Income Tax Appellate Tribunal - Mumbai
Azad Zabarchand Bhandari, Mumbai vs Assessee on 22 April, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" Bench, Mumbai
Before Shri D. Manmohan, Vice President
and Shri Sanjay Arora, Accountant Member
ITA No. 7800/Mum/2011
(Assessment Year: 2006-07)
Shri Azad Zabarchand Bhandari ACIT, Circle 19(3)
12, Kshitiji, 99, Hill Road Vs. Aayakar Bhavan, M.K. Road
Bandra (W), Mumbai 400050 Mumbai 400020
PAN - AAEPB 8143 M
Appellant Respondent
Appellant by: Shri J.G. Arora
Respondent by: Miss Neeraja Pradhan
Date of Hearing: 22.04.2013
Date of Pronouncement: 26.04.2013
ORDER
Per D. Manmohan, V.P. This appeal by the assessee is directed against the order dated 16.08.2011 passed by CIT(A)-30, Mumbai and it pertains to A.Y. 2006-07.
2. The assessee is admittedly engaged in the activity of development of plots/houses as builder. Assessee entered into an agreement for selling the property at Caddle Road on 16.03.2005. According to the assessee possession was given to the developer on 20.09.2005 which falls in the accounting year relevant to A.Y. 2006-07 and going by the clauses in the agreement the assessee held the view that the transfer, within the meaning of section 2(47) of the Income Tax Act r.w.s. 53A of the Transfer of Property Act, took place in the financial year 2005-06 relevant to A.Y. 2006-07 and the assessee having invested a sum of `25 lakhs in December, 2005, it claimed deduction thereof under section 54EC of the Act. The AO was, however, of the view that the assessee having entered into contract with the builder on 16.03.2005, the transfer is deemed to have taken place in the previous year relevant to A.Y. 2005-06 and hence assessee is not entitled to claim deduction under section 54EC of the Act in the year under consideration. In response to a show cause notice the assessee submitted 2 ITA No. 7800/Mum/2011 Shri Azad Zabarchand Bhandari that the assessee is entitled to invest the whole or any part of the capital, upon transfer of long term capital assets, within a period of six months after the date of such transfer. Reference was also made to cause 7 of the Articles of agreement to state that the owners, i.e. the assessee and another, deposited all the original title deeds and documents of the said property with M/s. ALN Khatri & Co. Advocates and Solicitors, who shall hold the same as escrow agents till the time of payment under clause 2(c) of the agreement and thereafter hand over the documents to M/s. Purnanand & Co., Advocates and Solicitors of the developer. Thus the property would remain with the assessee till the developer pays the entire consideration. In the instant case a sum of `7,75,000/- to each owner is payable before execution of this agreement, i.e. before 16th March, 2005 and within three months from execution of the agreement a sum of `10 lakhs is payable to Mr. Bharat V. Gada, one of the co-owners and `40 lakhs in favour of Shri Azad Z. Bhandari, the assessee herein. Thereafter, within six month, a sum of `50 lakhs is payable to Shri Bharat V. Gade and `20 lakhs to Shri Azad Z. Bhandari. The balance consideration of `10 lakhs each is payable to the owners simultaneously against completion of the sale and execution of Deed of Conveyance in favour of the nominees of the developer. Time for payment of the above consideration is the essence of the contract. It was therefore contended that till the payment is made the developer could not have taken possession. Unless both the conditions, i.e. execution of agreement and giving possession, are satisfied it cannot be treated as a transfer within the meaning of section 2(47) of the Act.
3. The AO rejected the contention of the assessee. He observed that clauses 9 and 10 of the agreement gives complete control to the developers on execution of the agreement and developers have authority to enter upon the said property, to put up their sign board on the said property, to negotiate and settle with the existing tenants and occupants, to apply for and obtain sanction of the building plans for development, to commence, carry on and complete construction of the building and all such things and matters as may be required to be done for development of the said property. According to the AO the terms of the agreement clearly implies that the 3 ITA No. 7800/Mum/2011 Shri Azad Zabarchand Bhandari assessee has transferred complete control over the property in favour of the developers on 16.03.2005 itself. He thereupon referred to the decision of the Hon'ble Bombay High Court in the case of Chatrubhuj Dwarkadas Kapadia vs. CIT 260 ITR 491 wherein the court observed that any transaction involving possession to be taken over or retained in part-performance of a contract would come within the ambit of section 2(47)(v) of the Act. In the instant case the transferee has the right to enter upon the property and hence it is deemed possession. The court further observed that developers agreement, per se, do not constitute transfer, in general law, but the Legislature introduced section 2(47)(v) r.w.s. 45 of the Income Tax Act to bring to tax capital gains in such cases in the year in which such transactions are entered into even if the transfer of immovable property is not effective or complete under the general law. According to the AO, on an application of the aforementioned principles, the transfer in the instant case can be deemed to have taken placed in March, 2005 and not in September, 2005.
4. It is not in dispute that the assessee offered the income for taxation in A.Y. 2006-07. According to the AO it has to be taxed in A.Y. 2005-06. In this regard he observed as under: -
"The income offered by the assessee is assessed protectively in A.Y. 2006-07 and consequently the substantive addition may be made in A.Y. 2005-06 as per law".
5. Having observed that the transfer has taken place on 16.03.2005 the AO denied the claim of deduction under section 54EC of the Act on the ground that the investment is not made with six months from the date of transfer of the assets. Accordingly exemption of `25 lakhs was denied. It may be noticed that the assessee offered the entire income received on transfer of the capital assets in A.Y. 2006-07 (page 93 or the paper book) and the AO admitted the taxability of the entire sale proceeds in the year under consideration.
6. It may be noticed that though the AO made protective assessment in A.Y. 2006-07, according to the learned counsel for the assessee no substantive addition was made in A.Y. 2005-06 till date and as on date the period of limitation has expired and the AO cannot reopen the assessment 4 ITA No. 7800/Mum/2011 Shri Azad Zabarchand Bhandari for 2005-06 to bring to tax any income. Thus the assessment for A.Y. 2006- 07 can be said to have become a substantive assessment which further implies that the AO admitted that the transfer took place in the year under consideration. To put it in other words, if the transfer had not taken place in this year there is no question of taxing the receipt in this year as it ought to have been taxed in the year in which effective transfer has taken place.
7. Under these circumstances the assessee was aggrieved by the order of the AO and therefore preferred an appeal before the first appellate authority wherein it was contended that the assessee was a 50% joint owner of a plot of land at Caddle Road, Mahim. Assessee purchased the property on 31.03.1994. Vide agreement dated 16.03.2005 the assessee, with regard to his share, entered into a development agreement whereby he agreed to grant development rights to the developers as per the conditions stipulated therein. According to the assessee the transfer can be said to have taken place only after receiving the total consideration. It was also contended that the assessee transferred two distinct rights, i.e. development rights and right to conveyance whereas a consolidated price was agreed with regard to the said transfer. In the instant case, upon signing the development agreement the assessee did not transfer the title deeds to the developers, it was in fact kept with the escrow agent till such time the developers made the entire payment in terms of clause 2(c) of the agreement, though the developer was permitted to enter the premises under a licence. It was also contended that though the developer would insist upon possession even on signing the contract, in the interest of security/safety of the assessee, various conditions were provided in the agreement whereby the effective date of possession would be only upon payment of the entire consideration. In short, the case of the assessee before the first appellate authority was that the transfer took place on 20.09.2005 which falls in the previous year relevant to A.Y. 2006-07 and the assessee having invested within six months from the said date, he is entitled to exemption under section 54EC of the Act.
8. The learned CIT(A) rejected the contention of the assessee by observing as under: -
5 ITA No. 7800/Mum/2011Shri Azad Zabarchand Bhandari "3.5 I have carefully gone through the assessment order and the submissions made by the AR of the appellant. The moot point is whether the date of agreement i.e. 16.03.2005 or the date of possession i.e. 20.09.2005 is the relevant date for computing the capital gains? The case of Chaturbhuj Dwarkadas Kapadia vs. CIT - 260 ITR 491 is applicable to the appellant's case. Following the said judgement I hold that the date of agreement is the relevant date for computing capital gains in A.Y. 2005-06. For claiming exemption u/s.
54EC, the appellant should have invested the money within six months. The appellant had invested money in December, 2005 which is beyond six months. Therefore, the appellant is not entitled for exemption u/s. 54EC. These grounds of appeal are dismissed.
9. Further aggrieved, assessee preferred second appeal before the Tribunal. The learned counsel for the assessee adverted our attention to the observations of the learned CIT(A) to submit that even the learned CIT(A) admitted that the date of possession of the property was 20.09.2005 whereas on 16.03.2005 an agreement was entered into with the developer. He relied upon an unreported decision of the Hon'ble Delhi High Court, in the case of CIT vs. Delhi Apartment Pvt. Ltd. (ITA 569/2012 dated 07.03.2013), to submit that in order to bring a transaction within the expression "Transfer", under section 2(47)(v) r.w.s. 53A of the Transfer of Property Act, two conditions are to be fulfilled, i.e. (a) execution of a written agreement, and (b) handing over of possession of the property. The Hon'ble Delhi High Court upheld the view taken by ITAT in the aforementioned case and held that execution of written agreement and handing over of possession have to be cumulatively satisfied in order to bring the case within the ambit of section 2(47)(v) of the Act. By strongly relying on the aforementioned decision the learned counsel for the assessee submitted that in the instant case the assessee filed return of income for A.Y. 2006-07 only on the presumption that apart from execution of development agreement the transfer took place in the previous year relevant to A.Y. 2006-07. If the AO is of the opinion that the transfer took place on 16.03.2005 it would have been incorrect on the part of the AO to bring to tax the amount received by the assessee on the so called transfer of rights over the property. The very fact that the AO brought to tax the sale consideration implies that he had admitted that the transfer took place in this year. In fact the AO stated that he is only making a protective assessment in this year, which is not 6 ITA No. 7800/Mum/2011 Shri Azad Zabarchand Bhandari permissible in law because there is no concept of making protective assessment under Income Tax Act. Though traditionally protective assessments are made in the case of a particular assessee or in a particular year, with firm conviction that it is taxable in the case of another person or year, but in the instant case the AO has not made any effort to bring to tax the sale proceeds in A.Y. 2005-06 and now the proceedings, even if the AO intends to, would be barred by limitation. It is thus seen that the AO never had any intention to make a substantive assessment in A.Y. 2005-06. The learned counsel for the assessee also contended that the CIT(A) made an observation that the date of possession is 20.09.2005 against which the Revenue has not preferred any appeal and if the date of possession is taken as 20.09.2005, even by applying the decision of Hon'ble Bombay High Court in the case Chaturbhuj Dwarkadas Kapadia 260 ITR 491, the receipts on transfer of rights on immovable property are assessable to tax only in A.Y. 2006-07; The assessee having invested the money in December, 2005, which is within six month from the date of possession, is entitled to exemption under section 54EC of the Act. He has also taken us through various clauses of the agreement to contend that the title deeds and the documents were not handed over to the developer upon initial payment since the papers were in the custody of assessee's counsel as escrow agents. Since the job of a developer is to develop the property, licence was granted to him to enter upon the premises but it cannot be equated to handing over possession of the premises since one of the clauses stipulates that in the event of non- payment of the entire consideration the agreement could be revoked and the developer shall not be entitled to possession. He has also taken us through the decision of the Hon'ble Bombay High Court to submit that the Hon'ble Bombay High Court rested its decision on the peculiar facts of that case. The learned counsel adverted our attention to page No. 501 of the reported decision to highlight the observation of the Court i.e., "if one reads the contract as a whole, in the aforementioned case it can be seen that there is a dichotomy in the terms of the contract, since the developer was given irrevocable licence to enter the property after the developer obtains the requisite approvals of various authorities". By reading the contract as a whole the Hon'ble High Court arrived at a conclusion that one should not go 7 ITA No. 7800/Mum/2011 Shri Azad Zabarchand Bhandari by the date of actual possession but has to appreciate the date on which irrevocable licence was given which would indicate passing or transferring of complete control over the property in favour of the developer and such a date can be taken as the date of transfer. He then strongly submitted that the AO as well as the CIT(A) did not appreciate the facts in its entirety before coming to the conclusion that the transfer has not taken place in the year under consideration and at the same time by arriving at a finding that the income offered to tax is assessable in A.Y. 2006-07 implying thereby that the transfer took place in this year.
10. On the other hand, the learned D.R. strongly relied upon the orders passed by the tax authorities. She admitted that there is nothing on record to suggest that the AO has made some efforts to make substantive assessment in A.Y. 2005-06. It may be necessary to note that the learned counsel for the assessee emphatically stated that to the best of his knowledge the assessee is not in receipt of any notice regarding reopening of assessment of A.Y. 2005-06. The learned D.R. submitted that in the light of the decision of the Hon'ble Bombay High Court (supra) the date of effective transfer is the date on which the developer is entitled to enter the premises and in the instant case also, despite clause 2(c) of the contract, the overall circumstances indicate that the developer is entitled to have complete possession of the property from the date first payment is made and agreement is entered into. She thus submitted that the date of possession, in the instant case, should be taken as 16.03.2005 in which event investment made in December, 2005 falls outside the period of six months, from the date of transfer, and hence the assessee is not entitled to exemption under section 54EC of the Act.
11. We have carefully considered the rival submissions and perused the record. At the outset it may be stated that there is dichotomy in the approach of the tax authorities; on one hand the sale proceeds are sought to be taxed in A.Y. 2006-07 implying thereby that the transfer took place in this year and not on 16.03.2005 but on the other hand, for the limited purpose of disallowing the claim of exemption under section 54EC of the Act, the AO as well as the CIT(A) proceeded on the presumption that 8 ITA No. 7800/Mum/2011 Shri Azad Zabarchand Bhandari 16.03.2005 is the date of transfer and reckoned from that date the investment is to be made within six months and hence the investment made in December, 2005 cannot be considered for the purpose of seeking benefit under section 54EC of the Act. It is equally important to notice that the AO seeks to tax the income on sale of the property in the year under consideration on protective basis by observing that "consequently the substantive addition may be made in A.Y. 2005-06 as per the law". The expression "may be made" in itself indicates that the AO is not sure as to whether the transfer took place in A.Y. 2005-06 or not and in fact his subsequent action/inaction of not initiating any proceeding in respect of A.Y. 2005-06 speaks volumes about the conduct of the AO. In fact it is a matter of serious concern.
12. Article 265 of the Constitution of India postulates that there cannot be levy of tax without authority of law. It is not in dispute that capital gains tax can be levied only in the year when the transfer of immovable property takes place. If the AO is of the firm view that the transfer had taken place on 16.03.2005, for capital gains tax purpose, then it is mandatory to bring to tax, the said income, in A.Y. 2005-06 in which event he ought to have excluded the income offered to tax in A.Y. 2006-07, having observed that reckoned from the date of transfer the assessee has not invested, within six months, the sale proceeds in the long term specified assets. The first appellate authority, in para 3.5, impliedly accepts that in the instant case the date of agreement is different from the date of possession; in his opinion the moot point is whether the date of agreement, i.e. 16.03.2005 or the date of possession, i.e. 20.09.2005 is the relevant date for computing capital gains tax. It is well settled that in order to bring the sale proceeds to tax under the head "Capital Gains" transfer of the property has to take place in the relevant previous year and in order to come to the conclusion that the transfer has taken place within section 2(47)(v) of Income Tax Act r.w.s. 53A of Transfer of Property Act twin conditions have to be satisfied, i.e. execution of the agreement and handing over of possession. It is not necessary that both conditions should be satisfied in one year but at the same time only upon satisfying the second condition also it would amount to transfer. In this case also there is no dispute that the agreement is dated 16.03.2005 whereas with regard to the date of possession the learned CIT(A) 9 ITA No. 7800/Mum/2011 Shri Azad Zabarchand Bhandari assumed that it took place on 20.09.2005, which falls in the financial year relevant to A.Y. 2006-07. In the peculiar nature of this case, if at all the plea of the AO has to be accepted, it would amount to holding that the transfer had not taken place in this year and consequently the sale proceeds cannot be assessed in this year, but the AO having not initiated any proceedings with respect to A.Y. 2005-06 till date the impugned income would escape taxability even in A.Y. 2005-06 and it would really be prejudicial to the interest of the Revenue. Under this peculiar circumstance we have to rationally interpret the findings of the AO as well as the CIT(A) in the backdrop of the clauses in the agreement. As rightly pointed out by the learned counsel for the assessee, the Hon'ble Bombay High Court in the case of Chatrubhuj Dwarkadas Kapadia (supra) has decided the issue by reading the terms of the contract as a whole and by specially taking note of the fact that in the guise of agreement of sale a development agreement was contemplated whereby the developer was held to have taken possession on account of the irrevocable licence granted to him to enter upon the property whereas in the instant case no such finding was given by the tax authorities. In fact the learned CIT(A) opined that the date of handing over of possession in the instant case was 20.09.2005, and based on this factual premise it has to be held that the transfer had taken place in the previous year relevant to A.Y. 2006-07. Reckoned from the date of possession, i.e., 20.09.2005, the assessee having invested the money within six months in long term specified asset, the benefit of exemption under section 54EC deserves to be extended to the assessee in the instant case. In substance, we hold that the assessee is entitled to exemption under section 54EC of the Act in the year under consideration and we direct the AO accordingly. This disposes of ground No. 1, 2 & 3 set, out in the Revised Grounds of Appeal.
13. With regard to ground No. 4 the claim of the assessee was that the learned CIT(A) erred in confirming addition of `49,000/- made by the AO under section 41(1) of the Act. No material, whatsoever, was filed before us to contradict the findings of the learned CIT(A). In fact the learned counsel for the assessee did not advance any argument on this issue. We, therefore, reject ground No. 4 of the assessee.
10 ITA No. 7800/Mum/2011Shri Azad Zabarchand Bhandari
14. Ground No. 5 is with regard to charging of interest under section 234B and 234C of the Act. Both the parties admitted that it is consequential in nature. We direct the AO accordingly.
15. Vide ground No. 5 assessee challenges initiation of penalty under section 271(1)(c) of the Act. At the time of hearing the learned counsel for the assessee did not press this ground and accordingly the same is rejected.
16. Ground No. 7 to 9 are general in nature. Therefore they do not require independent consideration. At the same time, as rightly mentioned in ground No. 7(iii), the case of the assessee is that tax authorities ought to have taken a consistent stand with regard to the date of transfer in order to bring to tax the income from capital gains in the relevant year. This issue was already discussed in preceding paragraphs and hence it does not require independent consideration. Ground No. 8 & 9 are general in nature, which are not pressed.
17. In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 26th April, 2013.
Sd/- Sd/-
(Sanjay Arora) (D. Manmohan)
Accountant Member Vice President
Mumbai, Dated: 26th April, 2013
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) - 30, Mumbai
4. The CIT- 19, Mumbai City
5. The DR, "A" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.