TMI Blog2013 (11) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... ds: "1. That the orders passed by the lower authorities are erroneous, illegal and without jurisdiction. The orders have been passed against the facts of the case. 2. That the orders passed by the lower authority are based on wrong interpretation of the section 45 of Income Tax Act. 3. That the authorities below have failed to appreciate correctly, the contents of the agreement entered between the parties. 4. That the authorities have erred in charging tax on the entire consideration which has not even become due as on date. 5. That the authorities have not appreciated the issue that the portion of land which stands transferred only that can be brought to tax. 6. That on the correct interpretation of the sections and on proper appreciation of clauses of the agreement, it would emerge that the taxing of the entire amount is against law. 7. That the Assessing Office has fallen in error in including the cost of flats on estimation basis which could not be ascertained as no construction or other activity has been commenced by the Developer and hence no capital gains could be levied on the cost of flats on the date of agreement. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins;. The dispute is mainly on account of transfer and that too whether the transfer could be covered under clauses (ii), (v) (vi) of section 2(47) so as to bring into picture the whole of consideration arising on transfer of such assets. We shall deal with each of the aspect in detail at appropriate time. 29. Apart from charging provisions u/s 45 another important provision is section 48 which deals with the mode of computation and relevant portion reads as under : 48. Mode of computation. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely : (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto: 30. Again plain reading would show that capital gain would be computed by considering the full value of consideration whether received or accruing as a result of the transfer. Therefore, it is not only the consideration received which is relevant but the conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es where possession is allowed to be taken or retained in part performance of a contract, of the nature referred to in section 53A of Transfer of Property Act, 1882. New sub-clauses (v) (vi) have been inserted in section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above. 11.2 The newly inserted sub-clause (vi) of section 2(47) has brought into the "ambit of transfer", the practice of enjoyment of property rights through what is commonly known as Power of Attorney arrangements. The practice in such cases is adopted normally where transfer of ownership is legally not permitted. A person holding the power of attorney is authorized the powers of owner, including that of making construction. The legal ownership in such cases continues to be with the transferor." 32. Before insertion of the clauses (v) ( vi) to section 2(47) the position of law was that unless and until a sale deed was executed for transfer of immovable property, the same could not be construed as transfer for the purpose of charging capital gain tax. This was particularly so in the light of various judgments particularly the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovable property for a total consideration of Rs. 1,85,63,220/- with right to said Floreat to develop the property in accordance with the rules/regulations framed by local authorities. For this purpose, the assessee also agreed to execute a limited power of attorney authorizing Floreat to deal with the property and also obtain permissions and approvals from various authorities. Under clause 11 of the agreement, it was provided that after Floreat was given an irrevocable license to enter upon the assessee's share of property and after Floreat investment have obtained all necessary approvals, the Floreat was entitled to demolish various buildings for settling the claims of the tenants. Under clause 14 of the agreement, the assessee was entitled to receive proportionate rent till the payment of last instalments and till that time assessee was bound to pay all outgoings. Under clause 20 of the Agreement, it was agreed that sale shall be completed by execution of conveyance, however, till the matter was adjudicated by the Hon'ble High Court, no conveyance was executed. Pursuant to this agreement, Floreat obtained various permissions namely (i) clearance from CRZ Authority dated February ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or developing properties with 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. . .. Held, that section 2(47)(v) read with section 45 indicates that capital gains was taxable in the year in which such transactions were entered into even if the transfer of immovable property is not effective or complete under the general law. In this case, the test had not been applied by the Department. No reason had been given why that test had not been applied, particularly when the agreement in question, read as a whole, showed that it was a development agreement. Once under clause 8 of the agreement a limited power of attorney was intended to be given to the developer to deal with the property, then the date of the contract, viz., August 18, 1994, would be the relevant date to decide the date of transfer under section 2(47)(v) and, in which event, the question of substantial performance of the contract thereafter would not arise " 34. The Hon'ble Court referred to clauses (v) (vi) of section 2(47) and made the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct were not invoked by the Revenue itself. This becomes clear from the following para: "It was argued on behalf of the assessee that there was no effective transfer till grant of irrevocable licence. In this connection, the judgment of the Hon'ble Supreme Court were cited on behalf of the assessee, but all those judgment were prior to introduction of the concept of deemed transfer u/s 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 contractors was only to make profits by completing the building and, therefore, no interest in the land stands created in their favour under such agreements. That such agreements are only a mode of remunerating the builder for his services of constructing the building (see Gurudev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessee that judgment has to be read in the context of the decision made in such judgment. In fact, it is well settled that doctrine of precedent which means what needs to be followed later on particularly by subordinate Tribunals and Courts is the ratio of a particular judgment given by the higher Court or Forum. Further, there is no force in the contention that decision of the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT (supra) does not show that the date of agreement itself constitute the transfer. Again there is no force even in the contention that in that case it was ultimately decided that capital gain taxes is chargeable in Assessment year 1999-2000 because of the reasons given in above noted paras particularly because the Revenue itself never invoked the provisions of section 2(47)(v) of the Act and held it to be taxable in Assessment year 1996-97. No doubt in that case ultimately it was held that capital gain was in assessment year 1999-2000 but Court had made it very clear that this is first time that law is being laid down and guidelines are being issued which means that there was a confusion earlier. Clauses (v) (vi) to sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the requirement in the letter of intent, owners will have to execute irrevocable general power of attorney in favour of the Developer authorizing the Developer to took and sell the dwelling units out of developer's share and collect the money for the same. However, finally sale deeds could be executed only after the owner received their share of constructed area. Three months later, a supplementary agreement was entered on September 15, 2005 between the assessee and other co-owners and Developers through which it was agreed that owners will sell their 16% share in the built up area to the Developer or its nominee for consideration of Rs. 42 crores. A sum of Rs. 2 crores was received. This collaboration agreement and balance of Rs. 40 crores was payable by the Developer to the owners in six instalments from March 06, 2008. The instalments could be extended subject to payment of interest and further subject to maxim um extension of three months. There were various other clauses which are not relevant for our purposes. The question arose whether capital gain accrue / arise to the assessee during the financial year 2006-07 relevant to assessment year 2007-08 or during financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments made prior to the year of transfer." 41. Thereafter, the Authority referred to section 2(47) and objects of the introduction of clauses (v) (vi) and also referred to paras 1.1 11. 2 of the Board Circular No. 495 (which we have already discussed earlier). The Hon'ble Authority has discussed various implications of clause (v) of section 2(47) and also implication of section 53A of the Transfer of Property Act as well as observations of Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v CIT (supra). The Authority observed that to understand this provision properly meaning of 'possession' has to be understood properly and went on to discuss the meaning of term 'possession, and how the same is to be understood in the context of clause (v). These are very important observations and have been discussed in most elucidated fashion. These observations will answer many of the questions raised before us and, therefore, we are extracting these observation s as under :- "Meaning of "possession" and how should it be understood in the context of clause (v) The next question is, in what sense we have to understand the term "possession" in the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate possession". The learned author states "in law one person may possess a thing for and on account of someone else. In such a case the latter is in possession by the agency of him who so holds the thing on his behalf. The possession thus held by one man through another may be termed mediate, while that which is acquired or retained directly or personally may be distinguished as 'immediate or direct'." Salmond makes reference to three types of mediate possession. In all cases of "mediate possession", two persons are in possession of the same thing at the same time. An allied concept of concurrent possession has also been explained in paragraph 55 of Salmond's Jurisprudence in the following words : "It was a maxim of the civil law that two persons could not be in possession of the same thing at the same time. As a general proposition this is true : for exclusiveness is of the essence of possession. Two adverse claims of exclusive use cannot both be effectually realized at the same time. Claims, however, which are not adverse, and which are not, therefore, mutually destructive, admit of concurrent realization. Hence, there are several possible cases of duplicate possession. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it may not be profitable for the developer to allow this situation to linger for long as the process of transfer of flats to the prospective purchasers will get delayed. At the same time, the other side of the picture cannot be over-looked. There is a possibility of the owner with the connivance of the transferee postponing the payment of capital gains tax on the ostensible ground that the entire consideration has not been received and some balance is left. The mischief sought to be remedied, will then perpetuate. We are, therefore of the view that possession given to the developers need not ripen itself into exclusive possession on payment of all the instalments in entirety for the purpose of determining the date of transfer. While on the point of possession, we would like to clarify one more aspect. What is spoken to in clause (v) of section 2(47) is the "transaction" which involves allowing the possession to be taken. By means of such transaction, a transferee like a developer is allowed to undertake development work on the land by assuming general control over the property in part performance of the contract. The date of that transaction determines the date of transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished by the applicant. It authorizes the developer : (i) to enter upon and survey the land, prepare the layout plan, apply for renewal/extension of licence, submit the building plans for sanction of the appropriate authority and to carry out the work of development of a multi-storied residential complex, (ii) to manage and control, look after and supervise the property in any manner as the attorney deems fit and proper, (iii) to obtain water, sewage disposal and electricity connections. The developer is also authorized to borrow money for meeting the cost of construction on the security and mortgage of land falling to the developer's share. The other clauses in the GPA are not relevant for our purpose. The GPA unequivocally grants to the developer a bundle of possessory rights. The acts of management, control and supervision of property are explicitly mentioned. It is fairly clear that the GPA is not a mere licence to enter the land for doing some preliminary acts in relation to the development work. The power of control of the land which is an incidence of possession as explained supra has been conferred on the developer under this GPA. The developer armed with the GPA cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 8, 2006. In case of failure to do so the agreement shall stand terminated. Therefore, obtaining the "letter of intent" was the crucial factor. It has been explained in the decision that the "letter of intent" basically is a license issued by the Director of Town and Country Planning, Haryana which gives permission for construction of the flats. The other crucial point was execution of irrevocable of GPA which was executed on May 8, 2006 which according to the ld. authority depicts the intention of the handing over of the possession. Therefore, it becomes very clear that it is not necessary that transfer would take place on the signing of development agreement but the same has to be inferred only when the possession has been handed over by the transferor to the developer which can be inferred from the documents e.g. Power of Attorney. After above discussion Hon'ble authority has summarized the decision in para 41 which is as under: "The following is the summary of conclusions: 1. Where the agreement for transfer of immovable property by itself does not provide for immediate transfer of possession, the date of entering into the agreement cannot be considered to be th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utes of the meeting are placed at pages 58 to 65 of the paper book. In the Executive committee it was decided to appoint Hash who was acting alongwith the joint developer THDC as joint developer on the terms and conditions to be mentioned in the JDA. It was further resolved that member owing plot of 500 sqyd would receive a consideration of Rs. 82,50,000/- each to be paid in four instalments by Hash directly in favour of the members and one flat with super area of 2250 sqf to be constructed by THDC. The members who held the plot of 1000 sqyd were to receive a consideration of Rs. 1,65,00,000/- and two flats consisting of 2250 sqft to be constructed by the THDC. It was further resolved to enter into a JDA with THDC/HASH. It was also resolved to execute irrevocable Power of attorney by the Society in favour of THDC for this purpose. This resolution was ultimately ratified in the General Body meeting held by the Society on 25.2.2007. Pursuant to the above resolution, tripartite JDA was executed (copy of the same is available at pages 15 to 54 of first paper book). Through recitation clause it has been mentioned that owner is in possession of land measuring about 21.2 acres of land whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and physical, vacant possession of the property has been handed over to THDC simultaneous to the execution and registration of this agreement to develop the same as set out herein. It is hereby agreed and confirmed that what is stated in the recitals hereinabove, shall be deemed to be declarations and representations on the part of the Owner as if the same were set out herein verbatim and forming an integral part of the agreement. 2.2 The Project shall comprise of development/construction of the Property into the premises as permissible under Punjab Municipal Building Bye- laws/Punjab Urban Development Authority or any other Competent Authority by the Developer at their own cost and expense. The Project shall be developed as may be sanctioned by the concerned local authority i.e. Department of Local Bodies, Punjab/Punjab Urban Planning and Development Authority (PUDA) or any other Competent Authority. 2.3 The owner hereby irrevocably and unequivocally grants and assigns all its Development Rights in the property to THDC to develop the property and under take the project at its own costs, efforts and expenses whereupon the Developer shall be entitled to apply f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by the Society to THDC for raising finance for development and completion of project. Clause 11 talks about formation of maintenance Society for the project after its completion. Clause 13 talks about transfer of rights which reads as under: "13 Transfer of Rights The owner herein i.e. The Punjabi Co-op House Building Society Ltd. along with all its ninety six (96) members have given their express, free and clear consent in writing in the form of an Affidavit/No Objection Certificate / Consent Letter whereby the Developers have been allowed to develop the property in accordance with the Project and that THDC shall be entitled to transfer the rights obtained under this agreement to any third party and to get the development / construction work completed on such terms and conditions as THDC may deem fit so long as it does not adversely effect the Owner in terms of their right to receive Entire consideration as mentioned in this agreement subject to all other conditions mentioned therein as well. The owner shall at all times provide full support to the Developers herein." 50. Other clauses provide for termination, General provisions, Disclaimer, Partial Inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its duly constituted attorneys." Through this Power of Attorney various powers have been given like to assign, file, amend etc. various plans, designs to represent before various authorities, to appoint architect, Lawyers. Some of the specific clauses relevant, are extracted below : (j) To negotiate and agree to any/or to enter into agreement(s) to construct/sell and to undertake construction/sale of the Premises on the Property or any portion thereof with/to such persons(s) or body and for such consideration and upon such terms and conditions as the Attorney deem fit. (n) To enter upon the Property either alone or with others for the purpose of development, Coordination, execution, implementation of the Project and commercialization of the Property/Premises. (t) To amalgamate the Property with any other contiguous, adjacent and adjoining lands and properties wherein development and/or other right, benefits and interests are acquired and/or proposed to be acquired and developed or proposed to be developed by THDC and/or their associate and/or group concerns/s and/or utilize the FSI, FAR, DR and TDR of the contiguous, adjacent and adjoining lands for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny part thereof in favour of any person as the Attorneys may determine including in favour of any individual and/or legal entitles and/or Co-operative Society and/or Limited Company and/or any other entity that may be formed for such purpose. (dd) To issue letter of lien/NOC's and to sign documents on behalf of the Owner as required by the prospective buyers/lending instructions to create a charge on the allotted premises. (gg) To look after and maintain the Property and the Premises constructed thereon till its transfer in favour of the Co-operative Society or Limited Company or any other Organisation. 54. It is pertinent to note that power/authorization which have been given by the Society to the developer, were in fact were required to be given in terms of various clauses of the JDA. Clause 6.7 reproduced above itself shows that the Society was required to give powers to raise finance to mortgage the property and even the registration of charge was also required to be given. Further through clause 6.15 it was agreed that documents of original title deeds of the property would be handed over to the developer i.e. THDC/HASH so that same can be used in furthera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f roads, parks or other general utility purposes like installation of electricity transformers and before sanctioning the plans the developer is required to undertake that such portions of land would be given for such a common purpose. If possession was not given then how THDC was authorized to handover such land or portions thereof which have not been identified in the JDA out of the total land. Similarly through clause (y) THDC has been authorized to mortgage, encumbrance or create charge on the property in favour of any bank or financial institution for raising the funds for the project. In the absence of possession such powers cannot be given. Clause (aa) clearly authorized the THDC to sell, transfer, lease, license the premises which were to be constructed on ownership basis and further to receive moneys against such sale etc. and to issue final receipt. Nowhere it is mentioned in this clause that such sale deeds were to be singed by the Society as confirming party. In the absence of possession it is just not possible for the developer to sell and transfer the premises which were to be constructed. This is further clarified by clauses (bb) and (cc) which gives the power of exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny more powers have been given to THDC in addition to powers which have been described in that judgment and Power of Attorney has been described as irrevocable in clause 6.7 of JDA. Therefore, it is clear that the assessee's plea that the possession was to be given only at the time of registration of the JDA, is not correct. Once irrevocable power was given then it cannot be said that the possession was not given. The issue regarding revocation of irrevocable Power of Attorney and cancellation of the JDA would be discussed later on while dealing with that contention. 57. We find force in the submissions of the ld. DR for the revenue that interpretation of clause (v) to section 2(47) should be made in the light of Heydon's Rule. There is no force in the objection of the ld. counsel of the assessee that this clause should be interpreted on general rules of interpretation particularly in the light of the fact that no reason has been given for the same. Heydon's Rule has been applied by the Indian Courts many times. The Rule was applied and initiated in Heydon's case (1584) 3 Co. Rep 7a. This Rule was upheld by the Constitution Bench of Hon'ble Apex Court in case of Bengal Immun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer in the sense that there was common practice that properties were being transferred in such a manner that transferee could enjoy the benefit of the property without execution of the conveyance deed. Thirdly we need to examine the remedy which was insertion of clauses (v) and (vi) so that cases of giving possession of the property, were also covered by the definition of transfer. Fourthly, true reason for this amendment was to plug a loophole in the law. Therefore, considering the purpose of insertion of clauses (v) and (vi) of section 2(47) and various clauses of Power of Attorney and JDA it becomes absolutely clear that the Society has handed over the possession of the property to THDC/HASH. 59. Second important contention on behalf of the assessee is that JDA was executed on 25.2.2007 and if possession was given then how the assessee was having possession in terms of later sale deeds executed on 2.3.2007 and 25.4.2007. The Society has executed two sale deeds for conveyance of parts of the total land. First sale deed has been executed on 2.3.2007 for 3.08 acres and recitation clause (A) reads as under : Clause (A) - The vendor is the absolute owner and in possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concurrent as the possessary right. Further it is a standard clause in the conveyance deed and it does not prove or indicate anything except that a portion of land measuring 3.08 acres, has been sold / conveyed to the developer. In the light of this position, this contention is rejected. 62. We find no force in the next contention of the ld. counsel of the assessee that possession if at all was given should be held to be only a license as defined in section 52 of Indian Easement Act because clearly as per section 52 of this Act, where one per son grants to another or many other persons to do something upon immoveable property which in the absence of such right would be unlawful. 63. Here in case before us, the right has not been given for the purpose of doing something but all the possible rights in property including right to sell, right to amalgamate the project with another project in the adjoining area which may be acquired later, right to mortgage etc. clearly show that rights given by the Society are much more larger than what is covered in the term "license" . 64. Fourth contention is that the money received at the time of execution of JDA can be termed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text books. The following statement of law in Sampath Iyengar's Commentary (10th Edition- Revised by Shri S. Rajaratnam) brings out the correct legal position : "Section 45 enacts that the capital gains shall by fiction 'be deemed to be the income of the previous year in which the transfer took place'. Since this is a statutory fiction, the actual year in which the sale price was received, whether it was one year, two years, three years, four years etc. previous to the previous year of transfer, is beside the point. The entirety of the sum or sums received in any earlier year or years would be regarded as the capital gains arising in the previous year of transfer. .... In the words of section 45, the capital gains arising from the transfer 'shall be the income of the previous year in which the transfer took place'. So, the payments of consideration stipulated to be paid in future would have to be attributed, by statutory mandate, to the year of transfer, even as payments made prior to the year of transfer." 66. The above clearly shows that it is because of expression used in section 45 that is "arising" which cannot be equated with "receipt". In this respect th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Commissioner, AIR 1956 Bom 411, 414 (Income Tax Act (11 of 1992) Sections 16(1) and (3)}" 67. The combined reading of these two definitions show that it (i.e. accrual) is not equal to the receipt of income. In fact it is a stage before the point of time when the income becomes receivable. In other words, once the vested rights come to a person then it can be said that such right or income has accrued to such person. The concept of accrual or arousal of income has also been discussed by the ld. author S. Rajaratnam in the commentary of Law of Income Tax by Sampath Iyengar XIth Edition by discussing the meaning of "accrued and arise" at page 1300 it has been observe as under: "(1) Important principles.- (a) Meaning - 'Accrue' means 'to arise or spring as a natural growth or result', to come by way of 'increase'. 'Arising' means 'coming into existence or notice or presenting itself'. 'Accrue' connotes growth or accumulation with a tangible shape so as to be receivable. In a secondary sense, the two words together mean 'to become a present and enforceable right' and 'to become a present right of demand'. In the Act, the two words are used synonymously with each other t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract". 70. A plain reading of the above provision shows that it provides a safety measure or a shield in the hands of the transferee to protect the possession of any property which has been given by the transferor as lawful possession under a particular agreement of sale. This position of law was incorporated in the definition of 'transfer' by insertion of clauses (v) (vi) in section 2(47) of the Act. It is important to note that clause (v) uses the expression "contract of the nature referred to in section 53A of T.P. Act, therefore, clearly the idea is that an agreement which provides some defense in the hands of transferee was incorporated under the definition of 'transfer' in the income Tax Act. Now originally section 53A of T.P. Act provided that even if "the contract though required to be registered has not been registered", which means the right of defending the pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as if they had been "bodily transposed into it". The effect of incorporation is admirably stated by LORD ESHER, M.R. : "If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act as if they had been actually written in it with the pen, or printed in it.(p.233) Even though only particular sections of an earlier Act are incorporated into later, in construing the incorporated sections it may be at times necessary and permissible to refer to other parts of the earlier statute which are not incorporated. As was stated by LORD BLACKBURN: "When a single section of an Act of Parliament is introduced into another Act, I think it must be read in the sense it bore in the original Act from which it was taken, and that consequently it is perfectly legitimate to refer to all the rest of that Act in order to ascertain what the sections meant, though those other sections are not incorporated in the new Act. (p.244) 72. On the basis of above observation, it was held that meaning of past losses or unabsorbed depreciation has to be taken same as was defined in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney as well as Will and receiving full consideration, but since the agreement to sell was not registered and though full consideration was received and even possession was given, still the same transactions could not be subjected to tax because the same could not covered by the definition of "transfer". To bring such transactions within the tax net, this amendment was made. It has to be appreciated that clause (v) in section 2(47) does not lift the definition of part performance from section 53A of the Transfer of Property Act, 1882. Rather, it defines any transaction involving allowing of possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. This means such transfer is not required to be exactly similar to the one defined under section 53A of the Transfer of Property Act, otherwise legislature would have simply stated that transfer would include transactions defined in section 53A of the Transfer of Property Act. But the legislature in its wisdom has used the words "of a contract, of the nature referred in section 53A". Therefore, it is only the nature which has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act, namely, to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of section 22 is not warranted." Thus, from the above, it is clear that it is not necessary to get the instrument of transfer registered for the purpose of Income-tax Act when a person has got a valid legally conveyed after complying with the requirements of the law. 9. Similarly, in the case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166 (SC), the assessee had purchased for the use of its staff seven low income group houses from a Housing Board. The payment had been made and in turn possession of the houses was taken over by the assessee. The actual conveyance deed was not executed. The assessee claimed depreciation which was denied by the department. After great discussion, it was observed that for all practicable purposes and for the purpose of Income-tax Act, the assessee shall be construed as owner of the property. In fact, it was held as under:- "Held, reversing the judgment of the High Court, that the finding of fact arrived at in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust, 1994. 76. We have already discussed the implications of the decision in case of Chaturbhuj Dwarkadas Kapadia (supra) in paras 33 to 38. We had also examined why in that case capital gain was not held to be chargeable in Assessment year 1995-96.There is no need to repeat the same and in view of the said observations, we reject this contention. 77. The next contention is that it is necessary for invoking of section 2(47)(v) of the Act to comply with the provisions of section 53A of the Transfer of Property Act to the extent that there should be willingness on the part of the transferee to per form his part of the contract. 78. In this aspect we have no quarrel with the proposition that for invoking section 53A of T.P. Act read with clause (v) of section 2(47), the transferee has to perform or is willing to perform his part of the contract. In this respect as referred to by Ld. Counsel for the assessee, the comments of the Ld. Author in the commentary by Mulla - Dinshan Frederick Mulla vide para 16 are clear and shows that this requirement has to be absolute and unconditional. Some observations have been made in the case of General Glass Company Pvt Ltd v. Dy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n sanctioned but in the meantime PIL was filed before the Hon'ble Punjab Haryana High Court against the implementation of the project. Initially, the construction was banned by the Hon'ble High Court. However, later on it was observed in the CW P No. 20425 of 2010 and as clarified by the order of the Hon'ble Supreme Court that refusal of sanction under the Environment (Protection) Act, the society have sought a review of the order because the findings arrived were ex.parte. No order in the matter has been passed by the competent authority perhaps because of the order of High Court. In the interim order passed in the PIL it has been clarified by the Hon'ble Supreme Court vide order dated 31.1.2012 permitting the concerned authority under the different statutes governing the matter to their respective jurisdiction to be decided in accordance with law. Thus, it becomes clear that developer i.e. THDC has applied for various permissions before the relevant authorities and in some cases permission were declined on ex.parte basis and in some cases the same were declined in view of the High Court order banning the construction. After the clarification of the order of the High Court by Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment after giving the other Party a prior notice of fifteen (15) days in writing of the Event of Force Majeure continues for period of ninety (90) days. In the event of termination of this Agreement all obligations of the Parties until such date shall be fulfilled. 82. The combined reading of these clauses show that if any of the party could not perform its part of the obligation because of the unforeseen circumstances which included government directions, court orders, injunctions etc. such party would not be liable to other party. In view of Force Majeure clause which included Court Injunction it can not be said that THDC is not willing to perform its obligation. In fact Developers i.e. THDC/HASH were perusing the issue of permissions/sanctions vigorously. These aspects become further clear if the judgment of the Hon'ble Punjab Haryana High Court in CWP No. 20425 of 2010 vide order dated March 26, 2012 is perused. Paras 3, 4, 22, 25 26 of the judgment read as under: 3. The broad contours of the present proceeding having been outlined, we may now proceed to take note of the specific contentions of the contesting parties as made before us. However, before we do s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Wild Life (Protection) Act are concerned, it need not be emphasised that every project attracting the provisions of the Periphery Control Act and/or the provisions of the 1995 Act must satisfy the ecological concerns of the area in the light of the provisions of the two statutes in question. As already held by us, a public trust has been bestowed on the authorities by provisions of the said Acts which cast on such authorities a duty to interdict any project or activity which even remotely seems to create an imbalance in the pristine ecology and environment of the area on which the city of Chandigarh is situated or for that matter in the immediate vicinity thereof. As already observed, necessary clearances under the aforesaid two enactments, insofar as the respondents are concerned, are presently pending before the concerned authorities and, therefore, it would be highly incorrect on our part to enter into any further discussion on the aforesaid aspect of the case. 25. We also hasten to emphasise that a more rigorous regulated development in what are now the remnants of the periphery and the areas adjoining to it is the need of the hour for which the stakeholders i.e. the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seventy five thousand only) per plot holder of 500 Sq. yards and (Rs. 49,50,000/- (Rs. Forty nine lacs fifty thousand only) as per plot holder of 1000 square yards to be made to the Owner and / or the respective members of the Owner (as the case may be) within six(6) months from the date of execution of this agreement or within two (2) months from the date of approval of the plans / Design and Drawings and grant of the final licence to develop whereupon the construction can commence, whichever is later, against which the Owner shall execute a registered sale deed for land of equivalent value being 6.36 acres out of the Property as demarcated in green colour (also hatched in green colour) in the Demarcation Plan annexed hereto as Annexure V and bearing Khasra nos. 123/15, 123/6, 123/7 (balance part), 123/3 (part), 123//4//1, 123///4//1/2, 123//4/2, 123/5/1, 123//5/2, 023//5/3, 112/ 24/ 24 (part)" 85 The careful reading of the said clause of the JDA would show this payment was required to be made within a period of six months from the date of execution of this agreement or with in two months from the date of approval of plan / sanction and drawing grant of final license to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction by way of becoming a Member or acquiring shares in the Co-operative Society or shares in the company which has the effect of transferring or enabling the enjoyment of any immoveable property would be covered by the definition of transfer. In the case before us, initially the Members of the Society were holding shares in the Society for ownership of plot of 500 sqyd or 1000 sqyd. This membership was surrendered to the Society vide resolution of the Society passed in the Executive Committee on 4.1.2007 which was later ratified in the General Body Meeting of the Society on 25.1.2007, so that the society could enter into JDA. In the JDA the Society has agreed to transfer the land. Therefore, technically it can be said that the developer i.e. THDC/HASH has purchased the membership of the Members in the society which would lead to enjoyment of the property and in that technical sense, clause (vi) of section 2(47) is applicable. 89. Eighth contention is that since the Society has transferred the land through JDA on a pro-rata basis, therefore, only whatever money is received against which sale deeds have also been executed, can be taxed and notional income i.e. the money t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retation can be made while interpreting section 45 read with section 48 by invoking the rule that there can not be any tax on notional receipt. Generally speaking it is only the real income which can be taxed but this has to be understood subject to limitations. Commenting on these limitations, the Ld. Author Shri S. Rajaratnam in the Commentary of Law of Income Tax by Sampat Iyengar's Volume 1, (11th Edition) has observed at page 343 as under: "5. Reservations on real income theory. - Whether accrual of income has taken place or not, must be judged on the principle of the real income theory. After accrual, non-charging of tax on the same because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted. In determining the question whether it is hypothetical income or whether real income has materialized or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the self-serving statement of the assessee. What has really accrued to the assessee has to be found out and what has accrued must be considered from the point of view or real income takin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., [1970] 77 ITR 637 (Cal); Liquidator, Mahmudabad Properties Ltd. v. CIT [1972] 83 ITR 470 (Cal), affirmed, [1980] 124 ITR 31 (SC); CIT v. Zorostrian Building Society Ltd., [1976] 102 ITR 499 (Bom); C.J. George v. CIT, [1973] 92 ITR 137 (Ker); D.C. Anand Sons v. CIT [1981] 131 ITR 77 (Del). Also see, CIT v. Parbutty Churn Law, [1965] 57 ITR 609 (Cal.); In the matter of Krishna Lal Seal, AIR 1932 Cal 836; Lalla Mal Samgham Lal v. CIT [1936] 4 ITR 250 (Lah); New Delhi Municipal Committee v. Nand Kumar Bussi [1977] Tax LR 2130 (Del)]" 93. Similar view has been expressed by Shri N.A. Palkhivala in his commentary on the Law land Practice of Income Tax, Volume 2 (Eighth edition) by Kanga and Palkhivala's observation at pages 22 23. Again even Shri S. Rajaratnam in the Commentary of Law of Income Tax by Sampat Iyengar's Volume 2, (11th edition) expressed identical views in his commentary at page 2738. 94. In all the leading commentaries cited above, it has been observed that annual value is to be computed whether property has been let out or not. This means that notional value of the property has to be charged to the Income Tax under the head "income from house prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 236 in this regard has observed as under: "Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however, great the hardship may appear to the judicial mind. Considerations of hardship, injustice or anomalies do not play any useful role in construing taxing statutes unless there be some real ambiguity. Thus, any benevolent construction in favour of the assessee has been held to be uncalled for. 96. Therefore, it can be said that generally speaking notional income could not be subjected to tax but whenever there is a specific provision, the same has to be taxed. Now, in case of capital gain, section 45 read with section 48 very clearly provides that it is the profit "arising" from the transfer of a capital asset which would be subjected to charge of capital gain tax and section 48 clearly provides for taking the total consideration into account while computing the capital gains. This aspect we have already discussed in detail at para Nos. 64 to 68 from which it becomes clear that it is the whole consideration whether received or accrued, which has to be taxed under the capital gain once transfer of the capital asset ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne Hundred Six Crores Forty Two Lacs Fifty Thousand only) and one hundred and twenty nine (129) flats consisting of Super Area of 2250 Sq. feet ('Flats'); one flat each for sixty five members having a plot of 500 sq. yards, two flats for the (thirty) 30 members having a plot of 1000 sq. yards and 4 flats to the Owner for the 4 plots of 500 sq. yards each as per list annexed with this Agreement as Schedule B ('Sale Transaction') It is expressly agreed between the Developers that HASH shall be responsible for making all payments to the Owner and/or the respective members of the Owner (as the case may be) as per the negotiated and agreed terms between the Owner and HASH, HASH expressly undertakes to make timely payments of the Payment to the Owner and / or the respective members of the Owner (as the case may be) as under: 4.2 As resolved by the Owner, THDC either by itself or along with HASH shall allot the Flats in the name of members of the Owner as per list annexed with this Agreement as Schedule B attached herein (hereinafter referred to as the 'Allottees'). The specifications of the flats would be provided by the Developers to the Owner and more particularly describ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication or circular is over due." 99. These comments and the other detailed discussion on this aspect clearly show that capital gain tax has to be paid on the total consideration arising on transfer which would include the consideration which has been received as well as the consideration which has arosen and become due and may be received later on. In view of this discussion this contention is rejected. 100. Ninth contention is that the assessee has already terminated the agreement and has revoked the Power of Attorney. We find no force in this submissions. 101. In this regard ld. counsel of the assessee has relied on the decision of Mumbai Bench of the Tribunal in case of Chemosyn Ltd. v. ACIT (supra). In that case the assessee-Company was owner of two plots bearing 256 257 in Gundabali Andheri Mumbai. The assessee-company entered into a development agreement with Dipiti Builders for the development rights for a consideration of Rs. 16.11 crores. Dipiti Builders had also agreed to construct 18000 sqft carpet area for the benefit of assessee on plot No. 256. In the return of income total consideration was shown only at Rs. 16.11 crores. It was explained that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the lands registered in the name of THDC as per the terms of this Agreement upto the date of the termination shall remain with THDC and the balance lands to be transferred to THDC as per the terms of this Agreement shall not be transferred by the Owner in favour of THDC. Upon the termination, the Owner shall refund to THDC the Adjustable Advance/Earnest Money mentioned in clause 4.1(i) above within one month of such termination. In the event of failure of the Owner to refund the said amount, the Owner hereby agrees to execute a registered sale deed for land of equivalent value in favour of THDC. (ii) In the event all the requisite government and statutory approvals, authorizations, consents, licenses, approvals of all the plans/designs and Drawings as may be required for the development of this Property in relation to the Project and to undertake the Project are not granted within nine (9) months of the submission of the final plans/Designs and Drawings to the Competent Authority for approval then THDC may as its sole discretion either decide that it does not desire to undertake and complete the Project and hence terminate this Agreement after giving thirty (30) days writt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred by the Owner in favour of THDC. Upon the termination, the Owner shall forfeit the Adjustable Advance/Earnest Money mentioned in clause 4(i)." 103. The reading of the above clause would show that power of termination has been given in many circumstances to THDC vide clauses 14(i), (ii) and (iii). The power for termination by the owner has been mentioned in clause 14(iv) only. Reading of this clause would show that right to terminate with the owner i.e. the Society was available only in case of default in making the payment. The issue regarding default for making payment has already been discussed by us in Paras 84 to 86 above while discussing the issue of willingness on the part of the transferee to perform its part of the contract. We have already held that there was no default on the part of developer i.e. THDC/HASH in making the payment, therefore, the assessee had no right to terminate the contract. In any case we further find that clause 20 of the JDA refers to Arbitration and it is clearly provided that all the disputes under it should be referred to the arbitration. Therefore, if the Society had some grievance it was duty bound to give a notice for appointmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consideration in kind (Rs. 101,25,000 x 129 plots) Rs. 130,61,25,000/- Total Rs. 237,03,75,000/- Average cost of consideration Rs. 11.18 crores per acre (Total consideration of Rs. 237.03 crores divided by 21.2 acres of land) It is claimed on behalf of the assessee that JDA has been cancelled and the developer has been allowed to retain the property which has also been conveyed to developer through two sale deeds. If that is so then what would happen to the balance consideration because in such situation the assessee has received consideration of only about Rs. 5 crores per acre because the assessee has registered land measuring 3.08 acres for Rs. 15.48 crores through first conveyance deed, whereas consideration as per original agreement was Rs. 11.18 crores per acre as shown above. The difference is because of non receipt of consideration in kind and the assessee has not shown any evidence that it has made the claim for receipt of balance consideration. This leads to the conclusion that there was no cancellation of the JDA. 106. Some arguments were made by both the parties that if the contract is finally stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view." Here the comments of Shri Rajaratnam quoted at para 5164 above are also relevant again: " "It is hard on the owners when required to pay tax, when handing over the possession for purposes of construction without being able to enjoy the construction, which is yet to commerce or in the process of construction being put up by the developer, but the solution lies in statutory clarification in such cases. In view of the increasing scale of such development agreements to solve the housing problem in the cities, a statutory clarification or circular is over due ." We may mention here that no doubt sometimes an assessee may be put in a difficult situation and as mentioned by Hon'ble Authority in case of Jasbir Singh Sarkaria (supra) as well as Ld. Author Shri Rajaratnam it is for the legislature to take corrective steps. However, it may not be out of place that if considering the difficulty the interpretation given by the ld. counsel of the assessee is accepted then the Revenue may not be able to tax such assessees when these difficulties are removed. For example in the present case if tomorrow when all permissions are obtained and construction is completed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 between THDC and HASH in case Gross Sales Proceeds is equal to Rs. 1272 crores; (c) in addition (b) , in the ratio of 60: 40 between THDC and HASH in respect of gross sales Proceeds in excess of Rs. 1272 crores. "It is agreed that the minimum guaranteed amount from the Gross Sales Proceeds for THDC and HASH is Rs. 890.40 crores and Rs. 225.76 crores respectively. The minimum guaranteed amount of Rs. 225.76 crores to HASH includes Rs. 58.88 crores that shall be expended by THDC towards construction of 126 flats equivalent to 2,83,500 sq. ft, which flats are to be allotted in the names of the members of the Society or otherwise, as the case may be, calculated as Rs. 2000 per sq. ft. for the area 2,83,500 sq. ft. and the 72% share of 3 flats of 2250 Sq. ft. to be purchased by HASH @ Rs, 4500/- per sq. ft. Should the application of the ratio stipulated in (a) above result in HASH being entitled to a sum greater than the minimum guaranteed amount and THDC being entitled to a sum less than the minimum guaranteed amount, THDC shall- be entitled to the entitlement of HASH which is in excess of its minimum, guaranteed amount until THDC achieves its minimum guaranteed am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that this issue has been rejected wrongly by CIT(A). However, carefully perusal of the grounds of appeal show that no ground in respect of deduction under section 54F has been raised before us and, therefore, we decline to adjudicate this issue and all the arguments made in this behalf are rejected. Though reference was made to ground No. 2.3 in this regard. The perusal of ground Nos. 2.3 would show that reference has been made only to sections 54 and section 54EC. Section 54 deals with deduction in case the assessee being an individual or HUF, transfers the residential house and in case before us, the assessee has transferred the plot. Therefore, it cannot be said that deduction u/s 54F and 54 is same. Since no ground has been raised for deduction under section 54F, we reject this contention.' Following the above order we decide the issue against the assessee. 6. Ground No. 8 - Through this ground the assessee has challenged the issue regarding penalty under section 271(1)(c) of the Act. 7. Both the parties were heard. 8. After considering the rival submissions we find that only penalty proceedings have been initiated and the present order deals with the assessment and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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