Unregistered "Power Of Attorney/Agreement Of Sale" does not trigger Capital Gains Tax under Real Estate Joint Development Agreements

 The Bangalore Bench of the Income Tax Appellate Tribunal (“ITAT”) has ruled that execution of an unregistered Power of Attorney (POA) or unregistered agreement of sale does not amount to a “transfer” under Section 2(47)(v) of the Income-tax Act, 1961 (“the Act”). Consequently, capital gains cannot be taxed in such cases of joint development agreements until a valid, registered instrument of transfer exists.

In this case, the assessee being a land-owner, executed a POA in favour of a developer to undertake preliminary construction work on his land and received part consideration. The Assessing Officer (“AO”) treated this as a deemed transfer under Section 2(47)(v) of the Act read with Section 53A of the Transfer of Property Act, 1882 (“TPA”), taxing the consideration as long-term capital gains in AY 2012-13. The Commissioner (Appeals) [CIT(A)] upheld this view, relying on the fact that the commencement certificate was obtained and construction had commenced.

The ITAT examined the provisions of Section 2(47)(v) of the Act and Section 53A of the TPA in light of the Supreme Court ruling in CIT v. Balbir Singh Maini. It held that post the 2001 amendment to the Registration Act, only a registered contract confers protection under Section 53A, and an unregistered document cannot trigger a “transfer” under the Act. Reiterating that a POA merely creates an agency and does not convey ownership, the ITAT observed that:

• There was no registered agreement of sale or conveyance in AY 2012-13.
• The POA was not a transfer instrument, nor did it transfer possession in part performance of a contract.
• Hence, there was no “transfer” in the eyes of law, and capital gains could not be brought to tax for that year.

Accordingly, the ITAT set aside the orders of the lower authorities and allowed the appeal in favour of the assessee.

The ruling reinforces that capital gains can arise only when a legally enforceable, registered instrument evidencing transfer exists. Mere execution of an unregistered POA or allowing the developer to commence work does not amount to “transfer” under the Act. Taxpayers (other than individuals and HUFs) entering into joint development arrangements should ensure that documentation and registration are aligned with statutory requirements to determine the correct year of taxability.