Bombay High Court
Atithi Estate And Investment ... vs Salsette Co-Operative Housing Society ... on 26 September, 2018
Author: G. S. Patel
Bench: G.S. Patel
905-EXA24-16.DOC
Atul
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
EXECUTION APPLICATION NO. 24 OF 2016
IN
SUIT NO. 946 OF 1979
Atithi Estate & Investment Corporation ...Plaintif
Versus
Salsette Co-operative Housing Society Limited & ...Defendants
Ors
Mr Samit Shukla, with Mr Yash Momaya, i/b DSK Legal, for the
Plaintiff.
Mr Clive D'Souza, for Defendant No. 6.
CORAM: G.S. PATEL, J
DATED: 26th September 2018
PC:-
1.The Plaintif/Decree Holder, Atithi Estate & Investment Corporation ("Atithi") seeks to execute a Consent Decree dated 17th June 2005. Relief is sought under Order XXI Rule 34 of the Code of Civil Procedure, 1908. Atithi seeks the execution of a Conveyance from the Defendant No. 6, the Society, the Nutan Shanti Priya Co-operative Housing Society Ltd ("the Society"), in terms of Clause 6 of the Consent Terms dated 16th June 2005 underlying the Consent Decree.
Page 1 of 1126th September 2018 ::: Uploaded on - 01/10/2018 ::: Downloaded on - 01/10/2018 23:56:19 ::: 905-EXA24-16.DOC
2. It is not in dispute that Atithi has paid the consideration of Rs. 26 lakhs to the Society as required by the Consent Terms and Consent Decree: Rs.15 lakhs were paid on the execution of the Consent Terms on 16th June 2005 and the balance on 12th August 2005. Admittedly, Atithi has been in possession of the property in question.
3. Atithi filed the Execution Application on 7th September 2015, within limitation. Atithi's Notice under Order XXI Rule 22 was made absolute on 3rd August 2016. Atithi therefore seeks, in execution, directions for a conveyance in its favour of the decretal property.
4. The Society objects to the execution. The objection is not as to jurisdiction. There is no submission that the decree is a nullity, either. Indeed, the Society does not even dispute its obligation to execute a conveyance as Atithi seeks. According to Mr D'Souza for the Society, the only concern is this: that since execution is sought in 2018 of a Consent Decree of 2005, the Society may find itself saddled with a much larger long-terms capital gains ("LTCG") tax liability on the transaction.
5. In my judgment, this is no ground to refuse the due and proper execution of a decree. Still, I will deal with Mr D'Souza's submission to allay all concerns.
6. I presume that the Society's apprehension is based on the provisions of Section 50C of the Income Tax Act, 1961 ("the IT Page 2 of 11 26th September 2018 ::: Uploaded on - 01/10/2018 ::: Downloaded on - 01/10/2018 23:56:19 ::: 905-EXA24-16.DOC Act"). That section has a deeming fiction in regard to the consideration received for the transfer of immovable property for the purpose of computing Capital Gains tax and, therefore, LTCG tax, under Section 48 of the IT Act. Section 50C was amended by the Finance Act 2016 with efect from 1st April 2017. The amendment inserted two provisos in Section 50C(1):
"PROVIDED that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer:
PROVIDED FURTHER that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement for transfer."
(Emphasis added)
7. In itself, this amendment is a complete answer: the first proviso specifically contemplates a temporal discontinuity between the date of the agreement and a later date of capital asset transfer; the capital value as on earlier date (of the agreement) may be lawfully and legitimately used. The second proviso is clearly intended to prevent deliberate abuse, where an agreement is left hanging without a single step to commitment or closure for years on end; during which time the capital asset value appreciates greatly; and then capital gains tax is sought to be computed on the much Page 3 of 11 26th September 2018 ::: Uploaded on - 01/10/2018 ::: Downloaded on - 01/10/2018 23:56:19 ::: 905-EXA24-16.DOC earlier date. This kind of speculation in capital asset values is ring- fenced by the second proviso, which is therefore really in the nature of a demand for demonstration of bona fides. It asks the transacting parties to show that they are serious, and are not idly speculating in capital asset markets. To that end, there must be evidence of payment of at least part of the consideration; and, further, that payment cannot be made in cash or kind, or by barter or adjustment, but must be in the form of actual tender duly encashed and received.
8. In our case, the Consent Terms of 16th June 2005 is the agreement; and the date of the consent terms is the date of the agreement that fixes the transaction consideration at Rs. 26 lakhs. There is no dispute that this amount has actually been paid to, and received by, the Society by pay orders (and this is actually set out in the draft Conveyance Deed itself ). It follows, therefore, that the 'value adopted or assessed or assessable by the stamp duty valuation authority' as on 16th June 2005 is the one to be taken for computing capital gains under Section 50C and Section 48. Both provisos to Section 50C squarely apply.
9. For completeness, a look at Section 2(47) of IT Act for a definition of 'transfer':
(47) "transfer", in relation to a capital asset, includes,--
(i) the sale, exchange or relinquishment
of the asset; or
(ii) the extinguishment of any rights
therein; or
Page 4 of 11
26th September 2018
::: Uploaded on - 01/10/2018 ::: Downloaded on - 01/10/2018 23:56:19 :::
905-EXA24-16.DOC
(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 section 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 association of persons 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.
Explanation 1.--For the purposes of sub-clauses (v) and
(vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA.
Explanation 2.--For the removal of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an Page 5 of 11 26th September 2018 ::: Uploaded on - 01/10/2018 ::: Downloaded on - 01/10/2018 23:56:19 ::: 905-EXA24-16.DOC agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;
10. Mr Shukla also draws my attentions to a decision of a Division Bench of this Court in Chaturbhuj Dwarkadas Kapadia v Commissioner Of Income-Tax.1 The Court held:
6. At the outset, we may point out that in this case, the assessee does not deny transfer. The only dispute in this case, is whether the transfer took place during the accounting year ending March 31, 1996, or whether it took place during the accounting year ending March 31, 1999. In other words, the dispute is confined to the year of chargeability.
7. Under Section 2(47)(v), any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act would come within the ambit of Section 2(47)(v). That, in order to attract Section 53A, the following conditions need to be fulfilled.
There should be a contract for consideration; it should be in writing; it should be signed by the transferor; it should pertain to transfer of immovable property; the transferee should have taken possession of the property; lastly, the transferee should be ready and willing to perform his part of the contract. That even arrangements confirming privileges of ownership without transfer of title could fall under Section 2(47)(v). Section 2(47)(v) was introduced in the Act from the assessment year 1988-89 because prior thereto, in most cases, it was argued on 1 2003 (2) Bom CR 449.
Page 6 of 1126th September 2018 ::: Uploaded on - 01/10/2018 ::: Downloaded on - 01/10/2018 23:56:19 ::: 905-EXA24-16.DOC behalf of the assessee that no transfer took place till execution of the conveyance. Consequently, the assessees used to enter into agreements for developing properties with the builders and under the arrangement with the builders, they used to confer privileges of ownership without executing conveyance and to plug that loophole, Section 2(47)(v) came to be introduced in the Act.
8. It was argued on behalf of the assessee that there was no effective transfer till grant of irrevocable licence. In this connection, the judgments of the Supreme Court were cited on behalf of the assessee, but all those judgments were prior to introduction of the concept of deemed transfer under section 2(47)(v). In this matter, the agreement in question is a development agreement. Such development agreements do not constitute transfer in general law. They are spread over a period of time. They contemplate various stages. The Bombay High Court in various judgments has taken the view in several matters that the object of entering into a development agreement is to enable a professional builder/contractor to make profits by completing the building and selling the flats at a profit. That the aim of these professional contractors was only to make profits by completing the building and, therefore, no interest in the land stands created in their favour under such agreements. That such agreements are only a mode of remunerating the builder for his services of constructing the building (see Gurudev Developers v. Kurla Konkan Niwas Co-operative Housing Society [2000] 3 Mah LJ 131). It is precisely for this reason that the Legislature has introduced Section 2(47)(v) read with Section 45 which indicates that capital gains is taxable 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. In this case that test has Page 7 of 11 26th September 2018 ::: Uploaded on - 01/10/2018 ::: Downloaded on - 01/10/2018 23:56:19 ::: 905-EXA24-16.DOC not been applied by the Department. No reason has been given why that test has not been applied, particularly when the agreement in question, read as a whole, shows that it is a development agreement. There is a difference between the contract on the one hand and the performance on the other hand. In this case, the Tribunal as well as the Department have come to the conclusion that the transfer took place during the accounting year ending March 31, 1996, as substantial payments were effected during that year and substantial permissions were obtained. In such cases of development agreements, one cannot go by substantial performance of a contract. In such cases, the year of chargeability is the year in which the contract is executed. This is in view of Section 2(47)(v) of the Act.
9. Before us, it was argued on behalf of the assessee that the date on which possession is parted with by the transferor is the date which should be taken into account for determining the relevant accounting year in which the liability accrues. It was argued on behalf of the assessee that in this case, irrevocable licence was given in terms of the contract only during the financial year ending March 31, 1999, and, therefore, there was no transfer during the financial year ending March 31, 1996. On the other hand, it was argued on behalf of the Revenue that one has to go by the date on which the developer substantially performed the contract. It was argued on behalf of the Department that since substantial payments were made during the financial year ending March 31, 1996, and since majority of permissions were obtained during that year, the liability to pay capital gains tax accrued during the assessment year 1996-97. In this case, the agreement is a development agreement and in our view, the test to be applied to decide the year of chargeability is the year in which the transaction was entered into. We have taken this view for the reason that the development agreement does not Page 8 of 11 26th September 2018 ::: Uploaded on - 01/10/2018 ::: Downloaded on - 01/10/2018 23:56:19 ::: 905-EXA24-16.DOC transfer the interest in the property to the developer in general law and, therefore, Section 2(47)(v) has been enacted and in such cases, even entering into such a contract could amount to transfer from the date of the agreement itself. We have taken this view for a precise reason. Firstly, we find in numerous matters where the Assessing Officer and the Department generally proceed on the basis of substantial compliance of the contract. For example, in this very case, the Department has contended that because of substantial compliance of the contract during the financial year ending March 31, 1996, the transfer is deemed to have taken place in that year. Such interpretation would result in anomaly because what is substantial compliance would differ from officer to officer. Therefore, if on a bare reading of a contract in its entirety, an Assessing Officer comes to the conclusion that in the guise of the agreement for sale, a development agreement is contemplated, under which the developer applies for permissions from various authorities, either under power of attorney or otherwise and in the name of the assessee, then the Assessing Officer is entitled to take the date of the contract as the date of transfer in view of Section 2(47)(v). In this very case, the date on which the developer obtained a commencement certificate is not within the accounting year ending March 31, 1996. At the same time, if one reads the contract as a whole, it is clear that a dichotomy is contemplated between the limited power of attorney authorising the developer to deal with the property vide para. 8 and an irrevocable licence to enter upon the property after the developer obtains the requisite approvals of various authorities. In fact, the limited power of attorney may not be actually given, but once under Clause 8 of the agreement a limited power of attorney is intended to be given to the developer to deal with the property, then we are of the view that the date of the contract, viz., August 18, Page 9 of 11 26th September 2018 ::: Uploaded on - 01/10/2018 ::: Downloaded on - 01/10/2018 23:56:19 ::: 905-EXA24-16.DOC 1994, would be the relevant date to decide the date of transfer under Section 2(47)(v) and, in which event, the question of substantial performance of the contract thereafter does not arise. This point has not been considered by any of the authorities below. No judgment has been shown to us on this point. Therefore, although there is a concurrent finding of fact in this case, we have enunciated the principles for applicability of Section 2(47)
(v). We do not find merit in the argument of the assessee that the court should go only by the date of actual possession and that in this particular case, the court should go by the date on which irrevocable licence was given. If the contract, read as a whole, indicates passing of or transferring of complete control over the property in favour of the developer, then the date of the contract would be relevant to decide the year of chargeability.
(Emphasis added)
11. If we apply the Chaturbhuj Dwarkadas Kapadia principles to the case at hand -- particularly Clause 5 of the Consent Terms -- there is not the slightest doubt that the property passed to Atithi and it took complete control of the suit property in August 2005 when it paid the last tranche. The relevant year must be reckoned accordingly as 2005. Thus, the 'transfer' of the subject property took place after the decree was passed and on payment of the consideration, in the year 2005. All consequences as to stamp duty and payment of capital gains tax, including LTCG tax, are to be determined accordingly as in 2005 and not from the date of actual execution of the conveyance, which is now sought in execution.
Page 10 of 1126th September 2018 ::: Uploaded on - 01/10/2018 ::: Downloaded on - 01/10/2018 23:56:19 ::: 905-EXA24-16.DOC
12. From any perspective, the Society's apprehensions are entirely without foundation.
13. The Notice under Order XXI Rule 34 is made absolute. The draft conveyance is to be forwarded by the Prothonotary & Senior Master to the lawyers for Atithi, the Decree Holder, who will submit it for adjudication and assessment in accordance with this order. An authenticated copy of this order will accompany the submission. The office of the Superintendent of Stamps is not to raise any objections as to the year of assessment but will assess stamp payable on the transaction as in 2005. That office will complete the exercise within six weeks of the submission to it. Once the assessment and adjudication as to stamp is complete, the Prothonotary & Senior Master will depute an officer to execute the conveyance and to complete all formalities for registration and for admitting execution.
14. Liberty to the Decree Holder to apply.
(G. S. PATEL, J) Page 11 of 11 26th September 2018 ::: Uploaded on - 01/10/2018 ::: Downloaded on - 01/10/2018 23:56:19 :::