TMI Blog2014 (8) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... ged execution of registered deed in such circumstances. Capital gains become liable to be charged to tax only if they arise as a result of "transfer" of capital asset and the date on which they arise is date of "transfer". If as a result of mutual arrangement by parties or otherwise, no registered deed is executed even after transaction is completed by delivery of possession and receipt of consideration, capital gains tax would escape assessment altogether or if such execution of registered sale-deed is postponed, the capital gains tax would also be postponed. In several cases it suited the parties to complete such transactions without execution of registered deed and thereby evade payment of tax on capital gains. The conditions necessary for application of the provisions of Sec.53A of the Act cannot be presumed to exist and the Tax authorities cannot blindly apply those provisions by merely relying on the fact that there was an agreement for sale and delivery of possession by the transferor/seller to the transferee/purchaser. If such a course is permitted to be adopted and the tax authorities are allowed to levy and collect tax on capital gain and later it turns out that the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red into between the parties. The developers agreed to pay the sale consideration in 35 instalments over a period of 36 months, from the date of agreement of sale as per the instalment schedule annexed to the agreement of sale. 03. For A. Y. 2001-02, notices u/s.148 of the Act, dt 28.03.2008, were issued to K. M. Nagaraj and Smt. Sathya Prema, dt 28.03.2008. In response to the same, the assessees filed letter requesting the Assessing Officer to treat the original return filed as a return filed in response to the notice u/s.148 of the Act. Thereafter notice u/s.143(2) of the Act was issued by the Assessing Officer. 04. In the course of the assessment proceedings of both the assessees, the question as to whether there would be any capital gain arising out of the sale agreement dt 11.11.2000 was considered by the Assessing Officer. Both the assessees in response to a query by the AO in this regard filed a common letter dt 29.12.2008 before the Assessing Officer in which they took a stand that no capital gain accrues by virtue of agreement dt 11.11.2000 in A. Y. 2001-02. The Assessees pointed out that Section 2(47) of the Income Tax Act defines the term transfer . Clause (v) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he developer in possession of the land either under the joint development agreement dated 26.10.1994 or under agreement for sale dated 11.11.2000 relevant to the previous year 1994-1995 or 2000- 2001. The Assessees continued to retain possession of the land till the execution of the Sale deeds in favor of the prospective owners of apartment. The Assessees pointed out that they gave only a permission to carry out development activities on the land under these agreements and that the developer was not put in legal physical possession of the land at any point of time. The possession, if any, at best, can be described as permissive possession or licence to enter upon the land to carry out developmental activities. Permissive possession does not qualify as possession required under section 53A or 2(47) (v). Attention was also invited by the Assessees to the decision of the Hon ble Bombay High Court in Ramnord Research Lab P Ltd. v. ITO, [2008] 305 ITR 299 (Born.) wherein it was held a license is only a permissive occupation and hence does not constitute transfer. Attention of the AO was drawn to Clause 1.2 of the Joint Development agreement dated 26.10.1994 wherein it was specifically m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act was of the view that the orders of assessment dt 31.12.2008 passed by the Assessing Officer in the case of both the assessees was erroneous and prejudicial to the interests of Revenue. According to the CIT, the Assessing Officer ought to have held that there was a transfer of a capital asset by the assessee by virtue of agreement dt 11.11.2000 and capital gain had accrued during the previous year relevant to A. Y. 2001-02 and the Assessing Officer ought to have brought to tax the capital gain. In reply to the show cause notice issued by the CIT u/s.263 of the Act, the assessees pointed out that the Assessing Officer had duly considered the submissions made by the assessees as to how there was no transfer under the agreement dt 11.11.2000 and consequently no capital gain accrued to the assessee during the previous year. The assessee submitted that the view taken by the AO was a possible view and the CIT in exercise of his powers u/s.263 of the Act cannot seek to substitute his views with that of the Assessing Officer. The assessee also submitted that the agreement dt 11.11.2000 cannot be considered as a transaction of transfer within the meaning of Sec.2(47) of the Act. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue in their letters dt 29.12.2008 filed before the Assessing Officer before completion of the assessment proceedings. With regard to the decision of the Hon'ble ITAT in the case of A. V. Sumangala (supra), on which the assessees placed reliance before the CIT, he found that in that case the Tribunal held that handing over possession under an agreement for collateral purpose of construction of a building amounted to a transfer within the meaning of sec.2(47)(v) and (vi) of the Act. The CIT was of the view that the aforesaid case was distinguishable from the case of the assessees. According to the CIT in the case of the assessees joint development agreement had already been executed on 26.10.1994 and therefore the facts of the assessees' case stand on a different footing, than that of the case of A. V. Sumangala (supra). According to the CIT the date of transfer has to be decided as the date of agreement of sale i.e., 11.11.2000 by which time the developer had already taken possession of the property. The CIT thereafter was of the view that the developer was already in possession of the property under the agreement dt.26.10.1994 and the assessees sold their share of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the order passed u/s.263 of the Act dt 29.12.2007. Thereafter, the papers were taken to the present counsel with regard to the further course of action to be taken. The present counsel examined the records and advised the assessees that appeals against the orders u/s.263 of the Act ought to have been filed before the Tribunal. Immediately the assessees filed the appeals before the Tribunal. In the meantime there occurred a delay of 242 days in filing the appeals. It is the prayer of the assessees that the delay in filing the appeals is not willful and for bonafide reasons set out above and hence, the delay should be condoned. Reliance was placed on the decision of the Hon ble Apex Court in the case of Collector, Land Acquisition v. Mst. Katiji Ors. (1987) 167 ITR 471 and also in the case of Concord of India Insurance Co. Ltd. v. Smt. Nirmala Devi and Ors. 118 ITR 507. 10. The learned DR however opposed the prayer of the assessee for condonation of the delay. 11. We have considered the rival submissions and the prayer for condonation of the delay. At the outset, we observe that the Hon ble Supreme Court in the case of Mst. Katiji (supra) has explained the principles tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO does not contain elaborate discussion. It was not disputed by the Revenue that the AO had made due enquiries but the order of the AO did not contain details reasons as to why he is accepting the claim of the Assessee. The Tribunal quashed the order u/s.263 of the Act holding that the order of the AO cannot be termed to be erroneous or prejudicial to the interest of the Revenue. On further appeal by the Revenue, the Hon ble Delhi High Court held as follows: The submission of the counsel for the Revenue was that while passing the assessment order, the AO did not consider the aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. The AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel for the Assessee submitted that the CIT cannot rewrite an agreement between the parties just by making a casual observation that substance of the transaction will prevail over the form. It was pointed out that the Assessees have in AY 2004-05 to 2006-07 executed registered sale deeds conveying their share of 30% of built up area and undivided share of land to nominees of M/S.Glory Estates Pvt.Ltd. and declared capital gain on such sale in the respective assessment years as and when registered documents were executed. In the light of these fats, the CIT s conclusion regarding substance of the transaction prevailing over the form of the transaction are without any basis and therefore to be disregarded. It was submitted that there was no loss to the revenue as capital gain payable on transfer was duly paid by the Assessees albeit in different assessment years. There was therefore no prejudice to the interest of the revenue. It was pointed out that execution of a general power of attorney by the Assessees in favour of M/S.Glory Estates Pvt.Ltd. was only for convenience and does not convey any right, title or interest over the property. The Assessees actually received sale c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er XXC of the Act. The same reads thus: Sec.269UA Definitions. In this Chapter, unless the context otherwise requires,- (a) to (c) .. (d) immovable property means- (i) any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also. Explanation : For the purposes of this sub-clause, land, building, part of a building, machinery, plant, furniture, fittings and other things include any rights therein; (ii) any rights in or with respect to any land or any building or a part of a building (whether or not including any machinery, plant, furniture, fittings or other things therein) which has been constructed or which is to be constructed, accruing or arising from 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 of whatever nature), not being a transaction by way of a sale, exchange or lease of such land, building or part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45 of the Act. On this issue the CIT in our view has wrongly come to the conclusion that there was delivery of possession of property by the Assessees. The CIT accepts that as per the JDA dated 26.10.1994 as well as the Agreement dated 11.11.2000 there was no clause regarding delivery of possession at the time of the agreement and that possession was to be delivered only at the time of registration of the sale deed. The CIT however ignores these clauses as according to him the substance of the transaction has to be seen over the form of the transaction. In our view these conclusions are without any basis. First the CIT cannot rewrite an agreement between the parties just by making a casual observation that substance of the transaction will prevail over the form. Secondly, the Assessees have in AY 2004-05 to 2006-07 executed registered sale deeds conveying their share of 30% of built up area and undivided share of land to nominees of M/S.Glory Estates Pvt.Ltd. and declared capital gain on such sale in the respective assessment years as and when registered documents were executed. Thirdly, there was no loss to the revenue as capital gain payable on transfer was duly paid by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y arrangement whereby such a person acquires any right in any building which is either being constructed or which is to be constructed. Transactions of these nature are not required to be registered under the Registration Act, 1908 and hence such transactions resulted in escapement of capital gains tax although such transactions conferred the privileges of ownership without transfer of title in the building and were a common mode of acquiring flats particularly in multi-storeyed constructions in big cities. The object of inserting sub-cl. (v) was to bring within the ambit of transfer , transfer of possession in cases in which possession in 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. The provisions of sub-cls. (v) and (vi) were explained in CBDT Circular No. 495, dt. 22nd Sept., 1987. Definition of transfer widened to include certain transactions 11.1 The existing definition of the word transfer in s. 2(47) does not include transfer of certain right accruing to a purchaser, by way of becoming a member of or acquiring shares in a co-operative society, company, or associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t altogether or if such execution of registered sale-deed is postponed, the capital gains tax would also be postponed. In several cases it suited the parties to complete such transactions without execution of registered deed and thereby evade payment of tax on capital gains. It is in order to plug this loophole that cl. (v) was inserted in section 2(47) to lay down that transfer would include any transaction involving allowing of possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of Transfer of Property Act. Thus the Provisions of Sec.53A of the Transfer of Property Act, 1882 stand incorporated into the provisions of the Income Tax Act, 1961. If that be so then the Tax authorities for coming to a conclusion that provisions of Sec.53A of the Transfer of Property Act, 1882 are attracted to a particular transaction have to come to a conclusion the transaction/agreement in question is such that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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