TMI Blog2018 (5) TMI 1275X X X X Extracts X X X X X X X X Extracts X X X X ..... tantial question of law; Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the appellant would not be entitled to benefit of deduction under section 54F of the Income Tax Act, 1961 since the construction of the flats for personal use was completed before the sale of the capital asset ? 2. The facts, being peculiar, we may notice them at the outset. The appellantassessee is an individual. The appeal arises out of the assessee s Return for the A.Y. 200910. The assessee owned land with a bunglow on such land. The assessee demolished the bunglow to construct 08 flats on the land, some of which would be occupied by her for her own residence. The rest she intended to sell. The assessee retained 04 flats for her own use. The remaining 04 were meant for sale. The details of the names of buyers of these flats, dates of agreements to sale, dates of sale deeds and details of payments received by the assessee under the agreements to sale are as under; Sr. No. Name of the Buyer Date of Sale Deed Date of Agreement to Sale Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace after 23.10.2008. For grant of deduction u/s.54F in case of construction of a residential house, the condition is that the assessee has within a period of three years after the date of transfer of long term asset, constructed a residential house. In the present case, since the construction took place prior to the date of transfer, we are of the view that CIT(A) has rightly appreciated the facts and by his well reasoned order held that Assessee is not eligible for deduction u/s.54F. Before us, the ld. AR could not bring any decision of any High Court in support of his contention where it has been held that even the construction of residential house before the date of transfer would be eligible for deduction u/s.54F. Further, the case laws relied upon by the ld. AR are distinguishable on facts. 13. In the case of Smt. Tarulata Shyam others v. CIT (1977) 108 ITR 345 (SC) the Hon ble Apex Court has held that there is no scope for importing into the statute words which are not there. Such importation would be, not to construe, but to amend the statute. Even if there be a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation. The int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he intention of the Legislature was to grant deduction in case where the capital gain arising out of sale of land is invested in construction of a residential unit by the assessee. Such purposive construction of the statutory provision is not discarded even in taxing statutes. 7.1 Counsel further submitted that upon execution of the agreements to sale, there would be transfer of capital asset. In the present case, all agreements to sale were executed prior to completion of construction. The Tribunal, therefore, committed a serious error in denying benefit of deduction u/s.54F of the Act to the assessee. 8. In support of his contentions, counsel for the assessee relied on the following decisions; (A) Heavy reliance was placed on the judgment of the Supreme Court in case of Sanjeev Lal others v. CIT and another reported in [2014] 365 ITR 389 (SC) . On the basis of such judgment, it was contended that upon execution of agreement to sale, a capital asset gets transferred. For the same purpose, reliance was also placed on the decision of the Division Bench of Delhi High Court in case of Commissioner of Incometax II v. Kuldeep Singh reported in [2014] 226 Taxman 133 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision is whether the assessee who received capital gains has invested in a residential house or not. Once it is demonstrated that the consideration received on transfer has been invested, either in purchasing a residential house or in constructing a residential house, even though the transactions are not complete in all respects and as required under the law, that would not disentitle the assessee from the said benefit. (H) The decision of Supreme Court in case of Vania Silk Mills Pvt. Ltd. v. CIT, Ahmedabad reported in 1991 (191) ITR 647 was cited, in which, in the context of the definition of the term Transfer in Section 2(47) of the Act, it was observed that the same is inclusive and therefore, extends to events and transactions, which may not, otherwise, be transfer according to its ordinary, popular and natural sense. The expression extinguishment of any rights therein will have to be confined to extinguishment of rights on account of transfer and cannot be extended to mean any extinguishment of rights independent or otherwise than on account of transfer. (I) A decision of the Division Bench of this Court in case of Rustom Spinners Ltd. v. CIT reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calls for no interference. 10. Counsel contended that mere agreement to sale cannot be equated with sale of any immovable property. Even though under agreement to sale certain important rights are created, it cannot be stated that upon execution of the agreement to sale, capital asset would stand transferred. 11. In support of his contentions, counsel relied on the following judgments; (A) In case of CITVIII v. Atam Prakash and Sons reported in [2008] 175 Taxman 499 (Delhi) , the Division Bench of Delhi High Court observed that mere grant of permissive right by the assessee to construct building on a plot of land would not amount to transfer of capital asset. (B) In an unreported decision dated 12.01.2012 rendered by the learned single Judge of Punjab and Haryana High Court in case of Sukhwinder Kaur v. Amarjit Singh and others in Civil Revision No.2616 of 2011, it was observed that an agreement to sell a property itself does not create any right or title in the property and that it is the sale deed, which, when executed, will create right, title and interest in the property. These observations were made in the context of requirement of compulsory registration of ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any dispute with the proposition that in order that a receipt or accrual of income may attract the charge of tax on capital gains the sine qua non is that the receipt or accrual must have originated in a transfer within the meaning of S.45 r/w. S.2(47) of the Act. Since there could not be any transfer in the instant case, it has to be held that the amount of ₹ 1,02,500 received by the assessee was not assessable as capital gains. 12. We have already noted the undisputed facts. We may refer to the statutory provisions to resolve the controversy. Section 45 of the Act pertains to capital gains. Subsection (1) thereof provides that any profit or gain arising from the transfer of a capital asset effected in the previous year shall, save and otherwise provided in Sections 54, 54B, etc., be chargeable to tax under the head capital gains and shall be deemed to be the income of the previous year when the transfer took place. The terms capital asset and transfer have been defined under Sections 2(14) and 2(47) of the Act respectively. Clauses (a) and (b) of Section 2(14) of the Act define capital asset as (a) a property of any kind held by the assessee, whether or no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the land of the assesee, should be treated to have been transferred on the date on which the agreement to sale took place. Counsel for the Revenue, for obvious reasons, opposed this proposition. Section 5 of the Transfer of Property Act, 1882 defines the term transfer of property as to mean an act by which a living person conveys property in present or in future to one or more other living persons or to himself or to himself and one or more other living persons. Section 54 of the Transfer of Property Act defines sale as a transfer of ownership in exchange for a price paid or promised or partpaid or partpromised. It further provides that transfer in case of a tangible immovable property of a value of ₹ 100 and above or reversion of other intangible thing can be made only by a registered instrument. It is undisputable that an agreement to sale does not convey a property from one person to another, either in present or even in future. An agreement to sale an immovable property is a bilateral contract under which the two parties, i.e. the buyer and the seller, agree to certain terms and conditions, subject to which the property in question would be transferred by the selle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t may, therefore, also be possible to argue that upon execution of such an agreement, there was extinguishment of certain rights of the owner and to that extent, there was a transfer of capital asset. The crucial question, however, still begs the answer is can it be stated that the agreement to sale transfers the property in question within the meaning of Section 2(47) of the Act ? 17. In our opinion, the answer has to be in the negative. As discussed earlier, the agreement to sale an immovable property is in the nature of bilateral contract between the seller and the buyer. Under such agreement, the seller agrees to transfer the title in the property to the buyer, upon the buyer performing his part of the obligations, mainly, revolving around the payment of sale consideration on agreed terms. Such agreement to sale, however, has to culminate into a registered sale deed, so as to transfer the title of property in question from the seller to the buyer. There may be multiple reasons why such eventuality may never arise and these reasons could be entirely different from the seller refusing to perform his part of the obligations arising out of the contract or for some such reason, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee could not execute the sale deed. Upon dismissal of the suit, the sale deed was executed on 24.09.2004. 19.1 In this context, the assessee s claim for deduction of capital gain arose. The Revenue argued that the assessee was not entitled to benefit of Section 54 of the Act since the transfer of the capital asset took place on 24.09.2004 whereas, the assessee had purchased another residential house on 30.04.2003, i.e. more than 01 year prior to the sale of the asset. The Supreme Court noted that Section 54 of the Act clearly provides that in order to avail benefit under the said Section, one must purchase a residential house or a new asset, within 01 year prior to or 02 years after the date on which the transfer of residential house in respect of which the long term capital gain had arisen, has taken place. The Court, therefore, noted that looking to the relevant dates, if one considers the date on which the assessee had decided to sell the property as the date of transfer or sale, then the appellantassessee would be entitled to benefits under Section 54 of the Act. The Court, therefore, posed a question to itself whether the agreement to sale, which was executed on 27.12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompulsory registration of sale deeds in order to transfer right, title and interest in immovable properties. In this judgment, of course, the Supreme Court was not concerned with the provisions of the Act. Nevertheless, some of the observations of the Supreme Court in the said judgment would be apposite. The Court, after referring to the provisions of the Transfer of Property Act and Registration Act, noted with approval the observations of the judgment in case of Narandas Karsondas v. S.A. Kamtam and another reported in 1977 (3) SCC 247 that a contract of sale itself does not create any interest or charge in the property, which is expressly declared u/s.54 of the Transfer of Property Act. The Court, in this context, concluded as under; 12. Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of sections 54 and 55 of the TP Act and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted u/s.53A of TP Act). According to TP Act, an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als from the Urban Land Ceiling Authority, Bombay Municipal Corporation, etc. It was also agreed that upon Floreat Investments Ltd. obtaining all necessary permissions, approvals and NOC under Chapter 20C of the Act, the assessee would grant an irrevocable licence to demolish the building. Till then, the assessee would receive proportionate rent from the tenants. Clause20 of the agreement provided that the sale shall be completed by execution of conveyance. However, no such conveyance was executed. In the background of such facts, the question that arose was during which Assessment Year, i.e. A.Y. 199697 or 199900, the liability of the assessee for capital gain arose. There was no dispute between the assessee and the Revenue that the liability did arose. The only question was when such liability can be said to have arisen. In this background, the Court noted that what the assessee had entered into was a development agreement, which would enable the builder to make profits by building and selling the flats at a profit. It was precisely for this reason that the Legislature had introduced clause( v) to Section 2(47) r/w. Section 45 of the Act, which indicates that capital gain is taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange, etc. Hence, the expression extinguishment of any rights therein will have to be confined to the extinguishment of rights on account of transfer and cannot be extended to mean any extinguishment of right independent of or otherwise than on account of transfer. 26. The Court, thus, made a distinction between the extinguishment of rights arising on account of transfer and independently thereof. 27. The judgment of Bombay High Court in case of Tata Services Ltd. (supra) is also of some interest to us. It was a case in which the assessee had entered into an agreement to purchase a residential plot at Malabar Hill, Bombay and had paid ₹ 90,000/as earnest money. The agreement was in respect of 5000 square yards out of a larger plot of land and the price was fixed at ₹ 175/per square yard. The balance purchase price was to be paid on completion of construction, which will be done within six months from the date of agreement. This transaction, however, ran into legal controversies. Eventually, it was agreed that the assessee would receive a sum of ₹ 5.90 Lakhs, which would include the earnest money of ₹ 90,000/paid by him from M/s. Advani and Batra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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