H High Court in Commissioner of Income Tax v. Distributed operating system pdf pradeep k sinha Tax Act, 1961 read with Section 53-A of the Transfer of Property Act, 1882?
Whether the Income Tax Appellate Tribunal, has ignored rights emanating from the JDA, legal effect of non registration of JDA, its alleged repudiation etc. Section 53-A of the Transfer of Property Act, 1982 was delivered, and if so, its nature and legal effect? Whether there was any default on the part of the developers, and if so, its effect on the transactions and on exigibility to tax? Whether amount yet to be received can be taxed on a hypothetical assumption arising from the amount to be received? A reading of the JDA shows that, it is essentially an agreement to facilitate development of 21.
2 acres so that the developers build at their own cost, after obtaining necessary approvals, flats of a given size, some of which were then to be handed over to the members of the society. Payments were also to be made by the developer to each member in addition to giving each member a certain number of flats depending upon the size of the member’s plot that was handed over. Section 53A, as is well known, was inserted by the Transfer of Property Amendment Act, 1929 to import into India the equitable doctrine of part performance. But there are certain conditions which are required to be fulfilled if a transferee wants to defend or protect his possession under Section 53- A of the Act. It is also well-settled by this Court that the protection provided under Section 53A is only a shield, and can only be resorted to as a right of defence.
8 SCC 614 at 619, para 10. An agreement of sale which fulfilled the ingredients of Section 53A was not required to be executed through a registered instrument. Act, 2001 and if such documents are not registered on or after such commencement, then they shall have no effect for the purposes of the said Section 53A. Effect of non-registration of documents required to be registered. The effect of the aforesaid amendment is that, on and after the commencement of the Amendment Act of 2001, if an agreement, like the JDA in the present case, is not registered, then it shall have no effect in law for the purposes of Section 53A.
In short, there is no agreement in the eyes of law which can be enforced under Section 53A of the Transfer of Property Act. We are afraid that we cannot agree with the High Court on this score. A reading of the JDA in the present case would show that the owner continues to be the owner throughout the agreement, and has at no stage purported to transfer rights akin to ownership to the developer. At the highest, possession alone is given under the agreement, and that too for a specific purpose -the purpose being to develop the property, as envisaged by all the parties.
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We are, therefore, of the view that this clause will also not rope in the present transaction. The matter can also be viewed from a slightly different angle. Section 48 as a result of the transfer of the capital asset. It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody.
This Court, in Commissioner of Income Tax v. First of all, it is now well settled that income tax cannot be levied on hypothetical income. Income tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz. The above passage was cited with approval in Morvi Industries Ltd.
The moment the income accrues, the assessee gets vested with the right to claim that amount even though it may not be immediately. It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. Insofar as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement passbook, there was no corresponding liability on the Customs Authorities to pass on the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance. In the facts of the present case, it is clear that the income from capital gain on a transaction which never materialized is, at best, a hypothetical income. It is admitted that, for want of permissions, the entire transaction of development envisaged in the JDA fell through.
In point of fact, income did not result at all for the aforesaid reason. In the present case, the assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained. This being the case, in the circumstances, there was no debt owed to the assessees by the developers and therefore, the assessees have not acquired any right to receive income under the JDA. A recent application of the maxim is contained in Coastal Paper Limited v. 10 SCC 664 at 677, para 25. This maxim is best explained as birds of a feather flocking together. The maxim only means that a word is to be judged by the company it keeps.