TMI Blog2013 (11) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... he possession and control of the property is already vested with the transferee and the impugned development agreement has not been duly cancelled and it is still in operation, it has to be decided that there is a transfer u/s. 2(47)(v) of the Act. Entering into the property and handing over of the possession was instantaneous thus entire conspectus of the case has attracted the provision of S. 45 of the Act on fulfilment of conditions laid down in section 53A of the Transfer of Property Act. Capital gain 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. The assessee entered into an agreement with the builder/developer for development of the impugned land and construction of flats thereon. Also, the assessee signed a delivery note dated 7.3.2005 in favour of the builder/ developer and gave possession of the property to the builder/developer. Further, the assessee acted on the impugned agreement by accepting from the builder/developer payments by cheques on different dates in the financial year 2004-05. In view of the facts and circumstances discussed above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shenoy (supra). He submitted that in the present case there was no transfer of property as enumerated in section 2(47)(v) of the Act, as in this case no possession has been given by the assessee to the developer. Whatever the assessee has given is only a licence to the developer to enter into plot for the limited purpose of construction of building. He submitted that giving symbolic possession of the property for limited purpose of construction cannot be construed as giving of absolute possession of the property. He also filed additional evidences as follows: (a) Agreement between Durdhana Khatoon and M/s. Imperial Constructions dated 2nd August, 2004. (b) Memorandum of Understanding (MOU) between Durdhana Khatoon and M/s Imperial Constructions dated 2nd August, 2004. (c) Lease Deed with M/s. Pantaloon Retail (I) Ltd. (d) Copy of Income-tax Return for the A.Y. 2005-2006 along with computation of Income. (e) Copy of Income-tax Return for the A.Y. 2006-2007 along with computation of Income. (f) Copy of Income-tax Return for the A.Y. 2007-2008 along with computation of Income. (g) Copy of Income-tax Return for the A.Y. 2008-2009 along with computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough this devise though the real owner of the property changes the registered owner remains the same and that this kind of transactions were outside the purview of the definition of the word transfer under section 2(47) of the Income Tax Act. The AR submitted that the following extract from the case of Chaturbhuj Dwarakadas Kapadia shows the line of arguments before the Hon'ble Court: Section 2(47)(v) was introduced in the Act from assessment year 1988- 89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of the conveyance. Consequently, 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 loop hole, section 2(47)(v) came to be introduced in the Act. It was argued by the assessee that there was no effective transfer till grant of irrevocable licence. [Para 5] 9. The AR further submitted that the fact that the subject matter of taxation being the consideration for transfer does not exist on the date concluded by the department to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: [ transfer , in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment;] Vide Taxation Laws (Amendment) Act, 1984 two new sub clauses have been introduced and these are as under; (v) any transaction involving the allowing of the 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, 1882 (4 of 1882) ; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation.-For the purposes of sub-clauses (v) and (vi), immovable property s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y by virtue of such transaction as are referred in clause (f) of section 269UA will also be deemed to be the owner of the property. The amendment also seeks to enlarge the applicability of this clause to a member of a company or other association of persons. Corresponding amendments have also been proposed in regard to the definition of transfer in section 2(47) of the Income Tax Act section 2(m) of the Wealth Tax Act defining net wealth and section 2(xii) of the Gift Tax Act defining gift . These amendments will take effect from 1st April 1988, and will, accordingly, apply in relation to assessment year 1988-89 and subsequent years. [Clauses 3(9), 6, 77 and 92] 15. The AR submitted that from the above it is clear that the intention of the legislature was to plug the loop hole in escapement of income from being taxed under the head House Property and also to avoid double taxation and complexities between the real owners and the legal owners when it comes to taxation of property income. The AR placed reliance on the judgment and principles laid down by the Hon'ble Apex Court in the case of Varghese (KP) v ITO (1981) 131 ITR 597 (SC). In this case weight was g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is no denial that transfer of his land has taken place and that he would have gained from it. The issue is how much is the real gain that is to be taxed and what is the criteria in arriving at the real capital gain, whether short tern or long term, that is to be taxed. The issue is how to determine this amount and what is the scientific and evidentially based way of determining it. 19. The AR submitted that the assessment is based on imaginary income, arising out of wild estimates, not stemming up from facts and therefore deserves to be quashed. The AR submitted that, on the basis of the above submissions and further submissions that may be permitted by the Tribunal to be made in the course of the appellate proceedings, the assessment of capital gains in his case for the assessment year 2005-06 be held to be untenable and contrary to the provisions of law and that the same may be directed to be deleted otherwise it amounts to double taxation as the assessee has offered the capital gain in subsequent assessment year. 20. The DR submitted that the Assessing Officer was justified in bringing to tax the transaction relating to the development agreement in view of the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e effect of transfer as contemplated in section 2(47). (Head Note) 22. The learned DR submitted that the case of the assessee is identical to that of Dr. Maya Shenoy (cited supra). Accordingly, the assessee was liable for capital gains in respect of the Development Agreement by virtue of which the assessee was liable to get 50% of the constructed area. 23. We have heard both the parties and perused the material available on record with reference to the contentions of the assessee with regard non-chargeability of capital gains in respect of the land. We have also gone through the various case-law cited by the parties and considered the additional evidence filed by the assessee. According to AR which was not transferred but only given for development. We may refer to the provisions of S.2(47)(v) which reads as follows:- 2 (47) . (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act, 1882 (4 of 1982) 24. The importance of the word transfer is due to the reason that under the charging section, vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssession but to be retained in part performance of a contract of the nature referred in s. 53A of the Transfer of Property Act. Therefore, it is further requisite to deal with the relevant section contained in Transfer of Property Act. Transfer of Property Act contains S. 53A under the heading Part performance and, for deciding the case in hand, it is necessary to quote the impugned section verbatim as follows: Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, And the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, And the transferee has performed or is willing to perform his part of the contract, Then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o enact that for the purposes of capital gains, the transaction involving transfer of the nature referred are not required to be registered under Registration Act. Such arrangement does not include transfer of certain rights vesting to a purchaser; however such transfer does confer certain privileges of constructive ownership with connected bundle of rights. Indeed it is a departure from the commonly understood meaning of the definition transfer while interpreting this term for tax purpose. On the facts of this case, the developer has got bundle of rights and thereupon entered into the property. Thereafter, we have to see what has happened and what steps the transferee has taken to discharge the obligation on his part. If transferee has taken any steps to construct the flats, undisputedly then, under the provision of Income Tax Act a transfer has definitely taken place. (c) The existence of the consideration is the essence of the contract. In this case the amount of consideration has to be paid to the assessee in the form of cash as well as in kind i.e., the flats to be constructed by the developers to be handed over to the owners. (d) Next is the important phrase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current possession would become exclusive possession of the developer. Any other interpretation i.e., possession means exclusive possession, shall defeat the purpose of amendment. The possibility of staggering of payment linked with possession is ruled out by this amendment so that the taxability of gain may not be shifted to an uncertain distant date. We have no hesitation in saying that even if some part of consideration remains to be paid, the transaction shall not affect the liability of capital gains tax so as to postpone the same indefinitely. What is meant in clause (v) is the transfer which involves allowing the possession so as to allow developer to undertake development work on the site. It is a general control over the property in part performance of the contract. The date of that transaction determines the date of transfer. To our understanding of the language of the Act, it is enough if the transferee has, by virtue of the impugned transaction, has a right to enter upon and exercise the act of possession effectively, then such an act amounts to legal possession over the property. (f) The last noticeable ingredient is, the transferee has performed or is willing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the A.Y. 2005-06. (h) As regards the contention of the assessee's representative that the said decisions are not applicable to the assessee's case, it is clear that no reasons for such view could be ever furnished by him. Similarly, there is no merit in the contention that the Development Agreement could not have come into force unless and until the builder deposited ₹ 2 crores. As discussed in the assessment order, the assessee had indeed been paid ₹ 50 lakhs by cheques dated 19.7.2004 itself. Further, the assessee was to receive 3 instalments of ₹ 50 lakhs each at different stages. Under the circumstances, it cannot be disputed that there was a promise to pay which has not been shown as having remained unfulfilled. It is an established judicial proposition that the consideration may be futuristic also, as held by the Supreme Court in the case reported in AIR 1955 S.C. 376. Accordingly, there is no merit in such contention of the representative of the assessee. As regards the argument that the agreement under reference had been executed only for the purpose of getting permissions from various department for construction, the very terms of the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 w.e.f. 1st April, 1988 by inserting new sub-cls. (v) and (vi) thereunder. These two new sub-clauses provide that 'transfer' includes (i) any transaction which allows possession to be retained in part performance of a contract of the nature referred to in s. 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. Therefore, under these two sub-clauses, the capital gain 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. The assessee entered into an agreement with the builder/developer for development of the impugned land and construction of flats thereon. Also, the assessee signed a delivery note dated 7.3.2005 in favour of the builder/ developer and gave possession of the property to the builder/developer. Further, the assessee acted on the impugned agreement by accepting from the builder/developer payments by cheques on different dates in the financial year 2004-05. In view of the facts and circumstances discussed above, all the con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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