TMI Blog2006 (12) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the AO and upheld by the CIT(A), cannot be said to be a contract of the nature referred to in s. 53A of the Transfer of Property Act and, accordingly, provisions of s. 2(47)(v) cannot be invoked on the facts of this case Chaturbhujdas Dwarkadas Kapadia vs. CIT's case [ 2003 (2) TMI 62 - BOMBAY HIGH COURT] undoubtedly lays down a proposition which, more often that not, favours the Revenue, but, on the facts of this case, the said judgment supports the case of the assessee inasmuch as 'willingness to perform' has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of s. 53A of the Transfer of Property Act. Revenue does not get any assistance from this judicial precedent. The very foundation of Revenue's case is thus devoid of legally sustainable basis. In the present case, the situation is that the assessee has received only a meagre amount' out of total sales consideration, the transferee is avoiding adhering to the payment schedule on one ground or the other, and there is no surety that the sales consideration will actually be realized by the assessee, and yet the assessee is expected to pay capital ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be taxed in the assessment year before us. The appeal is filed by the assessee and is directed against the order dt. 8 th Nov., 2004 passed by the CIT(A) in the matter of assessment under s. 143(3) r/w s. 147 of the IT Act, 1961, for the asst. yr. 1996-97. Grounds of appeal, as set out in the memorandum of appeal, are as follows: 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding the reopening of assessment under s. 147 of the IT Act, 1961, was proper and thereby erred in confirming the reopening of assessment. Looking to the facts and in the circumstances of the case and in law, the appellant submits that CIT(A) ought to have held that reopening of assessment is bad in law and void, and ought to have quashed the assessment. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of Rs. 5,27,13,079/- on account of alleged capital gains on the sale of plot of land. Looking to the facts and circumstances and in law, the appellant submits that learned CIT(A) ought to have held that the additions made by the AO is incorrect and invalid and ought to have deleted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N.A. 50,00,000 30.9.1995 15.1.1996 1,00,00,000 30.11.1995 15.2.1996 1,00,00,000 30.11.1995 15.3.1996 1,00,00,000 31.12.1995 15.4.1996 1,00,00,000 31.1.1996 15.5.1996 50,00,000 On conclusion 31.5.1996 4. All the above payments were to be made along with the interest for delays in payments, as agreed to by the parties. The supplemental agreement, whereby the payments were rescheduled, also, inter alia, provided as follows: The said Lok Housing (i.e. intending buyer) have issued postdated cheques, in favour of said Shamvik and the said General Glass (i.e. the assessee before us) for the payment of the instalments of the purchase price as also for payment of interest calculated upto the revised dates of payments as per particulars mentioned hereinabove. The said Lok Housing gives a warranty to the said Shamvik and the said General Glass that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date (i. e one cheque in a week). This pattern could continue till the last cheque is deposited. This reschedulement would make us comfortable in honouring the payments. We would like to inform you that Financial Institutions and Banks have already sanctioned financial assistance to us to the tune of Rs. 21 crores way back in January, 1996. However, due to the prevailing market situation, no money has been disbursed, by them. Certain land disposal deals are also finalised and substantial amounts are receivable on execution of agreements for the same. We are vigorously following up both these avenues and we are hopeful to get substantial funds in a near future. In the event of our getting these funds, we shall definitely inform you and prepone the instalment payments. With regard to additional interest payable by us due to the suggested reschedulement, the same shall be paid separately. We hope, you will understand the difficulties and will accommodate us by accepting our proposal for further reschedulement of the instalments as suggested in this letter and oblige. In case you feel necessary, we shall sit together tomorrow and finalize the reschedulement. Meanwhile you are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so provided that the agreements for sale in respect of flats in a complex known as Lok Everest were to be treated as security and the respondent was only entitled to deal with or dispose of the flats on payment of the last instalment after which the agreements would stand cancelled. On the respondent's failure to do so, the agreements for sale were to become operational. Along with the supplemental MoU dt. 12th Oct., 1995 the respondent had also given letter by way of an undertaking whereby they undertook that in the event of default of payment of the purchase price installments the licence to enter the property was to stand ipso facto terminated as well as the supplemental MoU dt. 12th Oct., 1995. The respondent also undertook not to part with possession of the tenements constructed by them under the aforesaid licence till the full purchase price along with interest had been paid. It is clear from the above that, the respondent has acted mala fide and consequently failed to act in good faith in making the payment due and payable by them to the petitioner the respondent had failed and neglected in fulfilling, its financial obligations, liabilities and commitments. The respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to pay to the petitioners Rs. 7,00,00,000/- (Rupees seven crores only) net in full and final settlement of all their claims under the supplemental MoU dt. 12 th Oct., 1995 r/w the MoU dt. 10th May, 1995 and the supplemental MoU dt. 12 th Oct., 1995 r/w the MoU dt. 28th Dec., 1994, in the manner set out hereunder. (a) The respondent has today paid to the petitioners a sum of Rs. 15,00,000/- (Rupees fifteen lakh only) by Pay Order No. 465441 dt. 12 th July, 2001 issued by State Bank of India, Marol Branch, Mumbai, in favour of the petitioner, General Glass Co. (P) Ltd. (b) In addition to the above payment, the respondent has today handed over to the escrow agent M/s DSK Legal, 3 (three) postdated cheques, viz. (1) Cheque No. 774618 dt. 16 th Aug., 2001 for Rs. 35,00,000/-, (2) Cheque No. 77420 dt. 31st Dec., 2001 for Rs. 50,00,000/- and (3) Cheque No. 774622, dt. 30th June, 2002 for Rs. 1,00,00,000/-, respectively, all drawn on State Bank of India, Marol Branch, Mumbai, in favour of the petitioner, General Glass Co. (P) Ltd., for a total value of Rs. 1,85,00,000/- (Rupees one crore eighty five lakh only), to be held in escrow and released in the manner more specifically s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the building complex/project known as Lok Nisarg situated on a portion of the property bearing CTS 3, 3/1 to 8 of Village Mulund Taluka Kurla, Mumbai Suburban District, which are of the same value as each stage of the aforesaid instalment plan. By way of illustration, if on 30th Sept., 2002 a sum of Rs. 50 lakhs is due, then flat Nos.003, 006, 104, 405 and 605 in building B-1 aforesaid shall be considered of equal value. The parties agree that this statement is accurate and undertake to this Hon'ble Court to challenge or dispute the same. (3) It is further certified and accepted by the respondent that the valuation of the said flats has been done at the rate of Rs. 1,500 per sq. ft. built up area. This value shall remain constant irrespective of what the price may be on 30 th June, 2002 and at every stage thereafter. The respondent expressly undertakes to this Hon'ble Court not to raise any dispute or the grounds that prices of flats have risen subsequently. Similarly the petitioner undertakes not to raise any such dispute if the prices should fall below Rs. 1,500 per sq. ft. (4) On or before 30th June, 2002 the respondent shall construct and deliver vacant poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent's failure the escrow agent shall retain the two cheques, viz. cheque dt. 31st Dec., 2003 for Rs. 30,00,000/- and the cheque dt. 30th June, 2004 for Rs. 30,00,000/-, upon the terms and conditions of escrow agreement. These cheques may be encahsed if for any of the above years the said payment is not made on due date, by the respondent. The balance amounts if any, shall then be refunded to the respondent. (8) In the event that possession of flats has been handed over as abovementioned on 30th June, 2002, the escrow agent shall forthwith return to the respondents the 6 (six) postdated cheques for the period including and subsequent to 30th Sept., 2002 of the value of Rs. 2,60,00,000/- (Rupees two crores sixty lakhs only) as spelt out under the escrow agreement. (9) Therefore, the respondent undertakes to this Hon'ble Court, that, the respondent shall pay to the petitioner the amount of each instalment on the date they fall due as per Annexure-A for the exact amount in each instance. The respondent may however request 30 days' extension from due date if such an application is made in writing to the escrow agent, and a copy thereof is sent to the petitioners no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of exercise of option for repurchase of the relevant flats, by the respondent. The intention being that the respondent has to pay the applicable stamp duty only once. The petitioner shall however offer the said flats which then come to their ownership under this clause to the respondent to exercise a first option to buy them back.' This option of repurchase if exercised and actually paid for within one month of the aforesaid instalment date shall be at the rate of Rs. 1,600 per sq. ft. and if within two months at the rate of Rs. 1,700 per sq. ft. The essence of this option, is not merely the intent to buy but the actual payment. Thus if despite expressing a desire for the option the respondent does not actually make payments at the above rates and within the above stipulated time, the petitioners shall be forthwith released of any further obligation to the respondent in this behalf and may then sell the said flats in the open market and at market rates without further reference to the respondent. The respondent undertakes to this Hon'ble Court that in case they do not repurchase the said flats in the time specified above they shall not raise any objection or create any obst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower flats, mutatis mutandis. For the purpose of this clause, it is made clear that it is the non-delivery of the said 'B-1' to 'B-5' flats on the specified date that creates this option, irrespectively of the stage of construction of buildings, No. 'B-1' to 'B-5' as the case may be. (14) It is specifically agreed by and between the petitioners and the respondent that if, however, due to any act of God or natural calamity or if by reason of any injunction of any competent Court of Law in India the work on the entire project called 'Lok Nisarg' wherein the said buildings 'B-1' to 'B-5' and 'B- 7' being subject matter of these minutes is being constructed, physically stops, and the respondent is directly as a consequence thereof not in a position to arrange for the amount as mentioned in the aforesaid postdated cheques on their respective due dates, then, and in that event only, the respondent and/or its directors shall not be held liable and responsible for any criminal liabilities including criminal proceedings under s. 138 of the Negotiable Instruments Act. The respondent shall forthwith intimate to the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their absolute right as owners thereof and without further reference to the respondent. (18) Upon full and complete discharge of the respondent's liability of Rs. 5,00,00,000/- (Rupees five crore) plus Rs. 2,00,00,000/- (Rupees two crore) referred to hereafter (total Rupees seven crore only) which are secured by this order, or respondent handing over the flats mentioned in Annexure 'A' as per cl. 4 and flats mentioned in Annexure 'B' as per cl. 20 whichever is earlier, the petitioners shall return the aforesaid 12 flats in Lok Everest or such as remain after setting off the petitioners' claim, to the respondent. (19) In the meanwhile, the respondent undertakes to this Hon'ble Court that they have not at this date sold the said 12 flats listed in Annexure-C hereto in Lok Everest nor created any charge or third party rights therein and will not sell, part with or otherwise create any third party rights in the same. (20) The respondent further hereby expressly undertakes to this Hon'ble Court that the respondent shall also construct and complete, on or before 31st March, 2003 another building identified as B-7 in the complex/project known as L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 10th May, 1995 every year promptly hereafter. (23) The petitioners hereby agree and undertake this Hon'ble Court that against the last payment of Rs. 20,00,000/- (Rupees twenty lakh only) by the respondent to M/s Shamvik Glasstech Ltd. On or before 31st Dec., 2005 both the petitioners shall execute their respective conveyance/power of attorney as may be desired by the respondent. (24) It is hereby agreed and understood by and between parties hereto that they shall duly comply with all the terms and conditions of the supplemental MoU dt. 12th Oct., 1995 r/w the MoU dt. 10th May, 1995 and the supplemental MoU dt. 12th Oct., 1995 r/w the MoU dt. 28th Dec., 1994, as also any supplementary writings attached thereto which are not expressly dealt with and/or covered by this order. (25) All undertakings given by both parties herein are accepted and both parties are directed to ensure due compliance with the same. (26) Both parties undertake to this Hon'ble Court to apply to the arbitrators for appropriate orders related to the arbitration proceedings. (27) Both the petitions disposed of accordingly. No order as to costs. For the time being, we are not really co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the MoU which will be the deciding factor for the chargeability of the capital gain. In view of the above, the chargeability of capital gain for the transactions entered into by the appellant with M/s LHCL therefore, has to be taxed in the assessment year under consideration. As a result, this ground of appeal is dismissed. 8. Aggrieved by the stand so taken by the CIT(A), the assessee is in further appeal before us. 9. We have heard the rival contentions at considerable length. We have also perused the material on record and duly considered factual matrix of the case as also the applicable legal position. Learned representatives have addressed us on different aspects of the matter-right from the legality of service of notice, to the correctness of the reasons recorded, furnishing of reasons recorded, to merits of the case. However, for the reasons we shall now state, it is not really necessary to go into all these aspects. We would first like to address ourselves to the core issue of taxability of capital gains in this year. 10. As Revenue has placed heavy reliance on the judgment of Hon'ble Bombay High Court's in the case of Chaturbhujdas Dwarkadas Kapadia v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was in this context, and after elaborate analysis of the facts of the case before their Lordships, their Lordships also observed as follows: if on a bare reading of a contract in its entirety, an AO comes to the conclusion that in the guise of agreement for sale, a development agreement is contemplated, under which the developer applies for permission from various authorities, either under power of attorney or otherwise and in the name of the assessee, the AO is entitled to take the date of contract as the date of the transfer under s. 2(47)(v) 14. It is important to bear in mind that s. 2(47)(v) refers to 'possession to be taken or retained in part performance of the contract of the nature referred to in s. 53A of the Transfer of Property Act and in the case before Hon'ble Bombay High Court, there was no dispute that the conditions of s. 53A were satisfied. In other words, the proposition laid down by their Lordships can at best be inferred as that when conditions under s. 53A are satisfied, and when the assessee enters into a contract which is a development agreement, in the garb of agreement of sale, it is the date of this development agreement which is mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows: That, in order to attract s. 53A, the following conditions need to be fulfilled. There should be contract for consideration; it should be in writing; it should be signed by the transferor; it should pertain to the transfer of immovable property; the transferee should have taken possession of property; lastly, transferee should be ready and willing to perform the contract. 17. Elaborating upon the scope of expression has performed or is willing to perform , the oft quoted commentary Mulla-The Transfer of Property Act (9th Edn. : Published by Butterworths India), at p. 448, observes that: The doctrine of readiness and willingness is an emphatic way of expression to establish that the transferee always abides by the terms of the agreement and is willing to perform his part of the contract. Part performance, as a statutory right, is conditioned upon the transferee's willingness to perform his part of the contract in terms covenanted thereunder. Willingness to perform the roles ascribed to a party in a contract is primarily a mental disposition. However, such willingness in the context of s. 53A of the Act has to be absolute and unconditional. If willingnes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be obtained. In fact, as a result of this lapse by the transferee, the matter had to be taken up in the legal proceedings and it travelled right upto Hon'ble Bombay High Court. Earlier in the order, we have taken note of the developments leading to litigation before the Hon'ble High Court and the consent terms arrived at by the parties which were decreed by the Hon'ble High Court. All these factors unambiguously establish that not only the transferee never performed his obligations under the agreement but the transferee was, at least until the matter travelled before Hon'ble High Court, not even willing to perform his obligations. As we have not examined the position as to what was the position after the consent terms were arrived at before the Hon'ble High Court, it is not necessary to go into whether or not the transferee was 'willing to perform' his obligation under these consent terms, it is sufficient to take note of the fact that the matter travelled to Hon'ble High Court in the year 2001, i.e. much after the end of the relevant previous year. When transferee, by his conduct and by his deeds, demonstrates that he is unwilling to perform his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d payment of Rs. 30,00,000/- on 12th May, 1995, and seven cheques each of Rs. 8,78,478/- in the month of May 1996, and out of that two cheques have returned and not encashed . This letter further states that the assessee has made agreement and supplemental agreement for granting licence to enter plot and start developmental activities and that as a result of this, your company received payment of Rs. 73,92,380/- during the financial year 1995-96. This action falls within the purview of s. 53A of the Transfer of Property Act and such part performance has been defined as 'transfer' as defined under s. 2(47) of the IT Act . When we analyze these observations made in the letter of the AO, we find that there are factual inconsistencies and glaring errors. At one stage, the AO states that the seven cheques of Rs. 8,78,478/- each, out of these cheques two these cheques two cheques remained unencashed, were received by the assessee in May, 1996 which was at the end of the relevant financial year, but then the AO also includes the value of these cheques in the amounts said to have been received in the financial year 1995-96 itself. In this letter itself, the AO himself refers to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adhering to the payment schedule on one ground or the other, and there is no surety that the sales consideration will actually be realized by the assessee, and yet the assessee is expected to pay capital gains on the entire agreed sales consideration. It is also important to bear in mind that, as set out in para 4 of this order, it was specifically agreed between the parties under the agreement in question that that the Lok Housing will not issue stop payment instructions in any circumstances nor put forward any excuses of any type to avoid presentation and consequent encashment of the said cheques on their respective due dates. Further encashment of the said cheques on presentation shall be as of the essence of the contract . This condition of the contract was, by no stretch of logic, fulfilled. The transferee did request the assessee to reschedule the payments. When payment on time is essence of the contract, and the payments are not made in time, it cannot be said that such a contract confers any rights on the transferee to seek redressal under s. 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in s. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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