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Income Tax Appellate Tribunal - Bangalore

Laher Singh Siroya, Bangalore vs Department Of Income Tax on 13 May, 2009

Page 1 of 11                          1           ITA No.705/Bang/09


           IN THE INCOME TAX APPELLATE TRIBUNAL,
                    BANGALORE BENCH 'B'

                BEFORE SHRI GEORGE GEORGE K, J.M.
               AND SHRI A MOHAN ALANKAMONY, A.M

                        ITA No.705/Bang/2009
                      (Assessment year 2006-07)

The Asst. Commissioner of Income Tax,
Circle-8(1),Bangalore.                                - Appellant
Vs
Shri Laher Singh Siroya,
# 145, 9th Cross, 3rd Main,
RMV Extention, Bangalore.                             - Respondent



               Appellant by     :     Smt. V S Sreelekha
               Respondent by        : Shri P C Chadaga

                                    ORDER

PER GEORGE GEORGE K :

This appeal, filed by the revenue, is directed against the order of learned CIT(A)-V, Bangalore dated 13th May, 2009. The asst. year concerned is 2006-07.

2. The effective ground raised is as follows:-

The learned CIT(A) has erred in allowing the capital gains to be taxed as long term capital gains instead of short term capital gains as the assessee became the absolute owner of the property on 5.12.2002. Hence, the assessee should pay short term capital gain tax on Rs.65,85,224/-.

3. The brief facts of the case are as follows:-

The assessee is an individual. The assessee derives rental income, share income from firm and capital gains. For the concerned asst. year return of income was filed on 31.10.2006, admitting net income from house property of Rs.3,51,373/- and capital gains on the sale of sites amounting to Rs.42,98,312/-. The return was processed u/s 143(1) of the Act. Subsequently, 148 notice was issued for reopening the assessment. The reason for reopening was that, the assessee had sold property bearing No.119, Katriguppe, Bangalore for a consideration of Rs.1,02,50,000/- during the previous year relevant to the asst. year. The impugned property, according to the Assessing Officer, was purchased only on 5.12.2002 and hence the property was held by the assessee for less than 36 months. Therefore, the Assessing Officer was of the view, capital gains arising out of the sale of said property can only be short term capital gains and not long term, as claimed by the assessee. The detailed reasons for reopening the assessment is extracted at page 2 and 3 of the assessment order. During the re- assessment proceedings, it was submitted by the assessee, though the sale deed was executed on 5.12.2002, the entire money was paid on 8.5.1995 itself. Further it was submitted that as per the provisions of section 53A of the Transfer of Property Act, when the property is in possession and the amount is paid in full, the transfer is complete for the Income Tax Act, even though, the sale deed is executed at a later date. The various contentions raised by Page 3 of 11 3 ITA No.705/Bang/09 the assessee were rejected by the Assessing Officer and he completed the assessment u/s 143(3) read with section 147 of the Act by holding that the gains arising from the transfer of the land at No.119, Kathriguppe, Bangalore is short term capital gains instead of long term capital gains as claimed by the assessee.

4. The assessee, being aggrieved, on appeal before the CIT(A), submitted that the assessee was in possession of the impugned property and the same is evidenced from the agreement dated 1.6.2005 executed by Shri H R Gurappa and others in favour of M/s Vikas Housing Ltd., in which, the assessee is a confirming party. An affidavit of the assessee dated 11.5.2009 was filed before the CIT(A), wherein it was stated that the assessee is in possession of the impugned property from the year 1995 and Rs.40 lakhs was paid in the year 1995. It was also submitted before the CIT(A) that the provisions of the Registration Act have not over ruled the provisions of section 53A of the Transfer of Property Act. The CIT(A) called for a remand report from the Assessing Officer. The CIT(A), after considering the submissions of the assessee and perusing the remand report of the AO, allowed the appeal of the assessee for the reasons mentioned in para 8.1 of his order by holding "it is evident that the appellant held the property to the extent of 14 guntas out of the original land measuring 3 acres and 39 guntas which was evidenced by the sale deed dated 5.12.2002".

5. The revenue, being aggrieved, is in appeal before us. The learned DR produced copy of provisional agreement dated 1.4.1995 entered between the assessee and Shri H R Gurappa, owner of the land at Sy.No.119, Kathriguppe, Bangalore, the subsequent agreement dated 1.6.1995 entered between Shri H R Gurappa and others with M/s Vikas Housing Ltd. in which the assessee is a confirming party and the Absolute Sale Deed dated 5.12.2002 entered between Shri H R Gurappa and the assessee. The learned DR relied on the findings/conclusion of the Assessing Officer.

6. Per contra, the learned AR filed detailed written submissions. The learned AR took us through the definition of capital asset in section 2(14) of the Act and submitted that the capital asset means, property of any kind, movable or immovable and in this context, relied on the decision of Hon'ble Supreme Court in the case of Pandid Lakshmikanth Jha v CWT (1973) 90 ITR 97 and Ahmed G H Arif v CWT 76 ITR 471. It was submitted that the assessee has an actionable claim on the impugned property, having paid the entire consideration way back in the year 1995 and this fact is evident from the agreement dated 1.6.1995 executed between Shri H R Gurappa and M/s Vikas Housing Ltd. wherein the assessee is termed as a confirming party. It was contended that the possession of the impugned property with the assessee from the year 1995 is implicit. The learned AR also relied on the decision of the Bombay High Court in the case of CIT v Vijay Page 5 of 11 5 ITA No.705/Bang/09 Flexible Containers 186 ITR 693 and the order of the Tribunal in the case of Sri K V Venugopal in ITA No.33/Bang/2002 for the proposition that the right to obtain a conveyance of immovable property falls within the expression "property of any kind" u/s 2(14) of the I T Act.

7. We have heard rival submissions and perused the material on record. The question to be answered is whether impugned property is a short term capital asset within the meaning of section 2(42A) of the Act, when it was sold by the assessee on 20.5.2005. Section 2(42A) of the Act clearly stipulates that the capital asset held by an assessee for less than 36 months shall be short term capital asset. In considering the period of holding, what is relevant is a period of ownership of the assessee. However, in view of the extended definition of transfer u/s 2(47) of the Act and even otherwise, in view of the decision of the Hon'ble Supreme Court in the case of CIT v Podar Cement Pvt. Ltd. 226 ITR 625, the period of possession may be relevant in cases where they are found to confer beneficial ownership. Another crucial test is the intention of the parties regarding the passing of the title. In this backdrop let us examine the facts of the instant case, various agreements and the absolute Sale Deed dated 5.12.2005 by which the assessee became the clear owner in respect of the impugned property.

7.1 The assessee had originally entered into a provisional agreement with Shri H R Gurappa, owner of the land at survery No.119, Kathriguppe measuring 3 acres and 39 guntas or 1,65,000 sq ft on 01.04.1995 for purchase of the land for a consideration of Rs.4,80,00,000/- out of which Rs.60 lakhs was paid on 25.4.1995 and Rs.20 lakhs on 8.5.95 and the balance Rs.1 crore to be paid in the month of May, 1995; another Rs.1 crore to be paid in the month of June, 1995 and another Rs.1 crore to be paid in the month of November, 1995 and another Rs.1 crore in the month of Feb. 1996 and remaining amount in the month of May, 1996. Subsequently, on 1.6.1995, Shri H R Gurappa along with the assessee and M/s Vikas Housing Limited entered into an agreement for construction of flats in the said property at Kathriguppe which finally did not materialize. Hence, the assessee finally got the registration of land done in respect of 13 guntas out of 3 acres and 39 guntas in the name through an absolute sale deed executed on 5.12.2002 from the owner Shri H R Gurappa for a consideration of Rs.20 lakhs which has been paid by the assessee to Shri Gurappa vide cheque No.709347 drawn on the Bank of Rajasthan.

7.2 The assessee's contention is that he is in possession of the impugned property right from the year 1995, the year when the agreement was executed and amounts were paid in full. Therefore, the crucial question to be answered is, when the assessee was in possession of the impugned property, whether in the year 1995 or in the year 2002.

7.3 As could be seen from the copy of the sale deed dated 5.12.2002, it has been clearly mentioned on page 7 regarding the matter of handing over the possession as under:-

"The vendors have this day handed over the full, free and vacant possession of the scheduled property to the purchasers".

From the above, it is abundantly clear that the assessee was placed in possession of the property only from 5.12.2002 and not from 1995 as claimed. Finally, as could be seen from the copy of the agreement executed by Shri H R Gurappa (first party), the assessee (second party) and M/s Vikas Housing Ltd. (second party or promoters) on 1.6.1995, on page 4, para (a) reads as under:

"that the first party are the absolute owners of the schedule property and their title to the schedule property is good, marketable and subsisting and none else has any right, tile, interest or share therein".

And in para (c), it is clearly stated that the first party has not entered into any agreement/arrangement for sale or transfer of the schedule property with anyone else.

In continuation on page 5 at para 1, permission for development - sub para 1.1 states clearly that the "first party is in exclusive possession and enjoyment of the schedule property and Page 8 of 11 8 ITA No.705/Bang/09 that the First Party shall deliver the possession of the schedule property for the purpose of joint development as mentioned in the agreement, which shall not be construed as possession under the Transfer of Property Act".

7.4 The assessee filed an Affidavit dated 11.5.2009 before the CIT(A) stating that he was in possession of the property right from the year 1995. Based on the Affidavit, the CIT(A) came to the crucial conclusion, namely, ""it is evident that the appellant held the property to the extent of 14 guntas out of the original land measuring 3 acres and 39 guntas which was evidenced by the sale deed dated 5.12.2002". We are afraid, the conclusions/findings entered by the CIT(A) is faulty, since the clauses in the agreements and the sale deed dated 5.12.2002 speak otherwise and there is nothing on record showing the intention of the party regarding the passing of the title prior to the sale deed dated 5.12.2002. In the instant case, the transaction that has taken place in the year 1995 is only giving and taking of advance through an agreement, which has not been registered and which does not speak of handing over possession of the property. Therefore, it is clear that the property in question was not in the possession of the assessee as on 1.6.1995 and neither he was the absolute owner of the said property. The possession and ownership of the property has devolved on the assessee only on registration of the said property on 5.12.2002.

7.5 Now, coming to the decision relied on by the learned AR, we have to mention that the learned AR in the course of hearing had candidly admitted, that the decision relied on by the assessee before the authorities below does not have application to the facts of this case. However, he heavily relied on the decision of the Bombay High Court in the case of CIT v Vijay Flexible Containers 186 ITR 693. In the Bombay High Court, the facts are - the assessee, a firm, entered into an agreement with D for purchase of an immovable property. The assessee paid Rs.17,500 as earnest money. Subsequently, the assessee had to file a suit for specific performance of the agreement for sale or, in the alternative, for damages for its breach. Consent terms were arrived at in the suit and a decree was passed in favour of the assessee for the sum of Rs.1,17,500 and interest. The said sum was received by the assessee during the course of the previous year relevant to the assessment year 1972-73. The Income Tax Officer held that, the right that the assessee had acquired under the agreement for sale was a capital asset. Upon the extinguishments of that right, the assessee had received the sum of Rs.1,17,500. Deducting the cost of acquisition of the capital asset in the amount of Rs.17,500 and expenses and legal charges in the sum of Rs.17,904, the Income Tax Officer found the capital gain to be Rs.82,086. The Tribunal, however, held that the amount was not assessable as capital gains. On a reference, the Hon'ble High Court reversed the order of the Tribunal and affirmed the computation of capital gains arrived by the Assessing Officer. The Hon'ble Page 10 of 11 10 ITA No.705/Bang/09 High Court concluded that the right to obtain a conveyance of immovable property falls within the expression "property of any kind" used in section 2(14) of the Act and is, consequently, a capital asset. The payment of earnest money in order to obtain such a right constitutes its cost of acquisition. Where such a right is given up, there is a transfer of a capital asset. 7.6 We have no quarrel with the proposition that the right, title and interest acquired under the agreement of sale clearly falls within the definition of capital asset. The assessee by executing an agreement of sale gets an actionable claim and has right to insist on specific performance of the contract. However, the right of specific performance under contract is distinct and independent capital asset from that of the impugned property. Therefore, the decision relied on by the learned AR is clearly not applicable to the facts of the instant case.

7.7 For the above stated reasons, we are of the firm view, the order of the CIT(A) is not correct and in accordance with law. Hence, we reverse the same.

8. In the result, the appeal filed by revenue is allowed.

Pronounced in the open court on 18th December, 2009.

                Sd/-                               Sd/-
      (A MOHAN ALANKAMONY)                    (GEORGE GEORGE K)
      ACCOUNTANT MEMBER                        JUDICIAL MEMBER
Bangalore, Dated : 18/12/2009
 Page 11 of 11                 11            ITA No.705/Bang/09


Copy to : 1. The Revenue
          2. The Assessee
          3. The CIT concerned.
          4. The CIT(A) concerned.
          5. DR
          6. GF
          7. GF, ITAT, New Delhi.

MSP/14/12/                                         By order



                              Asst. Registrar, ITAT, Bangalore.