Income Tax Appellate Tribunal - Ahmedabad
Anandrao C. Rao, Baroda vs Department Of Income Tax on 28 August, 2009
IN THE INCOME_TAX APPELLATE TRIBUNAL "D" BENCH,
AHMEDABAD
BEFORE SHRI T.K.SHARMA AND SHRI D.C.AGRAWAL
ITA No.1828/Ahd/2003
(Assessment Year : 1993-94)
The I.T.O.Ward 2(3), Vs. Shri Anandrao C. Rao,
Baroda. A.2, Vrajdham Society,
Old Padra Road,
Baroda.
(Appellant) (Respondent)
Appellant by : Shri A.K.Sanoba, Sr. D.R.
Respondent by : Shri J.P.Shah, A.R.
(आदे श)/ORDER
)/
PER AGRAWAL, AM:
This appeal is filed by the Revenue raising following ground:
On the facts and in the circumstances of the case and in law, the learned CIT(A)-II, Baroda has erred in deleting the addition made of Rs.18,31,870/- being long term capital gain as in the case of development and agreements, the year of chargeability of capital gain is the year in which the contract is executed which in this case is 19.10.92. This has been decided in the case of Chaturbhuj Dwarkadas kapadia Vs. CIT (2003) 180 CTR (Bom.) 107.
2. The only dispute involved in this appeal is whether capital gains on land would be taxable in the Assessment Year 1993-94 or not. The facts of the case are that during the course of assessment proceedings for Assessment Year 1997-98, the Assessing Officer found that the assessee has declared a capital gain of Rs.20,95,073/- in that year. He was shown to have sold a house for a sum of Rs.4,75,000/- and land for Rs.20,69,068/-. The total sale consideration of the two immovable properties amounted to Rs.25,44,068/-. Thus, the assessee showed 2 actual gain of Rs.23,96,851/- and after indexing the cost of acquisition of Rs.1,47,289/- as on 01.4.1981 at Rs.4,48,907/-, he declared long-term capital gain of Rs.20,95,073/-. When the Assessing Officer examined the transaction, he noticed that there was registered agreement between the assessee and purchaser, namely, M/s Kalpna Enterprises entered on 19.10.1992 whereby a sum of Rs.11,000/- was advanced to the assessee. The agreement showed that land was sold to M/s Kalpna Enterprises on 19.10.1992 as per agreement at the rate of Rs.20 per sq. ft.. Land was given in possession to the developer on the date of agreement. The developer started development of the land, made flats thereon which was booked by different customers and possession thereof was also given in due course. After completion of construction of the flats, the land was transferred through a registered deed to M/s Kalpna Enterprises and thereafter flats were transferred to different clients. It was submitted to the Assessing Officer that assessee received permission from Appropriate Authority under Urban Land Ceiling Act in April, 1998 but as the flats were completed and sold to the customers in the year relevant to the Assessment Year 1997-98 capital gains was declared in that year. It was also claimed by the assessee that assessee has not transferred his right on the said land and that entire money was not paid by the developer to the assessee and, therefore provisions of sec. 53A of the Transfer of Property Act and the provisions of sec. 2(47)(v) of the Income Tax Act would not be applicable. The Assessing Officer did not agree but he assessed the capital gain in the Assessment Year 1997-98 on protective basis and initiated re-assessment proceedings for the present Assessment Year i.e. 1993-94. After giving opportunity of being heard, the Assessing Officer taxed the capital gains in the Assessment Year 1993-94.
3. The ld. CIT(A) deleted the addition on the ground that -
3(i) Clauses in the agreement show that the possession of the properties was agreed to be given to the developer only upon payment of the last instalment and till such time the assessee has right to revoke the contract.
(ii) The assessee has not given absolute right but it is a case of mere conferring right to the developer to enter upon and carry on development activities in the said property. The ld. CIT(A) referred to the decision of the I.T.A.T. Mumbai Bench in the case of DCIT V. Asian Distributors Ltd. (2001) 70 TTJ 89.
(iii) It is not a case of transfer within the meaning of sec. 2(47)(v) of the I.T.Act or sec. 53 of the Transfer of Property Act.
(iv) The transaction is only an agreement granting license to the developer within the meaning of sec. 52 of Easement Act. The ld. CIT(A) relied on the decision of Hon'ble Gujarat High Court in the case of Shantivan Corporation v. Sub Registrar & Ors. (1990) 90 CTR (Guj.) 196.
(v) Transfer is only a part of possession and not a complete transfer in the year under consideration.
4. Against this, the ld. D.R. submitted that the reasoning advanced by the ld. CIT(A) are fallacious. It is because the agreement between assessee and developer does not show that it is only a license. It is acquiring right to develop the property and also taking over complete possession of the property. The agreement is not revocable. The ld. D.R. further submitted that the definition of transfer u/s 2(47)(v) is wide enough to include cases of this nature where possession is handed over to the developer though registration of the transfer deed takes place subsequently.
5. Against this, the ld. A.R. for the assessee submitted that the 4 assessee could not have sold the land because this land is covered under Urban Land Ceiling Act. The land should be transferred only after constructing the flats thereon for weaker section of the society as per scheme framed under the Act. Further, the assessee has not received full consideration of transfer so made. It has received only a sum of Rs. 11,000/-, therefore, it could not be said that transferee has fulfilled his obligations. He submitted that if a land is covered under Urban Land Ceiling Act then same could not be subjected to transfer unless conditions laid down under that Act are fulfilled. What is done by the assessee is only a grant of license to the developer. The ld. A.R. referred to clauses 10,11, and 18 of the development agreement and inferred therefrom that transfer would be complete only when flats are complete and ready for transfer to the flat owners.
6. In rejoinder the ld. D.R. submitted that Urban Land Ceiling Act will not prevail over Income Tax Act. The restrictions for actual transfer of land under the Urban Land Ceiling Act cannot override the provisions of sec. 2(47)(v) according to which transfer of the land would be complete if the possession is handed over by the assessee to the developer, as per agreement. He submitted that provisions of sec. 2(47)(v) cannot be made otiose merely by deferring the date of registration of transfer deed either as per assessee's will or due to delay in fulfillment of certain conditions under other statutes even though possession is handed over to the developer.
7. We have considered the rival submissions and have perused the material on record. The undisputed facts are that assessee entered into development agreement of land on 19.10.1992 with Shri Kantibhai Patel a partner of M/s Kalpna Enterprises a partnership firm who is the developer. As per clauses of this agreement, the cost of the land was 5 handed over to the developer was set out @ Rs.20 per sq. ft.. A sum of Rs. 11,000/- was paid to the assessee in cash. As per para 3 page 1 of the agreement the assessee had obtained a permission from Baroda Municipal Corporation on 03.3.1992 to construct residential houses for lower middle class persons. Appropriate papers were sent to the Collector for transferring the land into non-agriculture. As per clause 18, the developer was given possession of the property of land for completing the construction of the houses as per scheme. As per clause 3, the rights were given to the developer to appoint architect and engineer to make necessary contract for construction on the land. As per clause 5 and 6, the assessee is only to sign on various schemes to be framed by the developer either for constructing the house or for selling them to various members or for obtaining loan from financial institutions. As per clause 8, the developer will take the profit out of the construction and the assessee will only take the amount as per agreed rates. As per clause 8, the owner will not obstruct in the work of developer. As per clause 9, rights were given to the developer to receive money from the members purchasing the houses or for additional work like light, water, drainage etc. As per clause 14, the developer will give the documents in the name of registered members after completion of the construction. As per clause 19, a right is given to the developer to give his work on sub contract basis. As per clause 18, the possession of the land is given to the developer and right of the assessee is limited to take the money @ Rs.20 per sq. ft. There is no stipulation as to how and when the money would be paid by the developer to the assessee, therefore, there is no question of holding that there was any violation of payment schedule.
8. Now, we refer to sec. 2(47)(v) of the Act as under:
"(v) Any transaction involving the allowing of the possession of any immovable property to be taken or retained in part 6 performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882."
This sub section was introduced by the finance Act 1987 with effect from 1-4-1988. While introducing amendment in sec. 2(47) following explanatory notes were provided:
"Cir. 495 22/9/1987 from the file 31/29/87-PPI(1987) 168IT. BB [Sections 3(a) and 41 of the Finance Act, 1987] Definition of "transfer" widened to include certain transactions:
11.1 The existing definition of the word "transfer" in section 2(47) does not include transfer of certain rights accuring to a purchaser, by way of becoming a member of or acquiring shares in a co-
operative society, company, or association of persons or by way of any agreement or any arrangement whereby such person acquires any right in any building which is either being constructed or which is to be constructed. Transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangements confer the privileges of ownership without transfer of title in the building and are a common mode of acquiring flats particularly in multi-storeyed constructions in big cities. The definition also does not cover cases where possession is allowed to be taken or retained in part performance of a contract, of the nature referred to in section 53A of the Transfer of Property Act, 1882. New sub-clauses (v) & (vi) have been inserted in section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above."
9. Thus, a perusal of the English translation of the development agreement clearly showed stipulations contrary to the contention of ld. A.R.. It is not a case of mere giving license to the developer to enter into the land for construction but transfer of possession of the land in such manner so as to attract section 2(47)(v) of the Act read with sec. 53A of the Transfer of Property Act. A combined reading of the clauses of the agreement clearly indicated that assessee gave possession and received part of the consideration and obtained right to receive the balance. There 7 was a part performance by the assessee as well as by the developer. Thus, section 53A of the Transfer of Property Act got attracted and there was a transfer within the meaning of sec. 2(47)(v). The agreement clearly showed that till the completion of the project, rights were given to the developer to book the members and execute deed of flats in favour of the members/flat owners. The assessee has been completed excluded from the land under various clauses of the development agreement. The assessee cannot choose buyers of the flats. What assessee has to be do is only to sign on the documents as required by the developer. The assessee has no control to receive money from the members/flat owners which would only go to the developer. Under these circumstances, the ingredients of 2(47(v) are clearly satisfied and capital gains would arise only in the previous year relevant to the Assessment Year 1993-94 being relevant date of transfer i.e. 19.10.1992. So far as judgments referred to the ld. CIT(A) in his orders are concerned and also relied on by the ld. A.R. of the assessee, are between assessee and developer on different set of facts. In Asian Distributors case(supra) agreement clearly indicated that a license was given to the developer. In Shantivan Corporation case(supra) there was only a part possession which are not the facts in the present case. Arguments of the ld. A.R. in the present case before us that full payment was not received by the assessee is not relevant because it was not provided in the agreement between the assessee and the developer. There is nothing on record to show that the developer defaulted in making the payment. In fact, no schedule of payment is provided in the development agreement. Therefore, the question of holding that the developer has defaulted in making the payment will not arise. In Jasmit Sarkaria case (2007) 294 ITR 196 (AAR) it is held that possession of the property need not be sole or exclusive possessive and a possession enabling exercise of general control of property to make use of it is enough for invoking sec. 2(47)(v). Further, 8 there is nothing on record to show that assessee has any revocable power of taking back the property. On the other hand, development agreement showed that what assessee has given to the developer is irrevocable power of possession subject to mere formalities of registering the transfer deed as and when it is convenient.
10. The ld. A.R. has referred to the decision of I.T.A.T. Mumbai "J" Bench in General Glass Co. (P) Ltd. vs. Dy.CIT (2007) 108 TTJ (Mum.) 854 for the proposition that if purchaser does not fulfill his obligation then transfer will not be complete and capital gains tax could not be levied on the basis of alleged part performance. The facts in that case were that the assessee entered into an agreement for sale of land on 12.5.1995 for a total consideration of Rs.5.30 crores and received a sum of Rs. 30 lacs as advance and balance was agreed to be paid in instalments. Out of the balance, an amount of Rs.2.80 crores was payable in the financial year 1995-96 and the transferee paid only a sum of Rs. 73,92,380/- during the financial year. Thus, there was a failure on the part of the transferee to perform his part of the contract. It was held by the I.T.A.T. Mumbai Bench in the above case that such a contract did not constitute a transfer within the meaning of sec. 2(47)(v) read with sec. 53A of the Transfer of Property Act, 1882 and hence, no chargeable capital gains would accrue in the Assessment Year 1996-97. Thus, in this case the transferee was unable to perform his obligations as per agreement. But, in the present case, the agreement, a copy of which was given to us along with the English translation, did not indicate any schedule of payment to be made by transferee i.e. M/s Kalpna Enterprises. The only amount the transferee was required to pay to the assessee was Rs.11,000/- which was apparently paid as there is no dispute. It is only stipulated in clause 2 that balance was to be given in instalments before making a sale deed. There is no indication as to what were the instalments and when the 9 transferee was required to make the payment so that it could be inferred that there was a failure on the part of the transferee in fulfilling his part of performance as per agreement. No facts are produced before us to show that there was failure of this type on the part of the transferee and hence, the facts being different, ratio of this decision would not be applicable. The ld.A.R. then referred to the decision in Daljit Singh Ahluwalia v. Union of India & Anr. 175 CTR (P&H)229 being a judgment given by Hon'ble Punjab & Haryana High Court in the matter of purchase of immovable property by appropriate authority u/s 269UD. In our considered view, this decision would not be applicable as it is rendered in respect of issue arising in different chapter of I.T.Act and there is no direct bearing of any ratio/obiter dicta on the facts of present case. The ld. A.R. then referred to a decision of I.T.A.T. Mumbai in Dy.CIT v. Ashian Distributors Ltd. (2001) 70 TTJ 88 for the proposition that if developer failed to make the payment of last instalment then it will not tantamount to transfer. In that case, the agreement provided that transferee could revoke the agreement if the developer did not make the payment as per instalments. In the present case, no such stipulation is provided in the agreement and no such right of revocation is given to the present assessee, therefore, the decision of this case will not be applicable. Another judgment referred to by the ld. A.R. is in the case of Sanjay Kumar and Another v. State of U.P. and Others (1995) 6 SCC 99 for the proposition that a sale would be void if it is in contravention of the Ceiling Act. In our view, this authority cannot be applied on the facts of the present case. Proceedings for transfer of the land are going on apparently in accordance with the provisions of Land Ceiling Act. The assessee has taken permission from appropriate authority for construction of houses and thereafter entered into an agreement with M/s Kalpna Enterprises, the developer. There is no move by either of the parties or by the third person to declare the agreement void. No such declaration has taken 10 place and no violation of any provision of Land Ceiling Act has been explained or justified. Finally, the ld. A.R. referred to a decision given by I.T.A.T. "E" Bench Delhi in Pramod Kumar Gupta v. ITO (1991) 41 TTJ (Del.) 83 for the proposition that if no prior approval is taken under the provisions of Urban Land Ceiling Act then transfer would be void ab initio. This judgment was rendered prior to the amendment in section 2(47) with effect from 1-4-1988 and no case of failure of prior approval has been made out to take a case out of sec. 2(47)(v). Unless it is shown that and provision of Urban Land Ceiling Act incorporate any non- abstanto clause thereby even handing of legal possession to the transferee would not tantamount to transfer and as envisaged in sec. 2(47)(v), the provisions of that Act cannot be applied to nullify the provisions of sec. 2(47)(v). On the other hand, as observed above, the assessee and the transferee are proceeding in accordance with Urban Land Ceiling Act and have obtained approval for construction of the houses for particular section of the society and hence, the question of holding that it is a case for non approval under the Urban Land Ceiling Act does not arise. In the present case, there is a legal handing over of the possession as per terms of the agreement. It is only the registration of the purchase deed which is deferred. The act of registration of purchase deed is a posterior act after handing over of the physical as well as legal possession as per agreement. The restrictions as explained by the ld. A.R. imposed by Urban Land Ceiling Act relate to construction of the houses for lower middle class persons on that land. This will only defer the registration of the purchase deed till the completion of the construction of the houses and will not operate to make the provisions of sec. 2(47)(v) ineffective or otiose.
11. Under the set of similar facts, I.T.A.T. Ahmedabad "C" Bench in ITA No.1441/Ahd/2002 in the case of Shri Jayantilal C. Desai v. DCIT decided 11 on 30.6.2009, the Tribunal held that capital gains would arise in the year when possession of the land was handed over to the developer.
12. As a result, we hold that the ld. CIT(A) was not justified in deleting the addition. The order of the ld. CIT)(A) is set aside and that of the Assessing Officer is restored on this count.
13. In the result, the appeal of the Revenue is allowed. The order was pronounced in the open court on 28.8.2009.
Sd/- Sd/-
(T.K.SHARMA) (D.C.AGRAWAL)
JUDICIAL MEMBER ACCOUNTANT MEMBER
AHMEDABAD, DATED: 28.8.2009
PSP*
Copy to:
(1) The assessee
(2) The Assessing Officer
(3) The CIT(A) concerned,
(4) The CIT, concerned,
(5) The DR, ITAT, Ahmedabad,
(6) Guard File.
BY ORDER
ASSTT. REGISTRAR/ DEPUTY REGISTRAR
ITAT, AHMEDABAD BENCHES
AHMEDABAD.