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TMI Blog2014 (8) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... .10.1994. As per the said agreement, the developers agreed to construct apartments on the property and retain 70% of the undivided share of land of the property and 70% of the super structure as and towards developer's share and the remaining 30% of the built-up area and proportionate undivided share of land of the property was to be given to the share of the assessees. The developers did not comply with the joint development agreement till the year 2000. In the year 2000, the developers intended to start construction as per the Joint development agreement. At that point of time the assessees agreed to sell their 30% of the share of the built-up area and proportionate undivided share of land of 30% of the property to M/s. Glory Estate P. Ltd., for a sum of Rs. 8.35 crores. The agreement dt 11.11.2000 was accordingly entered into between the parties. The developers agreed to pay the sale consideration in 35 instalments over a period of 36 months, from the date of agreement of sale as per the instalment schedule annexed to the agreement of sale. 03. For A. Y. 2001-02, notices u/s.148 of the Act, dt 28.03.2008, were issued to K. M. Nagaraj and Smt. Sathya Prema, dt 28.03.2008. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r him any right in respect of the property 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" It was submitted that Section 53A of the Transfer of Property Act and section 2(47) (v) requires that the transaction should involve the transfer of possession of the immovable property from the transferor to the transferee or the transferee should continue to retain possession after the transaction. Without transfer of possession to or retention of possession by the transferee, these provisions are not attracted. The Assessees pointed out that in their case, they had not put the developer in possession of the land either under the joint development agreement dated 26.10.1994 or under agreement for sale dated 11.11.2000 relevant to the previous year 1994-1995 or 2000- 2001. The Assessees continued to retain possession of the land till the execution of the Sale deeds in favor of the prospective owners of apartment. The Assessees pointed out that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus claimed that no capital gains chargeable under the section 45 have been offered to tax during the assessment year 2001-2002. 05. The Assessing Officer completed the assessments u/s.143(3) r.w.s.147 of the Act, in the case of both the assessees on 31.12.2008. In the orders of assessment passed in the case of both the assessees, there is no discussion with regard to the claim of the assessee made in the letter dt 29.12.2008, regarding capital gain having accrued during the previous year relevant to A. Y. 2001-02 as claimed by the assessee. Nevertheless, the fact that the assessee filed this letter and the same was taken cognizance of by the Assessing Officer before completing the assessment in the case of both the assessees is not disputed. 06. The CIT in exercise of his powers u/s.263 of the Act was of the view that the orders of assessment dt 31.12.2008 passed by the Assessing Officer in the case of both the assessees was erroneous and prejudicial to the interests of Revenue. According to the CIT, the Assessing Officer ought to have held that there was a transfer of a capital asset by the assessee by virtue of agreement dt 11.11.2000 and capital gain had accrued during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Industries Ltd. (243 ITR 83) (SC) * CIT v. Gabriel India Ltd. (203 ITR 108) (Bom) * Infosys Technologies Ltd. (287 ITR (AT) 211) The assessee also pointed out that it had received only a meager consideration out of the total sale consideration during the previous year and that the payment was spread over a period of three years. 07. The CIT however did not agree with the submissions made by the assessee. He firstly held that the Assessing Officer did not apply his mind to the facts of the case in all perspective and therefore the order made by him without application of mind is erroneous. In this regard the CIT observed that the Assessing Officer had not discussed the issue in the order of assessment. The CIT however found that the assessees had explained their stand on the issue in their letters dt 29.12.2008 filed before the Assessing Officer before completion of the assessment proceedings. With regard to the decision of the Hon'ble ITAT in the case of A. V. Sumangala (supra), on which the assessees placed reliance before the CIT, he found that in that case the Tribunal held that handing over possession under an agreement for collateral purpose of construction of a buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elay of about 242 days in filing the appeals. Originally the assessees had computed the delay in filing the appeal as 232 days. The Registry however pointed out that the delay in filing the appeal was 242 days. Accordingly, a revised affidavit was filed by the assessees explaining the reasons for delay in filing the appeal belatedly. It has been submitted by the assessees in the affidavit that after the order u/s.263 of the Act was received by them, their counsel did not advise them that an appeal should be filed against the said order before the ITAT and that an appeal needs to be filed only against the order which the AO passes giving effect to the directions of the CIT in the order u/s.263 of the Act . Later, the Assessing Officer passed an order giving effect to the order passed u/s.263 of the Act dt 29.12.2007. Thereafter, the papers were taken to the present counsel with regard to the further course of action to be taken. The present counsel examined the records and advised the assessees that appeals against the orders u/s.263 of the Act ought to have been filed before the Tribunal. Immediately the assessees filed the appeals before the Tribunal. In the meantime there occurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled reply dated 29.12.2008 to the AO in the course of assessment proceedings and after considering the same had duly passed the order dated 31.3.2008 u/s.143(3) read with Sec.147 of the Act. These facts are not disputed by the CIT in the impugned order. The CIT in the impugned order has however proceeded to hold that the AO has failed to apply his mind and appreciate the facts narrated by the Assessee. In this regard the learned counsel for the Assessees drew our attention to the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd. 332 ITR 167 (Del) wherein the Hon'ble Delhi High Court was dealing with a case where jurisdiction u/s.263 of the Act was exercised by the CIT on the ground that the order of assessment passed by the AO does not contain elaborate discussion. It was not disputed by the Revenue that the AO had made due enquiries but the order of the AO did not contain details reasons as to why he is accepting the claim of the Assessee. The Tribunal quashed the order u/s.263 of the Act holding that the order of the AO cannot be termed to be erroneous or prejudicial to the interest of the Revenue. On further appeal by the Revenue, the Hon'ble Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s specifically mentioned as follows: "Nothing herein contained shall be construed as delivery of possession in part performance of any Agreement of sale under Section 53-A of the Transfer of Property Act." It was submitted that in the light of the aforesaid clause in the JDA dated 26.10.1994 and further clause 6.1. & 6.2 of the Agreement for sale dated 11.11.2000 wherein it is again reiterated that possession of the property would be given at the time of registration of the sale deed, the conclusions of the CIT in the impugned order are contrary to facts. 15. With regard to the conclusion of the CIT that the clauses in the Agreement are only to mask the transaction which in substance was transfer as defined in Sec.2(47)(v) of the Act, the learned counsel for the Assessee submitted that the CIT cannot rewrite an agreement between the parties just by making a casual observation that substance of the transaction will prevail over the form. It was pointed out that the Assessees have in AY 2004-05 to 2006-07 executed registered sale deeds conveying their share of 30% of built up area and undivided share of land to nominees of M/S.Glory Estates Pvt.Ltd. and declared capital gain on su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (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 [1]: For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA;" 18. Sec.269UA of the Act contains certain definitions for the application of Chapter XXC of the Act. The same reads thus: "Sec.269UA Definitions. In this Chapter, unless the context otherwise requires,- (a) to (c)..... (d) "immovable property" means- (i) any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also. Explanation : Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. Therefore invocation of jurisdiction u/s.263 of the Act on the ground that the AO did not apply his mind while concluding the assessment, in our view, cannot be sustained. 20. The next aspect to be seen is as to whether there was transfer of the property by the Assessees during the previous year so as to attract the charge to tax on capital gain on transfer of the property u/s.45 of the Act. On this issue the CIT in our view has wrongly come to the conclusion that there was delivery of possession of property by the Assessees. The CIT accepts that as per the JDA dated 26.10.1994 as well as the Agreement dated 11.11.2000 there was no clause regarding delivery of possession at the time of the agreement and that possession was to be delivered only at the time of registration of the sale deed. The CIT however ignores these clauses as according to him the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not "immovable Property" but on the basis of the substantive provisions of Sec.2(47) of the Act. In such circumstances, we are of the view that reference made by the learned DR to the provisions of Expln.-1 to Sec.2(47) of the Act are irrelevant. 23. We may also add that The Finance Act, 1987 inserted at the end of subcl. (iv) the word "or" and present sub-cls. (v) and (vi) along with Explanation w.e.f. 1st April, 1988. The object of inserting sub-cl. (vi) was to bring within the ambit of "transfer", transfer of certain rights accruing to a purchaser, by way of becoming a member of or acquiring shares in a coITA. operative society, company or association of persons, or by way of any agreement or any arrangement whereby such a person acquires any right in any building which is either being constructed or which is to be constructed. Transactions of these nature are not required to be registered under the Registration Act, 1908 and hence such transactions resulted in escapement of capital gains tax although such transactions conferred the privileges of ownership without transfer of title in the building and were a common mode of acquiring flats particularly in multi-storeyed cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty, legal title or ownership is not effectively conveyed to the transferee although transferee might have paid entire consideration and/or obtained possession from the transferor in pursuance of contract of sale. "Transfer" in section 2(47) also envisaged execution of registered deed in such circumstances. Capital gains become liable to be charged to tax only if they arise as a result of "transfer" of capital asset and the date on which they arise is date of "transfer". If as a result of mutual arrangement by parties or otherwise, no registered deed is executed even after transaction is completed by delivery of possession and receipt of consideration, capital gains tax would escape assessment altogether or if such execution of registered sale-deed is postponed, the capital gains tax would also be postponed. In several cases it suited the parties to complete such transactions without execution of registered deed and thereby evade payment of tax on capital gains. It is in order to plug this loophole that cl. (v) was inserted in section 2(47) to lay down that transfer would include any transaction involving allowing of possession of any immovable property to be taken or retained in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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