TMI Blog2017 (11) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... on. If the transaction is found chargeable to tax, the computation thereof shall be computed in terms of Section 48 and other provisions, as applicable. Needless to say, adequate opportunity of being heard shall be granted to the assessee, who in turn, is directed to substantiate his stand in this regard. Resultantly, assessee’s appeal stands partly allowed for statistical purposes - I.T.A. No.3171/Mum/2015 And I.T.A. No.3692 /Mum/2015 - - - Dated:- 8-11-2017 - SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM For The Assessee : Chetan Karia,Ld. AR For The Revenue : Pooja Swaroop, Ld. DR ORDER Per Manoj Kumar Aggarwal (Accountant Member) 1. These are cross appeals by assessee as well as revenue for Assessment Year [AY] 2010-11 which contest the order of Ld. Commissioner of Income Tax (Appeals)-32 [CIT(A)], Mumbai Appeal No. CIT(A)-32/IT-117/20(3)(3)/2013-14 dated 23/03/2015. The assessment for impugned AY was framed u/s 143(3) on 13/03/2013 by Ld. Income Tax Officer 17(1)(3) [AO], Mumbai. First we take up assessee s appeal ITA No. 3171/M/2015 where the assessee has raised six grounds of appeal. Since Ground No. 1 contest the very taxabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e development rights were given on various conditions which had to be fulfilled before receipt of full consideration. However, these conditions, as per assessee s contentions, remain unfulfilled since the consent of the respective tenants could not be received and consequently permission of government authority for redevelopment of the properties was not taken. Further, the assessee never gave the possession or title of the said properties and received mere advance against the same and therefore, the transactions were not assessable to Capital Gains in the impugned AY. However, not convinced, Ld. AO concluded that capital gains arose to assessee in the impugned AY and since the market value of the property on the date of agreement was more, the provisions of Section 50C were attracted. The assessee, while objecting to the market valuation adopted by the Ld. AO, submitted valuation as on 01/04/1981 and reiterated the stand that the consent of the tenants could not be obtained and the developer had filed eviction suits against tenant before appropriate court and the same were pending. Nevertheless, the assessee, at present, as owner of the building was receiving rent and paying p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions and therefore, the transactions were rightly brought to tax by Ld. AO. 3.3 The Ld.CIT(A) further concluded that the provisions of Section 50C were applicable to these transactions and since the assessee objected to the fair market value adopted by Ld. AO, the provisions of Section 50C(2) were applicable. Hence Ld. CIT(A), in terms of provisions of Section 50C(2), directed the Ld. AO to refer the matter of valuation to District Valuation Officer [DVO] as per the objections raised by assessee during assessment proceedings. Aggrieved, the assessee as well as revenue is in further appeal before us. The revenue, by way of solitary effective ground of appeal, is aggrieved by the action of Ld. CIT(A) in directing the Ld. AO to refer the matter of valuation of cost of acquisition as well as fair market value of development rights to District Valuation Officer [DVO] whereas the assessee is aggrieved, inter-alia, by action of Ld. CIT(A) in concluding that the said transactions were taxable in the impugned AY. The assessee, in other grounds, has contested the applicability of Section 50C to the impugned transaction and also the valuation adopted by the lower authorities. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development of the said property. For ready reference, the relevant clauses are reproduced below:- 3. The owner grants to Developers and the Developers avail and acquire from the Owner the absolute, complete and unfettered development rights to develop the said property for the consideration and on the terms set out herein. xxxxxxxxxxxxxxxxx 9. In consideration of availing and acquiring absolute, complete and unfettered development rights to develop the said property the Developers shall pay to the owners the sum of Rs.1,00,00,000/-(Rupees one Crores only). The consideration shall be paid by the Developers to the Owners in the following manner:- ( a) Rs.50,001/- (Rupees Fifty thousand One only) paid prior to the execution hereof the receipt where of the Owner hereby admits acknowledges and acquits and releases the Developers from the same and from every part thereof] ( b) ₹ 3,00,000/-(Rupees Three lacs only) paid on or before the execution of this agreement. ( c) ₹ 8,00,000/-(Rupees Eight lacs only) shall be payable after obtaining the 100% consent of the tenants for the redevelopment of the said property. ( d) ₹ 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of purchaser/s of unit/s and shop/s. The terms of development agreement of the other property is quite identical to above except for minor variations. 6. Proceeding further, we find that, in terms of charging Section 45, any profits or gains arising from the transfer of a capital asset effected in the previous year shall 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 . The assessee, by way of development agreements, granted development rights under the said properties to the developer. Undisputedly, these rights constituted capital assets in the hands of the assessee. The only question to be decided by us is whether the transfer has been effected in terms of Section 2(47) or not. For the sake of convenience, the meaning of transfer as enumerated in Section 2(47) is reproduced below:- Section 2(47):- As per Section. 2(47) of Income Tax Act, 1961, unless the context otherwise requires, the term transfer , in relation to a capital asset, includes- ( i) the sale, exchange or relinquishment of the asset; or ( ii) the extinguishment of any rights th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the operative portion of the said judgment as follows:- 16. A reading of the JDA shows that, it is essentially an agreement to facilitate development of 21.2 acres so that the developers build at their own cost, after obtaining necessary approvals, flats of a given size, some of which were then to be handed over to the members of the society. Payments were also to be made by the developer to each member in addition to giving each member a certain number of flats depending upon the size of the member s plot that was handed over. What is important to bear in mind is that payments under the third installment were only to be made after the grant of approvals and not otherwise, and that it is an admitted position that this was never done because no approvals could be obtained as the High Court ultimately interdicted the project. Also, the termination clause is of great significance because it shows that in the event of the JDA being terminated, whatever parcels of land have already been conveyed, will stand conveyed, but that no other conveyances of the remaining land would take place. 17. The relevant sections that are necessary for us to decide the present matter are as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head Capital gains , and shall be deemed to be the income of the previous year in which the transfer took place. 48. Mode of computation - The income chargeable under the head Capital gains shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely: ( i) expenditure incurred wholly and exclusively in connection with such transfer; ( ii) the cost of acquisition of the asset and the cost of any improvement thereto: 18. Section 53A, as is well known, was inserted by the Transfer of Property Amendment Act, 1929 to import into India the equitable doctrine of part performance. This Court has in Shrimant Shamrao Suryavanshi Anr. v. Pralhad Bhairoba Suryavanshi (D) by LRs. Ors., (2002) 3 SCC 676 at 682 stated as follows: 16. But there are certain conditions which are required to be fulfilled if a transferee wants to defend or protect his possession under Section 53- A of the Act. The necessary conditions are: ( 1) there must be a contract to transfer for consideration of any immovable property; ( 2) the contract mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 1887 (1 of 1877) or as evidence of any collateral transaction not required to be effected by registered instrument. 20. The effect of the aforesaid amendment is that, on and after the commencement of the Amendment Act of 2001, if an agreement, like the JDA in the present case, is not registered, then it shall have no effect in law for the purposes of Section 53A. In short, there is no agreement in the eyes of law which can be enforced under Section 53A of the Transfer of Property Act. This being the case, we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the High Court has held that Section 2(47)(vi) will not apply for the reason that there was no change in membership of the society, as contemplated. We are afraid that we cannot agree with the High Court on this score. Under Section 2(47)(vi), any transaction which has the effect of transferring or enabling the enjoyment of any immovable property would come within its purview. The High Court has not adverted to the expression or in any other manner whatsoever in sub-clause (vi), which would show that it is not necessary that the transaction refers to the membership of a cooperative society. We have, therefore, to see whether the impugned transaction can fall within this provision. 22. The object of Section 2(47)(vi) appears to be to bring within the tax net a de facto transfer of any immovable property. The expression enabling the enjoyment of takes color from the earlier expression transferring , so that it is clear that any transaction which enables the enjoyment of immovable property must be enjoyment as a purported owner thereof.1 The idea is to bring within the tax net, transactions, where, though title may not be transferred in law, there is, in substance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a hypothetical income , which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. 15. The above passage was cited with approval in Morvi Industries Ltd. v. CIT [Morvi Industries Ltd. v. CIT, (1972) 4 SCC 451 : 1974 SCC (Tax) 140 : (1971) 82 ITR 835] in which this Court also considered the dictionary meaning of the word accrue and held that income can be said to accrue when it becomes due. It was then observed that: (SCC p. 454, para 11) 11. the date of payment does not affect the accrual of income. The moment the income accrues, the assessee gets vested with the right to claim that amount eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above judgment, we can cull out the essential ingredients of Section 53A of the Transfer of Property Act in the following manner:- (1) there must be a contract to transfer for consideration of any immovable property; (2) the contract must be in writing, signed by the transferor, or by someone on his behalf; (3) the writing must be in such words from which the terms necessary to construe the transfer can be ascertained; (4) the transferee must in part-performance of the contract take possession of the property, or of any part thereof; (5) the transferee must have done some act in furtherance of the contract; and (6) the transferee must have performed or be willing to perform his part of the contract. Hence, transfer of possession is one of the primary condition so as to attract the provisions of Section 53A and consequently being covered u/s 2(47)(v). The assessee has all along contended that the possession of the properties was never handed over to the developer which has been reiterated before us also. The Ld. AR has placed certain additional evidences in the form of Letter from the Developer and copies of suits filed by the developer before appropri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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