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Consider this. A real estate firm acquires the right to purchase the plots in an area from another real estate company. The seller company authorises the firm to nominate another person in its place as purchaser. In exercise of this right, the real estate firm enters into a tripartite agreement nominating a third party. Then a piquant situation comes. Whether the income arising out of sale of right to purchase accrues after actual registration of sale deed or receipt of consideration in furtherance of execution of tripartite agreement?

The Supreme Court has decided to examine the plea of Income-Tax Department seeking levy of income on the sale of right to purchase the plots by the real estate firms on receipt of consideration instead of actual registration of the sale deed in favour of buyers.

The Delhi high court had ruled that income accrues on the actual registration of the sale deed by the real estate firm in furtherance of tripartite agreements against which the department has moved the apex court. A SC bench headed by Justice SH Kapadia sought explanation from two real estate firms why the plea of I-T should not be considered. Additional Solicitor General Vikas Sinch on behalf of the department said, under provisions of Income Tax Act, 1961 the income arising of property has to be brought to tax whenever it accrues or arises irrespective of whether title of such property is perfected by registration or not. The tax rule recognises and is concerned with the income generation and not with the transfer aspect, argued Mr. Singh. ASG relying on an apex court order said that the income arises from the property even when such property had not been registered.

The two real estate firms against which the department has come to the apex court are Moonlight Builders and Developers, a 100% subsidiary of DLF and Realest Builders &Services. Both the appeals involves similar issues.

Moonlight Developers had acquired the right to purchase plots at Dilshad Garden Extension-II at Ghaziabad from DLF. In exercise of this right, the company entered into a tripartite agreement with DLF and purchasers of such plots at Dilshad Garden. It was registered as owner of plot in Qutab Enclave complex, Gurgaon but was not registered owner of plots at Dilshad Garden Ex-II.

The assessee company filed return of income declaring income of Rs 13, 38,820 for an assessment year. Assessing Officer held that the income accrues to the assessee on transfer of right to purchase which was on the basis of nomination done on signing of tripartite agreement/receipt of consideration. It further said that the accrual of income was not contingent on fulfilment of other conditions stipulated in the tripartite agreement. Against it, assessee moved to Commissioner (Appeals) which upheld AO order. Then the assessee appealed to the income Tax Appellate Tribunal which turned down AO order. The department then approached the Delhi high court which dismissed its plea against which it finally came to the apex court.

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