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TMI Blog2013 (11) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... per the agreement, the assessee is entitled for 50% of built up area. As per agreement and also vide delivery note dated 7.3.2005, the assessee given vacant and peaceful position of the property to the builder. Being so, the Assessing Officer considering the provisions of section 2(47)(v), the assessee said to be exchanged the property for consideration in kind i.e., to receive 50% of the built up area. Accordingly, the Assessing Officer, placing reliance on the judgement of Bombay High Court in the case of Chaturbhujdas Dwarkadas Kapadia v. CIT (260 ITR 491) and also on the decision of the Tribunal in the case of Dr. Maya Shenoy v. CIT (23 DTR 140) (Hyd) treated this transaction as "transfer of capital asset" and computed the capital gain on this transaction at Rs. 3,88,35,451. On appeal the CIT(A) confirmed the order of the Assessing Officer. Against this the assessee is in appeal before us. 4. The learned AR submitted that the lower authorities wrongly placed reliance on the judgement of Bombay High Court in the case of Chaturbhujdas Dwarkadas Kapadia (supra) and also on the decision of the Tribunal in the case of Dr. Maya Shenoy (supra). He submitted that in the present case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) Dr Maya Shenoy [(2009) 124 TTJ 692 (Hyd)] 7. According to him, the following judicial decisions and interpretation have not been brought to the notice of the Courts/Appellate Authorities in the course of the presentation/ arguments: (a) Smt. K. Radhika & Others (65 DTR 250) (Hyd) (b) Baisakhi Bhattacharjee vs. Shayamal Bose & Ors. [2002 (4) CHN 115) (c) Smt. Raj Rani Devi Ramana vs. CIT (201 ITR 1032) (d) Order of ITAT, Hyderabad in the case of S. Raghurami Reddy in ITA No. 296/Hyd/2003 dated 30.7.2004. (e) Avatar Singh vs. ITO (270 ITR 92) MP (f) Zuari Estate Development and Investment Co. Pvt. Ltd. vs. DCIT (2004) 271 ITR 269 (g) Alapati Venkataramaiah vs. CIT (1965) 57 ITR 185 (SC) 8. The AR submitted that in all the cases the arguments before the appellate forums was that the amendment to section 2(47) of the Act was brought in to plug the loop hole of transferring the property without registering a conveyance deed. It was presented to the courts that the transfer of property was being done through General Power of Attorneys and that through this devise though the real owner of the property changes the registered owner remains the same and that this kind of transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very basis of taxation goes against the principles of Income Tax Act which seeks to tax real and certain income. 12. According to the AR, this being the case an agreement being out of the scope of section 53 A of the Transfer of Property Act, the AR submitted that the assessing officer as well as the learned CIT (Appeals) erred in law in holding that the transaction is within the meaning of transfer under section 2(47)(v) of the Act. As stated earlier the case and the course of arguments before the Hon'ble Bombay High Court is that the amendment to the section 2(47) which defines "Transfer" has been made with a view to plug the loop hole of the assesses entering into development with builders and evading taxes. Accordingly, the AR submitted that this is not the actual legal position nor is it the intention of the legislature. Further he submitted that section 2(47) as originally introduced was substituted by the Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1985. The section with effect from 1-4-1985 had four sub clauses as under: ["transfer", in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in the hands of the legal owner. As per section 27 of the Income Tax Act, certain persons who are not otherwise legal owners are deemed to be owners for the purposes of these provisions. Under the Transfer of Property Act, the transfer of ownership can be effected only by means of a registered instrument. However, in the recent times various other devices are sought to be employed to transfer one's ownership in property. As a result, there are situations in which the actual owner, say, of an apartment in a multi-storeyed building, or a holder of a power of attorney is not the legal owner of a property. In some cases, pending resolution of disputes, the legal owners as well as the beneficial owners are assessed to tax in respect of the same income. As a measure of rationalization, the Bill seeks to enlarge further the meaning of the expression "owner of house property", given in clause (iii) of section 27 by providing that a person who come to have control over the property by virtue of such transaction as are referred in clause (f) of section 269UA will also be deemed to be the owner of the property. The amendment also seeks to enlarge the applicability of this clause to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er as well as the learned first appellate authority erred on law and on facts. It is not necessary that every business venture should result in profit. What the assessing officer and the learned CIT (Appeals) did was to estimate income from an asset that did not exist and this is contrary to the principles of real income and against the law laid down by various judicial pronouncements. 18. The learned AR further submitted that on this count alone the assessment order deserves to be quashed. The assessing officer, while not taking the real cost (that did not exist) on the date of the agreement applied the imaginary cost to the built up area as well as to the parking area uniformly in arriving at the full value of consideration. This act of the assessing officer is arbitrary and against principles of accounting and costing as well as determination of real income taxable under the Income Tax Act. The AR submitted that, had the development agreement not been cancelled, there is no denial that transfer of his land has taken place and that he would have gained from it. The issue is how much is the real gain that is to be taxed and what is the criteria in arriving at the real capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change as understood in clause (i) of section 2(47). There was no force in the argument that the handing over of the possession was not in pursuance of part performance of the contract. Possession of the land being one of the interests in property had been transferred to the developer who also would be enjoying the usufruct of the land. If the shield of section 53A was available to the developer, it obviously meant that handing over of the possession was pursuant to the transfer contemplated under the Transfer of Property Act and hence under clause (v) of section 2(47}. In the present case, this was not a sale transaction as money was not the consideration but some other valuable consideration was passing to the assessee in the form of 4-1/2 flats. Therefore, the transfer in the present case was for consideration and it was immaterial that the consideration may be received in future. Therefore, the development agreement in the present case had the effect of transfer as contemplated in section 2(47). (Head Note)" 22. The learned DR submitted that the case of the assessee is identical to that of Dr. Maya Shenoy (cited supra). Accordingly, the assessee was liable for capital gains in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nically accrue but if it arises from the agreement in question, then the deeming provisions shall come into operation. Another point is also equally noticeable that by the presence of the deeming provision, the income on account of arousal of the capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place. Due to the presence of this statutory fiction, the actual year in which the entire sale consideration is received, is beside the point but what needs to be judged is the point of time at which the transfer took place either by handing over of the possession or by allowing the entry into the premises or by making the constructive presence of the vendee nevertheless duly supported by a legal document. 26. But the issue do not get settled only by the interpretation of s. 45 and s. 2(47)(v) because the definition of "transfer" not merely prescribes allowing of possession but to be retained in part performance of a contract of the nature referred in s. 53A of the Transfer of Property Act. Therefore, it is further requisite to deal with the relevant section contained in Transfer of Property Act. Transfer of Property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose. The term "transfer" is to be read along with the s. 45 and s. 2(47)(v) of IT Act. It is pertinent to clarify that one must not mistake to identify the issue of capital gain with the term "transfer" as defined in s. 54 of Transfer of Property act. At the cost of elaboration, we may like to add that in the past there was a long line of pronouncements; while deciding income tax cases, that unless and until a sale deed is executed and that too it is registered, transfer cannot be said to have been effected. The consequence of said catena of decisions was that no capital gain tax was directed to be levied so long as the "transfer" has no taken place as per the generally accepted connotation of the term under Transfer of Property Act. The resultant position was that the levy of capital gain tax thus resulted in major amendments in the income-tax statute. The main objective of those amendments was to enact that for the purposes of capital gains, the transaction involving transfer of the nature referred are not required to be registered under Registration Act. Such arrangement does not include transfer of certain rights vesting to a purchaser; however such "transfer" does confer cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction which has direct and immediate bearing on allowing the possession to be taken in part performance. It is at that point of time that the deemed transfer takes place. According to us the possession as contemplated in cl. (v) need not necessarily be sole and exclusive possession, so long as the transferee is enabled to exercise general control over the property and to make use of it for the intended purpose. The mere fact that the assessee owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of the agreement, did not restrict the rights of the developer or did not introduce any incompatibility. In a situation like this when there is a concurrent possession of both the parties, even then cl. (v) has its full role to play. There is no warrant to postpone the operation of cl.(v) to that point of time when the concurrent possession would become exclusive possession of the developer. Any other interpretation i.e., possession means exclusive possession, shall defeat the purpose of amendment. The possibility of staggering of payment linked with possession is ruled out by this amendment so that the taxability of gain ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2005, as evidenced by the "Delivery Note" of the same date. Under the circumstances, there was indeed an exchange of property which amounted to a transfer within the meaning of sec. 2(47)(v) of the Act and the gain resulting from such transfer was indeed taxable in the year in which the Development Agreement giving vacant and peaceful possession of the property to the Developer was entered into by the assessee, as held by the Hon'ble Bombay High Court in the case of Chaturbuj Dwarakadas Kapadia vs. CIT (supra) and in the several decisions of the Jurisdictional ITAT, Hyderabad, including that in the case of Dr. Maya Shenoy, Secunderabad (supra). Since the Development Agreement in the assessee's case has been executed on 2.8.2004 and the vacant and peaceful possession also was given in 7.3.2005 itself, such gains were indeed to be taxed in the F.Y. 2004-05, relevant to the A.Y. 2005-06. (h) As regards the contention of the assessee's representative that the said decisions are not applicable to the assessee's case, it is clear that no reasons for such view could be ever furnished by him. Similarly, there is no merit in the contention that the Development Agreement co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word used and that such a construction placed on the word in a deed as is most agreeable to the intention of the parties. There are grounds appearing from the face of the instrument affording proof of the real intention of the parties, then that intention would prevail against the obvious and ordinary meaning of the words used. Entering into the property and handing over of the possession was instantaneous thus entire conspectus of the case has attracted the provision of S. 45 of the Act on fulfilment of conditions laid down in section 53A of the Transfer of Property Act. In our opinion, the real intention of the parties herein is to be seen. 30. Accordingly, we decide the above issue relating to transfer of property u/s. 2(47)(v) of the IT Act in favour of the Department. We also hold that subsection (47) of s. 2 was amended by the Finance Act, 1987 w.e.f. 1st April, 1988 by inserting new sub-cls. (v) and (vi) thereunder. These two new sub-clauses provide that 'transfer' includes (i) any transaction which allows possession to be retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act; and (ii) any transaction entered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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