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TMI Blog2022 (2) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... the bid for a property admeasuring 2 acres and 15 guntas in Hudi village in an auction conducted by Hon'ble High Court of Karnataka for a sum of Rs. 9.00 crores. Accordingly, the Hon'ble High Court of Karnataka, vide its order dated 26.10.2007, directed the official liquidator to execute a registered sale deed in favour of the assessee. In compliance to the above directions, a registered sale deed was executed in the assessee's name on 20.10.2010. 3. The above said deed amount of Rs. 9 crores was arranged by the assessee company as under:- a) Own funds - Rs. 1.80 crores b) Advance received from Shri Ramaiah Reddy, a Director in the assessee company as per agreement for sale entered on 11.10.2007 - Rs. 7.20 crores Total - Rs. 9.00 crores Since the assessee company did not have sufficient funds for satisfying the bid, it has approached Shri Ramaiah Reddy with an offer to sell 80% of undivided share in the auctioned property for a sum of Rs. 7.20 crores and the same was accepted by Shri Ramaiah Reddy. It is pertinent to note that Shri Ramiah Reddy is one of the directors of the assessee company. Accordingly, he paid the amount of Rs. 7.20 crores to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/- towards BBMP tax for the aforesaid property during the year and accordingly the same is claimed herewith as Cost of Improvement 380,255 Long Term Capital Loss (9,818,556) Less: Long Term Capital Loss carried forward for set off in future (9,818,556) 5. The assessee was subjected to search operation u/s 132 of the Act on 05.07.2011. Accordingly the assessments of both AY 2011-12 and 2008-09 came to be reopened u/s 153A of the Act. With regard to the above said sale of land, the A.O. took the view that the assessee has transferred 80% i.e. undivided share in the land to Ramaiah Reddy in the assessment year 2008-09 itself. The AO so entertained the view on the reasoning that the transaction entered between the assessee and Shri Ramaiah Reddy is akin to "extinguishment of rights" in the capital asset as per the definition of the term "transfer" given in sec.2(47) of the Act. Accordingly, he took the view that the capital gain arising on transfer of 80% of land is assessable in AY 2008-09. Accordingly, the AO computed long term capital gain for the remaining portion of 20% of land only in assessment year 2011-12. In A.Y. 2008-09, the AO computed short term capital gain on sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Ramaiah Reddy sold the property to M/s Total Environment. He further submitted that Shri Ramaiah Reddy has treated this transaction as his business transaction and accordingly offered the business income only in AY 2011-12, which has been accepted by the revenue. 8. The Ld D.R, on the contrary, strongly supported the orders passed by Ld CIT(A). Inviting our attention to some of the observations made by Hon'ble Gujarat High Court in the case of Ushaben Jayantilal Sodhan (supra), the Ld D.R submitted that the agreement to sell would also transfer the property. 9. We heard rival contentions and perused the record. In our view, the entire issue boils down to the question as to is whether the "Agreement to sell" entered by the assessee with Shri Ramaiah Reddy to sell 80% of undivided share in the land having an extent of 2 acres and 15 guntas would result in transfer of asset or not? The main contention of the assessee is that the mere entering of "Agreement to Sell" will not result in transfer of asset, while the case of the AO is that there was transfer of asset. 10. We notice that issue whether the "Agreement to sell" would result in transfer of asset or not was examined by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. We must, however, view these transactions in the context of the provisions contained in the Act instead of confining its effect to the Transfer of Property Act and the Registration Act. As noted, Section 2(14) of the Act defines "capital asset" inter alia as a property of any kind held by an assessee. Section 2(47) of the Act defines "transfer" in relation to a capital asset to include sale, exchange or relinquishment of the asset or extinguishment of any rights therein. The term "transfer" defined u/s. 2(47) of the Act, thus, has a much wider connotation, as compared to the common parlance understanding or even under the Transfer of Property Act, under which the term "transfer of property", as noted earlier, has a narrower sweep. It is, perhaps, possible to argue that the agreement to sale gives rise to a capital asset. Upon execution of the agreement to sale, the intending purchaser gets a certain right to insist that the title of the property be transferred if he performs his part of the obligation arising out of the agreement. If the seller is unwilling to do so, the intending purchaser may also successfully bring a suit for specific performance by demonstrating that he was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive examples to appreciate that there can be a wide gap between an agreement to sale and an actual instance of sale being evidenced under a sale deed. To therefore hold that upon mere execution of an agreement to sale of the immovable property itself gets transferred into the purchaser, even within the extended definition of Section 2(47) of the Act, would be incorrect. 19. In this context, we must first refer to the judgment of the Supreme Court in case of Sanjeev Lal (supra) on which heavy reliance was placed by counsel for the assessee. It was a case in which the assessee owned an immovable property, namely, a house, situated in Chandigarh. He decided to sell the house, for which an agreement to sale was executed on 27.12.2002 for a sale consideration of Rs. 1.32 Crores. Out of such amount, a sum of Rs. 15 Lakhs was received by the assessee by way of earnest money. The assessee also intended to purchase another house property in Chandigarh out of the sale proceeds. The house was purchased on 30.04.2003, which was within 01 year from the date of execution of the agreement to sale. Before the sale deed could be executed, the validity of the Will under which the assessee had rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion that some right in respect of the capital asset in question had been transferred and that such right with respect to the capital asset had been extinguished, after execution of the agreement to sale. The Court also observed that, no doubt, such contractual right can be surrendered and neutralized by the parties by subsequent contract or conduct. But, such was not the case on hand. The Court also noted that the sale deed could not be executed for the reason that the assessee had been prevented from dealing with the residential house by an order of the competent Court. The Court, in view of such peculiar facts of the case and looking to the definition of "transfer" u/s. 2(47) of the Act, was of the view that the assessee was entitled to relief u/s. 54 of the Act. 20. This judgment, contrary to what was strenuously canvassed before us, does not lay down a blanket proposition that without there being anything else, upon execution of an agreement to sale of an immovable property, the asset, i.e. the property in question, itself stands transferred. Main thrust in the said case was that the assessee, after having executed an agreement to sale the property, was prevented from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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