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TMI Blog2013 (11) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... section 54EC of the Act. The AO was, however, of the view that the assessee having entered into contract with the builder on 16.03.2005, the transfer is deemed to have taken place in the previous year relevant to A.Y. 2005-06 and hence assessee is not entitled to claim deduction under section 54EC of the Act in the year under consideration. In response to a show cause notice the assessee submitted that the assessee is entitled to invest the whole or any part of the capital, upon transfer of long term capital assets, within a period of six months after the date of such transfer. Reference was also made to cause 7 of the Articles of agreement to state that the owners, i.e. the assessee and another, deposited all the original title deeds and documents of the said property with M/s. ALN Khatri & Co. Advocates and Solicitors, who shall hold the same as escrow agents till the time of payment under clause 2(c) of the agreement and thereafter hand over the documents to M/s. Purnanand & Co., Advocates and Solicitors of the developer. Thus the property would remain with the assessee till the developer pays the entire consideration. In the instant case a sum of Rs. 7,75,000/- to each owner is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch cases in the year in which such transactions are entered into even if the transfer of immovable property is not effective or complete under the general law. According to the AO, on an application of the aforementioned principles, the transfer in the instant case can be deemed to have taken placed in March, 2005 and not in September, 2005. 4. It is not in dispute that the assessee offered the income for taxation in A.Y. 2006-07. According to the AO it has to be taxed in A.Y. 2005-06. In this regard he observed as under: - "The income offered by the assessee is assessed protectively in A.Y. 2006-07 and consequently the substantive addition may be made in A.Y. 2005-06 as per law". 5. Having observed that the transfer has taken place on 16.03.2005 the AO denied the claim of deduction under section 54EC of the Act on the ground that the investment is not made with six months from the date of transfer of the assets. Accordingly exemption of Rs. 25 lakhs was denied. It may be noticed that the assessee offered the entire income received on transfer of the capital assets in A.Y. 2006-07 (page 93 or the paper book) and the AO admitted the taxability of the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e previous year relevant to A.Y. 2006-07 and the assessee having invested within six months from the said date, he is entitled to exemption under section 54EC of the Act. 8. The learned CIT(A) rejected the contention of the assessee by observing as under: - "3.5 I have carefully gone through the assessment order and the submissions made by the AR of the appellant. The moot point is whether the date of agreement i.e. 16.03.2005 or the date of possession i.e. 20.09.2005 is the relevant date for computing the capital gains? The case of Chaturbhuj Dwarkadas Kapadia v. CIT 260 ITR 491 is applicable to the appellant's case. Following the said judgement I hold that the date of agreement is the relevant date for computing capital gains in A.Y. 2005-06. For claiming exemption u/s. 54EC, the appellant should have invested the money within six months. The appellant had invested money in December, 2005 which is beyond six months. Therefore, the appellant is not entitled for exemption u/s. 54EC. These grounds of appeal are dismissed. 9. Further aggrieved, assessee preferred second appeal before the Tribunal. The learned counsel for the assessee adverted our attention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of possession is 20.09.2005 against which the Revenue has not preferred any appeal and if the date of possession is taken as 20.09.2005, even by applying the decision of Hon'ble Bombay High Court in the case Chaturbhuj Dwarkadas Kapadia of Bombay (supra), the receipts on transfer of rights on immovable property are assessable to tax only in A.Y. 2006-07; The assessee having invested the money in December, 2005, which is within six month from the date of possession, is entitled to exemption under section 54EC of the Act. He has also taken us through various clauses of the agreement to contend that the title deeds and the documents were not handed over to the developer upon initial payment since the papers were in the custody of assessee's counsel as escrow agents. Since the job of a developer is to develop the property, licence was granted to him to enter upon the premises but it cannot be equated to handing over possession of the premises since one of the clauses stipulates that in the event of non-payment of the entire consideration the agreement could be revoked and the developer shall not be entitled to possession. He has also taken us through the decision of the Hon'ble Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, and hence the assessee is not entitled to exemption under section 54EC of the Act. 11. We have carefully considered the rival submissions and perused the record. At the outset it may be stated that there is dichotomy in the approach of the tax authorities; on one hand the sale proceeds are sought to be taxed in A.Y. 2006-07 implying thereby that the transfer took place in this year and not on 16.03.2005 but on the other hand, for the limited purpose of disallowing the claim of exemption under section 54EC of the Act, the AO as well as the CIT(A) proceeded on the presumption that 16.03.2005 is the date of transfer and reckoned from that date the investment is to be made within six months and hence the investment made in December, 2005 cannot be considered for the purpose of seeking benefit under section 54EC of the Act. It is equally important to notice that the AO seeks to tax the income on sale of the property in the year under consideration on protective basis by observing that "consequently the substantive addition may be made in A.Y. 2005-06 as per the law". The expression "may be made" in itself indicates that the AO is not sure as to whether the transfer took place in A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability even in A.Y. 2005-06 and it would really be prejudicial to the interest of the Revenue. Under this peculiar circumstance we have to rationally interpret the findings of the AO as well as the CIT(A) in the backdrop of the clauses in the agreement. As rightly pointed out by the learned counsel for the assessee, the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay (supra) has decided the issue by reading the terms of the contract as a whole and by specially taking note of the fact that in the guise of agreement of sale a development agreement was contemplated whereby the developer was held to have taken possession on account of the irrevocable licence granted to him to enter upon the property whereas in the instant case no such finding was given by the tax authorities. In fact the learned CIT(A) opined that the date of handing over of possession in the instant case was 20.09.2005, and based on this factual premise it has to be held that the transfer had taken place in the previous year relevant to A.Y. 2006-07. Reckoned from the date of possession, i.e., 20.09.2005, the assessee having invested the money within six months in long term specified a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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