Banakhat is unregistered and the Banakhat after 12 months period is invalid in law are not properly understood by the Ld. A.O. in legal prospective.” (Para 6)

As per the brief facts of the case, the assessee filed his return of Income which is inclusive of Long-Term Capital Gain on sale of immovable property through Banakhat rights as a Confirming Party and also claimed exemption u/s. 54B. The AO held that the Banakhat (Agreement of Sale) was entered by the assessee for a consideration of Rs.15.50 lakhs and an advance of Rs. 2 lakhs only paid, balance was not paid by the assessee and the Banakhat was also unregistered, but only a notarized agreement. As per the section 17 of the Registration Act, the assessee does not get right over the property by merely entering into an agreement (Banakhat). Therefore, the sale consideration received by the assessee through registered Sale Deed as Confirming Party cannot be treated as a transfer and not a capital asset in the hands of the assessee. Therefore, the entire transaction “income from other sources” and taxed accordingly and also denied deduction u/s. 54B.

The CIT(A) held that the AO failed to consider Para 4 of the Banakhat which clearly stated the balance amount will be paid by the assessee only an absolute clear Title Clearance Certificate is provided by the vendor, till that date the period of this Banakhat will be extended automatically. Further it is a fact that no buyer will pay crores of rupees to any third person through amount payee cheques, if someone has no right in the property. Thus, the CIT(A) confirmed that the transfer of the property is a capital asset within the meaning of section 2(14) and thereby allowed the assessee to compute capital gain and also claim deduction u/s 54B.

The Bench noted that the primary contention of the Revenue is that the Banakhat (Agreement of Sale) was unregistered and the Banakhat was meant only for 12 months period, therefore the assessee does not get right over the property.

The Bench observed that a copy of the Banakhat which was later registered as a document as “Agreement of Sale” by paying Registration Fees with the Sub Registrar was filed by the assessee.

The Bench further observed that the question of non-registration does not arise and the AO and the Lower Authorities failed to note this crucial document.

The Bench highlighted by the reading of para 4 of the Banakhat that the seller is to obtain title clearance certificate and non-agricultural permission in respect of the land to the seller namely the assessee herein, failure of the same, the tenure of the Banakhat shall deem to have extended automatically.

The Bench stated that it is clear that the Civil disputes over the land was cleared between the parties in Civil Suit No. 95/2006 by Principal Sr. Civil Judge withdrawing the suit unconditionally and N.A. permission in respect of the land was obtained from the Collector.

Therefore, on finding no infirmity in the order passed by CIT(A), ITAT dismissed the revenue's appeal.

Counsel for Appellant/Department: Dr. Vipul Chavda

Counsel for Respondent/Taxpayer: S.N. Divetia

Case Title: DCIT verses Shri Bharatkumar Babubhai Patel

Case Number: ITA No: 1965/Ahd/2017

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