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TMI Blog2021 (5) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... as part performance of the contract would not in strict parlance come within the purview of an 'owner'. As per Shorter Oxford Dictionary, 'owner' means one who owns or holds something; one who has the right of claim or title to a thing. In view of the aforesaid factual and legal discussions, we are of the considered view that the assessee was occupying the asset for more than the qualifying period of 36 months and on assigning the right in the property, the gain earned is certainly qualified for LTCG. The submissions of revenue that the assessee was not in possession of the asset or that the right to specific performance accrued only in the year 2005 is not correct being contrary to the contents of various clauses the agreements to sale dated 06.04.1994 and the conveyance deed dated 08th May 2007, which we have discussed above. The assessee possessed the property since long and not from the date of making balance payment in the year 2005. It is settled legal position that the contents of documents should not be read in isolation but as a whole. Grounds of appeal raised by the assessee is allowed. - I.T.A No.754/AHD/2017 - - - Dated:- 22-10-2020 - Shri P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue as adopted by stamp valuation authority is far excess of the fair market value on the date of transfer of the said property. The assessee also contended that he had appointed an independent registered valuer, who valued the fair market value of the said property. On the contention of the assessee vide application dated 10.03.2014, the AO referred the case to the District Valuation Officer (DVO) to determine the fair market value of the asset/ property. The assessee further vide his application dated 30.03.2015 contended that section 50C is not applicable on the sale of the asset. The valuation report of DVO was not received by the AO till 31.03.2015. The AO recorded that the case was going to be time barred on 31.03.2015, accordingly the AO passed the assessment order under section 143(3) rws 147 on 31.03.2015. The AO treated /adopted the value of the property at ₹ 4.6 Crore, as adopted by stamp valuation authority and after granting benefit of indexation determined long term capital gain of ₹ 2.86 crores. 4. Aggrieved by the action of the ld.AO, the assessee filed appeal before the learned CIT(A). During the course of appellate proceedings, the report of DVO was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y capital gain should not be treated as short term capital gain in place of long term capital gain. In response to show cause notice, the assessee stated that assessee acquired the property on 06.04.1993 and the capital gain earned by the assessee on transfer of asset is long term in nature. The explanation furnished by the assessee was not accepted by the ld. CIT(A). The ld.CIT(A) directed the ld.AO to treat the capital gain as short term capital gain by passing the following order as under: 5.3. I have considered the appellant s contentions. The facts narrated above on the basis of agreements to sale and sale deeds executed by the appellant as a confirming party make it very clear that the land was transferred to the appellant when the appellant was handed over the possession by the sellers on 15.07.2006. The right of specific performance also accrued to the appellant on 27.05.2005 when full payments of consideration as agreed in the sale deeds were made. Prior to this, the appellant was not having any right in the land and hence, the rights transferred by the appellant as confirming party on the date of sale of these lands have been transferred within three years of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. Subsequently, the assessment was reopened on the basis of information received from the Stamp Valuation Authority (SVA) that sale deed of property was cleared on 27.05.2010 after charging additional stamp duty. The additional Stamp Duty was charged on valuation of property valued by the Stamp Valuation Authority at ₹ 4.67 Crores. The assessee offered sale consideration of ₹ 2 Crores received on execution of conveyance deed dated 08.05.2007. In the conveyance deed dated 08.05.2007, the assessee signed as confirming parties. 10. The ld.AR of the assessee further submits that on 06.04.1993 assessee entered into agreement for sale for purchase of a piece of land, wherein the assessee was already tenant. The assessee was having exclusive possession in the said property. As per agreement to sale dated 06.04.1993, the assessee agreed to purchase the property at the total consideration of ₹ 80 lakhs from two co-owners i.e. at ₹ 40 lakhs each, out of which ₹ 10 lakhs each was paid to both the owners by the assessee. In the agreement to sale deed 06.04.1993 the seller admitted the possession of assessee. The assessee sold the said property to Tanman Finv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r within three years. In support of his submissions the ld AR for the assessee relied on the following decisions; Rustom Spinners Ltd Vs CIT (198 ITR 351 Gujarat High Court), CIT Vs H. Anil Kumar [2012] 20 taxmann.com 530( Karnataka), Chandrasekhar Naganagouda Patil Vs DCIT 183 ITD 457 ( Bangalore Trib) and CIT Vs Vedprakash sons (HUF)207 ITR 148 (P H). 11. On the other hand, the DR for the Revenue supported the order of ld. CIT(A). The ld. DR for the revenue further submitted that assessee entered into agreement of sale of land with two share holders of land on 06.04.1993, registered on 12.04.1993 for sale considerations of ₹ 40 lakhs to each of the shareholders. The assessee made payment of ₹ 10 lakhs each to both the share holders only as an earnest money. These facts are duly recorded in the agreement of sale dated 06.04.1993, copy of which is filed by the assessee on record. Perusal of Clause 3, 4 and 5 make it clear that assessee was required to make balance payment of ₹ 30 lakhs to each of the share holders by cheque within 30 days of receipt of various terms as referred in the agreement. Further as per Clause 6 of the agreement, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave the possession of land and the right to specific performance in the same, there was no question of being treating the transfer of such land as Long Term Capital Asset. 13. In case of H. Anil Kumar (supra) the Hon'ble Karnataka High Court held that giving up of a right to claim specific performance of by conveyance in respect of immoveable property amounts to relinquishment of capital asset. In the instant case right to specific performance accrued only on 27.05.2005 on balance payment. Further, the Hon'ble Punjab Haryana High court in case of Ved Prakash Sons (HUF) (supra) held that assessee was in possession of piece of land since 1973, the tenant and the assessee has submitted that what is relinquished is the tenancy right by the assessee which the assessee had since 1993. However, on perusal of agreement dated 06.04.193, in the present case it is clear that possession of the piece of land and right to specific performance accrues to the assessee only on fulfillment of terms and conditions laid down on the agreement dated 06.04.1993, it was done by assessee only in the year 2005. Thus, the reliance placed by ld.AR is misplaced. In the preset case, no questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be time barred on 31.03.2015, accordingly he passed the assessment order under section 143(3) rws 147 on 31.03.2015 and adopted the value of the property at ₹ 4.6 Crore, as determined by stamp valuation authority and after granting benefit of indexation determined long term capital gain of ₹ 2.86 Crores. The report of DVO was received during the pendency of appeal before ld CIT(A), wherein the DVO estimated the value of property at ₹ 2.30 Crore. The assessee made prayer to rectify the assessment order accordingly. The ld CIT(A) directed the AO to treat the sale consideration of asset at ₹ 2.30 Crore. During the appellate proceedings, the ld. CIT(A) asked assessee to furnish copy of agreement through which the property was acquired and this conveyance deed wherein the assessee signed as a confirming party and received consideration. The assessee furnished the relevant documents which consist of two agreements to sale both dated 06.04.1993, executed by Vithalhbai Purshotamdass Patel Managing Trustee of Matrushri Gangaba Trust and other being Attorney of Mrs Gngaben Raojibhai Patel and Johnson Electric Company (assessee) executed through its Director, copy of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attachment before or after judgement or decree of any court or authority. 2. The Purchaser agrees to purchase the Said Property at total consideration of ₹ 40,00,000.00 (Rupees Forty lac only) and the Seller agrees to sell the Said Property to the Purchaser. 3. Purchaser had made a payment of ₹ 10,00,000.00 (Rupees Ten lacs) by Cheque as earnest deposit payment, and in consideration of this earnest deposit payment, the Seller is making this agreement to sell the Said Property. 4. The Seller shall approach the Appropriate Authority of Income Tax for obtaining the permission under sec 269UC of the Income Tax Act 1961 to transfer the Said Property. The Seller shall also approach the Industries Commissioner, Gujarat to avail the permission for transfer of the Said Property in terms of the condition laid down in the approval granted under Urban Land (Ceiling and Regulation) Act 1976 vide IC/ULC/Exemption/31/95/214/82/1482 dated 30.06.1987. 5. The Purchaser saree to make the balance payment of ₹ 30,00,000.00 (Rupees Thirty Lacs) by cheques within thirty days of receipt of above referred permissions. 6. The Seller hereby agrees to execute necessary docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenses relating to execution of conveyance such as stamp duty, registration charges etc. will be borne by the Purchaser. SCHEDULE Plots of land located on R. S. No 974 and 957/2 of village: 3orwa, Taluka: Vadodara, Revenue Sub district and District : Vadodara, having area of Acres 1-05 guntha and Acres 2-38 Guntha respectively, bearing final plot no 155 of T. P. Scheme no 12 of Vadodara. Total area of 16,491.00 sq m with construction admeasuring about 2375.00 sq m. and alongwitho all internal roads, boundary wall, trees, easements, rights of way, flow of water etc with following four boundaries: On East : River Bhuki On West : Municipal School and transformer sub station On North : Road of T. P. Scheme On South : Village Lalpura The property is in occupation of following tenants: M/s Jhonson Electric Company on lease of ₹ 800.00 per month M/s Union Electric Company on rent of ₹ 750.00 per month M/s Jay Corporation on rent of ₹ 650.00 per month M/s Jhonson Electric Company on rent of ₹ 3550.00 per month In confirmation of having executed this agreement, both the parties have placed their respective seals and signatur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Mrs. Gangaben Raojibhai Patel, through power of attorney holder Shri Vithalbhai P. Patel, has agreed to sell her undivided 50% share in the total property described as First Property as well as Second Property, in favour of the Confirming Party, on the terms and conditions set out therein. 22. The Confirming Party declare that the aforesaid two Agreements were partly implemented, but could not be complied in full, in view of the fact that the said Confirming Party came in financial loss and could not comply with the financial obligations casted upon under the two Agreements referred hereinabove. However the said Agreements were registered with the Sub - Registrar at Vadodara on 12/04/1993 at Sr. No. 5971 5972. However, in view of the Agreements and the reasons set out hereinabove, the Confirming Party continued to be in exclusive use, occupation and possession of the properties described as the First and Second property hereinabove as the Vendors have handed over the possession of the said Properties mentioned as First and Second Property on 15/07/2006 after receipt of the full payments towards the two Agreements for sale both dated 06/04/1993. 23. The Confirming Part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the reasons set out hereinabove, the confirming party continued to be in exclusive use, occupation and possession of the properties described as First and Second property hereinabove as the venders have handed over the possession of the said property mentioned in the first and second property on 15/07/2006 after receipt of the full payments towards the two agreements for sale both 06/04/1993. This clause is the bone of contention on which the parties have locked their horn. In our view the aforesaid clause has ambiguity in drafting. Once the seller has accepted that the assessee was holding possession of the property, and there is no stipulation in the Conveyance deed that the possession of the property was ever surrender to the owner, the possession cannot be said to have handed over only on the payments of alleged balance payments as mentioned in Annexure VI VII of Conveyance deed. 20. Further, in para 25 of the Conveyance deed it is clearly mentioned that after prolonged negotiations, the confirming party and the purchaser entered into MOU dated 24/06/2006 thereby agreed to sell, transfer and assign all right, title and interest in respect of the property in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or (iva) the maturity or redemption of a zero coupon bond; or (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 s. 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 AOP 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. Though the words 'capital gain' as such is not defined under the Act. Sec. 45(1) of the Act deals with capital gains, which reads as under : 45(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in ss. 54, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definitions. Therefore, when once the word 'transfer' in relation to a capital asset is defined under the IT Act, we cannot import the meaning assigned to them under the provisions of the Transfer of Property Act. The word 'capital asset' means property of any kind held by the assessee which does not necessarily be confined to an immovable property. Similarly, when the word 'transfer' in relation to a capital asset though includes sale, exchange or relinquishment of the asset, the said asset need not necessarily be an immovable property. It is in this background, we have to consider the judgments of the various High Courts, where these words have been the subject-matter of interpretation. 17. In the case of CIT v. Tata Services Ltd. [1979] 13 CTR (Bom) 227 : [1980] 122 ITR 594 (Bom), the Division Bench of the Bombay High Court dealing with the transaction of an assignment of a right to obtain conveyance which was assigned under the tripartite agreement on receipt of ₹ 5 lakhs as consideration for assigning the right in the contract, held as under : It is no doubt true that as provided for in s. 54 of the Transfer of Property Act, a contract fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the law, entitled to exercise that right not only against his vendors but also against a transferee with notice or a gratuitous transferee. He could assign the right. What he acquired under the said agreement for sale was. therefore, property within the meaning of the IT Act, and consequently, a capital asset. When he filed the suit in the Court against the vendors he claimed specific performance of the said agreement for sale by conveyance to him of the immovable property and, only in the alternative, damages for breach of the agreement. A settlement was arrived at when the suit reached hearing, at which point of time the assessee gave up his right to claim specific performance and took only damages. His giving up of the right to claim specific performance by conveyance to him of the immovable property was relinquishment of the capital asset. There was, therefore, a transfer of a capital asset within the meaning of the IT Act. The payment of earnest money under the agreement for sale was the cost of the acquisition of the capital asset. Right to obtain a conveyance of immovable property falls within the expression 'property of any kind' used in s. 2(14) and amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing with a case of an assignment of a right in immovable property acquired under a purchase agreement, held as under; Contention that the assessee had not incurred any cost in respect of the agreement of purchase in view of the fact that the cheque for the earnest amount of ₹ 5 lakhs was not encashed by the vendor and was returned to the assessee cannot be accepted because admittedly the assessee had incurred an expenditure of ₹ 2,05,768 as claimed by him by way of service charge expenses, legal and professional charges and miscellaneous expenses for acquiring the rights under the agreement and for their assignment. It may also be noticed that the amount of ₹ 5 lakhs which was given by way of deposit or earnest money under the cheque issued by the assessee to the vendor was to be adjusted towards the total amount of ₹ 2.75 crores being the price of the textile mill, as recorded in the agreement. There is no dispute about the fact that, under the assignment deed, the assignee was required to pay the full amount of ₹ 2.75 crores to the vendor. In view of this arrangement between the parties, it is clear that the liability of the assignor, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive on the date on which the deed of assignment was executed. It is clear that this is not a case where the parties had not foreseen the fact that interim relief would be granted in the winding up petition, nor is it a case where mere grant of a temporary injunction resulted in any fundamental or radical change in respect of the obligations originally undertaken under the agreement. The fact that the same rights and liabilities were assigned in favour of the assignee, under the deed of assignment to which the vendor was a confirming party, clearly shows that no such fundamental or radical change was brought about merely by virtue of the temporary injunction and that it is not as if any situation which was not foreseen by the parties had arisen. Therefore, there was no frustration of the contract as is sought to be contended on behalf of the assessee. It is also clear that time was not treated to be of the essence of the contract. From the agreement, it is clear that it was specifically agreed that the purchaser may, instead of rescinding the contract extend from time to time the time for completing the sale and if the time for completion as stipulated in cl. 21, namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was a clear case of relinquishment of a right in the property resulting in transfer as defined in s. 2(47). When the legislature in its wisdom defines a particular type of transaction to be in the nature of transfer for taxing purpose, then the effect has to be given to such transaction to be in the nature of transfer as defined. The reading of definition of transfer under s. 2(47) clearly indicates that the intention of legislature is to include several kinds of transactions to be falling in the category of transfer for the purpose of bringing them in income-tax net under the IT Act. Amount of ₹ 7,34,000 is a capital receipt exigible to capital gains tax as it involved transfer of property within the meaning of s. 2(47). 22. The Delhi High Court in the case of CIT v. J. Dalmia [1984] 42 CTR (Del) 168 : [1984] 149 ITR 215 (Del), dealing with the case of a nominee of the assessee giving up a right to specific performance but retaining his right to claim damages held as under : The relevant question is not whether the assessee acquired any interest in the immovable property by virtue of the contract for sale. Under s. 54 of the Transfer of Property Act, a contract f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racting the rigor of s. 2(14) r/w s. 2(47). Giving up of a right to claim specific performance by conveyance in respect to an immovable property, amounts to relinquishment of the capital asset. Therefore, there was a transfer of capital asset within the meaning of the Act. The payment of consideration under the agreement of sale, for transfer of a capital asset is the cost of acquisition of the capital asset. Therefore, in lieu of giving up the said right, any amount received, constitutes capital gain and it is exigible to tax. However, as is clear from s. 48, before the income chargeable under the head capital gains is computed, the deductions set out in s. 48 has to be given to the assessee. It is only the amount thus arrived at, after such deductions under s. 48, would be the income chargeable under the heading capital gains. 24. In the instant case both the assessees entered into an agreement to purchase the immovable property and paid ₹ 1,00,000 as advance amount. It is the cost of acquisition. They filed a suit for specific performance of the agreement of sale. It is thereafter under an agreement entered into between them and the purchasers, they gave up their rig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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