Income Tax--Current Issues

Practice Update

CA V.K. Subramani

SECTION 53A OF TRANSFER OF PROPERTY ACT WILL NOT APPLY TO UNREGISTERED JDA

Section 2(47) defines the term 'transfer'. Sub-clause (v) says 'any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882' is also covered.

Section 53A of the Transfer of Property Act deals with Part performance and it reads as under :--

Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty,

and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,

and the transferee has performed or is willing to perform his part of the contract,

then notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract;

Provided that nothing contained in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.

Apex Court decision

In CIT v. Balbir Singh Maini (2017) 398 ITR 531 (SC) : 2017 TaxPub(DT) 4346 (SC) it was held that the protection provided under section 53A is only a shield and only be resorted to as a right of defence. Refer Shrimant Shamrao Suryavanshi v. Pralhad Bhairoba Suryavanshi (2002) 3 SCC 676.

An agreement of sale which fulfilled the ingredients of section 53A was not required to be executed through a registered instrument. However, this position got changed by the Registration and Other Related Laws (Amendment) Act, 2001. Amendments were made simultaneously in section 53A of the Transfer of Property Act and sections 17 and 49 of Indian Registration Act, 1908. By the aforesaid amendment the words 'the contract, though required to be registered, has not been registered, or' in section 53A of the Transfer of Property Act, 1882 have been omitted.

Simultaneously, sections 17 and 49 of the Indian Registration Act, 1908 have been amended clarifying that unless the document containing the contract to transfer for consideration any immovable property (for the purpose of section 53A of 1882 Act) is registered, it shall not have any effect in law, other than being received as evidence of a contract in a suit for specific performance or as evidence of any collateral transaction not required to be effected by registered instrument.

Thus, joint development agreement unless it is registered will not have binding force and would not be covered by sub-clause (v) of clause (47) of section 2 of the Income-tax Act, 1961. Therefore, it would not be a transfer for having further tax consequences.