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2016 (2) TMI 493

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..... s of various case laws, it emerges out that clause (v) and (vi) were included in section 2(47) with an intention to cover those cases of transfer of ownership where the prospective buyers becomes owner of the property by becoming a member of company, cooperative society or to include those transactions that closely resembles transfer, but are not treated as such under general law. Under section 2(47)(v) of the Act any transaction involving allowing of possession referred to section 53A of the Transfer of Property Act would come within the ambit of transfer. Even arrangement conferring privileges of ownerships without transfer of title would come within the ambit of section 2(47)(v) of the Act. The whole scheme for introduction of clauses (v) and (v) in section 2(47) of the Act was that the capital gain is taxable in the year in which such transactions are entered into even if the transfer of immovable property is not effective or complete under the general law.Thus, in the present cases we are of the view that on execution of agreement dated 2.3.2009, when the possession was also handed over, the transfer within the meaning of section 2(47)(v) and (vi) was complete. The parties to .....

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..... 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 ₹ 6,83,09,792/- which comprises of two amounts viz. ₹ 6,64,88,792/- and ₹ 18,21,000/- pertaining to the transaction undertaken by the assessee in respect of two different chunks of agriculture land which were purchased by her and sold. In brief, the assessee has purchased a piece of land measuring 123731 sq.mters having different survey numbers from Shri Bhikhubhai N. Padshala and Shri Sandipbhai B. Padshala for total sum of ₹ 67,96,432/- vide purchase deeds dated 18.12.2007, 28.02.2008 and 4.3.2008. The assessee, thereafter, entered into an agreement to sell (Banakhat) with Shri Sanjeev D. Shah, proprietor of Capital Consultancy (hereinafter referred as SDS ) and agreed to sell the said agriculture land for a consideration of S .....

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..... 2010-2011. The ld.AO has made an addition of ₹ 6,64,88,792/- [Rs.7,41,64,205/- (being the value shown in the sale deed) minus ₹ 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 undersigned is bound to assess the issue as per section 2(47)(v) of the Act which narrates: any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a ontract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) Section 53A of the Transfer of Property Act narrates as following: 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 .....

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..... sessee 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 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 the confirming party, as the confirming party i.e. Ganesh Plantation Ltd has not taken possession or not performed any act on the said land. The benefit is ultimately received to the assessee's family and by showing loss on sale of shares no tax has been paid by both the confirming party. As well as the assessee and both the confirming party has not fulfilled the conditions/ provisions of section 53 A of the Transfer of property Act r.w.s. 2(47)(v) of the Act, hence, an agreement for .....

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..... uld 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 the law point i.e. Provisions Section 53A of the Transfer of property Act r.w.s. 2(47(v) of the Act, Section 54 and section 55 of the Transfer of Property Act, an agreement for sale between the assessee and both the confirming parties, cannot be considered as legal and valid transaction, such sale transaction can be recognized as valid and legal only be by a deed of sale (Conveyance). In this case, the property is legally registered on 27/01/2010 to the office of the Sub registrar by paying stamp duly and registration charges on deed of sale, as the issue has came to light only by AIR i .....

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..... reement 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(14) of the Income Tax Act provides definition of expression capital asset . According to this definition, capital asset means property of any kind held by an assessee, whether or not connected with his business or profession but does not include any stock-in-trade, personal effects . For the purpose of controversy in hand, we need not to devolve upon the meaning of capital asset elaborately, because in the present case the area of our inquiry would be whether the right accrued to SDS falls within the ambit of expression p .....

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..... f cancellation, the assessee received a sum of ₹ 6,40,000/- from Shri Krishnamurthy which included the advance of ₹ 40,000/- given earlier. The assessee had filed his return for the Asstt.Year 1990-91 admitting total income at ₹ 2,59,000/- after allowing deduction of ₹ 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 to obtain sale deed. This relinquishment is a transfer within the meaning of section 2(47) of the Act. The observation of the Tribunal read as under: In the present case, it is not the claim of the Revenue that there was extinguishment of any rights of the assessee. The case made out by the Revenue is that by the deed of cancellation executed on 21st March, 1990, the assessee relinquished his right to obtain a sale deed, and that relinquishment would be a 'transfer' within the meaning .....

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..... ssessee threatened to file a suit for specific performance. A settlement was arrived vide which the vendor has returned ₹ 90,000/- paid by the assessee as advance and compensation of ₹ 5,00,000/-. Thus, the assessee got a sum of ₹ 5,90,000/-. In the cancellation deed a sum of ₹ 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 ₹ 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 ₹ 5,00,000/- received by the assessee represents the money received on transfer of a capital asset and required to be assessed under the head capital gains . The Hon ble Bombay High Court has made an elaborate discussion on the issue and ultimately held that the money received by the assessee for assigning of its rights acquired under the agreement for obtaining a sale deed is for transfer of capital asset and assessable under the head capital gain. The following observations of the Hon ble Bombay High Court are wo .....

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..... or, in the alternative, for damages for its breach. The dispute was settled and a sum of ₹ 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 ₹ 1,17,500/-. After deducting the cost of acquisition of the capital asset in the amount of ₹ 17,5000/- and expenses and legal charges in the sum of ₹ 17,904/-, the ITO found the capital gain to be ₹ 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 for purchase of property. On extinguishment of such rights, gain arisen to the assessee is to be assessed as a capital gain. The Hon ble Court has upheld the conclusion of the AO that the assessee had earned capital gain of ₹ 82,086/-. 12. The next decision referred by the assessee is of Hon ble Madhya Pradesh High Court in the case of CIT Vs. Smt. Laxmidevi Ratani, 17 TAXMAN 642 (MP). In this case, S .....

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..... ansfer 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 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 1 - For the purposes of sub-clauses (v) and (vi), immovable property shall have the same meaning as in clause (d) of section 26 .....

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..... 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 High Courts. The judgment of the Hon ble Madras High Court in the case of CIT Vs. K. Jeelani Basha, 256 ITR 282 can be referred at this stage. The facts in this case are that the assessee has entered into an agreement on November 10, 1990 with one Reliance Developments, Coimbatore for the sale of property at No.13, VOC Road, Cantonment, Trich .....

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..... 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 complete and therefore the tax authorities and more particularly, the Tribunal was justified to calculate the consideration received in that particular year for that part of the property which was parted with. In fact, a reference can be made to the judgment of the Supreme Court in ALAPATI .....

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..... ement. 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 appellant had transferred the property situated at Gamdevi during the previous year relevant to the assessment year 1996-97 was so unreasonable that no person properly instructed could ever have arrived at the same ? (iii) Whether, the Tribunal's conclusion th .....

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..... 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 given. If the contract, read as a whole, indicates passing of or transferring of complete control over the property in favour of the developer, then the date of the contract would be relevant to decide the year of chargeability. 20. Thus, on an analysis of vari .....

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..... tion 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 agreement was not registered, then the rights would not accrue to the parties to the agreement. If no rights would accrue, then it will be construed that the possession was not delivered by the assessee vide agreement dated 4.4.2008 and 2.3.2009, meaning .....

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..... y 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 possession on execution of agreement as referred to in section 53A may not be able to protect his possession on account of non-registration of the agreement, but for all other collateral purposes, i.e. for tendering the agreeme .....

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..... 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 of this agreement. The validity of this agreement under general law viz. Specific Relief Act as well as Indian Registration Act has not been effected. This aspect has not been appreciated by the ld.CIT(A) w .....

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..... ection 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 agreement and after getting approval. As far as this section is concerned, it does not create any disqualification for entering into contract it creates disqualification for enforcing that contract. The contractee c .....

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..... 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. The purchase cost shown by the assessee was at ₹ 67,96,432/-. No circumstances have changed, and therefore, she has sold the land on 4.4.2008 at a price of ₹ 76,75,413/-. There .....

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..... 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 circumspection, within the framework of law, unless the same fall in the category of colourable device which may properly be called a device or a dubious method or a subte .....

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..... Dowell . .. 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 ₹ 1,77,534/- was charged from SDS by Ganesh Plantation. In F.Y.2007-08 an interest of ₹ 61,74,961/- was charged. Thus, according to the .....

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