Income Tax Appellate Tribunal - Lucknow
Assistant Commissioner Of Income Tax vs Sharad Thadani [Alongwith Ita No. ... on 23 August, 2005
Equivalent citations: (2006)104TTJ(LUCK)567
ORDER
S.V. Mehrotra, A.M.
1. All the appeals have been filed by the Revenue for asst. yr. 1996-97. While the appeals in the case of Shri Sharad Thadani and Stiri Manav Thadani arise out of separate orders of the learned CIT(A)-III, Lucknow, dt. 8th Dec, 1999, the appeal in the case of Ms. Mrinalini Jhangiani arises out of the order of the learned CIT(A)-III, Lucknow, dt. 3rd Aug., 2000.
2. The common issue in all these appeals is whether the assessees' income from sale of Flat No. 707, Adishwar Apartment, 34, Firoz Shah Road, New Delhi, is to be assessed a long-term capital gain or short-term capital gain.
3. Brief facts of the case are that Flat No. 707 situated at 34, Firoz Shah Road, New Delhi, belonging to all the three assessees being 50 per cent belonging to Ms. Mrinalini Thadani and 25 per cent each belonging to Shri Sharad Thadani and Shri Manav Thadani was sold during the relevant assessment year. The assessees had claimed exemption under Section 54/54F on the sale of this flat. The AO examined the assessees' claim of treating this as long-term capital gain. The AO obtained information from the builder under Section 133(6), who informed vide its letter dt. 19th Dec, 1998 that the certificate of possession of the said flat was given to the assessees on 6th Dec, 1994 after obtaining completion certificate from NDMG on 24th May, 1994. In view of this certificate, the AO was of the opinion that it was a short-term capital asset. The factual matrix of the case is that Late Shri Gullu Thadani, father of Shri Sharad Thadani, Shri Manav Thadani had applied for purchase of above-stated residential flat from M/s Kailash Nath & Associates vide agreement dt. 8th Feb., 1988. During his lifetime, Shri Gullu Thadani had requested the builder vide his letter dt. 11th May, 1990 to make his daughter Ms. Mrinalini Thadani 50 per cent shareholder of the said flat. After the demise of Shri Gullu Thadani on 10th Sept., 1990, as per his Will, 50 per cent share of the flat passed on to Shri Sharad Thadani and Shri Manav Thadani equally. Thus, after the death of Shri Gullu Thadani, the ownership of the flat was held as under:
(1) Ms. Mrinalini Thadani 50%
(2) Shri Sharad Thadani 25%
(3) Shri Manav Thadani 25%
4. This flat was sold by the above three owners to M/s Living Media India Ltd. for a total sale consideration of Rs. 1,08,00,000 vide agreement dt. 30th March, 1995. Before the AO, the assessees claimed vide letter dt. 5th March, 1999 that flat was owned by them on 8th Feb., 1988 since agreement was entered into by their father on that date, relying on Circular No. 471 dt. 15th Oct., 1986. The AO negated this claim on the ground that the said circular pertained to purchase of flats under self-financing of the DDA and was also relevant only for purchase of new assets. Thereafter, the assessees claimed that since the possession of above flat was given to them on 3rd March, 1992 by the builder for carrying out interior work vide builder's letter dt. 13th Jan., 1999, it was a long-term capital asset held by them before the transfer on 30th March, 1995. The AO, after examining the terms of agreement, concluded that the possession was transferred to the assessees on 6th Dec, 1994 and thereafter only they were entitled to transfer or sell their interest in this flat. He also examined the schedule of payments which were made by the assessees against the above flat to the builder. The major chunk of payments were made after 3rd March, 1992 which had been claimed to be the date of taking over possession for carrying out interior work by the assessees. He observed that as per Clause 44 of the agreement to sell in between the builder and the buyers i.e., the assessees, no right, title or interest would pass on to the buyer unless all the money due to the builder was paid as per the agreement. He, accordingly, held this asset a short-term capital asset. Before the learned CIT(A), it was submitted that as far as Shri Sharad Thadani and Shri Manav Thadani were concerned, they both had acquired right to obtain conveyance of the said flat by 10th July, 1990 (when Shri Gullu Thadani died). It was submitted that the question of ownership of flat in question in absolute terms was of not much significance because as per Section 2(14), the expression, "capital asset" means:
(a) property of any kinds
(b) held by'an assessee whether or not connected with the business subject to certain specific exclusions.
Relying on various case laws, the assessees submitted that the term "property" is of widest import and should be given a liberal interpretation. It was pointed out that it includes of all interest which have the insignia or characteristic of proprietary right. It was submitted that the word "property" does not mean merely physical property, but also means the right, title or interest in it. Thus, it was submitted that debate about the date of actual possession of the flat was immaterial and irrelevant in this case as much earlier to that date, all the three assessees had acquired interest in the said flat which was in the form of their right to obtain the conveyance in their favour. After referring to various case laws and passages from the Commentary of Chaturvedi and Pithisaria as reproduced by the learned CIT(A) in his order, the assessees submitted that they had acquired the right in the property in terms of agreement dt. 8th Feb., 1988 or latest on 10th July, 1990 on the death of Shri Gullu Thadani and in terms of the agreement dt. 30th March, 1995, all such right (that the assessees had in the said property in terms of agreement dt. 8th Feb., 1988 and/or the Will left by Shri Gullu Thadani) got extinguished/relinquished in favour of M/s Living Media India Ltd. The learned CIT(A), after considering the detailed submissions of the assessees observed as under:
3. I have given careful consideration to the matter. I agree with the learned Counsel Shri S.K. Garg that the property does not mean merely a physical property but also means a right, title or interest to the property. Property of every kind is a capital asset. The three persons had duly acquired right to obtain conveyance to flat No. 707 in Adeshwar Apartment as early as on 10th Sept., 1990 when Shri Gullu Thadani died and Will became operative. Therefore, I direct the AO to compute long-term capital gain instead of short-term capital gain computed by him.
5. The learned CIT/senior Departmental Representative referred to the assessment order and explained the factual background as noted earlier. The learned CIT/senior Departmental Representative submitted that the assessees got the possession of property on 6th Dec, 1994 and on 3rd March, 1992 only the flat was given for interior work. The learned CIT/senior Departmental Representative referred to the details of payment and pointed out that major chunk of payments had been made between November, 1992 to 14th June, 1994 as noted in para 9 of AO's order. He referred to various clauses of agreement reproduced in the assessment order and pointed out that as per Clause 14, under no circumstances, possession of the residential flat and garage shall be given by the sellers to the buyer(s) until and unless all payments required to be made under the agreement by the buyer(s) have been paid in full to the sellers. He further referred to Clouse 44 of the agreement and pointed out that no right, title or interest would pass to the buyer(s) unless all the money due and payable under this agreement has been paid and valid receipt(s) obtained from the sellers. In the event of failure to pay money due and payable, all money already paid to the sellers shall stand forfeited to the sellers. The learned CIT/senior Departmental Representative submitted that the dt. 3rd March, 1992, when the possession is alleged to have been given for interior work, is of no significance. The learned CIT/senior Departmental Representative submitted that the date of Will is important when a right in existence is transferred. If the property is not in existence the date of Will is of no importance. He submitted that the Will only ensured the builder to comply with the terms and conditions of agreement in favour of his two sons. The learned CIT/senior Departmental Representative submitted that theoretical right has not been considered under Section 54/54F of the Act. The learned Counsel for the assessee submitted that as per Section 2(14), the capital asset means property of any kind held by an assessee. He submitted that right to obtain conveyance itself is a capital asset which came into existence on 8th Feb., 1988 when father of the assessees entered into agreement with the builder. The learned Counsel referred to the approval of appropriate authority under Section 269UL granted on 29th March, 1988 pointing out that if no property was in existence then how approval could be granted. Thus, the learned Counsel for the assessee submitted that assessee held capital asset in the form of right to obtain conveyance from 8th Feb., 1988. The learned Counsel further submitted that in the instant case, the assessees were placed in possession on 3rd March, 1992 when the building was ready and builder gave the possession for interior work of the flat. He referred to p. 49 of paper book and pointed out that the builder had given possession subject to its approval within the NDMC rules and regulations. He referred to p. 47 of the paper book wherein the letter of builder addressed to assessees dt. 13th Jan., 1999 is contained wherein the date of possession has been confirmed as 3rd March, 1992 for carrying out interior renovations/modifications. The learned Counsel again reverting to his original main argument that right to obtain conveyance is a capital asset which right got extinguished on sale of flat relied on following case laws:
(i) Ahmed G.H. Ariff v. CWT ;
(ii) CIT v. Tata Services Ltd. ;
(iii) Sunil Siddharthbhai v. CIT ;
(iv) CIT v. Anilaben Upendm Shah .
6. In the rejoinder, the learned CIT/senior Departmental Representative submitted that as per Section 2(14), it is the property "held" by assessee which has been contemplated therein. He pointed out that it is to be seen whether the property was held or not. He submitted that in 1988 nothing was held, only agreement had been entered into. As far as clearance from authorities is concerned, the same is only an administrative action but since actual payments have been completed in 1994 as per the terms of agreement, the possession could be given only thereafter.
7. We have considered the rival submissions and have perused the record of the case. Section 2(14) of the Act defines the term "capital asset" as under:
capital asset' means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include....
8. Section 2(47) defines the word "transfer", inter alia, to include the extinguishment of any rights in the capital asset. The learned counsel, by referring to the definition of "capital asset" submitted that the term "property" would include right to obtain conveyance as it is of wide connotation. The learned counsel's submission is that since there is extinguishment of right to obtain conveyance on the date of transfer of the flat to M/s Living Media India Ltd. which was obtained by the assessees on 8th Feb., 1988 or latest by 10th July, 1990 on the date of death of Shri Gullu Thadani, therefore, the asset transferred was a long-term capital asset. Thus, the assessees' contention was that the date of possession was the date on which the assessees had acquired right of obtaining conveyance in the flat. If this contention of assessees is accepted then whether the physical possession was given to assessees on 3rd March, 1992 or 6th Dec, 1994 will not be of much significance. In order to appreciate the argument of the learned counsel, we would first refer to various case laws relied on by him. The first case law relied on by him was the Hon'ble Supreme Court decision in the case of Ahmed G.H. Ariff v. CWT (supra). In this case the Hon'ble Supreme Court examined the issue of the right of the sons of the Wakf to receive a share of the rents and profits of the Wakf property with reference to the term "asset" as defined in Section 2(e) of the WT Act and held that it was a property and comes within the purview of the term "asset". The Hon'ble Supreme Court, intei alia, observed that the term "property" is a term of the widest import and, subject to any limitation which the context may require, it signifies every possible interest which a person can clearly hold and enjoy. It was held that there is no reason or justification to give any restricted meaning to the word "asset" as defined in Section 2(e) of the WT Act when the language employed shows that it was intended to include property of every description. Thereafter, he relied on the decision of the Hon'ble Bombay High Court in the case of CTT v. Tata Services Ltd. (supra), wherein it was held that the word "property" used in Section 2(14) of the Act is the word of the widest amplitude and the definition is re-emphasized this by the use of the words "of any kind". It was held that any right which can be called property will be included in the definition of "capital asset". It was held that a right to obtain conveyance of immovable property is clearly property as contemplated by Section 2(14) of the Act, The next case law referred to by the learned Counsel is the decision of the Hon'ble Supreme Court in the case of Sunil Siddhaithbhai v. CIT (supra), wherein it was held that the expression "transfer of property" connotes the passing of rights in property from one person to another In one case there may be a passing of the entire bundle of the rights from the transferor to the transferee. In another case, the transfer may consist of one of the estates only out of all the estates comprising the totality of rights in the property. In the third case, there may be a reduction of the exclusive interest in the totality of rights of the original owner into a joint or shares interest with other persons. The exclusive interest in property is a larger interest than a share in that property. To the extent to which the exclusive interest is reduced to a shared interest, it would seem that there is a transfer of interest. The learned Counsel further referred to the latest decision of the Hon'ble Gujarat High Court in the case of CIT v. AnUaben Upendra Shah (supra), wherein the facts were that the assessee had acquired shares in co-operative housing society and allotted flat in 1979. Possession of flat was obtained in October, 1981 and sold in December, 1982. It was held that shares in co-operative society were held for more than 36 months and, therefore, gains on sale of fiat are long-term capital gains. The Hon'ble Gujarat High Court examined the contention of Revenue regarding exemption under Section 5(1)(xxviii) of the WT Act and observed that in respect of shares in a co-operative housing society, the legislature intended to grant exemption in favour of all the rights flowing from shares in a co-operative housing society except the interest, which the legislature itself brought in within the tax net by making an express provision in Sub-section (7) of Section 4 of the Act.
9. From the above-noted case laws, it is clear that the term "property" has to be given the widest possible meaning and is itself a bundle of rights and all the comprehensive valuable rights do come within the purview of the term "property". It cannot be denied that Shri Gullu Thadani had obtained a valuable right on 8th Feb., 1988 itself and Ms. Mrinalini Thadani had also obtained a valuable right in the property. The two sons, viz., Shri Sharad Thadani and Shri Manav Thadani got the right latest on 10th July (September), 1990 on the death of Shri Gullu Thadani by virtue of Will left by Shri Gullu Thadani. They got the right to obtain conveyance from the seller by virtue of this Will, As far as the payment terms on which Revenue has heavily relied are concerned, they are the pre-condition for getting physical possession but as far as the right to obtain conveyance subject to fulfilment of conditions is concerned, that condition has got no relevance. Therefore, in view of aforementioned decisions, we are of the considered opinion that the assessees got the legal possession of the property on 10th July, 1990 in case of Shri Sharad Thadani and Shri Manav Thadani and in case of Ms. Mrinalini Thadani on the date when her name was also included as per the request of Shri Gullu Thadani. Admittedly, if these dates are taken as the date of possession, there is no dispute that the capital asset sold was a long-term capital asset. This problem can be viewed from one another angle also by taking a hypothetical situation. Supposing that this property would not have come into existence and prior to that itself the assessees preferred to sell the allotment letter per se for consideration. Whether this would have been covered within the purview of capital gain or not needs to be addressed to in view of the definition of "capital asset" as per Section 2(14). It cannot be denied that the allotment letter per se was a valuable right vested in the assessees and therefore, when they transferred the same, it would have been subjected to capital gains tax. Therefore, when the flat as such was sold, this right also got extinguished and therefore, it will be liable for long-term capital gain. The Revenue can raise one more plea that in the present case the capital asset transferred was not the right to obtain conveyance of the flat itself. This argument, in our opinion, will not hold good because of the definition of "capital asset" as per which property of any kind held by an. assessee is a capital asset. The flat in its physical form at best can be said to have additional rights added to the rights originally held by the assessees flowing from the original agreement. In view of the aforesaid discussion, we confirm the order of the learned CIT(A) in all the three cases.
10. In the result, all the three appeals filed by the Revenue are dismissed.