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M/S Seshasayee Steels P. Ltd. v. Assistant Commissioner of Income Tax

Civil Appeal · 2019 INSC 1320Decided 4 Dec 2019
Civil Appeal No. 9209 of 2019
Justice Rohinton Fali Nariman · Justice Aniruddha Bose · Justice V. Ramasubramanian

Background

The appellant company entered into a 1998 agreement to sell about 100 grounds of land in Chennai for Rs. 5.5 crores, accompanied by a Power of Attorney authorizing the buyer to develop and sell the property. The appellant did not file an income tax return for Assessment Year 2004-05, and the Assessing Officer later discovered the sale agreement and a 2003 Memo of Compromise (under which the consideration was revised and paid through encashed cheques). Treating the entire consideration as capital gains, the tax authorities raised a best-judgment assessment, which was upheld by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. The company's appeal was also rejected by the High Court, leading to this further appeal before the Supreme Court.

Decision Breakdown

The Supreme Court held that although the mere 1998 agreement to sell did not by itself satisfy the conditions for a deemed "transfer" under Section 2(47)(v) read with Section 53A of the Transfer of Property Act (since the owner's rights to title and possession remained intact at that stage), the subsequent 2003 compromise deed changed the picture. Under that compromise, the bulk of the revised sale consideration had been received and all cheques were in fact encashed, extinguishing the appellant's ownership rights in substance. The Court held this fell within Section 2(47)(ii) and (vi) of the Income Tax Act, provisions that capture any transaction, including one not completed under the general law, that in substance enables enjoyment of immovable property as if transferred, and on this basis (though not entirely for the High Court's stated reasons) dismissed the appeal, upholding the capital gains tax liability.

Lesson Learnt

For income tax purposes, a "transfer" of property can be found even without a formal, legally completed sale: if payments are actually received and the seller's real control and ownership benefits are effectively given up (as evidenced by a later settlement/compromise), the tax law will treat that as a taxable transfer in substance.

Official source (sci.gov.in)View Judgment (PDF)

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