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TMI Blog2013 (9) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt - An unenforceable claim to receive an undetermined or undefined sum does not give rise to accrual - it was not only the money which has been received by the assessee which was required to be taxed but the consideration which had accrued to the assessee was also required to be taxed. Receipt of consideration and registration of property relevant or not - Difficulty in availing Exemption u/s 54 or 54EC - Agreement subject to approvals and permissions – Condition for transfer of land – conditions and encumbrances Past consideration recievable towards the proposed transfer - Computation of Capital Gain –Part performance of contract u/s 53A of TPA – registration of the terms of agreement - Held that:- It was not necessary to get the instrument of transfer registered for the purpose of Income-tax Act when a person had got a valid legally conveyed after complying with the requirements of the law - Technically it can be said that the developer had purchased the membership of the Members in the society which would lead to enjoyment of the property and in that technical sense, clause (vi) of Section 2(47) is applicable. Reference has been made only to Section 54 and Section 54EC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision may be followed in this case. 7 After considering the rival submissions we find that identical issue came up for consideration before the Tribunal in the case of Shri Charanjit Singh Atwal (supra) in ITA No. 448/Chd/2011 and others wherein this issue has been decided against the assessee vide para 27 to 110 which are as under:- "27 We have considered the rival submissions and carefully gone through the written submissions filed by both the parties in the light of material on record, paper books and various judgments cited by the parties. The main issue is whether assessee is liable to capital gain tax in the year under consideration i.e assessm ent year 2007-08 in view of the JDA. For charging capital gains, the charging section is 45 and the relevant portion is as under:- Section 45. [(1)] Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections [54, 54B, [ [54D, [54E, [54EA, 54EB,] 54F [ 54G and 54H], 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. 28 The plain reading o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rformance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation.--For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA;] Clauses (v) (vi) to section 2(47) of the Act have been inserted by Finance Act, 1987 w.e.f. 1.4.1988. The purpose of this insertion has been explained by CBDT in Circular No. 495 dated 22.9.1987. The relevant part 11.1 and 11.2 of the circular reads as under:- "11.1 The existing definition of the word " transfer " in section 2(47) does not include transfer of certain rights accruing to a purchaser, by way of becoming a member or acquiring shares in a co-operative society, company, or as way of any agreement or any arrangement whereby such any building which is either bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A and transferor was required to pay 50% of the market value - cost (i.e. unearned increase) to the Government. To avoid such payments and / or also to avoid the payment of stamp duty or cumber some procedure of obtaining permission, some properties were being sold by way of sale agreement and also execution of General Power Of Attorney and possession was given on receipt of full consideration without executing the proper sale deeds etc. which as mentioned earlier was not even permissible in some cases. These transactions are popularly called "power of attorney" transactions. To avoid these and to stop the leakage of Revenue, the Parliament has inserted clauses (v) (vi) to section 2(47) so as such type of transactions are also be brought in to taxation net. However, interpretations of these clauses has led to lot of litigation and the main point of litigation was that at what point of time the possession can be said to have been given. In the present case, the Revenue has mainly relied on two decisions namely (i) Chaturbhuj Dwarkadas Kapadia v CIT 260 ITR 491 (Bom.) and; (ii) Authority for Advance Ruling (AAR) New Delhi in the case of Jasbir Singh Sarkaria 294 ITR 196. 33. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovide that "transfer" includes (i) any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882, and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property. Therefore, in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under the general law. Under section 2(47)(v) any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act would come within the ambit of section 2(47)(v). In order to attract section 53A, the following conditions need to be fulfilled. There should be a contract for consideration ; it should be in writing ; it should be signed by the transferor ; it should pertain to transfer of immovable property ; the transferee should have taken possession of the property ; lastly, the transferee should be ready and willing to perform his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide the year of chargeability of the capital gains." 35 The above observations were made on the basis of opinion expressed by Ld. author in the commentary - "The Law and Practice of Income Tax by Kanga and Palkhivala Eighth Edition at page 766. Relevant observations read as under: st "Cls. (v) and (vi) of s. 2(47), inserted by the Finance Act 1987 with effect from 1 April 1988, provide that "transfer" includes (a) any transaction which involves the allowing of the possession of an immovable property (s. 269UA(d)) 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, and (b) any transaction entered into in any manner which has the effect of transferring, or enabling the enjoyment of, any immovable property (s. 269UA(d)). Therefore in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under general law." 36 From the above, it is clear that Court was of the view that in case any transaction covered by clause (v) and (vi) to section 2(47) the liability for capitol gain woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing March 31,1996, as substantial payments were effected during that year and substantial permissions were obtained. In such cases of development agreements, one cannot go by substantial performance of a contract. In such cases, the year of chargeability is the year in which the contract is executed. This is in view of section 2 (47)(v) of the Act." Secondly it is mentioned in the order of the Court that law was not very clear on this point and since the assessee has admitted and paid capital gain in the Assessment year 1999-2000, therefore, tax was held to be chargeable in Assessment year 1999-2000. Thirdly certain shortcomings were also noted i n t h e o r d e r o f t h e T r i b u n a l where certain documents were mentioned to have been executed before March 31, 1996 e.g. the following observation of the Tribunal was not found correct as something is done on Ist April, 1997 then the same cannot fall in the year ending 31.3.1996. "From the dates it is evident that from the very next day, i.e., April 1, 1997, from the end of the financial year ending on March 31, 1996, the builder was using the well water against payment of relevant charges to the assessee." 37 Thus it is v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veloper Pvt. Ltd, New Delhi (herein after called 'Developer'). According to the terms of agreement, the Developer should obtain a letter of intent from the concerned government department and obtain other permissions and sanctions for developing the land at its own risk and cost. The Developer was to take 84% of the built up area and balance 16% would belong to assessee and other co-owner. The consideration for the agreement was taken as the built up area to be handed over to the owners free of cost. The owners were entitled to visit the site in order to review the progress of the project. It was clarified by clause 18 that ownership would remain exclusively with the owners till it vests with both the parties as per their respective shares on the completion of the project. The other clauses and the steps in the agreement were that a sum of Rs. 1 crore towards payment of earnest m one y at the time of entering into agreement; a special power of attorney was to be executed in favour of the Developer to enable to deal with the Statutory authorities etc. for obtaining necessary approvals / sanctions; letter of intent was to be obtained not later than March 8, 2006 and in case of a fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging provision. The second point which deserves notice is that by a deeming provision, the profits or gains that have arisen would be treated as the income of the previous year in which the transfer took place. That means, the income on account of arisal of capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place. The effect and ambit of the deeming provision contained in section 45 has been considered in decided cases and leading text books. The following statement of law in Sampath Iyengar's Commentary (10th Edition-- Revised by Shri S. Rajaratnam) brings out the correct legal position : "Section 45 enacts that the capital gains shall by fiction 'be deemed to be the income of the previous year in which the transfer took place'. Since this is a statutory fiction, the actual year in which the sale price was received, whether it was one year, two years, three years, four years etc. previous to the previous year of transfer, is beside the point. The entirety of the sum or sums received in any earlier year or years would be regarded as the capital gains arising in the previous year of transfer. . . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisprudence, paragraph 51, Twelfth Edition, Indian reprint). Salmond observed : "to look for a definition that will summarize the meanings of the term "possession" in ordinary language, in all areas of law and in all legal systems, is to ask for the impossible". In the above case of Anil Kumar Bhunja [1979] 4 SCC 274, Sarkaria J. speaking for a three- judge Bench also referred to the comments of Dias and Hughes in their book on Jurisprudence that "if a topic ever suffered too much theorizing it is that of 'possession'". Much of the difficulty is caused by the fact that possession is not a pure legal concept, as pointed out by Salmond. The learned judge then explained the connotation of the expression "possession" by referring to the well-known treatises on jurisprudence (page 278) : "'Possession', implies a right and a fact : the right to enjoy annexed to the right to property and the fact of the real intention. It involves power of control and intent to control, (see Dias and Hughes) 14 15. While recognizing that 'possession' is not a purely legal concept but also a matter of fact, Salmond (12th Ed., 52) describes possession, in fact, as a relationship between a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral control and custody of the land can very well be reconciled. Clause (v) of section 2(47) will have its full play even in such a situation. There is no warrant to postpone the operation of clause (v) and the resultant accrual of capital gain to a point of time when the concurrent possession will become exclusive possession of developer/transferee after he pays full consideration. Further, if "possession" referred to in clause (v) is to be understood as exclusive possession of the transferee/developer, then, the very purpose of the amendment expanding the definition of transfer for the purpose of capital gains may be defeated. The reason is this: the owner of the property can very well contend, as is being contended in the present case, that the developer will have such exclusive possession in his own right only after the entire amount is paid to the owner to the last pie. There is then a possibility of staggering the last installment of a small amount to a distant date, may be, when the entire building complex gets ready. Even if some amount, say 10 per cent., remains to be paid and the developer/transferee fails to pay, leading to a dispute between the parties, the right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not his case that the developer was not allowed to take possession in terms of the agreement." 42. After the above discussion, the Authority discussed the facts of the case before it. It was observed that paragraph 18 of the Collaboration Agreement provides that on issuance of letter of intent, the owners will allow and permit the Developer to enter upon and survey the land, erect site / sales office, carry out the site development work and do activities for advancing sale promotion, construction etc. The Authority further observed that if this clause is read in isolation this would suggest on passing of possession but according to Authority the other factors are to be considered. Clause 15 provided that on fulfillment of the requirements laid down in the letter of intent which is provisional license, the owners should execute an irrevocable general power of attorney in favour of the developer allowing inter alia to book and sell the dwelling unit failing under their share. This was possible only after deposit of requisite charges etc. and perhaps there was litigation regarding ownership of land which has also to be withdrawn. The Authority has discussed the significance of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nter the land and oversee the development work is not incompatible with the developer's right of control over the land which he derives from the GPA. Exclusive possession, as already pointed out, is not necessary for the purpose of satisfying the ingredients of clause (v) of section 2(47). We are therefore, of the view that the irrevocable GPA executed by the owners in favour of the developer must be regarded as a transaction in the eye of law which allows possession to be taken in part performance of the contract for transfer of the property in question........" 43 Thus, the above clearly shows that irrevocable general power of attorney which leads to overall control of the property in the hands of the Developer, even if that means no exclusive possession by the Developer would constitute transfer. It can be said that it has to be construed as 'possession' in terms of clause (v) of section 2(47) of the Act. 44 A question may arise that why the transfer was not held to be taken place in Assessment year 2006-07 when first agreement was entered into on June 8, 2005. The supplementary agreement was also entered into on Sept 15, 2005 both of which fall in Financial Year 2005-06 rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted and the applicant/owners received nearly 2/3rds of the consideration. " 15 45. Legal position has been discussed in above noted paras and now let us discuss the facts of the case in the light of above noted legal position. 46 Undisputed facts of the case are that the assessee is a Member of Punjabi Coop House Building Society Ltd. which had 96 members (Number of members were stated as 95 during arguments but clause 13 of the JDA refers to number of members as 96). The Society was owning 21.2 acres of land in village Kansal Distt. Mohali adjacent to Chandigarh. There were two types of members firstly the members who were owning plot of 500 sqyd and secondly the members who are holding plot of 1000 sqyd. Somewhere in 2006 it was decided to develop a Group Housing commercial project and do development as per the applicable municipal building bye-laws in force and accordingly a bid was invited through advertisement in the Tribune dated 31.5.2006. HASH a developer, approached the Society with proposal for development of the property. Since Hash did not have sufficient means to develop the property, Hash had approached T HDC f or development of the property by constructing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efined. Clause 2 describes the project as under: "2.1 The owner hereby irrevocably and unequivocally grants and assigns in perpetuity all its rights to develop, construct, mortgage, lease, license, sell and transfer the property along with any and all the construction, premises, hereditaments, easements, trees thereon in favour of THDC for the purpose of development, construction, mortgage, sale, transfer, lease, license and or exploitation for full utilization of the Property (Rights) and to execute all the documents necessary to carry out, facilitate and enforce the Rights in the Property including to execute Lease Agreement, License Agreements, Construction Contracts, Supplier Contracts, Agreement for sale, Conveyance, Mortgage Deeds, finance documents and all documents and agreements necessary to create and register the mortgage, conveyance, lease deeds, license agreement, Power of Attorney, affidavits, declaration, indemnities and all such other documents, letters as may be necessary to carry out, facilitate and enforce the Rights and to register the same with the revenue/Competent authority and to appear on our behalf before all authorities, statutory or otherwise, and befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct monies in it's name in respect of the same and approach interact, communicate with the Competent authorities and for doing all acts, deeds, matters and things to be done or incurred by THDC in that behalf as also to sign all letters, applications, agreements and register the same if necessary, documents, court proceedings, affidavits and such other papers containing true facts and correct particulars as made from time to time be required in this behalf. 9.2 The owner shall execute in favour of THDC the sale deed is in accordance with the provisions of clause 4.1(ii) to Clause 4.1(iv) of this Agreement and execute all other necessary documents and papers to complete the aforesaid transaction. 9.3 That all the original title deeds pertaining to property as mentioned in Annexure IV has been handed over to THDC by the owner at the time of signing of this Agreement and in furtherance of the common interest of the Parties for the development of the Project and except the Sale Transaction made by the Owner in favour of THDC as et out in Clause 4.1 above. THDC hereby undertake and assure the owner that they shall use the title deeds only for the purpose of furtherance of the Project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 9.3 of the JDA as reproduced above clearly show that original title deed which have been mentioned along with the possession in para 2.1 which according to the ld. counsel of the assessee were to be handed over simultaneously to execution and registration of the JDA, is not correct because clause 9.3 clearly mention that original title deed of the property have been handed over to the THDC at the time of signing of this agreement because clause 9.3 there is no mention about registration of JDA. 53 Special Power of Attorney which has been executed on 26.2.2007 and has been registered also. The irrevocable special Power of Attorney has been executed as provided in clause 6.7 of the JDA which reads as under: "6.7 The Owner shall execute an irrevocable special Power of Attorney granting its complete Development Rights in the Property in favour of THDC interalia including the right to raise finance by mortgaging the property and register the charge with the Competent Authority and execute registered sale deeds) as set out in Clause 4.1 (ii), (iii), (iv) and (v) and the Owner confirms, undertakes, declares and binds itself not to revoke the same for any reason whatsoever ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the Property and for the said purpose to deposit title deeds (if required) in respect of the Property in favour of such bank/financial institution, execute the necessary documents and register the charge created on the Property if so required in the revenue records and/or desired by the Attorne y. (aa) To sell, transfer, lease, license the Premises that may be constructed on the Property on ownership basis, lease, license and/or in any other manner for such price as the Attorneys may deem fit and proper. To collect and receive from the purchased, transferees, lessees, licensees of the Premises, monies/price and/or consideration and/or maintenance charges and to sign and execute and/or give proper and lawful discharge for the receipts. (bb) To execute from tim e to tim e all the writing, agreem ent, deeds etc. in respect of the prem ises which m aybe constructed on the Propert y and also to execute and sign conveyance, transf er or surrender in respect of the Property or any part thereof. (cc) To sign, execute and register the conveyances or assignm ents and/or Power of Attorney' s and/or other docum ents and/or agreements and/or any other writings in respect of the Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in casts specific obligation on the owner Society to give consent to THDC/HASH to raise finance for the development and completion of the project on the Security of the property by way of mortgaging the property. Thus whatever power/authorization have been given through irrevocable special Power of Attorney are emanating from the terms and conditions agreed to among the parties from the JDA. 55 The combined reading of the above clauses of the Irrevocable Special Power of Attorney and JDA clearly show that the developer was authorized to enter upon the property for not only for the purpose of development but other purposes also. THDC was authorized to amalgamate the project with any other project in the adjacent area or adjoining area as per clause (t) of the special Power of Attorne y. If the possession was never given to the developer by the Society then how the developer could amalgamate the project with another project which may be acquired latter in the adjoining area. Through clause (w) THDC was authorized to hand over the possession of property or portion thereof to the authority to whom the same is required. In large Housing Society Projects sometimes Municipal authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a license as claimed by ld. counsel of the assessee because of the powers of selling, amalgamating etc. mentioned in the JDA and irrevocable Special Power of Attorney. The issue has been discussed in the judgment of Jasbir Singh Sarkaria (supra) in further discussion which has been made in para 33 regarding Power of Attorney (which has been reproduced earlier). In that case the powers were given to enter upon and survey the land, prepare lay out plans, submit building plan for sanction with the appropriate authorities to control, manage and look after and supervise the propert y, to obtain water and sewerage, disposal and electricity connection. In that case the developer was authorized to mortgage the property to obtain money for meeting the cost of construction on security and mortgage of land falling only to the developer's share. In that case it was held that GPA was not a license to enter upon for doing some preliminary acts in relation to development of work but the power to control the land has also been confirmed. It has also been noted that the agreement described the Power of Attorney as irrevocable and extra declaration to that effect in the Power of Attorney is not with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd considered: (1) what was the common law before the making of the Act; (2) what was the mischief and defect for which the common law did not provide; (3) what remedy Parliament has resolved and appointed to cure the disease of the common wealth and (4) the true reason of the remedy. And then, the office of all the judges is always to make such construction as shall suppress the evasions for the continuance of the mischief and pro private commando and to add force and life to the cure and remedy according to the true intent of the makers of the Act pro bono public." There is now the further addition that regard must be had not only to the existing law but also to prior legislation and to the judicial interpretation thereof." 58 Going by the He ydon's Rule of interpretation if we analyze the purpose of clause (v) of Section 2(47) then it would emerge that law before making the amendment was that capital gain could be charged only if a transfer has been effected and transfer was interpreted by various Courts including the decision of Hon'ble Supreme Court in case of Alapati Venkatramian V CIT, 57 ITR 185 (SC) that proper conveyance of the property has been made under the common la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, mutually destructive, admit of concurrent realization. Hence there are several possible cases of duplicate possession. 1 Mediate and immediate possession Cross-objections- exist in respect of the same thing as already explained. 2 Two or more persons may possess the same thing in common; just as they may owe it in common. The concurrent possession of the owner who can exercise possession right to a limited extent and for a limited purpose and that of the buyer/developer who has a general control and custody of the land can very well be reconciled." 61 In further discussion in para 26 to 28 of the above decision it has been held that it is not necessary in terms of clause (v) that the developer should have exclusive possession. The concurrent possession of the owner is possible which gives rights to a limited extent for a limited purpose. Thus it is very much possible to hold concurrent possession. Mere recitation in the sale deed to the effect that the Society was owner of and in possession of land measuring 21.2 acres, does not show that the Society was having actual possession. What the Society was having is only ownership right and the possession was only concurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a capital asset effected in the previous year, (b) resultant profits or gains from such transfer, (c) those profits or gains would constitute the income of the assessee/ transferor (d) such income shall be deemed to be the income of the same previous year in which the transfer had taken place. Two aspects may be noted at this juncture. Firstly, the expression used is "arising" which is not to be equated with the expression "received". Both these expressions and in addition thereto, the expression "accrue" are used in the Income-tax Act either collectively or separately according to the context and nature of the charging provision. The second point which deserves notice is that by a deeming provision, the profits or gains that have arisen would be treated as the income of the previous year in which the transfer took place. That means, the income on account of arisal of capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place. The effect and ambit of the deeming provision contained in section 45 has been considered in decided cases and leading text books. The following statement of law in Sampath Iyenga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the actual receipt of the entire sale consideration during the year of "transfer" is not necessary for the purpose of computing capital gains." Further the expression arising has been defined in the Advanced Law Lexicon by P. Ramanatha Aiyer edited by Y.V. Chandrachud, Former Chief Justice of India: "The words "Arising or accruing" describe a right to receive profits, and that there must be a debt owed by somebody. Ld. Commissioner of Income Tax, West Bengal-II, Calcutta V. Hindustan Housing and Land Development Trust Ltd. AIR 1986 S.C 1805, 1807." The expression "accrual of income" has been defined in the same Lexicon as under: "Accrual of income. E.D Jassoon C. Ltd. V Ld. Commissioner of Income Tax, AIR 1954 S.C 470 quoted - Income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. Bhogilal V Income Tax Ld. Commissioner, AIR 1956 Bom 411, 414 (Income Tax Act (11 of 1992) Ss. 16(1) and (3)}" 67 The combined reading of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed on equitable doctrine so as to protect the tak ing over or retention of the possession by the transferee. It was not a source by which title of immovable property could be acquired. Section 53A of TP Act read as under:- 53A. Part performance.- Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty,and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance 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, [***]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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b) of the first proviso to sub section (i) of section 205 of the Companies Act, 1956 (1 of 1956) are applicable. 71 The Hon'ble Apex Court referred to the Principles of Statutory Interpretation by Shri G.P.Singh and extracted following piece: "Section 115J, Explanation clause (iv), is a piece of legislation by incorporation. Dealing with the subject, Justice G.P. Singh states in Principles of Statutory Interpretation (7th edition, 1999). Incorporation of an earlier Act into a later Act is a legislative device adopted for the sake of convenience in order to avoid verbatim reproduction of the provisions of the earlier Act into the later. When an earlier Act or certain of its provisions are incorporated by reference into a later Act, the provisions so incorporated become part and parcel of the later Act as if they had been "bodily transposed into it". The effect of incorporation is admirably stated by LORD ESHER, M.R. : "If a subsequent Act brings into itself by reference some of the clauses of a forme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 53A of the Transfer of Property Act came for consideration before the Mumbai Bench of the Tribunal in the case of Suresh Chander Aggarwal vs ITO 48 SOT 2010. The Tribunal discussed this issue at page 7 and after quoting the provisions of section 2(47) and also section 53A before and after amendment as wall as para Nos. 11.1 to 11.2 of the Board's Circular No. 495 dated 22.9.1987 observed as under:- "The above clearly shows that there was certain situation where properties were being transferred without registration of transfer instruments and people were escaping tax liabilities on transfer of such properties because the same could not be brought in the definition of "transfer" particularly in many States of the country properties were being held by various people as leased properties which were allotted by the various Govt. Departments and transfers of such lease were not permissible. People were transferring such properties by executing agreement to sell and general power of attorney as well as Will and receiving full consideration, but since the agreement to sell was not registered and though full consideration was received and even possession was given, st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Co-operative Society which was formed by the purchasers of the flats. The Hon'ble Court noted that section 27 had been amended vide clause 3(a) wherein when a person was allowed to take possession of the building in part performance of the nature referred to in section 53A, such person shall be deemed to be the owner. It was further observed that for all practicable purposes the assessee was the owner and possibly there cannot be two owners of same property at the same time. In fact, the amendments to section 27 were made later on but were taken into cognizance on the basis of above principle and ultimately it was held as under: "Hence, though under the common law "owner" means a person who has got valid title legally conveyed to him after comply with the requirements of law such as the Transfer of Property Act, the Registration Act, etc., in the context section 22 of the Income-tax Act, 1961, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the requirement of the documents not being registered has been omitted, will not alter the situation for holding the transaction to be a transfer u/s.2(47)(v) if all other ingredients have been satisfied." 74 Thus, it is clear that non registration of agreement cannot lead to the conclusion that provision of section 2(47) (v) is not applicable. Similar view has been taken by ITAT Cochin Bench of the Tribunal in case of G.Sreenivasan Vs DCIT 28 Txmann.com 200 (Coch.) and ITAT Pune Bench in the case of Mahesh Nemichandra Ganeshwade v ITO 21 Taxmann.com 136 (Pune). In view of this legal position, this contention is rejected. 75 The next contention was that the decision of Hon'ble Bombay High Court in case of Chaturbhuj Dwarkadas Kapadia (supra) is not applicable particularly because ultimately in that case it was held that capital gain tax should be charged in Assessment year 1999-2000 whereas agreement was executed in August, 1994. 76 We have already discussed the implications of the decision in case of Chaturbhuj Dwarkadas Kapadia (supra) in para 33 to 38. We had also examined why in that case capital gain was not held to be chargeable in Assessment year 1995-96.There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition of property and the developer has to take clearance from the government in the matter of denotification of the land. It was held that since the land was under compulsory acquisition and no compensation has been received, therefore, there could not be any capital gain tax u/s 2(47) (iii) which deals with the compulsory acquisition. It was further observed that assessee could not have given possession unless and until the land was denotified. Since facts of the case are different than the case in hand and therefore, same are not relevant for our purpose. 81 Now coming to the facts, firstly it was contended that Developer i.e transferee has not obtained various permissions which were required to be taken by the Developer as per clauses 3.1, 7.9, 8.4 and 8.6 of the JDA. T his is not correct as pointed out by the Ld. CIT DR that assessee had already got the municipal plan sanctioned but in the meantime PIL was filed before the Hon'ble Punjab Haryana High Court against the implementation of the project. Initially, the construction was banned by the Hon'ble High Court. However, later on it was observed in the CW P No. 20425 of 2010 and as clarified by the order of the Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch circumstances affecting the development of the project (Event of Force Majeure). iii) Any Party claiming restriction on the performance of any of its obligations under this agreement due to the happening or arising of an Event of Force Majeure hereof shall notify the other Party of the happening or arising and the ending of ceasing of such event or circumstance with three (3) days of determining that an Event of Force Majeure has occurred. In the event any Party anticipates the happening of an Event of Force Majeure, such Party shall promptly notify the other party. iv) The Party claiming Event of Force Majeure conditions shall, in all instances and to the extent it is capable of doing so, use its best efforts to remove or remedy the cause thereof and minimize the economic damage arising thereof. v) Either Party may terminate this Agreement after giving the other Party a prior notice of f if teen (15) days in writing of the Event of Force Majeure continues for period of ninety (90) da ys. In the event of termination of this Agreement all obligations of the Parties until such date shall be fulfilled. 82 The combined reading of these clauses show that if any of the party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sought a review of the order which is still pending for the same reason(s) as noticed above. 4. On these facts we are of the view that it would be prudent on our part to take the view that the issue with regard to clearance/sanction under the two enactments i.e. Environment (Protection) Act and W ild Life (Protection) Act is presently pending and as the promoters of the project have submitted themselves to the jurisdiction of the authorities under the said enactments we should refrain from addressing ourselves on any of the issues connected with either of the two statutory enactments as any such exercise, even though may be unintended, may have the effect of fettering the jurisdiction of statutory authorities functioning under the two relevant statutes. 22. Insofar as the provisions of the Environment (Protection) Act and the Wild Life (Protection) Act are concerned, it need not be emphasised that every project attracting the provisions of the Periphery Control Act and/or the provisions of the 1995 Act must satisfy the ecological concerns of the area in the light of the provisions of the two statues in question. As already held by us, a public trust has been bestowed on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the clause 26 dealing with FORCE MAJEURE it cannot be said that Developer was not willing to perform his part of contract. In any case no specific evidence has been shown us to prove that THDC / HASH were declining to perform particular obligation provided in JDA. In view of this discussion, it cannot be said that transferee i.e. Developer THDC/HASH is not willing to perform his part of contract. 84 Secondly, it was contended that paym ents have not been made as per the JDA. However, again this is not correct. As per clause 4(iv) of the JDA, the installment for Rs. 31,92,75,000/- was required to be paid. The clause 4(iv) read as under:- "iv) Payment being Rs. 31,92,75,000/- (Rupees One Crore ninety two lacs seventy five thousand only) calculated @ Rs. 24,75,000/- (Rs. Twenty Four lacs seventy five thousand only) per plot holder of 500 Sq. yards and (Rs. 49,50,000/- (Rs. Forty nine lacs fifty thousand only) as per plot holder of 1000 square yards to be made to the Owner and / or the respective members of the Owner (as the case may be) within six(6) months from the date of execution of this agreement or within two (2) months from the date of approval of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read with clause 26(v) of the JDA, HASH Builder were not required to make the pa ym ent and it cannot be said that they were not willing to perf orm their part of the contract on this aspect. Therefore, this contention is rejected. 87 Seventh contention is that revenue wrongly held that even clause (vi) of Section 2(47) is applicable. We find no force in this contention. Clause (vi) to Section 2(47) reads as under: "any transaction (whether by way of becoming a member of, or accruing shares in, a cooperative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property". 88 The plain reading of the provision shows that any transaction by way of becoming a Member or acquiring shares in the Cooperative Society or shares in the company which has the effect of transferring or enabling the enjoyment of any immoveable property would be covered by the definition of transfer. In the case before us, initially the Members of the Society were holding shares in the Society for ownership of plot of 500 sqyd or 1000 sqyd. This members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n tax on transfer of a property. This will be clear from a simple example. Let us assume if "A" sells the property to "B" for a consideration of Rs. 100 crores and receive only a consideration of 1.00 crore and it is mentioned in the transfer instrum ent that balance of consideration would be paid after 20 years then no tax can be levied on such balance consideration of Rs. 99.00 crores which has not been received as per the contention of the ld. counsel of the assessee . But in that case no taxes can be levied even after 20 years because no transfer can be said to have taken place after 20 years and Revenue cannot do anything because capital gain can be charged u/s 45 only on transfer of capital asset. We do not think that this kind of interpretation can be made while interpreting Section 45 r.w.s. 48 by invoking the rule that there cannot be any tax on notional reciept. Generally speaking it is only the real income which can be taxed but this has to be understood subj ect to limitations . Commenti g on these limitations, the L d. Author Shri S. Rajaratnam in the Commentary of La w of Income T ax b y S am pat Iyengar 's Volume 1, (11 Edition) has observed at page 343 as under :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. The word used is 'might' and not 'can' or 'is'. It is thus a notional income to be gathered from what a hypothetical tenant would pay which is to be objectively ascertained on a reasonable basis irrespective of the fact whether the property is let out or not [Sultan Bros. Pr. Ltd. v. CIT, (1964) 51 ITR 353 (SC); Jamnadas Prabhudas v. CIT, (1951)20 ITR 160(Bom); D.M. Vakil v. CIT, (1946) 14 ITR 298, 302(Bom); CIT v. Biman Behari Shaw, Shebait, (1968) 68 ITR 815 (Cal); Sri Sri Radha Govinda Jew v. CIT, (1972) 84 ITR 150, 156 (Cal); CIT v. Ganga Properties Ltd., (1970) 77 ITR 637, 647 (Cal); Liquidator, Mahmudabad Properties Ltd. v. CIT, (1972) 83 ITR 470 (Cal), affirmed, (1980) 124 ITR 31 (SC); CIT v. Zorostrian Building Society Ltd., (1976) 102 ITR 499 (Bom); C.J. George V. CIT, (1973) 92 ITR 137 (Ker); D.C. Anand Sons v. CIT, (1981) 131 ITR 77 (Del). Also see, CIT v. Parbutty Churn Law, (1965) 57 ITR 609, 619 (Cal); In the matter of Krishna Lal Seal, AIR 1932 Cal 836; Lalla Mal Samgham Lal v. CIT, (1936) 4 ITR 250 (Lah); New Delhi Municipal Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d dividend such amount has to be treated as income of the person receiving such loans. 95 The above position of law makes it absolutely clear that theory of real income is subject to the provisions of the Act and whenever any specific provisions of the Act is there for charging of a particular item of income, then the same has to be charged accordingly. It may be sometimes hard to the assessee's but again it has been held in numerous decisions that Fiscal statues have to be interpreted on the basis of language used and there is no scope for equity or intent. Ld. Author Shri S. Rajaratnam in the Commentary of Law of Income Tax by Sam pat I yengar's Volume 1, page 236 in this regard has observed as under:- "Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however, great the hardship may appear to the judicial mind. Considerations of hardship, injustice or anomalies do not play any useful role in construing taxing statutes unless there be some real ambiguity. Thus, any benevolent construction in favour of the assessee has been held to be uncalled for. 96 Therefore, it can be said that generally speaking notional inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a manner set out herein below ('Payment'). Further, the transfer, sale and conveyance of 21.2 acres of land of the Property shall be made by the Owner in favour of THDC pro rata to the Payment received by the Owner and/or the respective members of the Owner (as the case may be) from HASH by executing sale deeds and registering the same. It is expressly provided that as resolved by the Owner, the total amount payable by HASH to the Owner and / or the respective members of the Owner (as the case may be) for assignment of the Development Rights and for transfer and sale of 21.2 acres of land of the Property shall be Rs. 106,42,50,000/- (Rupees One Hundred Six Crores Forty Two Lacs Fifty Thousand only) and one hundred and twenty nine (129) flats consisting of Super Area of 2250 Sq. feet ('Flats'); one flat each for sixty five members having a plot of 500 sq. yards, two flats for the (thirty) 30 members having a plot of 1000 sq. yards and 4 flats to the Owner for the 4 plots of 500 sq. yards each as per list annexed with this Agreement as Schedule B ('Sale Transaction') It is expressly agreed between the Developers that HASH shall be responsible for making all payments to the Owne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hard on the assessee but it is well settled that taxation and equity are strangers. Further commenting on this aspect Shri Rajarathnam in his commentary has observed at page 5164 as under: "It is hard on the owners when required to pay tax, when handing over the possession for purposes of construction without being able to enjoy the construction, which is yet to commerce or in the process of construction being put up by the developer, but the solution lies in statutory clarification in such cases. In view of the increasing scale of such development agreements to solve the housing problem in the cities, a statutory clarification or circular is overdue." 99 These comments and the other detailed discussion on this aspect clearly show that capital gain tax has to be paid on the total consideration arising on transfer which would include the consideration which has been received as well as the consideration which has arosen and become due and may be received later on. In view of this discussion this contention is rejected. 100 Ninth contention is that the assessee has already terminated the agreement and has revoked the Power of Attorney. We find no force in this submissions. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer has taken place. We further find that in the JDA there is a clause for termination of the agreement. Relevant clause 14 reads as under: "Termination "14(i) Save and except the provision of clause 26, THDC shall at all times have the right to terminate this Agreement in the event there is any material breach of the representations, warranties, undertakings, declarations, covenants and/or obligations given by the Owner under this Agreement after giving thirty (30) days written notice for rectification of such breach. In the event the Agreement is termination by THDC, all the lands registered in the name of THDC as per the terms of this Agreement upto the date of the termination shall remain with THDC and the balance lands to be transferred to THDC as per the terms of this Agreement shall not be transferred by the Owner in favour of THDC. Upon the termination, the Owner shall refund to THDC the Adjustable Advance/Earnest Money mentioned in clause 4.1(i) above within one month of such termination. In the event of failure of the Owner to refund the said amount, the Owner hereby agrees to execute a registered sale deed for land of equivalent value in favour of THDC. (ii) In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs for making the Payment in accordance with the terms of this Agreement and the allotment of Flats within the time period as mentioned in this Agreement after giving Thirty (30) days written notice for rectification of such breach or any further time as may be desired by the Owner. In the event the Agreement is terminated by Owner, all the lands registered in the name of THDC as per the terms of this Agreement upto the date of the termination shall remain with THDC and the balance lands to be transferred to THDC as per the terms of this Agreement shall not be transferred by the Owner in favour of THDC. Upon the termination, the Owner shall forfeit the Adjustable Advance/Earnest Money mentioned in clause 4(i)." 103 The reading of the above clause would show that power of termination has been given in many circumstances to THDC vide clause 14(i), (ii) and (iii). The power for termination by the owner has been mentioned in clause 14(iv) only. Reading of this clause would show that right to terminate with the owner i.e. the Society was available only in case of default in making the payment. The issue regarding default for making payment has already been discussed by us in Paras 84 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature and the words "irrevocable" are very important. The expression "irrevocable" itself shows that normally such attorney cannot be revoked. Therefore, no cognizance can be taken in respect of revocation of the irrevocable Power of Attorney. In the absence of specific consent as provided in clause 6.7 of the JDA from THDC. 105 We may also note that CIT D.R has pointed out that total consideration was to be determined as under: (i) Consideration in cash (Rs. 82,50,000 x 129 plots) Rs. 106,42,50,000/- (ii) Consideration in kind (Rs. 101,25,000/- x 129 plots) Rs. 130,61,25,000/- Total Rs. 237,03,75,000/- Average cost of consideration Rs. 11.18 crores per acre (Total consideration of Rs. 237.03 crores divided by 21.2 acres of land) It is claimed on behalf of the assessee that JDA has been cancelled and the developer has been allowed to retain the property which has also been conveyed to developer through two sale deeds. If that is so then what would happen to the balance consideration because in such situation the assessee has received consideration of only about Rs. 5 croress per acre because the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veloper to fulfil the contract. In spite of that, if such rate situations take place, the owner/transferor will not be without remedy. He can file a revised return and make out a case for exclusion or reduction of income. However, if the time-limit for filing a revised return expires, the difficulty will arise. It is for Parliament or the Central Government to provide a remedy to the assessee in such cases. Moreover, the other side of the picture as depicted in paragraph 27 (supra) should also be kept in view." Here the comments of Shri Rajaratnam quoted at para 5164 above are also relevant again: It is hard on the owners when required to pay tax, when handing over the possession for purposes of construction without being able to enjoy the construction, which is yet to commerce or in the process of construction being put up by the developer, but the solution lies in statutory clarification in such cases. In view of the increasing scale of such development agreements to solve the housing problem in the cities, a statutory clarification or circular is overdue." We may mention here that no doubt sometimes an assessee may be put in a difficult situation and as menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veloper (at page 265 266) and this issue is discussed in clause 5 which is as under:- "5. Clauses 4.1, 4.2, 4.3 and 4.4 on the page nos. 18 and 19 of the Agreement shall stand amended, modified and substituted by the following:- 4.1 It is expressly agreed and understood by and between the Parties hereto (a) in the ratio of 72,28 between THDC and HASH in case Gross Sales Proceeds does not exceed Rs. 1272 crores; (b) in the ratio of 70: 30 between THDC and HASH in case Gross Sales Proceeds is equal to Rs. 1272 crores; (c) in addition (b), in the ratio of 60: 40 between THDC and HASH in respect of gross sales Proceeds in excess of Rs. 1272 crores. "It is agreed that the minimum guaranteed amount from the Gross Sales Proceeds for THDC and HASH is Rs. 890.40 crores and Rs. 225.76 crores respectively. The minimum guaranteed amount of Rs. 225.76 crores to HASH includes Rs. 58.88 crores that shall be expended by THDC towards construction of 126 flats equivalent to 2,83,500 sq. ft,, which flats are to be allotted in the names of the members of the Society or otherwise, as the case may be, calculated as Rs. 2000 per sq. ft. for the area 2,83,500 sq. ft. and the 72% share of 3 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common knowledge that rates in Pre Launch offer are lower than the rates when bookings open for the Public. Considering these facts we are of the opinion that Assessing Officer has estimated the value of the flats on most reasonable basis. In view of these observations this contention is rejected. 110 The Ld. Counsel for the assessee had made some submissions on the issue of deduction u/s 54F. He has pointed out that this issue has been rejected wrongly by CIT(A). However, carefully perusal of the grounds of appeal show that no ground in respect of deduction u/s 54F has been raised before us and, therefore, we decline to adjudicate this issue and all the arguments made in this behalf are rejected. Though reference was made to ground No. 2.3 in this regard. The perusal of grounds No. 2.3 would show that reference has been made only to Section 54 and Section 54EC. Section 54 deals with deduction in case the assessee being an individual or HUF, transfers the residential house and in case before us, the assessee has transferred the plot. Therefore, it cannot be said that deduction u/s 54F and 54 is same. Since no ground has been raised for deduction u/s 54F, we reject this contention ..... X X X X Extracts X X X X X X X X Extracts X X X X
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