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Shehab S. Bohra Versus Income Tax Officer 20 (3) (3) , Mumbai And Vice-Versa

2017 (11) TMI 708 - ITAT MUMBAI

Capital gain on alleged transfer of two immovable property owned by the appellant - as per assessee he has received mere advance against the development agreement whereas no possession has been handed over by him since consent of the respective owners could not be obtained till date and suits in this regard and pending before appropriate courts - Held that:- 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( .....

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fact of the case, we remit the matter back to the file of Ld. AO for adjudication. 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 .....

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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 taxability of the impugned transaction and goes to the root of the matter and therefore, we take up the same first. The said ground reads as follows:- 1. The Learned Commissioner of Income Tax (Appeals) erred in confirming that capital gain on alleged transfer of two im .....

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noted that the assessee had sold 2 properties situated at Dadar (East) to Kapil Group [developer] on 16/01/2010. The sale consideration of the same was ₹ 65 Lacs and ₹ 100 Lacs as against market value of ₹ 102.05 Lacs & ₹ 146.91 Lacs. 2.3 The assessee explained that it inherited the two adjoining plots with structures upon demise of his father. One plot with structure was situated at city survey no. 47/26 bearing plot no. 48C ad-measuring about 382 square Yards [Firs .....

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ld to the developer for ₹ 65 Lacs against small token amount of ₹ 2.50 Lacs and the balance amount was payable in various installments only after obtaining 100% consent of the tenants for redevelopment of the property. Similarly, the development right of the second property were sold for ₹ 1 crores against small token payment of ₹ 3.50 Lacs whereas the balance payment was payable in various installments only after obtaining 100% consent of the tenants of the said property .....

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ever 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 val .....

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ntended that the provisions of Section 50C applied only to transfer of any building or land and could not be applied to development rights being granted by the assessee. However, Ld. AO opined that the assessee through registered agreement, granted absolute, complete and unfettered development rights to the developer to develop the said properties for consideration and further noted that the respective agreements were irrevocable and hence, there was transfer of capital assets chargeable to tax .....

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re the assessee reiterated the said contentions and drew attention to the fact that twin conditions of execution of written agreement and handing over the possession had to be cumulatively satisfied so as to bring the case within the ambit of Section 2(47) of the Income Tax Act read with Section 53A of the Transfer of Property Act. Since the possession was not handed over and the properties were under complete control of the assessee and the assessee received mere advance payments, no transfer t .....

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r the said property to the developer by way of an irrevocable registered agreement and the payment of balance consideration or possession was not material to determine the taxability of the said transactions 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) wer .....

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s 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. 4.1 The Ld. Counsel for assessee [AR] primarily reiterated the said contentions before us and drew our attention .....

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the tenants and reflecting the same in his tax returns and therefore the transactions could not be assessed to tax in the impugned AY since transfer was not complete. 4.2 Per contra, Ld. DR drew our attention to the fact that the contract was irrevocable and the same could not be backed put by the respective parties and the assessee, by way of said agreement, handed over the complete control over the property to the developer and hence the transactions was rightly brought to tax by Ld. AO. 5. W .....

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developer has been given wide powers to deal with the property in certain manner. As per Clause 9, the consideration for the same has been fixed as ₹ 1 crores out of which an aggregate amount of ₹ 3,50,001/- was payable on or before the execution of the agreement. The balance amounts were payable in installments of ₹ 8 Lacs, 30 Lacs & ₹ 58,49,999/- after receiving consent of the tenants. Pursuant to clause 10, all the benefits in the said property in future belonged .....

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ettered 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 t .....

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months from the date of obtaining the consent thereof. (e) ₹ 58,49,999/- (Rupees Fifty-Eight Lacs Forty Nine Thousand Ninety Nine only) Being the balance amount shall be payable after sanction of the plans and obtaining the Commencement Certificate or within six months from the date of obtaining the consent of the tenants. 10. All the benefits as are available in respect of the said property or which may be available in future shall belong to the Developers alone and the Owners shall not .....

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(i) At the cost of the developers obtain consents of tenants / occupants to redevelopment of the said property by the developer. (ii) Endeavour to effect demolition of the said building on such terms as may be agreed with the tenants / occupants and are acceptable to the developers. (iii) bear and pay fees of Architect, RCC consultant and all other professionals engaged in various activities / affairs pertaining to the said property till te date hereof as their cost. (iv) bear and pay the munic .....

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s/shops/premises/parking spaces/any other rights in the new building/s to be constructed on the said property and shall have realized all the amounts receivable in respect thereof and until the new building/s together with the said property is transferred to the organization 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 .....

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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 therein; or (iii) the compulsory acquisition thereof under any law; o .....

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ay 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. (emphasis being supplied by us) Upon perusal of the same, we find that case of the assessee, at the most, could fall under sub-clause-(v) i.e. any transaction involving the allowing of the possession of any immo .....

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saction is complete since the assessee has already parted with the effective control over the property and receipt of balance consideration or possession was not at all relevant factor to determine the taxability of the transaction. However, we have already observed that the assessee s case fall under sub-clause-V to Section 2(47) and according to the same the parting with possession of the capital assets is the prime requirement so as to constitute transfer. 8. At this juncture, we find that th .....

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ry 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 nev .....

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ance. - Where any person contracts to transfer for consideration any immoveable 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 the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of th .....

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in possession, other than a right expressly provided by the terms of the contract: 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.] Income Tax Act Section 2 - Definitions In this Act, unless the context otherwise requires, - (47) transfer , in relation to a capital asset, includes, - (i) to (iv) xxx xxx xxx (v) any transaction involving the allowing of the possession of any immov .....

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al gains - (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, 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. 48. Mode of computation - The income chargeable under the head Capital gains shall be computed, by deducting from the full value of the conside .....

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ad 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 must be in writing, signed by the transferor, or by someone on his behalf; (3) the writing must be in such words f .....

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right of defence. See Rambhau Namdeo Gajre v. Narayan Bapuji Dhgotra (Dead) through LRs. (2004) 8 SCC 614 at 619, para 10. An agreement of sale which fulfilled the ingredients of Section 53A was not required to be executed through a registered instrument. This position was changed by the Registration and Other Related Laws (Amendment) Act, 2001. Amendments were made simultaneously in Section 53A of the Transfer of Property Act and Sections 17 and 49 of the Indian Registration Act. By the afores .....

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cific performance or as evidence of any collateral transaction not required to be effected by a registered instrument. Section 17(1A) and Section 49 of the Registration Act, 1908 Act, as amended, read thus: 17(1A). The documents containing contracts to transfer for consideration, any immovable property for the purpose of Section 53A of the Transfer of Property Act, 1882 (4 of 1882) shall be registered if they have been executed on or after the commencement of the Registration and Other Related L .....

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nsaction 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 eff .....

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t under Section 2(47)(v) of the Act, there must be a contract which can be enforced in law under Section 53A of the Transfer of Property Act. A reading of Section 17(1A) and Section 49 of the Registration Act shows that in the eyes of law, there is no contract which can be taken cognizance of, for the purpose specified in Section 53A. The ITAT was not correct in referring to the expression of the nature referred to in Section 53A in Section 2(47)(v) in order to arrive at the opposite conclusion. .....

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ession cannot be stretched to refer to an amendment that was made years later in 2001, so as to then say that though registration of a contract is required by the Amendment Act of 2001, yet the aforesaid expression of the nature referred to in Section 53A would somehow refer only to the nature of contract mentioned in Section 53A, which would then in turn not require registration. As has been stated above, there is no contract in the eye of law in force under Section 53A after 2001 unless the sa .....

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and whether the developers were or were not ready and willing to carry out their part of the bargain. Since we are of the view that sub-clause (v) of Section 2(47) of the Act is not attracted on the facts of this case, we need not go into any other factual question. 21. 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. U .....

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)(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, a transfer of title in fact. 23. A read .....

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ed from a slightly different angle. Shri Vohra is right when he has referred to Sections 45 and 48 of the Income Tax Act and has then argued that some real income must arise on the assumption that there is transfer of a capital asset. This income must have been received or have accrued under Section 48 as a result of the transfer of the capital asset. 25. This Court in E.D. Sassoon & Co. Ltd. v. CIT, (1955) 1 SCR 313 at 343 held: It is clear therefore that income may accrue to an assessee wi .....

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Stenton, Garnishees [11 QBD 518 at p. 522 and 527]. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him. 26. This Court, in Commissioner of Income Tax v. Excel Industries, (2014) 13 SCC 459 at 463-464 referred to various judgments on the expression accrues , and then held: 14. First of all, it is now well settled that income tax cannot be levied on hypothetical in .....

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othetical 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 wit .....

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n though it may not be immediately. 16. This Court further held, and in our opinion more importantly, that income accrues when there arises a corresponding liability of the other party from whom the income becomes due to pay that amount . 17. It follow s from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not h .....

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h may or may not materialise and its money value is, therefore, not the income of the assessee. 27. In the facts of the present case, it is clear that the income from capital gain on a transaction which never materialized is, at best, a hypothetical income. It is admitted that, for want of permissions, the entire transaction of development envisaged in the JDA fell through. In point of fact, income did not result at all for the aforesaid reason. This being the case, it is clear that there is no .....

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income under the JDA. This being so, no profits or gains arose from the transfer of a capital asset so as to attract Sections 45 and 48 of the Income Tax Act. 29. We are, therefore, of the view that the High Court was correct in its conclusion, but for the reasons stated by us hereinabove. The appeals are dismissed with no order as to costs. 9. Upon perusal of the above judgment, we can cull out the essential ingredients of Section 53A of the Transfer of Property Act in the following manner:- ( .....

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