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TMI Blog2008 (11) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 doctrine of part performance is undoubtedly based upon the doctrine of equity. If one party has performed his part of duty then equity demands that the other party shall also perform his part of. the obligation. If one party has stood by his words then it is expected from the other party to also stand by his promise. On the facts of this case the developer has got bundle of rights and thereupon entered into the property. Undisputedly flats have also been constructed by M/s Lunkad Associates. Thus under the provision of IT Act a transfer has definitely took place. To sum-up the owners have entered into an agreement for development of the property and certain rights were assigned to the developer who in turn had made the substantial payment and consequently entered into the property and constructed the flats. The fact that the legal ownership continued with the owners to be transferred to the society at a future distant date really does not affect the applicabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive Shri Sunil Pathak has expressed at the outset not to press the same. This ground is therefore dismissed being not pressed. 4. Apropos ground No. 2; facts in brief as emerged from the corresponding assessment order passed under s. 143(3) r/w s. 147, dt. 30th Nov., 2000 were that the appellant had undivided 29.68 per cent share in an ancestral property identified as serial No. 592/2, Mauje Munjir, Taluka Haveli, District Pune admeasuring 58,500 sq. mtrs. A development agreement dt. 30th Nov., 1994 was executed with a firm M/s Lunkad Associates; stated to be for a total consideration of Rs. 3,91,87,500 having both cash and kind components. As per AO though the appellant had received Rs. 1 crore on 22nd Nov., 1994 and Rs. 75,00,000 upto 21st March, 1995 but no capital gain was shown for the year under consideration i.e. asst. yr. 1995-96 as per the return. Accordingly a notice under s. 148 was issued. The reasons for the said non-disclosure as given by the assessee were that subsequent to development agreement there were two revocable power of attorneys; respectively dated December, 1994 and April, 1995. Next reason for non-disclosure was that clearance on Form No. 37-I was obtai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the asset was handed in part performance of a contract. On narrating few more happening of events the AO has given one more factual finding; quote from p. 9: "Thus it is found that necessary conditions for handing over the property to the developer for development purpose is met in the month of March itself. Therefore, the conveyance of development right to the developer took place in the month of March, 1995", unquote. It was concluded that assessee could have asked for the specific performance of the contract and even in the event of cancellation of the agreement the assessee was entitled to get the developed property. Resultantly capital gain of Rs. 3,89,21,144 was computed and taxed in assessee's hands. That action of the AO was challenged. 5. Detailed discussion was made before learned CIT(A) and thereafter the first finding was that a transfer of capital asset in the form of development right was made and such transfer resulted into profit or gain. Another finding was that possession in the context of the said agreement was the right to enter the property. It was the right to take all steps possible to develop the property. According to learned CIT(A) the said right ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also present at the site till the date on which the affidavit was sworn." 6. According to learned CIT(A) there was no adverse effect on the deal even after the said dispute since the assessee had allowed the developers to develop the properly. In one of the paras he has observed; quote "Subsequent events of litigation would not affect the taxability of this income in the year under consideration for what is imperative to decide is whether as on 31st March, 1995 transfer has taken place in respect of a capital asset and also whether income or gains as contemplated in the provisions of the Act arose or accrued to the appellant. In order to attract liability to tax on capital gains, it is sufficient to say that an assessee has a right to receive the profits. What the parties did subsequent to that will not have any bearing on their liability to tax in that year T.V. Sundaram Iyengar Sons Ltd. vs. (1959) 37 ITR 26 (Mad)", unquote. With these observations he has concluded that the AO was justified in assessing the capital gains in the year under consideration. 7. From the side of the appellant assessee Shri Sunil Pathak appeared and argued. First he narrated the factual background ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Rs. 9,45,78,000. In his view if the action of the AO be affirmed then it would be double taxation of the capital gain. Placing strong reliance on General Glass Co. (P) Ltd.; he has concluded that the subsequent litigation has established that there was no willingness on the part of the vendee to perform his part of obligations hence s. 53A had no role to play; consequent thereupon out of the ambits of s. 2(47)(v) of the Act. 8. From the side of the Revenue learned Departmental Representative, Shri Ajitkumar Shrivastava appeared and vehemently supported the orders of the authorities below. His stress was that the applicability of s. 2(47)(v) depends upon one specific point of time and that is the particular time when the possession is handed over by the owners of the asset to the developer. In this case for development of construction activity the possession was actually handed over. Only then the developer has constructed the flats and this fact was not denied by the assessee. Learned Departmental Representative has also objected the furnishing of additional evidences at this stage of appeal. Learned Departmental Representative has also pleaded that for the purpose of the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts as also the law involved. 11. The start point of the arising of this controversy was the introduction of a clause in s. 2(47) as follows: "(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act, 1882. (4 of 1882)" 11.1 The importance of the word "transfer" is due to the reason that in the charging s. 45 the capital gain is taxable on "transfer of a capital asset". Precisely this section prescribes that "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". 12. Thus the fundamentals are that the gain ought to be from the transfer of a capital asset. This section has a large scope of its operation due to the presence of deeming provision which says that the gain shall be the deemed income of that previous year in which the transfer took place. This phrase can be interpreted in this manner that the total profits may act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued 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." 13.1 The doctrine of "part performance" is undoubtedly based upon the doctrine of equity. If one party has performed his part of duty then equity demands that the other party shall also perform his part of. the obligation. If one party has stood by his words then it is expected from the other party to also st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the contract. Accepted factual position is that a huge sum of Rs. 2 crores was transferred during financial year under consideration, barring delay of few days of a nominal amount, but that too has not effected the other terms of the contract. Rest part of the consideration was in kind i.e. the flats to be constructed by the developers to be handed over to the owners. Facts have revealed that later on the consideration has also gone high and assessee's share in the constructed flats have also been handed over. Those later developments thus suggests that there was series of negotiations which took place subsequently and have become part and parcel of the main agreement which could not be segregated from the initial agreement. (d) Next is the important phrase i.e. "terms necessary to constitute the transfer can be ascertained with reasonable certainty". According to us in this case the terms and conditions of the contract were unambiguous thus clearly spoken about the rights and duties with certainty of both the signing parties. We are concerned mainly with two certainties, one is passing of substantial consideration and second is passing over of possession. As far as the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement with M/s Lunkad Associates while other co-owners have entered into the agreement with M/s Giriraj Developers who had ultimately taken up the entire project; however both are the sister concerns. The practical aspect is that such dispute shall not be profitable for the developer to allow this stalemate to linger for long causing delay in transfer of flats to the prospective purchasers. What is meant in cl. (v) is the "transfer" which involves allowing the possession so as to allow developer to undertake development work on the site. It is a general control over the property in part performance of the contract. The date of that transaction determines the date of transfer. To our understanding of the language of the Act it is enough if the transferee has by virtue of the impugned transaction has a right to enter upon and exercise the act of possession effectively then such an act amounts to legal possession over the property. (f) The last noticeable ingredient is, "the transferee has performed or is willing to perform his part of the contract". To ascertain the 'existence of willingness on the part of the transferee one must not put stop at one event but willingness i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing a decision and the law laid down by the Hon'ble jurisdictional High Court delivered in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT. In the result ground No. 2 is dismissed. 15, Apropos ground No. 3 of the concise grounds; as per the notes submitted by learned Authorised Representative vide para No. 20 it has been specifically mentioned not to press this ground. It is also clarified that it was as per the grounds of appeal attached with memorandum of appeal ground No. (viii) which is not being pressed hence dismissed. 16. Apropos ground No. 4 of the concise ground the same is also not pressed as per para 20 of the notes. It is clarified that as per detailed grounds attached with the memorandum of appeal it was numbered as ground No. (ix) which is not being pressed hence dismissed. In the result, assessee's appeal is hereby dismissed. (B) ITA No. 428/Pn/2003; Revenue's appeal: 17. Revenue has raised the following grounds: "1. On the facts and in the circumstances of the case, the CIT(A)-II, Pune, erred in directing to adopt the indexed cost of acquisition as on 1st April, 1981 at Rs. 43,62,005 as against the indexed cost of acquisition at Rs. 2,66,356 adopted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d perused the orders. At the outset it has been informed that Tribunal 'B' Bench, Pune in ITA No. 866/Pn/1999 for asst. yr. 1996-97 in the case of Jt. CIT vs. T.H. Poonawala, order dt. 24th March, 2006 has dismissed the ground of the Revenue by making this observations that quote "We have a strong reason for drawing this inference because the wealth-tax is a repetitive tax and the valuation is sometimes also meant only for that other purpose, but the capital gain is one-time tax, hence the assessee should not be stopped to take the more advantageous course especially when the valuation is meant either for wealth-tax purpose or income-tax purpose identically for determining the 'fair market value'. In the present situation, under both the Acts, the purpose of valuation was not different rather both the Acts move in the same direction for determination of 'fair market value'. In other words, if the objective for both Acts is identical, then the same value can be adopted but if the purpose is different, than naturally such value is not binding in nature, rather can be ignored. The view so expressed by us is buttressed by the decision in the case of Mafatlal Industries Ltd. vs. WTO (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the capital gains on transfer of development rights are not assessable in asst. yr. 1996-97 when the second power of attorney was executed on 19th April, 1995 (i.e. in financial year 1995-96) in favour of the developer to enter the property and also to take several actions including to develop and sell the developed property. 3. On the facts and in the circumstances of the case, the CIT(A) erred in holding that the capital gains on transfer of development rights are not assessable in asst. yr. 1996-97 when the chargeability of capital gains occur in the year in which the contract is executed and substantial performance of the contract is not relevant. 4. On the facts and in the circumstances of the case, the CIT(A) erred in not following the decision in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT (2003) 180 CTR (Bom) 107 when the decision is squarely applicable in the present case. 5. The order of the CIT(A) be vacated and that of the AO be restored." 19.1 We have noticed that while framing the assessment for asst. yr. 1996-97 under s. 143(3) vide order dt. 19th March, 2002 the AO has repetitively made the addition of capital gain which had already been as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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