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TMI Blog2018 (5) TMI 1275X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of the following substantial question of law; "Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the appellant would not be entitled to benefit of deduction under section 54F of the Income Tax Act, 1961 since the construction of the flats for personal use was completed before the sale of the capital asset ?" 2. The facts, being peculiar, we may notice them at the outset. The appellantassessee is an individual. The appeal arises out of the assessee's Return for the A.Y. 200910. The assessee owned land with a bunglow on such land. The assessee demolished the bunglow to construct 08 flats on the land, some of which would be occupied by her for her own residence. The rest she intended to sell. The assessee retained 04 flats for her own use. The remaining 04 were meant for sale. The details of the names of buyers of these flats, dates of agreements to sale, dates of sale deeds and details of payments received by the assessee under the agreements to sale are as under; Sr. No. Name of the Buyer Date of Sale Deed Date of Agreement to Sale Date of cheques & payment 1 Kankuben Mansingbhai Patel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciated the facts and by his well reasoned order held that Assessee is not eligible for deduction u/s.54F. Before us, the ld. AR could not bring any decision of any High Court in support of his contention where it has been held that even the construction of residential house before the date of transfer would be eligible for deduction u/s.54F. Further, the case laws relied upon by the ld. AR are distinguishable on facts. 13. In the case of Smt. Tarulata Shyam & others v. CIT (1977) 108 ITR 345 (SC) the Hon'ble Apex Court has held that there is no scope for importing into the statute words which are not there. Such importation would be, not to construe, but to amend the statute. Even if there be a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation. The intention of the legislature is primarily to be gathered from the words used in the statute. Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however, great the hardship may appear to the judicial mind to be. 14. In view of the aforesaid ratio, we are of the view that the contention of the ld. AR that the provisions of Section 54F bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the present case, all agreements to sale were executed prior to completion of construction. The Tribunal, therefore, committed a serious error in denying benefit of deduction u/s.54F of the Act to the assessee. 8. In support of his contentions, counsel for the assessee relied on the following decisions; (A) Heavy reliance was placed on the judgment of the Supreme Court in case of Sanjeev Lal & others v. CIT and another reported in [2014] 365 ITR 389 (SC). On the basis of such judgment, it was contended that upon execution of agreement to sale, a capital asset gets transferred. For the same purpose, reliance was also placed on the decision of the Division Bench of Delhi High Court in case of Commissioner of Incometax II v. Kuldeep Singh reported in [2014] 226 Taxman 133 (Delhi) and also of Allahabad High Court in case of Commissioner of IncometaxII, Agra v. Shimbhu Mehra reported in [2016] 236 Taxman 561 (Allahabad). (B) The decision of Supreme Court in case of R.B. Jodha Mal Kuthiala v. CIT, Punjab, J & K and Himachal Pradesh reported in [1971] 82 ITR 570 (SC) was also relied upon, in which it was observed that for the purpose of Section 9 of the Incometax Act, 1922, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of Supreme Court in case of Vania Silk Mills Pvt. Ltd. v. CIT, Ahmedabad reported in 1991 (191) ITR 647 was cited, in which, in the context of the definition of the term "Transfer" in Section 2(47) of the Act, it was observed that the same is inclusive and therefore, extends to events and transactions, which may not, otherwise, be transfer according to its ordinary, popular and natural sense. The expression "extinguishment of any rights therein" will have to be confined to extinguishment of rights on account of transfer and cannot be extended to mean any extinguishment of rights independent or otherwise than on account of transfer. (I) A decision of the Division Bench of this Court in case of Rustom Spinners Ltd. v. CIT reported in 1992 (198) ITR 351 was cited, in which, the assessee had acquired the right under a sale agreement for a consideration of ₹ 5 Lakhs and subsequently, received surplus of ₹ 9 Lakhs on assignment of the rights so acquired. The assessee disputed that such surplus could not be taxed as short term capital gain. The Court negatived such contention observing that it cannot be stated that no assignment was made by the assessee. Once it is h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axman 499 (Delhi), the Division Bench of Delhi High Court observed that mere grant of permissive right by the assessee to construct building on a plot of land would not amount to transfer of capital asset. (B) In an unreported decision dated 12.01.2012 rendered by the learned single Judge of Punjab and Haryana High Court in case of Sukhwinder Kaur v. Amarjit Singh and others in Civil Revision No.2616 of 2011, it was observed that an agreement to sell a property itself does not create any right or title in the property and that it is the sale deed, which, when executed, will create right, title and interest in the property. These observations were made in the context of requirement of compulsory registration of agreement to sale and whether failure to do so would make the document inadmissible in evidence in a suit for specific performance. (C) In case of Smt. Shail Moti Lal v. CIT, Chandigarh reported in [2013] 218 Taxman 298 (P&H), the Division Bench of Punjab and Haryana High Court, in the context of transfer of capital asset, held that the transfer would take place only on the execution of the sale deed and the date of agreement to sell cannot be treated as the date of trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refer to the statutory provisions to resolve the controversy. Section 45 of the Act pertains to capital gains. Subsection (1) thereof provides that any profit or gain arising from the transfer of a capital asset effected in the previous year shall, save and otherwise provided in Sections 54, 54B, etc., be chargeable to tax under the head "capital gains" and shall be deemed to be the income of the previous year when the transfer took place. The terms "capital asset" and "transfer" have been defined under Sections 2(14) and 2(47) of the Act respectively. Clauses (a) and (b) of Section 2(14) of the Act define "capital asset" as (a) a property of any kind held by the assessee, whether or not connected with his business or profession and (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992. The remaining portion of this definition is in the nature of exclusion and excludes the stock in trade, personal assets, agricultural land, etc. 13. Section 54F of the Act carries the title "capital gain on transfer of certain capital assets not to be charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t defines "sale" as a transfer of ownership in exchange for a price paid or promised or partpaid or partpromised. It further provides that transfer in case of a tangible immovable property of a value of ₹ 100 and above or reversion of other intangible thing can be made only by a registered instrument. It is undisputable that an agreement to sale does not convey a property from one person to another, either in present or even in future. An agreement to sale an immovable property is a bilateral contract under which the two parties, i.e. the buyer and the seller, agree to certain terms and conditions, subject to which the property in question would be transferred by the seller to the buyer for a decided sale consideration. The terms and conditions of the agreement to sale are bound to be different in each case. However, the common thread would be the commitment of the owner of the property to convey to the purchaser the right, title and interest in such property upon the purchaser paying the agreed consideration in agreed manner. It is only after such bilateral obligations are discharged that the execution of the sale deed would take place and it is this sale deed, which is comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of bilateral contract between the seller and the buyer. Under such agreement, the seller agrees to transfer the title in the property to the buyer, upon the buyer performing his part of the obligations, mainly, revolving around the payment of sale consideration on agreed terms. Such agreement to sale, however, has to culminate into a registered sale deed, so as to transfer the title of property in question from the seller to the buyer. There may be multiple reasons why such eventuality may never arise and these reasons could be entirely different from the seller refusing to perform his part of the obligations arising out of the contract or for some such reason, the transaction running into legal controversies. Some of the imaginable reasons could be the inability of the seller to clear the title of the property due to which the contract may be frustrated or rescinded with mutual consent or the refusal or inability of the purchaser to pay the sale consideration. 18. An agreement to sale immovable property does not cast obligations only on the seller. It is based on reciprocal promises to be performed by both sides. If the purchaser fails to discharge his obligations ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act clearly provides that in order to avail benefit under the said Section, one must purchase a residential house or a new asset, within 01 year prior to or 02 years after the date on which the transfer of residential house in respect of which the long term capital gain had arisen, has taken place. The Court, therefore, noted that looking to the relevant dates, if one considers the date on which the assessee had decided to sell the property as the date of transfer or sale, then the appellantassessee would be entitled to benefits under Section 54 of the Act. The Court, therefore, posed a question to itself whether the agreement to sale, which was executed on 27.12.2002, can be considered as a date on which the property, i.e. the residential house, had been transferred. The Court observed that in normal circumstances, by executing an agreement to sale of an immovable property, a right in personem is created in favour of the transferrer. In such situation, the vendee is restrained from selling the property to anyone else. However, the question still remains whether the entire property can be said to have been sold at the time when the agreement to sale was entered into. The Court w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCC 247 that a contract of sale itself does not create any interest or charge in the property, which is expressly declared u/s.54 of the Transfer of Property Act. The Court, in this context, concluded as under; "12. Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of sections 54 and 55 of the TP Act and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted u/s.53A of TP Act). According to TP Act, an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of the TP Act enacts that sale of movable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge no its subject matter." 22. The Delhi High Court in case of Kuldeep Singh (supra) relied on the observations of the Supreme Court in case of Sanjeev Lal (supra) in a situation where, the assessee, having sold his residential property, had entered into an agreement with a builder within the prescribed period of 02 years from such sale for purchase of flat, the payment of which was lin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as during which Assessment Year, i.e. A.Y. 199697 or 199900, the liability of the assessee for capital gain arose. There was no dispute between the assessee and the Revenue that the liability did arose. The only question was when such liability can be said to have arisen. In this background, the Court noted that what the assessee had entered into was a development agreement, which would enable the builder to make profits by building and selling the flats at a profit. It was precisely for this reason that the Legislature had introduced clause( v) to Section 2(47) r/w. Section 45 of the Act, which indicates that capital gain is taxable in the year in which such transaction is entered into even if the transfer of immovable property is not effective or complete under the general law. The facts of the case and the question which arose before the Court were, thus, very different. 25. Interestingly, in case of Vania Silk Mills (supra), the brief facts were that the assessee Company was engaged in the business of manufature and sale of artsilk cloth. A fire broke out in the premises of the Company causing extensive damage to the machinery. By way of settlement of insurance claim, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement to purchase a residential plot at Malabar Hill, Bombay and had paid ₹ 90,000/as earnest money. The agreement was in respect of 5000 square yards out of a larger plot of land and the price was fixed at ₹ 175/per square yard. The balance purchase price was to be paid on completion of construction, which will be done within six months from the date of agreement. This transaction, however, ran into legal controversies. Eventually, it was agreed that the assessee would receive a sum of ₹ 5.90 Lakhs, which would include the earnest money of ₹ 90,000/paid by him from M/s. Advani and Batra, upon which the assessee would transfer and assign in favour of M/s. Advani and Batra, the assessee's right and title under the agreement entered with the owner for purchase of the property. The assessee passed on a receipt of having received such amount of ₹ 5 Lakhs, being the consideration for transfer and assignment of right, title and interest under the agreement. Relying on the words of the receipt, the Assessing Officer held that the assessee was liable to pay capital gain tax after adjusting the expenses incurred by the assessee. On a reference, the issue f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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