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TMI Blog2013 (11) TMI 1240X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the year under consideration. This addition of Rs. 78,63,408/- being made on estimation, surmises and conjectures is uncalled for and deserves to be deleted. 4. That the ld. Commissioner of Income Tax (Appeals), Chandigarh is not justified in upholding the order of the ld. Assessing Officer as the appellant has correctly offered a sum of Rs. 19,20,000/- under the head Capital Gains for taxation as only a part of the property was transferred during the year under consideration as per the terms and condition of the agreement dated 27-04-2007 and taxing the whole of the Long Term Capital Gains of Rs. 78,63,408/- is unjustified. 5. That the ld. Commissioner of Income Tax (Appeals) is not justified in upholding the order of the ld. Assessing Officer by bringing to tax the capital gains arising out of futuristic event pertaining to the allotment of one furnished flat and is also unjustified in estimating the value of such flat at Rs. 60,75,000/- being purely based on presumption, inferences, surmises and conjectures. This addition is uncalled for and deserves to be deleted. 6. That the Learned Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; "27 We have considered the rival submissions and carefully gone through the written submissions filed by both the parties in the light of material on record, paper books and various judgments cited by the parties. The main issue is whether assessee is liable to capital gain tax in the year under consideration i.e. assessment year 2007-08 in view of the JDA. For charging capital gains, the charging section is 45 and the relevant portion is as under:- Section 45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F 54G and 54H, be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. 28 The plain reading of the above provision would show that charging an item of income under the head "Capital gains" require three ingredients i.e. (i) there should be some profit. (ii) Such profit must be arising on account of transfer and (iii) there should be capital asset which has been transferred. There is no dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred 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" shall have the same meaning as in clause (d) of section 269UA; Clauses (v) & (vi) to section 2(47) of the Act have been inserted by Finance Act, 1987 w.e.f. 1.4.1988. The purpose of this insertion has been explained by CBDT in Circular No. 495 dated 22.9.1987. The relevant part 11.1 and 11.2 of the circular reads as under:- "11.1 The existing definition of the word "transfer" in section 2(47) does not include transfer of certain rights accruing to a purchaser, by way of becoming a member or acquiring shares in a co-operative society, company, or as way of any agreement or any arrangement whereby such any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be taken from the Government / DDA and transferor was required to pay 50% of the market value - cost (i.e. unearned increase) to the Government. To avoid such payments and/or also to avoid the payment of stamp duty or cumbersome procedure of obtaining permission, some properties were being sold by way of sale agreement and also execution of General Power of Attorney and possession was given on receipt of full consideration without executing the proper sale deeds etc. which as mentioned earlier was not even permissible in some cases. These transactions are popularly called "power of attorney" transactions. To avoid these and to stop the leakage of Revenue, the Parliament has inserted clauses (v) & (vi) to section 2(47) so as such type of transactions are also be brought into taxation net. However, interpretations of these clauses has led to lot of litigation and the main point of litigation was that at what point of time the possession can be said to have been given. In the present case, the Revenue has mainly relied on two decisions namely (i) Chaturbhuj Dwarkadas Kapadia v CIT 260 ITR 491 (Bom.) and; (ii) Authority for Advance Ruling (AAR) New Delhi in the case of Jasbir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 2( 47) of the Income-tax Act, 1961, 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, 1882, and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property. 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. Under section 2(47)(v) any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act would come within the ambit of section 2(47)(v). In order to attract section 53A, the following conditions need to be fulfilled. There should be a contract for consideration ; it should be in writing ; it should be signed by the transferor ; it should pertain to transfer of immovable property ; the transferee should have taken possess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the immovable property is not effective or complete under the general law (see Kanga and Palkhivala's Law and Practice of Income-tax-VIII edition, page 766) . This test is important to decide the year of chargeability of the capital gains." 35 The above observations were made on the basis of opinion expressed by Ld. author in the commentary - "The Law and Practice of Income Tax by Kanga and Palkhivala Eighth Edition at page 766. Relevant observations read as under: "Cls. (v) and (vi) of s. 2(47), inserted by the Finance Act 1987 with effect from 1st April 1988, provide that "transfer" includes (a) any transaction which involves the allowing of the possession of an immovable property (s. 269UA(d)) 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, and (b) any transaction entered into in any manner which has the effect of transferring, or enabling the enjoyment of, any immovable property (s. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows that it is a development agreement. There is a difference between the contract on the one hand and the performance on the other hand. In this case, the Tribunal as well as the Department have come to the conclusion that the transfer took place during the accounting year ending March 31,1996, as substantial payments were effected during that year and substantial permissions were obtained. In such cases of development agreements, one cannot go by substantial performance of a contract. In such cases, the year of chargeability is the year in which the contract is executed. This is in view of section 2 (47)(v) of the Act." Secondly it is mentioned in the order of the Court that law was not very clear on this point and since the assessee has admitted and paid capital gain in the Assessment year 1999-2000, therefore, tax was held to be chargeable in Assessment year 1999-2000. Thirdly certain shortcomings were also noted in the order of the Tribunal where certain documents were mentioned to have been executed before March 31, 1996 e.g. the following observation of the Tribunal was not found correct as something is done on Ist April, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant decision cited by the Revenue is by Authority for Advance Ruling (AAR) New Delhi in the case of Jasbir Singh Sarkaria (supra). In that case the assessee was co-owner of agricultural land measuring about 27.7 acres and his share was 4/9. The co-owner decided to develop the land by constructing residential complex through developer and entered into a Collaboration agreement on 8.6.2005 with M/s Santur Developer Pvt Ltd. New Delhi (hereinafter called 'Developer'). According to the terms of agreement, the Developer should obtain a letter of intent from the concerned government department and obtain other permissions and sanctions for developing the land at its own risk and cost. The Developer was to take 84% of the builtup area and balance 16% would belong to assessee and other co-owner. The consideration for the agreement was taken as the builtup area to be handedover to the owners free of cost. The owners were entitled to visit the site in order to review the progress of the project. It was clarified by clause 18 that ownership would remain exclusively with the owners till it vests with both the parties as per their respective shares on the completion of the project. The othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) those profits or gains would constitute the income of the assessee/ transferor (d) such income shall be deemed to be the income of the same previous year in which the transfer had taken place. Two aspects may be noted at this juncture. Firstly, the expression used is "arising" which is not to be equated with the expression "received". Both these expressions and in addition thereto, the expression "accrue" are used in the Income-tax Act either collectively or separately according to the context and nature of the charging provision. The second point which deserves notice is that by a deeming provision, the profits or gains that have arisen would be treated as the income of the previous year in which the transfer took place. That means, the income on account of arisal of capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place. The effect and ambit of the deeming provision contained in section 45 has been considered in decided cases and leadi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion which the transferee can maintain in his own right to the exclusion of everyone including the transferor from whom he derived the possession ? Such a criterion will be satisfied only after the entire sale consideration is paid and the transferor has forfeited his right to exercise acts of possession over the land or to resume possession. In our view, there is no warrant to place such a restricted interpretation on the word "possession" occurring in clause (v) of section 2(47). Possession is an abstract concept. It has different shades of meaning. It is variously described as "a polymorphous term having different meanings in different contexts" (per R. S. Sarkaria J. in Superintendent and Remembrance of Legal Affairs, W. B. v. Anil Kumar Bhunja [1979] 4 SCC 274 and as a word of "open texture" (see Salmond on Jurisprudence, paragraph 51, Twelfth Edition, Indian reprint). Salmond observed : "to look for a definition that will summarize the meanings of the term "possession" in ordinary language, in all areas of law and in all legal systems, is to ask for the impossible". In the above case of Anil Kumar Bhunja [1979] 4 SCC 274, Sarkaria J. speaking for a three-judge Bench also ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are not adverse, and which are not, therefore, mutually destructive, admit of concurrent realization. Hence, there are several possible cases of duplicate possession. 1. Mediate and immediate possession co-exist in respect of the same thing as already explained. 2. Two or more persons may possess the same thing in common, just as they may owe it in common -----------------------------" On a fair and reasonable interpretation and on adopting the principle of purposive construction, it must be held that possession contemplated by clause (v) need not necessarily be sole and exclusive possession. So long as the transferee is, by virtue of the possession given, enabled to exercise general control over the property and to make use of it for the intended purpose, the mere fact that the owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of agreement does not intr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. The actual date of taking physical possession or the instances of possessory acts exercised is not very relevant. The ascertainment of such date, if called for, leads to complicated inquiries, which may frustrate the objective of the legislative provision. It is enough if the transferee has, by virtue of that transaction, a right to enter upon and exercise acts of possession effectively pursuant to the covenants in the contract. That tantamounts to legal possession. We are referring to this aspect because the authorized representative has submitted when he appeared before us in the last week of May, 2007, that even by that date the development work could not be commenced for w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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 regarded merely as a licensee or an agent subject to the control of the owners. His possession cannot be characterized as precarious or tentative in nature. The fact that the agreement describes the GPA as irrevocable and an express declaration to that effect is found in the GPA itself is not without significance. Having regard to the second and supplemental agreement by virtue of which the entire developed property including the owners' share has been agreed to be sold to the developer or his nominees for valuable money consideration, the developer has a vital stake in the entire property. As far as the quality of possession is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the date of transfer within the meaning of clause (v) of section 2 (47) of the Income-tax Act. 2. To attract clause (v) of section 2(47), it is not necessary that the entire sale consideration up to the last instalment should be received by the owner. 3. In the instant case, having regard to the terms of the two agreements and the irrevocable GPA executed pursuant to the agreement, the execution of the GPA shall be regarded as the "transaction involving the allowing of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er area of 2250 sqft 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 page 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 which has come in the purview of Nagar Panchayat, Naya Gaon vide Notification issued on 18.10.2006 duly substituted by another notification dated 21.11.2006 and that no part of land of the property falls under Forest Area under the Punjab Land Preservation Act. It has been further recited that the Society has agreed to accept the proposals of Hash and further executed this agreement with THDC/HASH. Hash was responsible to make payment to the owner as descri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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. 2.2 The owner hereby irrevocably and unequivocally grants and assigns all its Development Rights in the property to THDC to develop the property and undertake the project at its own costs, efforts and expenses whereupon the Developer shall be entitled to apply for and obtain necessary sanctions, licenses and permissions from all the concerned authorities for the commencement, development and completion of the project on the property." 48 Clause 3 describes the obligations of the developers & Society for getting the plans, etc. sanctioned from competent authority/applications to be signed by owner for plans, drawings etc., constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. The Punjabi Cooperative 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 Invalidity, Arbitration, Notices and Force Majeure & Jurisdiction. 51. In addition to above an irrevocable Special Power of Attorney has also been executed by the Society in favour of the developers i.e. THDC. (Copy of which is available at pages 40 to 52 of the paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 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 the purpose of constructing buildings and/or structures thereon and/or on the Property or utilize such lands and properties for making provision of parking spaces thereon, and/or ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd/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 furtherance of development of the Project as well as security for the money pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tallation 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 hand over 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 signed 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 clause (bb) and (cc) which gives the power of execution of conveyance and other documents involving in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition 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 Immunity Co. Ltd. v. State of Bihar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer 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 clause (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 clause (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 abs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acres, does not show that the Society was having actual possession. What the Society was having is only ownership right and the possession was only 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 person grants to another or many other persons to do something upon immovable 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 Societ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins that have arisen would be treated as the income of the previous year in which the transfer took place. That means, the income on account of arisal of capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place. The effect and ambit of the deeming provision contained in section 45 has been considered in decided cases and leading 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. &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Housing and Land Development Trust Ltd. AIR 1986 S.C 1805, 1807." The expression "accrual of income" has been defined in the same Lexicon as under: "Accrual of income. E.D Jassoon & C. Ltd. v. Ld. Commissioner of Income Tax, AIR 1954 S.C 470 quoted - Income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. Bhogilal v. Income Tax Ld. Commissioner, AIR 1956 Bom 411, 414 (Income Tax Act (11 of 1992) Ss. 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 Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore by the law for the time being 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71 The Hon'ble Apex Court referred to the Principles of Statutory Interpretation by Shri G.P. Singh and extracted following piece: "Section 115J, Explanation clause (iv), is a piece of legislation by incorporation. Dealing with the subject, Justice G .P. Singh states in Principles of Statutory Interpretation (7th edition, 1999). Incorporation of an earlier Act into a later Act is a legislative device adopted for the sake of convenience in order to avoid verbatim reproduction of the provisions of the earlier Act into the later. When an earlier Act or certain of its provisions are incorporated by reference into a later Act, the provisions so incorporated become part and parcel of the later Act 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter quoting the provisions of section 2(47) and also section 53A before and after amendment as wall as para Nos. 11.1 to 11.2 of the Board's Circular No. 495 dated 22.9.1987 observed as under:- "The above clearly shows that there was certain situation where properties were being transferred without registration of transfer instruments and people were escaping tax liabilities on transfer of such properties because the same could not be brought in the definition of "transfer" particularly in many States of the country properties were being held by various people as leased properties which were allotted by the various Govt. Departments and transfers of such lease were not permissible. People were transferring such properties by executing agreement to sell and general power of attorney 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 be covered by the definition of "transfer". To bring such transactions within the tax net, this amendment was made. It has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake possession of the building in part performance of the nature referred to in section 53A, such person shall be deemed to be the owner. It was further observed that for all practicable purposes the assessee was the owner and possibly there cannot be two owners of same property at the same time. In fact, the amendments to section 27 were made later on but were taken into cognizance on the basis of above principle and ultimately it was held as under: "Hence, though under the common law "owner" means a person who has got valid title legally conveyed to him after comply with the requirements of law such as the Transfer of Property Act, the Registration Act, etc., in the context section 22 of the Income-tax Act, 1961, having regard to the ground realities and further having regard to the object of 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 reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not alter the situation for holding the transaction to be a transfer u/s.2(47)(v) if all other ingredients have been satisfied." 74. Thus, it is clear that non-registration of agreement cannot lead to the conclusion that provision of section 2(47) (v) is not applicable. Similar view has been taken by ITAT Cochin Bench of the Tribunal in case of G. Sreenivasan v. DCIT 28 Txmann.com 200 (Coch.) and ITAT Pune Bench in the case of Mahesh Nemichandra Ganeshwade v. ITO 21 Taxmann.com 136 (Pune). In view of this legal position, this contention is rejected. 75. The next contention was that the decision of Hon'ble Bombay High Court in case of Chaturbhuj Dwarkadas Kapadia (supra) is not applicable particularly because ultimately in that case it was held that capital gain tax should be charged in Assessment year 1999-2000 whereas agreement was executed in August, 1994. 76. We have already discussed the implications of the decision in case of Chaturbhuj Dwarkadas Kapadia (supra) in para 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement that there is litigation in respect of acquisition of property and the developer has to take clearance from the government in the matter of denotification of the land. It was held that since the land was under compulsory acquisition and no compensation has been received, therefore, there could not be any capital gain tax u/s 2(47)(iii) which deals with the compulsory acquisition. It was further observed that assessee could not have given possession unless and until the land was denotified. Since facts of the case are different than the case in hand and therefore, same are not relevant for our purpose. 81. Now coming to the facts, firstly it was contended that Developer i.e. transferee has not obtained various permissions which were required to be taken by the Developer as per clauses 3.1, 7.9, 8.4 and 8.6 of the JDA. This is not correct as pointed out by the Ld. CIT DR that assessee had already got the municipal plan 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the government or any other statutory authority and such circumstances affecting the development of the project (Event of Force Majeure). (iii) Any Party claiming restriction on the performance of any of its obligations under this agreement due to the happening or arising of an Event of Force Majeure hereof shall notify the other Party of the happening or arising and the ending of ceasing of such event or circumstance with three (3) days of determining that an Event of Force Majeure has occurred. In the event any Party anticipates the happening of an Event of Force Majeure, such Party shall promptly notify the other party. (iv) The Party claiming Event of Force Majeure conditions shall, in all instances and to the extent it is capable of doing so, use its best efforts to remove or remedy the cause thereof and minimize the economic damage arising thereof. (v) Either Party may terminate this Agreement 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act has been made by an authority not competent to do, the promoters of the project have sought a review of the order which is still pending for the same reason(s) as noticed above. 4. On these facts we are of the view that it would be prudent on our part to take the view that the issue with regard to clearance/sanction under the two enactments i.e. Environment (Protection) Act and Wild life (Protection) Act is presently pending and as the promoters of the project have submitted themselves to the jurisdiction of the authorities under the said enactments we should refrain from addressing ourselves on any of the issues connected with either of the two statutory enactments as any such exercise, even though may be unintended, may have the effect of fettering the jurisdiction of statutory authorities functioning under the two relevant statutes. 22. Insofar as the provisions of the Environment (Protection) Act and the 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red under the JDA. However, some of the sanctions could not be taken in time because of the litigation by way of PIL but since none of the party was liable to the other party in view of the clause 26 dealing with FORCE MAJEURE it cannot be said that Developer was not willing to perform his part of contract. In any case no specific evidence has been shown us to prove that THDC/HASH were declining to perform particular obligation provided in JDA. In view of this discussion, it cannot be said that transferee i.e. Developer THDC/HASH is not willing to perform his part of contract. 84. Secondly, it was contended that payments have not been made as per the JDA. However, again this is not correct. As per clause 4(iv) of the JDA, the instalment for Rs. 31,92,75,000/- was required to be paid. The clause 4(iv) read as under:- "(iv) Payment being Rs. 31,92,75,000/- (Rupees One crore ninety two lakh seventy five thousand only) calculated @ Rs. 24,75,000/- (Rs. Twenty Four lakhs seventy five thousand only) per plot holder of 500 Sq. yards and (Rs. 49,50,000/-(Rs. Forty nine lakhs fifty thousand only) as per plot holder of 1000 square yards to be made to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore constructions could not commence. These permissions were pending because of the PIL filed by Shri Aalok Jagga before the Hon'ble Punjab & Haryana High Court. All these facts clearly shows that in view of clause 4.1(iv) read with clause 26(v) of the JDA, HASH Builder were not required to make the payment and it cannot be said that they were not willing to perform their part of the contract on this aspect. Therefore, this contention is rejected. 87 Seventh contention is that revenue wrongly held that even clause (vi) of Section 2(47) is applicable. We find no force in this contention. Clause (vi) to Section 2(47) reads as under: "any transaction (whether by way of becoming a member of, or accruing shares in, a cooperative 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". 88 The plain reading of the provision shows that any transaction by way of becoming a Member or acquiring shares in the Cooperative Society or shares in the company which has the eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for the transfer of capital asset that some of the consideration would be received later then such person is supposed to know the consequences of the denial of such benefits. However , if the section is interpreted in the manner suggested by the ld. counsel of the assessee then no person would pay capital gain tax on transfer of a property. This will be clear from a simple example. Let us assume if "A" sells the property to "B" for a consideration of Rs. 100 crore and receive only a consideration of 1.00 crore and it is mentioned in the transfer instrument that balance of consideration would be paid after 20 years then no tax can be levied on such balance consideration of Rs. 99.00 crore which has not been received as per the contention of the ld. counsel of the assessee. But in that case no taxes can be levied even after 20 years because no transfer can be said to have taken place after 20 years and Revenue cannot do anything because capital gain can be charged u/s 45 only on transfer of capital asset. We do not think that this kind of interpretation can be made while interpreting Section 45 r.w.s. 48 by invoking the rule that there cannot be any tax on notional receipt. General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 92 On this aspect the settled position of the law is that the annual value has to be determined even if the property is not let out. This position has been discussed by the Ld. author Chaturvedi & Pithisaria's in Commentary of Income Tax Law (fifth edition) Volume 1 in this respect at pages 1275 & 1276 observed as under: "Annual value- determination of - Section 23(1)(a) provides that for the purposes of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. The word used is 'might' and not 'can' or 'is'. It is thus a notional income to be gathered from what a hypothetical tenant would pay which is to be objectively ascertained on a reasonable basis irrespective of the fact whether the property is let out or not [Sultan Bros. (P.) Ltd. v. CIT, [1964] 51 ITR 353 (SC); Jamnadas Prabhudas v. CIT, [1951] 20 ITR 160 (Bom); D.M. Vakil v. CIT, [1946] 14 ITR 298, 302 (Bom); CIT v. Biman Behari Shaw, Shebait, [1968] 68 ITR 815 (Cal); Sri Sri Radha Govinda Jew v. CIT, [1972] 84 ITR 150, 156 (Cal); CIT v. Ganga Properties Ltd., [1970] 77 ITR 637, 647 (Cal); Liq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not maintain books of account and his turnover is less than Rs. 60 lakhs then the profit would be presumed to be 8% of turnover even if he has suffered a loss. Another example of Section 2(22)(e) can be taken. Under this provision a loan or advance given by certain companies to a substantial shareholder is to be treated as deemed dividend. Such loan under the normal accounting principle or on commercial principles cannot be regarded as income but because of this specific provision regarding deemed dividend such amount has to be treated as income of the person receiving such loans. 95. The above position of law makes it absolutely clear that theory of real income is subject to the provisions of the Act and whenever any specific provisions of the Act is there for charging of a particular item of income, then the same has to be charged accordingly. It may be sometimes hard to the assessee's but again it has been held in numerous decisions that Fiscal statues have to be interpreted on the basis of language used and there is no scope for equity or intent. Ld. Author Shri S. Rajaratnam in the Commentary of Law of Income Tax by Sampat Iyengar's Volume 1, page 236 in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of Rs. 106,42,50,000/- (Rupees One Hundred Six Crore Forty Two Lacs Fifty Thousands Only) calculated @ Rs. 82,50,000/- (Rupees Eighty Two Lacs Fifty Thousands Only) payable to 65 members having plot of 500 sq. yards each, Rs. 1,65,00,000/- (Rupees One Crore Sixty Five Lacs Only) payable to 30 members having plot of 1000 sq. yards each and Rs. 3,30,00,000/- (Rupees Three Crores Thirty Lacs Only) payable to the Owner for the 4 plots of 500 sq. yards each, which shall tantamount to the full and final payment to the Owner and / or the respective members of the Owner (as the case may be) in a manner set out herein below ('Payment'). Further, the transfer, sale and conveyance of 21.2 acres of land of the Property shall be made by the Owner in favour of THDC pro rata to the Payment received by the Owner and/or the respective members of the Owner (as the case may be) from HASH by executing sale deeds and registering the same. It is expressly provided that as resolved by the Owner, the total amount payable by HASH to the Owner and / or the respective members of the Owner (as the case may be) for assignment of the Development Rights and for transfer and sale of 21.2 acres of land of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right came to such Members to receive such flats. Once this vested right arises out of the above contract it can easily be said that this right has also accrued to the assessee. Clause 4.2 makes it absolutely clear that developer i.e. THDC/HASH was to allot the letters of allotment within 45 days from final sanction from the competent authority and such flats were part of entire consideration. Merely because such allotment letter has not been given because of sanctions/permissions could not be obtained because of Public Interest Litigation before the Hon'ble Punjab & Haryana High Court, it cannot be said that such right has not accrued. Though it may be hard on the assessee but it is well settled that taxation and equity are strangers. Further commenting on this aspect Shri Rajarathnam in his commentary has observed at page 5164 as under: "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and the Tribunal held that the consideration of Rs. 1.00 crore has to be accepted. 102. From the above decision it is not clear whether in case of Kalaptaru Construction Oversees (P.) Ltd. (supra) which has been followed in above case, was concerning capital gain or not? Secondly it is not clear that whether the amended consideration i.e. settlement for Rs. 1.00 crore was made in the same year or not? As observed earlier while discussing the issue of notional income that provisions of section 45 r.w.s. 48, are absolutely clear and there is no ambiguity that once a capital asset is transferred then whole of the consideration received or accruing has to be considered for the purpose of taxation in the year in which the transfer has taken place. We further find that in the JDA there is a clause for termination of the agreement. Relevant clause 14 reads as under: "Termination "14(i) Save and except the provision of clause 26, THDC shall at all times have the right to terminate this Agreement in the event there is any material breach of the representations, warranties, undertakings, declarations, covenants and/or obligations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then THDC may at its sale discretion terminate this Agreement. In the event the Agreement is terminated by THDC, all the lands registered in the name of THDC as per the terms of this Agreement up to 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. (iv) The owner shall have the right to terminate the Agreement only in the event of default by the Developers for making the Payment in accordance with the terms of this Agreement and the allotment of Flats within the time period as mentioned in this Agreement after giving Thirty (30) days written notice for rectification of such breach or any further time as may be desired by the Owner. In the event the Agreement is terminated by Owner, all the lands re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d discretion without obtaining a specific prior written consent of THDC or any of its duly constituted attorneys." 104 The above clearly shows that this Power of Attorney could not be revoked for any reason without obtaining specific prior written consent of THDC/HASH. No document showing the consent of THDC for revocation of this irrevocable Power of Attorney has been produced before us. We fail to understand that in the absence of such document how the assessee can claim that this Power of Attorney has been revoked. As discussed earlier while considering the legal position, we would again recall the words of Hon'ble Authority for Advance Ruling in case of Jasbir Singh Sarkaria (supra) wherein at para 33 of the decision while discussing the issue in respect of Power of Attorney, it was highlighted that execution of irrevocable Power of Attorney is of significant nature and the words "irrevocable" are very important. The expression "irrevocable" itself shows that normally such attorney cannot be revoked. Therefore, no cognizance can be taken in respect of revocation of the irrevocable Power of Attorney. In the absence of specific consent as provided in clause 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have received only a part of the agreed consideration, but he is obliged to file the return showing the entire capital gain based on the full sale price whether or not received during the year of deemed transfer. In such an eventuality, hardship may be caused to the owner who would have paid full tax. No doubt, such a situation could be avoided if the contention of the applicant is accepted. On deep consideration, however, we find that the construction of the relevant provision should not be controlled by giving undue importance to such hypothetical situations. Normally, the owner executes a Power of Attorney or does similar act to left the transferee take possession only after the basic permissions are granted and he is satisfied about the ability of transferee/developer to fulfil the contract. In spite of that, if such rate situations take place, the owner/transferor will not be without remedy. He can file a revised return and make out a case for exclusion or reduction of income. However, if the time-limit for filing a revised return expires, the difficulty will arise. It is for Parliament or the Central Government to provide a remedy to the assessee in such cases. Moreover, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrevocable" itself shows that in the eye of law special Power of Attorney could not have been revoked. In view of this analysis, we are of the opinion that either the JDA has not been cancelled or in any case the same cannot be considered for determining the taxation of capital gain. Accordingly this contention is rejected. 108 The next contention of the assessee is that even if the whole consideration has to be taxed then value of the flats cannot be taken at Rs. 4,500/- per sq. feet. It is also pointed out that in view of the agreement between the HASH & THDC consideration has been shown at Rs. 2,000/- per sq. feet for 126 flats whereas it is Rs. 4,500/- per sq. feet for three flats. We find no force in these submissions. The assessee has filed along with the written submissions copy of the addendum of agreement between THDC and HASH by Joint Developer (at page 265 & 266) and this issue is discussed in clause 5 which is as under:- "5. Clauses 4.1, 4.2, 4.3 and 4.4 on the page nos. 18 and 19 of the Agreement shall stand amended, modified and substituted by the following:- 4.1 It is expressly agreed and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feet. This also becomes clear from the addendum of agreement in terms of total proceeds of 1272 crore. In any case if the cost of construction is Rs. 2,000/-, then cost of land which has been paid to the society is also to be added to the cost of the flat because this portion of consideration in any case was received or to be received later by the society in cash. Considering the present market value of the flats in and around Chandigarh area which is Rs. 4,000/- to 12,000/- per square feet we are of the opinion that value of the flat at Rs. 4,500/- per square feet is absolutely fair. In any case M/s HASH has agreed to purchase the flats at this rate from M/s THDC. It may be noted as pointed out by the ld. DR for the revenue some of the News report clippings filed by various assessees clearly shows that flats were booked in the "Tata Camleot" (this was the name which was given to the Project which was to be developed on the land of two societies) in the Pre Launch offer in the range of Rs. 7500 to 8000 per sqft. It is a common knowledge that rates in Pre Launch offer are lower than the rates when bookings open for the Public. Considering these facts we are of the opinion that Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It becomes clear from the JDA that payment for consideration was to be made to an individual plot holder and in fact consideration was mentioned in terms of per Member. Each Member holding 500 sqyd plot was to receive a sum of Rs. 82,50,000/- and one fully furnished flat measuring 2250 sqft and the Members holding 1000 sqyd plot were to receive monetary consideration of Rs. 1.65 crore plus two flats measuring 2250 sqft. In fact the payment of cheques is made by Hash by issuing cheques in the name of individual Member and not the Society. This fact stands admitted because assessee has filed a return declaring capital gain against part money received against his plot. Thus it becomes clear that it is the individual member who are liable to tax in respect of transfer to plots and the Society being only a facilitator or Post office. Some more details have been discussed in this respect while adjudicating the appeal of Punjabi Cooperative House Building Society Ltd. in ITA No. 310/Chd/2012 and 556/Chd/2012 which have been adjudicated little later in this order itself. Accordingly we find no force in the submissions and this ground is rejected." 9. In case of Punjabi Co-operative Hous ..... X X X X Extracts X X X X X X X X Extracts X X X X
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