TMI Blog2017 (5) TMI 1168X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of flats were not registered/executed is not a relevant consideration so far as provisions of sub-clause (v) of section 2(47) are concerned. The completion of "transfer" of an immovable property as per the general law is not a requirement for the applicability of the provisions of sub-clause (v) of section 2(47). Thus, the taxability of long term capital gains only taxed in the F.Y 2006-07 relevant to A.Y 2007-08 and ordered accordingly. Computation of short term capital gains on selling of assessee’s share of residential and commercial constructed area - the gain on the transfer of the asessee’s share in constructed area is to be brought in tax as short term capital gains after giving due deduction as enumerated in sec.48 of the Act. The Assessing Officer has to consider this issue of computation of capital gains on assessee’s share of construction area along with undivided share in land which was actually transferred by the asseseee in this assessment year. In other words, the Assessing Officer cannot bring into tax entire share of constructed area along with undivided share in land only on receipt basis as transferred unless there is actual transfer in terms of Sec.45 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and ought to have appreciated that there was no concession for dismissing the said ground of appeal thereby vitiating the findings recorded in relation thereto. 6. The CIT(Appeals) erred in confirming the assessment of Long Term Capital Gains relating to the JDA in overlooking the detailed factual submissions made as well as in not properly appreciating the fact of reporting of such Long Term Capital Gains in the return of income filed for the Assessment Year 2014-15 without assigning proper reasons and justification. 7. The CIT(Appeals) failed to appreciate that the survey report as well as the remand report were not properly taken note of in recording the wrong findings in para 12 to para 15 of the impugned order. 8. The CIT(Appeals) failed to appreciate that the finding in para 12 of the impugned order on the presumption of sale of the area related to the joint land owners including the appellant was wrong, erroneous, unjustified, incorrect and not sustainable in law and ought to have appreciated that the presumption of the reporting of the Long Term Capital Gains in the assessment year 2014-15 relatable to the balance portion retained by the coowners includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on account of ignoring the assessee s claim of Long Term Capital Loss(LTCL) on sale of shares in M/s. Paramount Builders (Chennai) Ltd. amounting to ₹ 1,07,45,847/- and invoking the provisions of sec.45(2), thereby treating a portion of gain on sale of asset at Velachery as business profits. Additionally, the interest claimed u/s.24(a) of the Act of Rs. 4,20,000/- was also disallowed on the finding that the loan did not relate to the property that fetched rental income. 4.1 The assessee along with 14 other family members had entered into a Joint Development Agreement(JDA) with M/s. P.S. Srijan Realty, in respect of land at 137, Seetharam Nagar Main Road, Chennai 600 042 for development of a commercial-cum-residential complex. The commercial portion is named Paramount Grand Mall . The JDA was entered on 27.6.2006, which was later modified into a Supplementary Agreement dated 10.7.2013. In lieu of transfer of 50% undivided share of land by the 15 co-owners, the land owners were jointly allotted 78,400 sq. ft. of commercial area, 15875 sq.ft. of Food Street and 36537 sq. ft. of residential area in the project. The co-owners of land failed to offer the LTCG that had ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DGIT (Inv.) had clearly held that the transaction results in LTCG. According to the CIT(Appeals), since the office of the DGIT (Inv.), had endorsed that the resultant gain cannot be termed as business profit, while the AO had not illustrated otherwise, the act of invoking provisions of sec.45(2) thereby treating a portion of gains as business profit, is untenable. Accordingly, the CIT(Appeals) directed the AO to treat the gains on execution of JDA as LTCG. 4.5 According to the AO,, the transactions involving sale of shares of M/s. Paramount Builders (Chennai) Ltd. and the loss generated on transfer to relatives is fabricated to suit the assessee s needs. Shares of M/s. Paramount Builders (Chennai) Ltd. numbering 7,94,212/- were sold for a consideration of ₹ 3/- per share to the assessee s brothers-in-law Shri A.Imran, Shri A. Qamaran and Shri A. Burhan, all sons of Shri Athaullah. The AO relied on the decision of the Bombay High Court in the case of M/s. Killick Nixon Ltd. Vs. DCIT in ITA No. 5518 of 2010 dated 6.3.2012 and held the transactions to be sham and a colourable device looking at human probabilities. 4.6 The CIT(A) observed that the assessee had not provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separately and the sale proceeds have been received by the assessee. 4.9 The CIT(Appeals) observed that as per the JDA, the developers had paid a refundable security deposit of ₹ 11.50 crores and the same were to be appropriated against sale proceeds of a portion of the land owners share in constructed space. In order to refund the deposit, the co-owners of land had transferred 36537 sq.ft. of residential area and 4284 sq.ft. of commercial area Food Street during the year. Therefore, according to the CIT(A), the total sale consideration received by the co-owners is ₹ 22,71,223/- and directed the AO to adopt this value of ₹ 22,71,79,223/- as the sale consideration for the purpose of computing the LTCG for the A.Y. 2011-12 and compute the liability after reducing the indexed cost of acquisition that corresponds to the asset sold and selling expenses of Rs. 1,09,45,602/-. 4.10. The CIT(Appeals) further observed that in respect of the commercial area in Mall and Food Street, which are retained by the co-owners, the computation of LTCG shall be undertaken in A.Y. 2014-15 to the extent of the value in money s worth received in the form of constructed space an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which determine the taxability of capital gain, are that the gain ought to be from the transfer of a capital asset. This section has a large scope of its operation due to the presence of deeming provision which says that the gain shall be the deemed income of that previous year in which the transfer took place. This phrase can be interpreted in the manner that the total profits may actually be received in any other year, but for the purposes of section 45, the gain shall be the deemed income of the year of transfer of the capital asset. It shall not be out of context, at this juncture, to mention an observation of the hon'ble Authority for Advance Rulings in the case of Jasbir Singh Sarkaria, In re [2007] 294 ITR 196 (AAR), that the expression used in section 45 is arising , which cannot be equated with the expression received or even with the expression accrued as being used in the statute. The point which deserves notice is that the amount or the consideration settled may not be fully received or may not technically accrue but if it arises from the agreement in question, then the deeming provisions shall come into operation. Another point is also equally noticeable tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract : Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof. 8.1. The doctrine of part performance is undoubtedly based upon the doctrine of equity. If one party has performed his part of duty then equity demands that the other party shall also perform his part of the obligation. If one party stood by his words then it is expected from the other party to also stand by his promise. Naturally an inequitable conduct of any person has no sanction in the eye of law. 8.2 In the light of the ingredients of this section, which has been argued from both the sides, now we proceed to examine the factual matrix of the case in hand, herein below: (a) Starting words of section 53A are where any person contracts which means just the existence of a contract. The assessee is the person who has entered into a contract with the developer vide agreement dated April 12, 2006. (b) This section says to transfer , which means the said contract is in respect of a transfer and not for any other purpose. The term transfer is to be read along with the section 45 and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of substantial consideration and the second is passing over of possession. As far as the payment of consideration is concerned, we have noticed that it is in the form of both cash as well as kind and payment made to the assessee. The consideration is as follows: i) The land owners would get from the Developers a refundable security of ₹ 11.5 crores without interest as per Clause No.6.1 of the Development Agreement. Out of this, ₹ 5/- crores was paid to Mr.M.S.Hameed on 27th day of June, 2006 and each owners admitted and acknowledged the receipt of their proportionate share of the above said consideration. The balance ₹ 6.5 crroes to be paid within a week from the date of the sanction of the proposed building development plan. ii) Owner has to get 50% of title of the land along with 50% constructed area in shopping mall, and 50% title in the land along with the residential building. e) The assessee has to hand over the possession of the land on the receipt of security deposit as mentioned in Clause 6 of the Agreement and thereafter the developer completes the construction in accordance with the sanction plan and to allow the developer to remain in occupati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossession would become exclusive possession of the developer. Any other interpretation, i.e., possession means exclusive possession, shall defeat the purpose of amendment. The possibility of staggering of payment linked with possession is ruled out by this amendment so that the taxability of gain may not be shifted to an uncertain distant date. We have no hesitation in saying that even if some part of consideration remains to be paid, the transaction shall not affect the liability of the capital gains tax so as to postpone the same indefinitely. What is meant in clause (v) of section 2(47) is the transfer which involves allowing the possession so as to allow developer to undertake development work on the site. It is a general control over the property in part performance of the contract. The date of that transaction determines the date of transfer. To our understanding of the language of the Act, it is enough if the transferee has, by virtue of the impugned transaction, a right to enter upon and exercise the act of possession effectively, then such an act amounts to legal possession over the property. (g) The last noticeable ingredient is, the transferee has performed or is w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve 50 per cent of the constructed area of both commercial and residential areas. Further, even the vacant and peaceful possession of the property had been delivered to the developer on 27th June, 2006 after receiving substantial amount of ₹ 11.5 crores as interest free security deposit. Under the circumstances, there was indeed an exchange of property which amounted to a transfer within the meaning of section 2(47)(v) of the Act on 27.06.2006 and the gain resulting from such transfer was indeed taxable in the year in which the development agreement entered which was coupled with by giving vacant and peaceful possession of the property to the developer. This view of ours is supported by the judgement of Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT [2003] 260 ITR 491 (Bom) wherein held that: Under section 2(47)(v) read with section 45 indicates that capital gains was taxable in the year in which such transactions were entered into even if the transfer of immovable property is not effective or complete under the general law. In this case, the test had not been applied by the Department. No reason had been given why that test had not been applied, part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bing themselves as the agents of the assessee. Originally, she filed the return for the assessment year 1994-95 admitting the capital gain by treating the transfer of possession to C in August, 1993, as a transfer under section 2(47)(v) of the Act. Subsequently, she claimed that there was no transfer relevant for the assessment year 1994-95 and that the actual transfers were made in the assessment year 1995-96 when the power of attorney hol-ders executed registered sale deeds in favour of others. This claim was rejected by the Department. On a writ petition : Held, rejecting the claim of the assessee, that the ingredients of section 53A of the Transfer of Property Act, 1882, were satisfied when the assessee had put C in possession of the property in August, 1993, after receipt of the full sale consideration. The subsequent execution of the sale deeds by the power of attorney holders did not militate against the operation of section 53A of the Transfer of Property Act. and also by the several decisions of the Income-tax Appellate Tribunal including that in the case of Dr. Maya Shenoy, Secunderabad Vs. ACIT (124 TTJ 692 (Hyd.) ) wherein held that: Assessee owner of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the Developer and he may not s3ell any constructed area coming to his share. In that case, despite there being transfer of land u/s.2(47)(v) of the Act, the assessee could escape the liability of the capital gains taxes. Therefore, as mentioned earlier it is not possible to treat the two transactions as one transactions which is too fallacious. Accordingly we hold the transfer of land in consideration of the constructed area constitute one transaction which giving rise to the capital gains in the F.Y 2006-07 relevant to A.Y 2007-08 and the sale of constructed area along with undivided share in land by the assessee constitute another transaction due rise to the capital gains which may be short term capital gains or long term capital gains as the case may be depending upon period for which the assessee held the constructed area with him and the constructed area received by the assessee cannot be treated it as stock in trade in this case. Since the development agreement in the assessee's case has been executed on 27-06- 2006 and the vacant and peaceful possession also was given vide this development agreement itself, such long term capital gains were indeed to be taxed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utedly willing to perform its part of the contract, in this circumstance we have to hold that there is transfer under section 2(47)(v) of the Act. Thus, the possession and control of the property is already vested with the transferee and the impugned development agreement has not been duly cancelled and it is still in operation, it has to be decided that there is a transfer under section 2(47)(v) of the Act. We have to see the real intention of the parties. As per the well known cannon of construction of document, the intention generally prevails over the word used and that such a construction placed on the word in a deed as is most agreeable to the intention of the parties. There are grounds appearing from the face of the instrument affording proof of the real intention of the parties, then that intention would prevail against the obvious and ordinary meaning of the words used. Entering into the property and handing over of the possession was instantaneous thus entire conspectus of the case has attracted the provision of section 45 of the Act on fulfilment of conditions laid down in section 53A of the Transfer of Property Act. In our opinion, the real intention of the parties here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idential area and 4284 commercial area called as Food street during the financial year relevant to the A.Y 2011-12 and the findings of the CIT(Appeals) in para -14 of his order is irrelevant and bad in law. In our considered opinion, the gain on the transfer of the asessee s share in constructed area is to be brought in tax as short term capital gains after giving due deduction as enumerated in sec.48 of the Act. The Assessing Officer has to consider this issue of computation of capital gains on assessee s share of construction area along with undivided share in land which was actually transferred by the asseseee in this assessment year. In other words, the Assessing Officer cannot bring into tax entire share of constructed area along with undivided share in land only on receipt basis as transferred unless there is actual transfer in terms of Sec.45 of the Act. Accordingly, we direct the Assessing Officer to tax the gains arising from transfer of capital asset effected in the previous year alone in the relevant assessment year 2011-12. 12. Further, the direction of the CIT(Appeals) in para -15 that Assessing Officer has to pass relevant orders in respect of 14 other co-owners so ..... X X X X Extracts X X X X X X X X Extracts X X X X
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