9911796707
TMI Blog2016 (2) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011 declaring total income at Rs. 17,95,620/-. This return was duly processed under section 143(1) of the Income Tax Act. The case of the assessee was selected for scrutiny assessment on 8.9.2012 and notice under section 143(2) was issued which was duly served upon the assessee on 14.9.2012. In the return of income, the assessee has shown income from short term capital gain (STCG) and interest income. According to the AO, the Annual Information Report Wing has given an information that immovable property valued at Rs. 7,41,64,205/- and of Rs. 5,87,360/- have been transacted by the assessee, but in the return of income, she has shown STCG at Rs. 17,92,042/- on sale consideration of Rs. 66,32,100/-. The AO has called for information from Sub-registrar, Sanand on 9.11.2012 along with copy of sale deed. The AO, thereafter, confronted the assessee to disclose complete details of transfer of capital asset by her during the year. It emerges out from the record that the ld.AO has made a detailed analysis of the survey numbers, which were purchased by the assessee and alleged to have been sold in this year. The AO has made addition of Rs. 6,83,09,792/- which comprises of two amounts viz. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale deeds were registered and the total land agreed to be sold has been sold. For the purpose of controversy involved in this year, we are concerned with regard to the sale of land measuring 85,995 sq.meters which was alleged to have been sold at Rs. 7,41,64,205/-. The ld.AO on detailed analysis of the evidence produced by the assessee arrived at a conclusion that the first two agreements i.e. 4.4.2008 and 2.3.2009 are to be ignored. The assessee has sold land only by way of registered sale deed executed on 27.1.2010 and therefore, the capital gain resulted on transfer of land is to be assessed in the hands of the assessee in the Asstt.Year 2010-2011. The ld.AO has made an addition of Rs. 6,64,88,792/- [Rs.7,41,64,205/- (being the value shown in the sale deed) minus Rs. 76,75,413/- (being the value offered for taxation by the assessee)]. The ld.AO has reproduced all these agreements in the assessment order i.e. agreement dated 4.4.2008 and agreement dated 2.3.2009. 5. The ld.AO, thereafter, reproduced the submission of the assessee and rejected the contentions. His finding from para 24 to 27 read as under: "24. Not being satisfied by the contention of the assessee, the undersi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the contract and has not done some act in furtherance of the contract. Therefore, provision of section 53 A of the Transfer of property Act r.w.s. 2(47(v) of the Act has not been fulfilled by the assessee or confirming party, as the confirming party i.e. Capital consultancy has not taken or retained possession or not performed any act on the said land and as regards Ganesh Plantation Ltd, the assessee's spouse Shri Dipakbhai G Patel, is a director & signed the balance sheet as a director having substantial interest in the company, and also Shri Govindbhai C Patel, father of the spouse of assessee is a chairman in Ganesh Plantation Ltd, sale consideration received from the Gatil properties Pvt Ltd and transferred to M/s Ganesh Investors and Financiers i.e money transferred from her spouse's one company to another company. The possession of property is given directly with the purchaser i.e. Gatil Properties Pvt Ltd by possession agreement dtd.25/01/2010 and the confirming party has not taken or retained the possession of the property or any part thereof, for part performance of the contract and has not done some act in furtherance of the contract. Therefore, provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till it is legally conveyed by executing by registered sale deed in favour of the transferee. Such a right to protect possession agaist the proposed vendor cannot be pressed in service against a third party." It is thus; clear that a transfer of immovable property by way of sale can only be by a deed of conveyance (deed of sale). In the absence of deed of conveyance (duly, stamped and registered as required by law), no right, title or interest in an immovable property can be transferred. Any contract of sale (agreement to sell) which not a registered deed of conveyance (deed of sale) would fall short of the requirements of section 54 and section 55 of Transfer of Properly Act and will confer any title nor transfer any interest in an immovable property (except to the limited right granted under sectipn 53A of TP Act). According to TP Act, an agreement of sale, whether with possession of without possession is not a conveyance. Section 54 of TP Act enacts that sale of immovable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge on its subject matter. 27. In view of above mentioned facts of the case and in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves, we have gone through the record carefully. On due consideration of the record and analysis of the impugned orders, we are of the view that the following issues are required to be addressed by us - (i) Whether by way of agreement dated 4.4.008 executed with SDS by the assessee, rights of capital nature (within the meaning of section 2(14) of the Income Tax Act have been assigned by the assessee or not ? (ii) Whether on execution of the agreement dated 2.3.2009 between the assessee, GPPL and SDS (as confirming party) along with agreement to hand over the possession, transaction can be termed as a transfer giving rise to short term capital gain/long term capital gain by referring to section 2(47) of the Income Tax Act r.w.s. 53 of the Transfer of Property Act, 1882 ? (iii) Whether cumulative setting of the circumstances referred by the ld.AO would goad the adjudicating authority to ignore all these agreements and envisage the transfer of land by the assessee directly to the GPPL only when alleged sale deed dated 27.1.2010 was executed and short term capital gain is to be construed to have been arisen to the assessee only in Asstt.Year 2010-2011? Issue No.(i) 8. Section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Rs. 2,00,000/-. A sum of Rs. 40,000/- was paid in advance and the balance of Rs. 1,60,000/- was to be paid at the time of execution and registration of the sale deed. It appears that though the assessee was awaiting specific performance of the contract by the seller, the vendor was avoiding the same. Later the seller sought cancellation of the agreement and agreed to pay compensation of Rs. 6,00,000/- to the assessee. A deed of cancellation was entered into between the parties on 21.3.1990. In terms of the deed of cancellation, the assessee received a sum of Rs. 6,40,000/- from Shri Krishnamurthy which included the advance of Rs. 40,000/- given earlier. The assessee had filed his return for the Asstt.Year 1990-91 admitting total income at Rs. 2,59,000/- after allowing deduction of Rs. 5,000/-. The assessee then took up the matter in appeal with the plea that the amount received as compensation for breach of contract was not liable to assessment as capital gains. The Tribunal while dealing with the controversy held that the assessee has a right to obtain a sale deed. That right was capital asset and by virtue of deed executed on 21.3.1990, the assessee has relinquished his right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of the agreement and after expiration of the said period of six months by a 15 days' notice to be given in writing. The time could be made the essence of the contract. The agreement was executed on July 31, 1961. It was the responsibility of vendor to obtain necessary permission from the municipal and other authorities, for the subdivision of the main plot, admeasuring 7,012. Ultimately he entered into an agreement to sell the property to M/s.Advani and Batra. The assessee threatened to file a suit for specific performance. A settlement was arrived vide which the vendor has returned Rs. 90,000/- paid by the assessee as advance and compensation of Rs. 5,00,000/-. Thus, the assessee got a sum of Rs. 5,90,000/-. In the cancellation deed a sum of Rs. 5,00,000/- was mentioned as amount of consideration for transfer and assign the assessee's right, title and interest under the agreement entered into with Anandji Haridas for purchase of this property and Rs. 90,000/- being the amount of money deposited with M/s.Kanga and Co., which was received as return of the advance money. The dispute arose whether the sum of Rs. 5,00,000/- received by the assessee represents the money re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has agreed to purchase from the said Dhuru and others immovable property described in Schedule thereto at the rate of Rs. 35 per sq.yard to be paid in the manner set out. Upon execution of the said agreement for sale, the assessee paid to the vendor. As required by the said agreement for sale, a sum of Rs. 17,500 as earnest money. The assessee was persuaded to file suit for specific performance of the said agreement for sale or, in the alternative, for damages for its breach. The dispute was settled and a sum of Rs. 1,17,500/- was paid to the assessee. This sum was received by the assessee in accounting year relevant to the asstt.year 1972-73. The ITO held that the assessee has acquired under the said agreement for sale was capital asset. Upon extinguishment of that right, the assessee has received a sum of Rs. 1,17,500/-. After deducting the cost of acquisition of the capital asset in the amount of Rs. 17,5000/- and expenses and legal charges in the sum of Rs. 17,904/-, the ITO found the capital gain to be Rs. 82,086/-. The Hon'ble Bombay High Court upheld the conclusion of the AO and held that the assessee had acquired right of that capital asset nature, under the agreement fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of execution of the agreement. The assessee was bound by this agreement, and if she violates this agreement, she could be exposed to civil as well as criminal proceedings. Her right in the property after the execution of this agreement has been curtailed or encumbrance has been created. Issue No.(ii) 15. Under issue no.(ii) focus of our inquiry is as to what would envisage transfer of a capital asset under section 2(47) of the Income Tax Act r.w.s section 53A of the Transfer of Property Act, 1882. It is pertinent to take note of the relevant part of the section 2(47) of the Act. It reads as under: "Section 2(47) of Income Tax Act, 1961 - Definition of transfer in this Act, unless the context otherwise requires - "transfer", in relation to a capital asset, includes - ... (ii) the extinguishment of any rights therein; or .... (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 societ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition also does not cover cases where possession is allowed 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. New sub-clauses (v) and (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 'transfer7, 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 authorised the powers of owner, including that of making construction. The legal ownership in such cases continues to be with the transferor. 11.3 These amendments shall come into force with effect from April 1, 1988, and will, accordingly, apply to the assessment year 1988-89 and subsequent years (section 3(g) of the Finance Act, 1987)." 17. Section 2(47) as well as the circular issued by the Board has fallen for consideration before the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion received by the assessee on transfer of 1/3rd of the property whose possession was handed over during this year. The AO was of the view that once in a part performance of the contract, the assessee has handed over the possession of the part of the property, the transaction of the transfer of property is complete and the capital gain is to be calculated on the whole of the property. The ld.Commissioner upheld the order of the AO, however, the Tribunal accepted the contentions of the assessee and directed that the capital gain would be chargeable during the year only for the immovable property handed over to the purchaser. The Tribunal further directed that appropriate sale proceeds be allocated pro-rata for the possession handed over, and the capital gains be computed. The Hon'ble Madras High Court has upheld this order of the Tribunal. The relevant finding of the Hon'ble Madras High Court reads as under: "In this case, the possession was parted with whereas the assessee/vendor received the consideration therefor. Once the possession, even a part of the property was handed over to the transferee for the purpose of Section 2(47)(v) read with Section 45, the transfer was complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 53A for which there should be an agreement between the parties, (2) such agreement should be in writing, (3) a completed contract has to be spelt out from that agreement, and the most important (4) the transfer of possession of the property in pursuance of the said agreement. All these conditions undoubtedly and admittedly are completed here. If that is so, then there would be no question of interfering with the Tribunal's judgment. In our opinion, the Tribunal has correctly held that the assessee would have to be assessed on the basis of the transfer of the possession in proportionate to the consideration. Accordingly, the question is answered against the revenue." 18. The Hon'ble Bombay High Court has also considered similar issue in the case of Chaturbhuj Dwarkadas Kapadia Vs. CIT, 260 ITR 491. The following questions were formulated by the Hon'ble Bombay High Court: "(i) Whether on the facts and in the circumstances of the case, the Tribunal was justified in concluding that the appellant had transferred the property situated at Gamdevi during the previous year relevant to the assessment year 1996-97 ? (ii) Whether the Tribunal's conclusion that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomy is contemplated between the limited power of attorney authorising the developer to deal with the property vide para. 8 and an irrevocable licence to enter upon the property after the developer obtains the requisite approvals of various authorities. In fact, the limited power of attorney may not be actually given, but once under Clause 8 of the agreement a limited power of attorney is intended to be given to the developer to deal with the property, then we are of the view that 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 does not arise. This point has not been considered by any of the authorities below. No judgment has been shown to us on this point. Therefore, although there is a concurrent finding of fact in this case, we have enunciated the principles for applicability of Section 2(47)(v). We do not find merit in the argument of the assessee that the court should go only by the date of actual possession and that in this particular case, the court should go by the date on which irrevocable licence was give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to a contract. According to the ld.First Appellate Authority, sections 17 and 49 of the Indian Registration Act have been amended by Act No.2001 whereby it has been laid down that the registration of sale agreement/contract for the purpose of section 53A is mandatory. The ld.DR while putting reliance upon the order of the ld.CIT(A) also brought to our notice copy of the Govt. of Gujarat Extraordinary Gazette Notification published on Saturday, February, 2002 whereby amendment of the Indian Registration Act in section 17 of the Registration Act has been published. The ld.CIT(A), while construing the impact of sections 17 and 49 of Indian Registration Act along with section 53A of TPA within the meaning of section 2(47) of the Income Tax Act has concluded that the "transfer" within the section 2(47) of the Income Tax Act can only be completed, if in part performance of the contract, possession has been handed over as per section 53A of the TPA. Once the agreement was not registered then it will lose its evidentiary value within the meaning of Section 53A of the TPA. In other words, the rights flowing from an agreement can only be recognized if it was duly registered. If the agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts required to be registered.-No document required by section 17 or by any provision of the Transfer of Property Act, 1882 (4 of 1882), to be registered shall- (a) affect any immovable property comprised therein, or (b) confer any power to adopt, or (c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered : Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (1 of 1877), or as evidence of part performance of a contract for the purposes of section 53A of the Transfer of Property Act, 1882 (4 of 1882) or as evidence of any collateral transaction not required to be effected by registered instrument." 25. Section 53A of the T.P. Act provide a shield to defend the possession taken by virtue of the agreement. The vendee can claim protection of the possession even against the owner i.e. vendor, during the period sale deed was not registered. The person who has acquired the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ohibit the filing of a suit for specific performance based upon an unregistered agreement to sell, that records delivery of possession or is executed in favour of a person to whom possession is delivered and the proviso to section 49 of the Indian Registration Act, 1908, put paid to any argument to the contrary. 14. We, therefore, hold that : (a) a suit for specific performance, based upon an unregistered contract/agreement to sell that contains a clause recording part performance of the contract by delivery of possession or has been executed with a person, who is already in possession shall not be dismissed for want of registration of the contract/agreement; (b) the proviso to section 49 of the Registration Act, legitimises such a contract to the extent that, even though unregistered, it can form the basis of a suit for specific performance and be led into evidence as proof of the agreement or part performance of a contract." 26. Thus, if the assessee refused to honour her agreement dated 4.4.2008, SDS has a right to get this agreement enforced by way of suit for specific performance and the assessee could be persuaded to execute the sale deed in favour of SDS by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uine contract under the general law vis-à-vis a contract having effected for the purpose of section 53A of TP Act. 28. Next reason assigned by the ld.First Appellate Authority in the impugned order is section 63 of Gujarat/Bombay Tenancy and Agriculture Land Act, 1948 which prohibits non-agriculturists to purchase the agriculture land. As per ld. CIT(A), since SDS was not proved to be an agriculturist, therefore, he was not competent to purchase the agriculture land. Once he was prohibited by the provisions of Tenancy Act, then he cannot purchase agriculture land, meaning thereby, he will be disqualified even to enter into an agreement for purchase of the land. On consideration of all these reasons, we are of the view that the assessee and the SDS are duly eligible to enter into any contract as per the Indian Contract Act. The effect of the contract may not be given by virtue of Gujarat/Bombay Tenancy and Agriculture Land Act, as per clause (c) of Section 63 referred by the ld.CIT(A). But the ld.CIT(A) failed to note proviso appended to his section. The proviso authorizes the Controling Officer to grant permission for such sales. The sale could be executed after the agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and. The moment, it was converted into non-agriculture land, its value increase many folds. It is also pertinent to note that as per section 40jj(i) of the Gujarat Town and Country Planning Act, 1976, the land falling within the scheme of development, would vests upto 40% in the development authorities for utilisation of roads, park, schools, drainage etc. Thus, once the land is being converted into non-agriculture land, the whole nature of the land would change. As far as observation of the ld.CIT(A) is concerned, that nothing prevented the assessee to retract from the agreement is concerned, we fail to understand the basis of making such observation. She entered into a lawful contract, which is of binding nature, and how can she retract ? The moment she retracts, then other party can file suit for specific performance. Even if the court does not grant specific performance of the contract, then, would compensate the contractee for damage ? The damages again would be quantified considering the market value of the land. It is also pertinent to note that the assessee has purchased the land from 18.12.2007 to 4.3.2008. She had purchased the agriculture land from non-associate vendors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Supreme Court while referring to the decision of the Hon'ble Gujarat High Court in the case of Banyan & Berry Vs. CIT, 222 ITR 831 made the following observations. "134. We may also refer to the judgment of Gujarat High Court in Banyan and Berry v. Commissioner of Income-Tax where referring to McDowell , the Court observed: ".....The court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the act; an inference which unfortunately, in our opinion, the Tribunal apparently appears to have drawn from the enunciation made in McDowell case (1985) 154 ITR 148 (SC). The ratio of any decision has to be understood in the context it has been made. The facts and circumstances which lead to McDowell's decision leave us in no doubt that the principle enunciated in the above case has not affected the freedom of the citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have acquired judicial benediction of the Constitutional Bench in India, notwithstanding the temporary turbulence created in the wake of McDowell . ..... 144. If the Court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the Court might be justified in overlooking the intermediate steps, but it would not be permissible for the Court to treat the intervening legal steps as non-est based upon some hypothetical assessment of the 'real motive' of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a will-o'- the-wisp." 32. Next reasoning assigned by the AO is that funds have been provided by Ganesh plantation to SDS. Husband and father-in-law of the assessee were holding voting power of more than 20% in the Ganesh Plantation Ltd. Therefore, the transactions are arranged in the family itself. The assessee has pointed out that Capital Consultancy is a proprietary concern of SDS. This concern has taken unsecured loan from the company in F.Y.2006-07 relevant to the Asstt.Year 2007-08. In F.Y.2006-07, the interest of Rs. 1,77,534/- ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
