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TMI Blog2015 (2) TMI 893X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement dated 1/4/2008 gives rise to taxable capital gains in the hands of the appellant u/s 2(47)(v) of the ITA, 1961. 3. The learned CIT(A)-II, Pune further erred in law and on facts in enhancing the alleged taxable capital gain by Rs. 12,00,00,000/- (thus taxing the total agreed consideration of Rs. 22,90,00,000/-) without appreciating that the transaction proposing transfer of development agreement did not fructify in reality. 4. Alternatively and without prejudice, the learned CIT(A)-II, Pune erred in not granting deduction of cost of acquisition while deciding the matter of taxability of alleged capital gain in the hands of the appellant. 2. The facts which are revealed from the record as under. The assessee is an individual and has received a property through Will in consequence to death of her father Shri Pannalal Z. Doshi. The said property in question is situated at S. No. 32A, 33A, 33B and 34A/2 + 1, FP No. 490 TPS III. Parwati, Pune. The assessee is co-owner of the said property along with her brother Shri Chandrawardhan P. Doshi. The assessee owned 2/3rd share in the property and 1/3rd belongs to her brother. The assessee and her brother have entered into a Develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per shall not be entitled to claim any compensatory amount, damages, costs, etc. made by them for any development or otherwise. The assessee contended that the payment of full consideration was the essence of the agreement. The assessee stated before the Assessing Officer that as per the terms of Development Agreement, it was contractual obligation on the developer to get the building plans sanctioned from Pune Municipal Corporation (PMC) prior to 18-10-2008 but the plans were never got sanctioned and the developer did not even submit the plans to the PMC. 3. In sum and substance it was a contention of the assessee before the Assessing Officer that the payment of full consideration before 01-02-2010 was condition precedent for possession as license and getting any right thereunder and as the developer has not made compliance of the contractual obligation hence, there was no passing of possession or transfer to the developer as contemplated u/s. 2(47)(v) of the Income-tax Act. The assessee also pleaded before the Assessing Officer that the case was pending in respect of dispute of the said property in the Civil Court (Sr. Division), Pune. The assessee stated that the Govt. of Mahar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised is that the transfer of the impugned property did not take place and, therefore, no capital gains arose. It has been contended that because of the nonfulfillment of the basic conditions of payment of entire consideration and getting plans sanctioned was not fulfilled by the developer and thus he was not entitled to get any rights to land including possession. The appellant has also submitted that the issue regarding amount received by the appellant falls u/s 51 of the Act, as advance money received and hence is not taxable. The appellant has also stated that the Assessing Officer has erred in holding that by making payment of 50% of the agreed consideration, M/s SKA had created a right in the land and, therefore, there was part performance of the contract. The appellant has also submitted that the development agreement and power of attorney are executed on a Rs. 100/-stamp paper and under the Transfer of Property Act, the undersigned does not give any right to the party u/s 53A of the Transfer of Property Act. The appellant has thus contended that the clauses of the Development Agreement make it clear that the possession is not handed over to the Developer. The contentions ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id property either in the name of self or the appellant. Some of the relevant clauses of the agreement which indicates the transfer of the property u/s 2(47) during the year are as under: "AND WHEREAS the VENDORS are in urgent need of moneys and due to time consuming litigations etc. have therefore decided to sell their development rights on 'AS IS WHERE IS BASIS'. AND WHEREAS the DEVELOPERS after verifying all document as demanded and furnished by the VENDORS and after carefully verifying the title of the VENDORS with due legal consultations with their advocates and legal consultants, the DEVELOPERS are satisfied with the title of VENDORS and their possibilities of retaining: all the said property and getting aforesaid matters and proceedings in their favour after perusing all the relevant documents thereto and taking all legal opinions thereto and are ready and willing to enter into this. DEVELOPMENT AGREEMENT on 'AS IS WHERE IS BASIS' and further are willing to do all further acts and deeds to get all such further compliance for getting the marketable and freehold title of the said VENDORS entirely at their own costs, consequences, risks and responsibilities and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,0007- (Rs Thirty Four Crores Thirty Five Lacks Only) on lump-sum basis without any regard to the area of the property that may be developable or sanctioned by the concerned authorities. 3. Out of the above mentioned total consideration amount, the Developers have paid Rs. 76,35,00,0007- (Rs. Sixteen Crores thirty Five Lacks Only) as NON-REFUNDABLE amount by Demand Draft. 4. .............. 5. .............. 6. .............. 7. The Developers shall for and on behalf of the VENDORS submit to the Pune Municipal Corporation plans for getting the said property developed. The Developers shall at their own costs get the said plans sanctioned by the Pune Municipal Council and other concerned authorities at their own cost, risks and responsibilities. 8. .............. 9. The essence of this agreement is that the Developers are satisfied with the title of the VENDORS, the DEVELOPERS have accepted the Development of the said property on 'AS IS WHERE IS BASIS' with the encumbrances aforesaid. 10. The VENDORS shall make and execute a proper Deed of Conveyance when called upon by the DEVELOPERS and such Conveyance shall be in favour of the Developers of their nominee or nominee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming under them and their respective estates and effects, of from and against all actions suits, proceedings, claims demands costs, charges and expenses that may be taken or made by any one claiming under them or his or her may be liable to pay suffer or incur on account of anything done or caused or committed or omitted to be done by the Developers or the person in whose favour a Power of Attorney hereby contemplated is executed by the VENDORS and that the said Indemnify shall continue to remain in full force and effect throughout for anything done or caused or committed to be done by the Developers or such persons the Power of Attorney is executed during the tenure of the said Power of Attorney. 19. The DEVELOPERS shall at their own costs and consequences obtain the necessary certificates and N.O.C.'s under the Income-tax Act, 1961, U.L.C. Act, 1976, and other concerned Govt, semi-Govt. authorities etc. as and when required for and on behalf of the VENDORS. 20................ 21................... 22.................. 23................. 24. It is specifically agreed that as the date hereof the said property shall be at the entire risks, costs and consequences of the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so observation that development agreement do not constitute transfer in general law, but effective transfer may be inferred on grant of irrevocable license to the developers on the basis of wider definition of transfer u/s 2(47)(v) of the Act. The date on which developer is allowed to enter upon the land and start developing, the land stands transferred. The same could constitute a transfer in relation to developer's share in that capital asset which is also in terms of section 2(47). It is by now settled that capital gains would accrue on the date on which possession of land was given to the developer for development purposes. In this regard, reliance is placed on the ratio of the following judicial decisions: Chaturbhuj Dwarkadas Kapadia Vs CIT (2003) 260 ITR 491 (Bom) Jasbirsingh Sarkaria Vs CIT (2007) 294 ITR 196 (AAR) Ms. Rubab Kazerani Vs JCIT (2004) 91 ITD 429 (Mum) (TM) ITO Vs Vikash Behal (2010) 36 DTR 385 (KOL) 4.6.1 The Three member Bench of Tribunal Mumbai in the case of Rubab H. Kazerani Vs Jt. CIT cited supra has held that capital gains would be taxable in the year in which assessee transferred the property in the manner prescribed in clause (v) and (vi) of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l control over the property so as to make use of it for the intended purpose, the mere fact that the owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of the agreement does not introduce incompatibility. The concurrent purpose of the owner who can exercise possessory rights 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. Clause (v) will have its full play even in such a situation. There is no warrant to postpone le operation of clause (v) and the resultant accrual of capital gains to a point of time when the concurrent possession will become exclusive possession of the developer/transferee after he pays full consideration. Possession given to the developer need not ripen into exclusive possession on payment of the installments in entirety for the purpose of determining the date of transfer. It is enough if the transferee has, by virtue of that transaction, a right to enter upon and exercise acts of possession effectively pursuant to the covenants in the contract. That amounts to legal possession.' 4.6.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en place as on the date of the development agreement i.e. on 13.09.2007. Therefore, the facts in the above decision of ITAT, Pune are materially different from the facts of the present case and the same cannot be applied to the case of the appellant. 4.7.1 In the case of General Glass Co. (P) Ltd. (108 TTJ 854), the assessee had received only a meager amount out of total sales consideration and the transferee was avoiding adhering to the payment schedule on one ground or the other and there was no certainty that the sales consideration would actually be realized by the assessee. It was a case where not only the transferee never performed his obligations under the agreement but also was not even willing to perform his obligations till the matter travelled to the High Court. In that background, the ITAT, Mumbai held that since the transferee was not willing to perform its obligations, agreement could not be said to be in nature of a contract referred to in section 53A of transfer of Property Act and the provisions of deemed transfer under section 2(47)(v) would not apply in such cases. Whereas in the instant case, the appellant received 50% of the consideration as on the date of dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008, the owners have granted development rights as is evident from the aforesaid clauses of the agreement and also the irrevocable power of attorney to develop, commence and complete the development. The Bombay High Court in 260 ITR 491 has observed that as per the contract if a power of attorney is intended to be given to the developers to deal with the property, the date of agreement would be the relevant date to decide the date of transfer u/s 2(47) and in the present case the' date is 01.04.2008. Moreover, the clauses of the agreement indicate that from the date of agreement or contract the taxes and outgoings have to be borne by the Developer through the rights in the property having been transferred to the developer. It is also relevant to point out that the transfer of a particular capital asset can take place only once unless it is split and sold in piecemeal by the owners. In the case on hand, the entire land has been given for the development as is evident from the clauses of the agreement dated 01.04.2008 to the Developer, SKA and the only conclusion which could be drawn for the effective date of transfer of land as contemplated u/s 2(47) is during A.Y. 2009-10 (01.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of possession to be taken or retained in part performance of a contract of nature referred to in section 53A of Transfer of Property Act 1882, would come within the ambit of expression 'transfer' and as the development agreement entered into on 12.07.2005 which contemplated taking over of possession of property for development fulfilled requirements of section 2(47)(v) and/therefore, the order passed by the Assessing Officer was to be upheld. 4.10 The appellant's view that under the Indian Registration Act, the unregistered documents does not give right to the party u/s 53A of the Transfer of Property Act, 1882, may be from the point of view of the State Department, but for the purposes of income-tax and the view taken by the Jurisdictional Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia (supra) the nature of agreement entered into by the appellant prima facie gets covered within the clause (v) of section 2(47) of the IT. Act. In this regard the notings made by the Hon'ble Supreme Court in the case of Southern Technologies Ltd. Vs JCIT(2010) 320 ITR 577 (SC) is relevant. The Court held that the IT Act is a separate code by itself and the taxable incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as it is evident from the Development Agreement dated 01.04.2008 and the power of attorney that the possession was not with the PMC but a litigation was on-going and the buyer M/s SKA after going through and verifying the entire documents and title of the Vendors i.e. the appellant, they expressed their satisfaction with the title of Vendors and, therefore, entered into the Development Agreement on 'AS IS WHERE IS BASIS'. It is also mentioned in the agreement on page 5 that the Vendors are in urgent need of money and due to time consuming litigation etc. have, therefore, decided to sell their development rights on 'AS IS WHERE IS BASIS'. Even after going through the subsequent order of the Suit dated 26.04.2012 filed by the appellant in the Court of Jt. Civil Judge, Pune reveals that the property is in possession of the appellant. In view of the aforesaid facts the contention of the appellant in this regard is prima facie not correct and tenable. 4.12 The appellant has also furnished the opinion of advocate Shri V.A. Abhyankar, on the issue of whether transaction entered into by the appellant and M/s SKA can be treated as transfer within the meaning of section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he consideration agreed upon may not be fully received as on the date of the agreement but if it arises from the agreement in question, then the deeming provisions of transfer under sec. 2(47) shall come into operation. The actual year in which the entire sale consideration is received is beside the point and what needs to be seen 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 by virtue of development agreement. The clauses in the development agreement and the power of attorney clearly indicate that there was passing of or transferring of control over the property in favour of the developer on the date of agreement i.e. on 01.04.2008. At this juncture, it may be relevant to refer to the ratio of the decision of jurisdictional High Court in the case of Charturbhuj Dwarkadas Kapadia vs. CIT (2003) 260 ITR 491 (Bom) wherein the Hon'ble High Court observed that once under some clause of the agreement a limited power of attorney is intended to be given to the developer to deal with the property, then the date of agreement would be the releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is apparent from the following:- a. There is an agreement for consideration signed on 1st April 2008 between the appellant and SKA. A power of attorney has also been executed. b. The agreement dated 01.04.2008 and the power of attorney are in writing. c. The agreement dated 01.04.2008 and the power of attorney are signed by the transferor i.e. the Appellant along with co-owner. d. The agreement dated 01.04.2008 and the power of attorney are for transferring the right, title and interest of whatsoever nature in or upon the aforesaid property of the transferor i.e. the Appellant. e. The transferee has taken possession of the property on 01.04.2008 itself in terms of the Agreement. f. The transferee (i.e. SKA) is not only willing and ready to perform his part c>f agreement but in fact has performed his part of agreement which is apparent from the various subsequent events. g. By virtue of the clauses such as (1) (3) (7) (9) (10) (12) (15) (17) (18) (19) among others indicate that the possession of the property has been taken by the transferee and that the transferee is willing and ready to perform it's part of agreement. 4.15 In the scheme of the Act, whenever an as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is determinate as per the clauses of the agreement, the entire consideration has been fixed for the land and the buyer or the developer M/s SKA has paid Rs. 16.35 crores out of the total sum of Rs. 34.35 crores. Thus the fact on record as brought out, clearly indicate the transfer u/s 2(47) of the property or asset u/s 2(14) liable for capital gains on the full consideration and not in part as contended by the appellant. The Calcutta High court in the case of CIT Vs Bhupinder Singh Atwal (1983) 140 ITR 928 (Cal) held that since this section creates an item of 'artificial income' its provisions should be strictly construed. The conditions as envisaged in Sec. 45 are satisfied in the present case so as to attract the charge of tax on the full value consideration. In the case of AC IT Vs A. Ram Reddy (2012) 52 SOT 521 (Hyd), it was held that total profits may alternately be received in any other year, but for the purposes of section 45, gain shall be deemed to be income in year of transfer of capital asset. 4.15.1 In case of Smt. Lalitha Ramaswamy Vs ITO (2001) 75 ITD 293 (Bom), the assessee had entered into an agreement for sale with regard to a bungalow at Bangalore an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt of transfer of capital asset, the expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset and the cost of any improvement thereto. It is, therefore, necessary to appreciate the significance and scope of the words 'full value of consideration' so as to identify amounts which constitute a part of the full value of consideration and the amounts which do not. In the case of CIT Vs George Henderson & Co Ltd. (1967), 66 ITR 622 (SC), the apex court was of the view that the expression 'full value on consideration cannot be construed as having reference to the market value of the asset transferred but the expression only meant the full value of consideration received by the transferee in exchange of the capital asset transferred by him. The Supreme Court also observed that in the case of a sale the full value of consideration is the full sale price actually paid. It was further of the view that the expression 'full value' means the whole price without any deduction, whatsoever, and it cannot refer to the adequacy or inadequacy of the price bargained for. In the case of CIT Vs Gillanders Arbuthnot & Co. (19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itles, interest and rights of the appellant to SKA. In view of the above, I hold that the transfer has taken place on 01.04.2008 in F.Y. 2008-09 relevant to A.Y. 2009-10 and the capital gain arising therefrom is taxable in the same assessment year. Thus, it is apparent that under section 48, the starting point for computation of capital gains is the amount of full value of consideration received or accruing as a result of a transfer of the capital asset. Thus the principle to be followed for the purpose of computing capital gains is that the assessee can be subjected to tax in respect of the income which actually accrues or arises to him, the actual receipt of the income being immaterial. According to plain reading of the provisions for computation of capital gain the full value of consideration for transfer be the basis for that purpose. Thus in the light of the foregoing discussion on the issue at hand the appellant's contention that the entire sum of Rs. 22.90 crores cannot be brought to tax is not tenable. The Ld. Counsel of the appellant has also referred to section 51 of the Act to show that the amount of Rs. 10.90 crores received by the appellant was an advance. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions relied on by both the parties. The main contention of the assessee is that to tax the Capital Gain there must be "transfer" of any capital asset within the meaning of Sec. 45 of the Income-tax Act r.w.s. 2(47) of the Act. The main plank of argument of Ld. AR is that there is no transfer within the meaning of Sec. 45 r.w.s. 2(47) of the Income-tax Act in the F.Y. 2008-09 relevant to the A.Y. 2009-10. He argues that the possession was never given to the developer even though Power of Attorney was executed in his favour. The Ld. AR referred to the terms and conditions mentioned in Development Agreement dated 01-04-2008 (Page Nos. 21 to 27 of the P/B). He submits that the developer never filed the plans to the PMC for sanction nor he complied with the main condition of payment of the balance consideration and hence, Sec. 53A of the Transfer of Property Act is not attracted at all. He submits that on the execution of the agreement, out of the total consideration of Rs. 34.35 crores, the developer paid Rs. 16.35 crores which is mentioned in the Development Agreement dated 01-04-2008 but all the postdated cheques given to the assessee and her brother were not honoured. He placed hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g default in payment, then the same shall attract and carry enhancement of said amount which is then balance and outstanding @ 11% (eleven per cent )to be calculated on monthly basis or part thereof as and by way of damages/enhanced value till 10/02/2010 and beyond this date i.e. 10/02/2010, and in such event of non-payment, non realisation of cheques fully or partly, this Development Agreement and Power of Attorney executed hereto, shall stand revoked and cancelled automatically without any further notice or prior intimation to the Developers. The Developers in such event shall not be entitled to claim any compensatory amounts whatsoever or as and by way of development/administrative or any other type of compensation, damages, costs, claims, expenses etc. made by them till then for any of the developmental or otherwise expenses etc. Further all the developments and improvements etc. made on and for and towards the said property shall be in favour of the VENDORS wholly without any payment thereto or compensation thereto. This condition is the essence of this agreement and agreed and accepted by the Developers. 6. It is pertinent to note that only after the clearance of aforesaid p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such a way whereby the developer was put into the entire custody of the property. In the present case, even though the Power of Attorney is executed in favour of the developer but there is a capping by specifically mentioning that developer will be like care taker of the property only and there is no indication that he was given the exclusive right to deal with the property. 12. In the case of Dr. Arvind S. Phadke (supra) the issue of part performance more particularly Sec. 53A of the Transfer of Property Act had come for the consideration and it is held as under: 16. Be that as it may, we are pointing out the aforesaid contours of the development agreement only to say that the allowing of possession on 13.09.2007 for the purposes of carrying out development activity was subject to condition, which was not fulfilled at that stage. Therefore, under these circumstances, the date of development agreement i.e. 13.09.2007, could not be the date on which assessee passed or transferred complete control over the property in favour of the developer. Pertinently, when the full consideration was not paid and the handing-over of vacant and absolute possession of the property was subject t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. yr. 1994-95 even though the agreement was entered into on 29th March, 1994 ? (b) Whether on the facts and the circumstances of the case and in law, the Hon'ble Tribunal was justified in concluding that the said property was not transferred by the assessee to the purchaser within the meaning of s. 2(47)(v) of the IT Act in the asst. yr. 1994-95 in spite of there being glaring evidence to rebut the claim of the assessee that the possession was given on 10th April, 1998 ? (c) Whether on the facts and the circumstances of the case and in law, the Hon'ble Tribunal was justified in concluding that the ratio laid down by the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT (2003) 180 CTR (Bom) 107 : (2003) 260 ITR 491 (Bom)are not applicable to the facts and circumstances of the case ?" 3. Mr. Gopal, the learned counsel for the respondent, pointed out that in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT (2003) 180 CTR (Bom) 107 : (2003) 260 ITR 491 (Bom) wherein almost identical issues were involved and the same was also relied upon by the Tribunal in its order. 4. In the aforesaid judgment, this Court had clearly taken a view that the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract. Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof." 19. The aforesaid provision of the Transfer of Property Act has been incorporated in the Act in terms of sub-clause (v) to section 2(47) of the Act. Because of insertion of sub-clause (v) of section 2(47) of the Act by the Finance Act, 1987 w.e.f. 01.04.1988 a transaction falling within the situation contemplated by section 53A of the Transfer of Property Act is liable to be treated as a 'transfer' in relation to capital asset for the purposes of the Act even in the absence of a conveyance deed. Section 53A of the Transfer of Property Act deals with the doctrine of the part performance of a contract and as per the Hon'ble Delhi High Court in the case of CIT vs. Reliance International Corporation Pvt. Ltd., 211 ITR 666 (Del), the aforesaid provision of the Transfer of Property Act does not confer title on the transferee on possession but merely imposes a statutory bar on the transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served as under: "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this court, to support their reasonings." 14. In our opinion, the finding of the Ld. CIT(A) in Para No. 4.16 of impugned order is erroneous on facts and law. In the light of our above discussion, we are of the opinion that the assessee has not given the possession of the property in question to the developer for F.Y. 2008-09 (A.Y. 2009-10) and hence, there is no transfer within the meaning of Sec. 45 r.w.s. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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