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TMI Blog2017 (10) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... under the JDA possession was or was not taken; whether only a licence was granted to develop the property; and whether the developers were or were not ready and willing to carry out their part of the bargain. Since we are of the view that sub-clause (v) of Section 2(47) of the Act is not attracted on the facts of this case, we need not go into any other factual question. However, the High Court has held that Section 2(47)(vi) will not apply for the reason that there was no change in membership of the society, as contemplated. We are afraid that we cannot agree with the High Court on this score. Under Section 2(47)(vi), any transaction which has the effect of transferring or enabling the enjoyment of any immovable property would come within its purview. The High Court has not adverted to the expression or in any other manner whatsoever in sub-clause (vi), which would show that it is not necessary that the transaction refers to the membership of a cooperative society. We have, therefore, to see whether the impugned transaction can fall within this provision. A reading of the JDA in the present case would show that the owner continues to be the owner throughout the agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UT OF SLP (CIVIL) NO.580 OF 2016), CIVIL APPEAL NO. 15625 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.562 OF 2016), CIVIL APPEAL NO. 15645 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.1565 OF 2016), CIVIL APPEAL NO. 15630 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.568 OF 2016), CIVIL APPEAL NO. 15634 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.576 OF 2016), CIVIL APPEAL NO. 15626 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.564 OF 2016), CIVIL APPEAL NO. 15627 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.565 OF 2016), CIVIL APPEAL NO. 15644 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.1562 OF 2016), CIVIL APPEAL NO. 15641 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.587 OF 2016), CIVIL APPEAL NO. 15631 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.572 OF 2016), CIVIL APPEAL NO. 15635 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.577 OF 2016), CIVIL APPEAL NO. 15649 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.1628 OF 2016), CIVIL APPEAL NO. 15640 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.586 OF 2016), CIVIL APPEAL NO. 15651 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.1630 OF 2016), CIVIL APPEAL NO. 15638 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.584 OF 2016), CIVIL APPEAL NO. 15629 OF 2017 (ARISING OUT OF SLP (CIVIL) NO.567 OF 2016), CIVIL APPEAL NO. 1563 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... civil appeals, as learned counsel appearing for both sides have submitted that common substantial questions of law are involved in all these appeals. 3. The present appeals arise from a judgment of the Punjab and Haryana High Court where a large number of appeals were disposed of under Section 260A of the Income Tax Act, 1961. The following substantial questions of law were raised before the High Court: i) Whether the transactions in hand envisage a transfer exigible to tax by reference to Section 2(47)(v) of the Income Tax Act, 1961 read with Section 53-A of the Transfer of Property Act, 1882? ii) Whether the Income Tax Appellate Tribunal, has ignored rights emanating from the JDA, legal effect of non registration of JDA, its alleged repudiation etc.? iii) Whether possession as envisaged by Section 2(47)(v) and Section 53-A of the Transfer of Property Act, 1982 was delivered, and if so, its nature and legal effect? iv) Whether there was any default on the part of the developers, and if so, its effect on the transactions and on exigibility to tax? v) Whether amount yet to be received can be taxed on a hypothetical assumption arising from the amount to be rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of ₹ 106.425 crores, for which a registered sale deed for land of an equivalent value being 7.14 acres, also earmarked on the demarcation plan, was to be conveyed. 6. The developers made payments only up to the 2nd instalment payment, and 7.7 acres of land was conveyed as mentioned, which we have been reliably informed, has since suffered payment of capital gains tax for assessment years 2007-2008 2008-2009. The problem which arose for the subsequent assessment years was that, due to pending proceedings, first in the Punjab and Haryana High Court and thereafter in the Delhi High Court, the necessary permissions for development were not granted, as a result of which the JDA did not take off the ground. For the previous year relevant to the assessment year 2007-08, the assessee filed an original return of income on 07.12.2007, declaring an income of ₹ 2,50,171/-. The return of income tax for the assessment year was later revised, on 07.10.2009, declaring an income of ₹ 30,08,606/-, which included capital gains of ₹ 27,58,436/-. According to the assessee, ₹ 36 lakhs received in the subsequent assessment year 2008-09 were also offered for tax un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with law. In view of the aforesaid stand, while disposing of the appeals, we observe that the assessee-appellants shall remain bound by their said stand. 6. The issue of exigibility to capital gains tax having been decided in favour of the assessee, the question of exemption under Section 54F of the Act would not survive any longer and has been rendered academic. 7. The Tribunal and the authorities below were not right in holding the assessee-appellant to be liable to capital gains tax in respect of remaining land measuring 13.5 acres for which no consideration had been received and which stood cancelled and incapable of performance at present due to various orders passed by the Supreme Court and the High Court in PILs. Therefore, the appeals are allowed. 10. Learned counsel for the revenue has argued that the Assessing Officer and the CIT (Appeals), as well as the ITAT, were all correct in bringing capital receipts under the JDA to tax as capital gains . According to the learned counsel, the present case is squarely covered by Section 2(47)(v) as Section 53A of the Transfer of Property Act, 1882 is applicable to the transaction under the JDA. According to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts of this case. According to the learned counsel, what was appreciated by the High Court and missed by the ITAT was the fact that only two parcels of land, admeasuring 7.7 acres, were conveyed, for which capital gains tax has been paid. Since the rest of the project could not go through for want of various permissions, it is clear that no capital gain, in fact, arose or accrued to the assessees. According to the learned counsel, under Section 45 read with Section 48 of the Income Tax Act, profits and gains should arise from the transfer of a capital asset and income should be computed after full value of the consideration has been received or accrued. Since no income was received or had accrued, as the project was finally terminated by the owners on 13.06.2011, it was clear that the High Court judgment was correct. Further, sub-clause (vi) of Section 2(47) also would not apply for the reason stated by the High Court, which is that it was not attracted because there was no change in membership of the society. 12. Having heard learned counsel for the parties, it is important to first set out the important clauses of the JDA dated 25.02.2007. 13. The JDA, as has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be: 2.1 The Owner herby irrevocably and unequivocally grants and assigns in perpetuity all its rights to develop, construct, mortgage, lease, license, sell and transfer the Property alongwith any and all the construction, Premises, hereditament, 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 ( Right ) and to execute all the documents necessary to carry out, facilitate and enforce the Right in the Property including to execute Lease Agreement, License Agreements, Construction Contracts, Supplier Contracts, Agreement for Sale, Conveyance, Mortgage Deed, Finance document and all documents and Agreements necessary to create and register the mortgage, conveyance, lease deeds, License agreement, Power of Attorneys, affidavits, declarations, indemnities and all such other documents, letters as may be necessary to carry out, facilitate and enforce the Right and to register the same with the revenue/ Competent authorities and to appear on our behalf before all authorities, statutory or otherwise, and before any court of law (the Development Righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lacs fifty thousand only) per plot holder of 1000 Sq. 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 plans/ Design and Drawings and grant of the final license to develop whereupon the construction can commence, whichever is later against which the Owner shall execute a registered sale deed for land of equivalent value being 6.36 Acres out of the Property as demarcated in green colour (also hatched in green colour) in the Demarcation Plan annexed hereto as Annexure V and bearing Khasra nos. 123/15, 123/6, 123/7 (balance part), 123/3 (part), 123//4//1/1, 123///4//1/2, 123//4/2, 123//5/1, 123//5/2, 123//5/3, 112/24 (part); (v) And the Balance Payment being ₹ 31,92,75,000/- (Rupees Thirty one crore ninety two lacs seventy five thousand only) calculated @ ₹ 24,75,000/- (Rs. Twenty four lacs seventy five thousand only) per plot holder of 500 Sq. yards and ₹ 49,50,000/-, ( Rupees Forty nine lacs fifty thousand only) per plot holder of 1000 Sq yards, to be made to the Owner and /or the respecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sign necessary forms, deeds or documents for the variation of mortgage, charge or encumbrance on the Property by depositing the original title deeds of the Property with any financial institution/ bank etc. THDC undertakes that the finance raise by way of mortgage of the Property of the Owner, with the bank/financial institutions shall be utilized only for the purpose of development of the project and shall keep the Owner informed in writing about the charge created on the Property and keep the Owner indemnified against all claims, costs for the bank / financial institutions from when. THDC may have availed loan facility in respect of the Project, in case, the Project is not completed in terms of this Agreement. 15. The JDA could, under clause 14, be terminated under certain circumstances by all the parties thereto. Since the owner alone terminated the aforesaid JDA, the relevant clause is clause 14(iv), which reads as under: 14(iv). The Owner shall have the right to terminate the Agreement only in the event of default by the Developers for making the Payment in accordance with the terms of this Agreement and the allotment of Flats within the time period as mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore 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 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.] Income Tax Act Section 2 - Definitions In this Act, unless the context otherwise requires, (47) transfer , in relation to a capital asset, includes, - (i) to (iv) xxx xxx xxx (v) any transaction involving the allowing of the possession of any 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 SCC 614 at 619, para 10. An agreement of sale which fulfilled the ingredients of Section 53A was not required to be executed through a registered instrument. This position was changed by the Registration and Other Related Laws (Amendment) Act, 2001. Amendments were made simultaneously in Section 53A of the Transfer of Property Act and Sections 17 and 49 of the Indian Registration Act. By the aforesaid amendment, the words the contract, though required to be registered, has not been registered, or in Section 53A of the 1882 Act have been omitted. Simultaneously, Sections 17 and 49 of the 1908 Act have been amended, clarifying that unless the document containing the contract to transfer for consideration any immovable property (for the purpose of Section 53A of 1882 Act) is registered, it shall not have any effect in law, other than being received as evidence of a contract in a suit for specific performance or as evidence of any collateral transaction not required to be effected by a registered instrument. Section 17(1A) and Section 49 of the Registration Act, 1908 Act, as amended, read thus: 17(1A). The documents containing contracts to transfer for consideration, any immova ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is to refer to the ingredients of applicability of Section 53A to the contracts mentioned therein. It is only where the contract contains all the six features mentioned in Shrimant Shamrao Suryavanshi (supra), that the Section applies, and this is what is meant by the expression of the nature referred to in Section 53A . This expression cannot be stretched to refer to an amendment that was made years later in 2001, so as to then say that though registration of a contract is required by the Amendment Act of 2001, yet the aforesaid expression of the nature referred to in Section 53A would somehow refer only to the nature of contract mentioned in Section 53A, which would then in turn not require registration. As has been stated above, there is no contract in the eye of law in force under Section 53A after 2001 unless the said contract is registered. This being the case, and it being clear that the said JDA was never registered, since the JDA has no efficacy in the eye of law, obviously no transfer can be said to have taken place under the aforesaid document. Since we are deciding this case on this legal ground, it is unnecessary for us to go into the other questions decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the parties. We are, therefore, of the view that this clause will also not rope in the present transaction. 24. The matter can also be viewed from a slightly different angle. Shri Vohra is right when he has referred to Sections 45 and 48 of the Income Tax Act and has then argued that some real income must arise on the assumption that there is transfer of a capital asset. This income must have been received or have accrued under Section 48 as a result of the transfer of the capital asset. 25. This Court in E.D. Sassoon Co. Ltd. v. CIT , (1955) 1 SCR 313 at 343 held: It is clear therefore that 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. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro ; See W.S. Try Ltd. v. Johnson (Inspector of Taxes) [(1946) 1 AER 532 at p. 539], and Webb v. Stenton, Garnishees [11 QBD 518 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. 18. Insofar as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement passbook, there was no corresponding liability on the Customs Authorities to pass on the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is, therefore, not the income of the assessee. 27. In the facts of the present case, it is clear that the income from capital gain on a transaction which never materialized is, at best, a hypothetical income. It is admitted that, for want of permissions, the entire transaction of development envisaged in the JDA fell through. In point of fact, income did not result at all for the aforesaid reason. This being the case, it is clear that there is no profit or gain which arises from the transfer of a capital asset, which could be brought ..... X X X X Extracts X X X X X X X X Extracts X X X X
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