9911796707
TMI Blog2012 (6) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case is as under : 3.1 The original assessment for the Assessment Year 1995-96 was completed on 28.3.2003 determining the total income at Rs.84,73,546 which included capital gains of Rs.84,49,546. In appeal, the learned CIT(A) in his order dt.1.8.2005 allowed the assessee partial relief. In further appeal, the ITAT, Bangalore 'B' Bench by its order in ITA No.1448/Bang/2005 dt.23.12.2005 set aside the matter and restored it back to the file of the CIT(A), Mysore. The learned CIT(A) passed a fresh order on 11.1.2007 upholding the assessment order passed by the Assessing Officer on 28.3.2003. The assessee again carried the matter before the Tribunal who by its order in ITA 230/Bang/2007 dt.29.2.2008 restored the matter to the file of the Assessing Officer directing him to frame the reassessment in accordance with the provisions of law, more so by bringing on record the facts which permitted the Assessing Officer to assume jurisdiction under section 147/148 and to obtain the objections of the assessee so as to bring clarity in the facts to the extent that the assessee ought not to have admitted capital gains so enumerated by the assessee for Assessment Year 2003-04. The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 143(1)(a) in this case and the first assessment itself was under section 147 and there is no provision of law which bars the set off of long term capital loss against long term capital gains in an assessment under section 147. 8. Without prejudice and in the alternative if there are no chargeable capital gains in the current assessment year such long term capital losses ought to have been ordered to be carried forward to the subsequent assessment years to be dealt with in accordance with law. 9. Without prejudice the quantification of capital gains both as regards the amount of consideration receivable as well as the cost of acquisition should have been accepted as claimed by the assessee in the original return. 10. The appellant craves for leave to add to delete from or amend the grounds of appeal." 4. The grounds of appeal at S.Nos.1 and 10 are general in nature and no adjudication is called for thereon. 5.1 In the grounds of appeal at S.No.2, the assessee has challenged the validity of the Assessing Officer's assumption of jurisdiction under section 147, validity of notice issued under section 148 and the order of assessment passed consequently under section 143(3) r.w.s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8% of the car parking space, and the cost of acquisition for the assessee, he had reason to believe that the assessee would have derived income from capital gains in excess of Rs.25,000 being the limit under section 149(6)(ii). He therefore, recorded that he had reason to believe that income (capital gains) chargeable to tax had escaped assessment for Assessment Year 1995-96 within the meaning of section 147 of the Act. It is also seen that the Assessing Officer sought the sanction of the concerned Addl.CIT for issue of notice under section 148. In accordance with the direction of the Tribunal order dt.29.2.2008, the objections of the assessee thereto were sought vide letter dt.8.5.2008. The assessee's request for inspection of concerned records was provided on 18.8.2008 and objections of the assessee received vide letter dt.3.11.2008 were taken on record and disposed off by the Assessing Officer, rejecting them in writing. This finds mention at pages 2 to6 of the assessment order at paras 2 to 7 thereof. It is thus clear that the Assessing Officer did have material with him, the scrutiny of which led him to form the belief that the assessee had derived taxable income in the form o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 292(b) and the judicial decisions cited were distinguished by the learned CIT(A) and with which we find no reason to differ. It is therefore held that the notice issued under section 148 consequent to initiation of valid proceedings under section 147, is valid and consequently the order of assessment passed under section 143(2) rws 147 of the Act is valid. The assessee's ground accordingly stand dismissed. 6.1 The grounds raised at S.Nos.3 to 6 challenge the Assessing Officer's action in charging the assessee tax under the head 'capital gains' in respect of the transfer of possession of the property at Kayathamaranahalli, Mysore pursuant to agreement dt.30.6.1994. The assessee's basic objections are that there was no transfer of property in the said period, and therefore there is no liability for her to be taxed for capital gains. 6.2 The facts of the case, as emanate from the record are that the assessee executed an agreement with M/s. S. I. Property Development Ltd., for joint development of her property situated at Kayathamaranahalli, Mysore. As per the agreement the assessee for a consideration of Rs.30 lakhs, plus 8% of the superstructure of the built up area and 8% of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment dt.30.6.1994 could not be considered as transfer of possession of the Kayathanahally land for the Kingsdale project to the developer M/s. S.I. Property Development Ltd. The learned Authorised Representative argued that possession of the said property was not given to the developer until various approvals were received from the government as without those approvals no housing project could be put up on the land. He referred to various clauses in the said agreement claiming that nowhere is it mentioned that possession of the property had been made over and therefore the capital gains cannot be brought to tax in the period relevant to Assessment Year 1995-96 as only an amount of Rs.10 lakhs had been received by the assessee so far out of the total consideration of Rs.30 lakhs. It was also contended by the learned Authorised Representative that the agreement dt.27.2.1996 also did not hand over possession of the property to the developers but was supplementary to the agreement dt.30.6.1994 and merely revised the consideration the assessee was to received from Rs.30 lakhs to Rs.40 lakhs and the share in built up area from 8 to 8.5%. The learned Authorised Representative also referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Year 1995-96. It is submitted that the agreement dt.30.6.1994 shows that there was a transfer of rights and interests in the said property from the assessee to M/s. S.I. Property Development Ltd. She drew our attention particularly to clause 1 which gave the developers right of entry to the land property; Clause 2, thereof which evidenced that the assessee had received a sum of Rs.10 lakhs, as a portion of the consideration in lieu of the agreement. Clause 5, of the agreement was referred to which indicates that a Power of Attorney was to be executed in favour of the developers to apply to concerned statutory authorities for permission to construct buildings, amend, alter and rectify plans, apply for civic amenities, power, etc. and carry out any activity in order to execute the joint development project. The learned Departmental Representative submitted that clause 10 irrevocably authorizes the developers to sell, mortgage, lease or gift (without recourse to the owner) the undivided extent in the said property for such consideration as the developer may fix. Clauses 14 and 15 of the agreement dt.30.4.1994 were also referred to, which allow the developer the exclusive right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the land being given to the developer. Therefore, the learned Departmental Representative contended that it is evident that the possession was not given pursuant to the agreement dt.8.1.2003 in the period relevant to Assessment Year 2003-04 as claimed by the assessee but much earlier. The learned Departmental Representative further added that the assessee's contention that possession of land was not given in the period relevant to Assessment Year 1996-97 and 1997-98 was accepted by the CIT(A), and in these years the matter attained finality as this position was accepted by the department also. It was also pointed out that the assessee has also not offered capital gains in the period from Assessment Years 1998-99 to 2002-03. In these circumstances, it was pleaded that the findings of the Assessing Officer and learned CIT(A) that the capital gains in this transaction is to be brought to tax in Assessment Year 1995-96 be accepted and confirmed. 6.6 We have heard both parties, carefully perused and considered the submissions made, details filed and the facts on record. There is no dispute that the assessee entered into an agreement on 30.6.1994 with M/s. S.I. Property Development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed into an agreement dt.8.1.2003 with M/s. Shanti Niketan Housing Foundation to complete the remaining portion of the project. The original developer M/s. S.I. Property Development Ltd., was a consenting party to this agreement and agreed to assign all its rights and interest in the Kingsdale project to M/s. Shanti Niketan Housing Foundations, who on its part undertook to fulfill all the commitments made by the original developer to the flat owners / purchasers in the said project. By virtue of the agreement dt.8.1.2003, M/s. Shanti Nikethan Housing Foundation only stepped into the shoes of M/s. S.I. Property Development Ltd. to complete the unfinished project. As per the agreement dt.30.6.1994 and supplementary agreement dt.27.2.1996, the assessee received the entire cash consideration totaling Rs. 40 lakhs in instalments by 22.1.1997 and received its share in the built up area subsequently on completion of the project. 6.7 The learned Authorised Representative had placed reliance on the decision of the Hon'ble High Court of Karnataka in the case of CIT Vs. Dr.T.K. Dayalu (ITA No.3209 of 2005 C/W ITA No.3165 of 2005) dt.20.6.2011 in support of its claim that the capital gains on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rohibited from being sold as vacant land. The sanction by the ULC order dt.22.1.1996 is clearly pursuant to the joint development agreement dt.30.6.1994; are in furtherance of the terms of this agreement and to ensure performance thereof. The ULC order dt.22.1996, in our considered opinion, does not in any way decide the date of transfer of possession of the assessee's land, as not being in the period relevant to Assessment Year 1995-96. Rather, the sanction obtained, only goes to show that these actions are clearly in accordance and in furtherance of the joint development agreement dt.30.6.1994 to construct the Kingsdale project. In coming to this conclusion, we drew support from the decision of the Authority for Advanced Ruling in the case of Jasbir Singh Sarkaria (supra). In this case, the Hon'ble Authority held that the meaning of the word 'possession' as contemplated by clause (v) of section 2(47) of the Act, need not necessarily be sole or exclusive possession. So long as the transferee is enabled to exercise some control over the property so as to make use of it for the intended purpose, possession can be said to have been made over. The concurrent rights of the owner who ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the property. Under clause 11 of the agreement, it was provided that after Floreat was given an irrevocable licence to enter upon the assessee's share of the property and after Floreat having obtained all necessary approvals, Floreat was entitled to demolish buildings Nos. 1 to 3 and building No. 10 and any other buildings on the property, subject to Floreat settling the claims of the tenants. Under clause 14 of the agreement, the assessee was entitled to receive proportionate rent till the payment of the last instalment and till that time, the assessee was bound to pay all outgoings. Under clause 20 of the agreement, it was agreed that the sale shall be completed by execution of conveyance. Till date, there is no conveyance. Pursuant to the agreement, Floreat obtained the following permissions: (i) Clearance from CRZ authority dated February 7, 1996; (ii) letter from ULC for redevelopment of the property dated April 26, 1995. These two permissions were amongst several other permissions obtained. These three permissions, however, are mentioned as they were obtained during the financial year ending March 31, 1996, relevant to the assessment year 1996-97. Similarly, by March 31, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee that no transfer took place till execution of the conveyance. Consequently, the assessees used to enter into agreements for developing properties with the builders and under the arrangement with the builders, they used to confer privileges of ownership without executing conveyance and .to plug that loophole, section 2(47)(v) came to be introduced in the Act. It was argued on behalf of the assessee that there was no effective transfer till grant of irrevocable licence. In this connection, the judgments of the Supreme Court were cited on behalf of the assessee, but all those judgments were prior to introduction of the concept of deemed transfer under section 2(47)(v). In this matter, the agreement in question is a development agreement. Such development agreements do not constitute transfer in general law. They are spread over a period of time. They contemplate various stages. The Bombay High Court in various judgments has taken the view in several matters that the object of entering into a development agreement is to enable a professional builder/contractor to make profits by completing the building and selling the flats at a profit. That the aim of these professional contractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied to decide the year of chargeability is the year in which the transaction was entered into. We have taken this view for the reason that the development agreement does not transfer the interest in the property to the developer in general law and, therefore, section 2(47)(v) has been enacted and in such cases, even entering into such a contract could amount to transfer from the date of the agreement to itself. We have taken this view for a precise reason. Firstly, we find in numerous matters where the Assessing Officer and the Department generally proceed on the basis of substantial compliance of the contract. For example, in this very case, the Department has contended that because of substantial compliance of the contract during the financial year ending March 31, 1996, the transfer is deemed to have taken place in that year. Such interpretation would result in anomaly because what is substantial compliance would differ from officer to officer. Therefore, if on a bare reading of a contract in its entirety, an Assessing Officer comes to the conclusion that in the guise of the agreement for sale, a development agreement is contemplated, under which the developer applies for permis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay High Court. 24. A similar view was taken by the Delhi ITAT in the below mentioned decision (Assistant Commissioner Of Income- Tax. vs Smt. Pushpa Devi Jain) (93 ITD 289). The honorable Tribunal considered various aspects of the issue as under: " .... (iv) On going through various clauses of section 2(47) and in particulars clauses (v) and (vi), it is clear that the intention of Legislature is to cover all such cases ad transaction which may not strictly fall within the definition of transfer of immovable property under the Transfer of Property Act, but which have the effect of transferring rights or interest of ownership in such property. The object behind such a wide scheme is to cover all such cases in which the owner receives profit or gain on transferring capital asset by adopting any mode or by making any 'arrangement.' The term 'arrangement' encompasses various steps taken by the parties to transfer the asset. In such arrangement, there may not be requirement of any registered sale deed to convey the title to the property as envisaged under section 54 of Transfer of Property Act. Otherwise also in view of section 47 of the Registration Act, a registered document opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... troduced with effect from April 1, 1988. They provide that "transfer" includes (i) any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property [see section 269UA(d)). Therefore, in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under the general law. This test is important to decide the year of chargeability of the capital gains. " (vi) In the case of Poddar Cement (P.) Ltd., the Hon'ble Supreme Court of India has observed that in the context of section 2Z of Income-tax Act, owner is a person, who is entitled to receive income in his own right. According to Hon'ble Supreme Court, section 22 does not require registration of sale deed. While considering the provisions of sections 22 to 27 of Income-tax Act, the Hon'ble Supreme Court has held that the owner must be that person who can exercise the rights of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. " (viii) In the case of CIT v. Vishnu Trading & Investment Co. (2003) 259 ITR 724 (Raj.), also the Hon'ble Rajasthan High Court has held that for taxing the capital gains, registration of the sale deed is not necessary under the provisions of Income-tax Act. (ix) In the present case, the assessees had transferred all the rights and entire interest in the property by the agreement dated 7-9-1991. As the property was transferred on the basis of "as is where is" basis and further as a part of sale consideration was left with the purchasers for settling all the disputes, the delivery of possession of the property was not a requirement for transferring the rights in the property in the present case. It may be pointed out that the transfer of immovable property can be completed even without delivery of possession of the property. What is to be transferred by the owners is the title in the property and their interests in such property? On scrutiny of the agreement, it is found that the owners agreed to sell the property and to transfer their rights to the purchasers under this agreement. The owners have accepted this agreement to be a final deal for the transaction of transfer as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociates even sold some shops in subsequent years and this act of M/s. Agarwal's Associates was not challenged by the assessees, which indicates that the assessee treated M/s. Agarwal's Associates as owners of the property by virtue of this agreement. (xi) On perusal of the main para of the agreement, which has been reproduced above, it is found that the co-owners treated themselves to be absolute owners of the property irrespective of the possession being not with them and declared and represented that they had the right to transfer and sale and that there was no legal defect in this. In this para, it is also mentioned that the total consideration of Rs. 55 lakhs was received by the co-owners before the Sub-Registrar at the time of execution of the agreement. In para 2 of the agreement, it was mentioned that first party has received post-dated cheques and nothing is in balance. In para 4 of the agreement, it is stated that the first party will not return any amount to any type to the second party for the above property and in future second party shall be responsible to pay to all the persons, whatsoever amount payable or whatsoever compromise will be and second party shall be resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s complete control over the title to property to the purchasers, the date of contract between the owner of the purchaser becomes relevant and not the date of delivery of possession. (xiv) The argument raised on behalf of the Id. Counsel for the assessee that the agreement was not sufficiently stamped and that no sale deed was registered on the basis of this agreement, do not carry force because in between the parties this agreement amounted to final arrangement and as provided in clause (vi) of section 2(47) read with clause (d) of section 269UA, there was no need for registration of sale deed in view of this arrangement. It has to be observed here that for the purposes of Income-tax Act and in particular for the transfer of capital assets, the definition of terms given in section 2(47) and clause (d) of section 2.69UA ho« to be applied and not the definition of 'sale' or 'transfer' as given in the Transfer of Property Act or in other statutes. The other arguments raised by the Id. Counsel for the assessee was that the possession was not delivered at the time of the agreement also does not carry force because as provided in clause (d) of section 269UA immovable property incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x assessment and for this purpose, they may avail available legal remedies. If any assessment has been made incorrectly or illegally under any other act then the assessee may exercise his rights to challenge the same. The assessment correctly made cannot be held to be illegal merely on that basis. In the case of ITO v. Ch. Atchaiah 268 ITR 239 (sic) before the Hon'ble Supreme Court, it was argued on behalf of the revenue that merely because a wrong person is taxed, it does not operate as a bar to taxing the right person. According to the Hon'ble Court, the Income-tax Officer can and he must, tax the right person and the right person alone. The Hon'ble Court has observed 3S under: "He can, and he must, tax the right person and the right person alone. But "right person ", we mean the person who is liable to be taxed, according to law, with respect to a particular income. The expression "wrong person" is obviously used as the opposite of the expression "right person ". Merely because a wrong person is taxed with regard to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income. This is so irrespective of the fact which cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the joint development agreement dt.30.6.1994 cannot be construed as transfer of land to the developer, as possession of the land was not given, since until various approvals were received from the concerned statutory authorities, no housing project could be put up on the said land and therefore the capital gains on the said joint development agreement cannot be brought to tax in the period relevant to Assessment Year 1995-96. From the facts on record, as stated by the learned CIT(A) in para 27 of his order, the assessee had submitted that possession of the said land was not handed over to the developer during the period relevant to Assessment Year 1996-97 and 1997-98 and it is seen that the learned CIT(A) accepted the assessee's contention and the matter attained finality as the learned CIT(A)'s order for both these Assessment Years 1996-97 & 1997-98 was accepted by both Revenue and the assessee. The assessee did not offer capital gains, on this project for the Assessment Years 1998-99 to 2002-03 also. 6.11 Significantly the record reveals that even the return of income for Assessment Year 2003-04 in which period the assessee claims that capital gains arises was not filed wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to various customers and had also carried out the foundation work for phases 5, 6 and 7 prior to this agreement dt.8.1.2003. This is irrefutable evidence that the possession of the land at Kyathamanhally, Mysore was not with the assessee but was already in possession of M/s. S.I. Property Dev. Ltd. long before 8.1.2003 when M/s. Shanti Nikethan Housing Foundation merely stepped into the shoes of M/s. S.I. Property Devp. Ltd. for completion of the unfinished portion of the Kingsdale project. These facts clearly establish without a doubt that the agreement dt.8.1.2003 was also merely a continuation of the agreement dt.30.6.1994 and by which M/s. Shanti Nikethan Housing Foundation undertook to complete the Kingsdale project and deliver to the assessee the built up area as promised in the original agreement dt.30.6.1994. Considering the facts and circumstances of the case, we are of the firm opinion that the possession of the assessee's property at Kythamaranahalli, Mysore was handed over, not in the period relevant to Assessment Year 2003-04, but much before that to M/s. SI Property Devp Ltd . At this stage of the agreement dt.8.1.2003, M/s. S.I. Property Devp. Ltd. had built 4 out o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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