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TMI Blog2009 (4) TMI 804X X X X Extracts X X X X X X X X Extracts X X X X ..... ital gains. HELD THAT:- In the present case, there is only one agreement and that agreement is the agreement to sell in which there is no written stipulation that the possession of the property shall be handed over to the transferee. In the absence of any such written stipulation, it is not permissible in law to presume that the conditions provided under section 53A of the Transfer of Property Act are satisfied. For invoking the equitable doctrine of part performance , there has to be a contract in writing from which the terms of transfer can be ascertained with reasonable certainty. There should be a stipulation in writing for the transfer of the possession of the property and there should be specific clause in the agreement to sell that the possession of the said property shall be transferred/handed over in part performance of the contract. In the light of the terms of the agreement entered into between the parties in the present case, the transfer of title in the property and the transfer of possession of the property go simultaneously hand-in hand on the execution and registration of conveyance deed. Therefore, in law, we find that there is no basis for the finding of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this appeal filed by the Revenue is liable to be dismissed. Order accordingly. - O.K. NARAYANAN, A.M. AND GEORGE GEORGE K., J.M. ORDER O.K. NARAYANAN, A.M. 1. This is an appeal filed by the revenue. The assessment year is 1999-2000. The appeal is directed against the order passed by the Commissioner (Appeals)-I, Kochi, dated June 8, 2006. The appeal arises out of the assessment completed under Section 143(3) read with Section 153A of the Income Tax Act, 1961. 2. The respondent-assessee in this case was formerly a firm constituted on December 11, 1995 in the name and style of M/s. Hotel Harbour View. Thereafter two more partners were inducted in the financial year 1999-2000 and the firm was converted into a private limited company on 13-5-2000, under the name and style of M/s. Harbour view Residency Pvt. Ltd. Even though the jural status of the assessee changed from that of the firm to that of private limited company, the assessee continued to be the same and the change in the jural status does not have any impact on deciding the issue raised in the appeal before us. For the sake of convenience, therefore, the name of the assessee is mentioned as Harbour Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of this amount that the assessee had repaid the sum of Rs. 1.25 crores to M/s. Sai Sales and Services. 6. Now the earlier history of the case is over once M/s. Sai Sales and Services have been paid back their amount and they exited from the scene and the agreement was substituted between the assessee and MAPL. 7. MAPL had made a payment of Rs. 2.30 crores to the assessee in the previous year relevant to the impugned assessment year within a period from 4-12-1998 to February 4, 1999. 8. The facts being so, there was a search and seizure action under Section 132 of the Income Tax Act at the residential premises of Shri Babu C. George, managing partner/director of the assessee-firm/company. The search was also made at the office premises of M/s. Ever Shine Properties Pvt. Ltd. and at the premises of the assessees building and also at the premises of M/s. Classic Exports. The searches were conducted on 6-8-2003. As a result of the search, the assessing officer proceeded to frame the assessment under Section 153A by issuing a notice to the assessee to file the return. The assessee filed the return declaring nil income, which was not acceptable to the assessing officer. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion of any immovable property to be taken or retained in part performance of a contract of any nature referred to in Section 53A of the Transfer of Property Act, 1882. The assessing officer has referred to Section 53A of the Transfer of Property Act where the law has recognised the doctrine of part performance. 12. The assessing officer has also relied on the answer to question No. 1512 given by Sri Babu C. George on 6-8-2003, in his sworn statement in which he has stated that an agreement was entered into with MAPL to sell 4300 sq.ft. of built-up area in the ground floor of M/s. Harbour View for a car showroom. The assessing officer has also relied on the letter of MAPL dated August 29, 2003, addressed to the Assistant Director of Income-tax, (Investigation-1), Ernakulam, whereby they had stated that they had taken over the possession of the property on 4-12-1998 and still the property was in their possession. In the light of the above circumstances, the assessing officer came to the conclusion that the agreement entered into between the assessee and MAPL should be construed as culminated into a transfer for the purpose of Section 2(47) of the Income Tax Act, 1961 read with S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther explained that the sale agreement never matured into a sale deed and no conveyance deed was registered and no property was ever transferred by the assessee to MAPL. The property has been in the possession and enjoyment of the assessee without any interruption earlier in the hands of the firm M/s. Hotel Harbour View and thereafter in the hands of M/s. Harbour view Residency Pvt. Ltd. After the sale agreement with MAPL was terminated, the area of 4300 sq.ft. of the said property has been rented out to M/s. Hongkong Shangshai Banking Corporation ( HSBC for short). The assessee is now receiving rental income from HSBC, which is reflected in the accounts of the assessee-company and deduction of TDS is made in accordance with law. 15. The assessee has further submitted before the assessing officer that 15 there is nothing in the agreement to sell, which specified that the possession of the property should be given to MAPL before the registration of the conveyance deed. 16. Therefore, the assessee submitted that there was no transfer as contemplated under Section 2(47) of the Income Tax Act and Section 53A of the Transfer of Property Act never applied to the case for the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained in the premises till the date of search. 20. The Commissioner (Appeals) further observed that the agreement states that the ownership of the property shall remain with the vendor until necessary documents of transfer are registered. Unless the conditions stipulated for concluding the agreement under reference come within the ambit of Section 53A of the Transfer of Property Act, there cannot be any case of handing over possession of the property to the vendee. The Commissioner (Appeals) observed that telephone connection obtained by the transferee does not prove that the possession of the property was with the transferee as contemplated under Section 53A of the Transfer of Property Act. He also found force in the argument of the assessee that the agreement dated 4-12-1998 was in continuation of the earlier agreement dated 12-4-1996 entered into between the assessee and M/s. Sai Sales and Services and the agreement was not completed and acted upon as it was subsequently terminated by mutual consent, during the financial year 2003-04. The Commissioner (Appeals) further observed that on termination of the agreement, the assessee has earned an income of Rs. 1.5 crores which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, there is no reason for the Commissioner (Appeals) to unsettle the finding of the assessing officer. 26. The learned Additional Commissioner further explained that the assessee is mainly relying upon the subsequent events like termination of agreement, returning a portion of the money to MAPL, and offering of the remaining part of the money as income from other sources in the hands of the assessee for the assessment year 2004-05, etc., as the basis for arguing that the agreement to sell was not acted upon and there was no case of any part performance under Section 53A of the Transfer of Property Act. The learned Additional Commissioner submitted that this has to be viewed as it stood as on 31-3-1999, i.e., on the closing date of the previous year relevant to the assessment year under appeal. The legal position of an event as on the last day of the previous year relevant to an assessment year cannot be appraised or judged in the light of the hindsight provided by subsequent events. The parties would have carried out the agreement to sell to its full logical conclusion by executing a deed of registration or they would have rescinded the agreement as has been done i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale deed was never executed. Therefore, the agreement to sell was never concluded into a transaction of sale. As the agreement does not speak anything about the transfer of property prior to the execution of the sale deed, there is no ground for the revenue to make out a case that possession of the property was transferred to the vendee. The assessing officer on the basis of presumptions has arrived at this finding. Such presumptions are not permissible in deciding the nature of an agreement relating to the sale of immovable properties. 31. The learned chartered accountant further explained that all these facts are proved beyond doubt by the subsequent repudiation of the agreement by mutual consent of the parties. The possession was not taken over by the vendee in pursuance of the agreement to sell. The alleged possession pointed out by the assessing officer was for the limited purpose of applying for electric connection and for obtaining telephone connections. These are superficial things while one is examining the real character of the transaction. By applying for electric connection or telephone connections in the address of the proposed property to be purchased through a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such written stipulation, it is not permissible in law to presume that the conditions provided under Section 53A of the Transfer of Property Act are satisfied. For invoking the equitable doctrine of part performance, there has to be a contract in writing from which the terms of transfer can be ascertained with reasonable certainty. There should be a stipulation in writing for the transfer of the possession of the property and there should be specific Clause in the agreement to sell that the possession of the said property shall be transferred/handed over in part performance of the contract. 35. Section 53A comes into operation only in such circumstances. In the present case, there is no such Clause in the agreement for transferring the possession of the property. Moreover, transferee has to pay the balance consideration and then only the transferee moves into the direction of part performance of the contract. There was no such intention on the part of the transferee to perform. It is evident from the fact that the agreement to sell the property was terminated by mutual agreement. In such circumstances, it is highly arbitrary on the part of the assessing officer to come to a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not cover cases where possession is allowed to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882. New Sub-clauses (v) and (vi) have been inserted in Section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above. 39. The present case does not fall with in any of the circumstances explained above and considered by the Authority for Advance Rulings. Sub-clauses (v) and (vi) in Section 2(47) have been inserted to plug the loopholes in the above circumstances considered by the Advance Authority and not to be considered in the circumstances where the assessee has entered into an agreement with MAPL. 40. The learned chartered accountant relied on the decision of the Supreme Court in Sardar Govindrao Mahadik v. Devi Sahahi AIR 1982 SC 989 to hold that in the above background that Section 53A has no application in the present case. In that judgment, the Supreme Court has held that- To qualify for the protection of the doctrine of part performance it must be shown that there is a contract to transfer for consideration of immovable prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment. 45. Therefore it is very necessary on the part of the revenue to make out a case on the basis of the search materials so that the revenue can argue that the assessee is liable for capital gains tax. The whole events leading to the present case occurred before the date of search and it was very evident for anybody reading the details that by the time search was conducted, the full picture of the transaction was clear. The picture is that the agreement to sell had never culminated into a contract of sale and the deed of conveyance was never executed and the proposed transfer of capital asset was aborted. When this final fate of the proposed transaction is apparently clear on the date of search itself, we are unable to understand that how it is possible for the assessing officer to read the chronology of events piece meal and stop on 31-3-1999. The events up to 31-3-1999 and the events after 1-4-1999 should be read together. The whole chain of events is open before the authorities at the time of search on 6-8-2003. By the time of search, it is clear that the agreement to sell had not reached its logical conclusion and the agreement was rescinded and part of the money receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is no room for any intendment. This is a case of transfer of immovable property. Nothing can be inferred or deemed from the documentations unless the intention is clearly spelt out in the agreement. An agreement or document relating to an immovable property does not leave anything for interpretation or inference or presumption. Everything must be clear and specific. As there is no written stipulation in the agreement regarding the transfer of possession of the property, it is not permissible for the revenue to presume on the basis of the circumstances that there was a transfer of possession and thereby part performance of the contract. 47. Therefore it is clear that the transfer of possession of the property would take place only when the sale deed is executed and the title of the property is transferred from the vendor to vendee. In the present case, no registration of the conveyance deed had taken place. Therefore, there was no occasion in the whole episode for the transfer of the possession of the said property from the assessee to the MAPL. The title of the property always remained with the assessee, so also the possession. Since there is no separate stipulation in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred on the vendee, MAPL as a result of the termination of the agreement. There is no case even for the revenue that on termination of the agreement by mutual consent, the vendee, MAPL had returned possession of the property back to the assessee. Just like the agreement to sell that no stipulation is there regarding transfer of possession of the property, termination agreement also does not have any stipulation that possession of the property is retransmitted from vendee to vendor. This is a very important aspect of the case. One has to examine all the legal consequences flowing out of the termination of the agreement. There is no consequence at all except the repayment of part of the money received by the assessee in pursuance of the agreement. The assessee is not subjected to any further legal obligation under the earlier agreement or under the termination agreement. The vendee, MAPL is not advantaged by any benefits on termination of the agreement. Therefore it is to be seen that the agreements finally ended in money transactions only and agreements have nothing to do with the transfer of possession of the property from vendor to vendee or from vendee to vendor. 51. There ..... X X X X Extracts X X X X X X X X Extracts X X X X
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