Case Law Details
Jawahar Hiralal Jethani Vs DCIT (ITAT Pune)
The issue which arises in the present appeal is with regard to transfer of development rights acquired by assessee in a piece of land. It may be pointed out that as early as September / November 1997, the assessee enters into two separate agreements for two separate pieces of land, under which the assessee was to develop the said land.
In respect of one agreement dated 05.11.1997, sale consideration was not mentioned but in respect of second agreement dated 02.09.1997, ₹ 6 lakhs has been paid by cheque and was mentioned in the sale agreement and the same is not disputed by any of the parties. The date of handing over of cheque of ₹ 6 lakhs is dated 02.09.1997 and the same has not been found to be incorrect by the authorities below.
The assessee explained that the land which was ‘maherwatan’ land, wherein the owners were occupant class-2 and had limited rights in the said land. The owners could become complete owners of the said pieces of land only after payment of 50% of land value and then transfer or develop the said pieces of land. This exercise was done by the owners on a later date.
Consequently, earlier agreement through which the assessee had paid ₹ 6 lakhs by cheque and balance ₹ 4 lakhs for which details were not available, but for which an agreement is executed in 1997, were re-written in the agreement dated 07.12.2004. The perusal of contents of said agreement, which is registered document between the same parties reflects the same consideration.
If the case of Revenue was to be believed, then in the changing scenario where the value of said property in 1997 was about ₹ 10 lakhs would not remain to be the same in 2004 i.e. on the date of execution of registered document on 07.12.2004. It was only because of certain technicalities, the earlier document could not be registered and the possession was legally transferred.
However, the said development rights acquired by assessee in 1997 have been finally culminated through registered document in his favour on 07.12.2004 but in such scenario, it cannot be said that the assessee had acquired rights on 07.12.2004 and not in 1997.
We find no merit in the stand of authorities below in this regard. We are of the view that whatever rights the assessee had acquired in the said pieces of land start from 1997, on which date for one of the transactions the amount was also paid through cheque of ₹ 6 lakhs. The said consideration of ₹ 6 lakhs was recognized in the later registered document which establishes the case of assessee of having acquired the rights way back in 1997.
Accordingly, the gain arising on transfer of development rights in the hands of assessee is to be assessed as ‘Long term capital gains’. Further, we hold that the assessee is entitled to the claim of deduction under section 54ED of the Act on account of investment in Bonds issued by Rural Electrification Ltd. and 54F of the Act on account of investment in construction of joint family property.
The said claim of assessee cannot be rejected by the Assessing Officer observing that the amount which was put into capital gains account has been transferred to some person. The explanation of assessee in this regard was that the amount has been transferred to joint bank account of his brothers and himself, wherein the money was utilized for construction of joint ancestral house. We thus, direct the Assessing Officer to allow the said claim also in the hands of assessee.
FULL TEXT OF THE ITAT JUDGEMENT
The appeal filed by assessee is against order of CIT(A)-V, Pune, dated 14.02.2011 relating to assessment year 2007-08 against order passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).
2. The assessee has raised the following grounds of appeal:-
1. The learned CIT (A), erred on facts and in law in upholding A.O.’s action of treating Rs.85,00,000 being sale consideration towards plots under the head ‘short term capital gains’ as against ‘long term capital gains’ as claimed by assessee, and consequently denying deduction u/s 54EC as claimed by the assessee.
2. The learned CIT(A) ought to have appreciated that the said land was acquired in 1997 when admittedly possession was obtained by the assessee and substantial payment for purchase consideration were also made. He failed to appreciate the context, intent and meaning of sec. 2(47)(v) of the Income Tax Act read with Section 53A of the Transfer of Property Act. He further, erred on relying on Bombay High Court’s decision in 161 ITR 92 which is no longer applicable in view of insertion of sec. 2(47)(v) w.e.f. 1st April 1988.
3. The learned CIT (A) erred on facts and in law in not considering assessee’s claim of reduction in capital gains (either by way of reducing the consideration or by allowing the expenditure as incurred in connection with the transfer) by an amount of Rs.45,00,000 being expenditure incurred by the purchaser and agreed to be adjusted in total consideration by the assessee.
3. The issue raised in the present appeal is the assessability of gain arising on sale of plot and whether the same is to be assessed under the head ‘Short term capital gains’ as assessed by Revenue authorities or as ‘Long term capital gains’ as claimed by assessee. The consequent relief which the assessee seeks is the deduction to be allowed under section 54EC of the Act. Further, the assessee is also aggrieved by non allowance of expenditure of ₹ 45 lakhs being expenditure incurred by purchasers and agreed to be adjusted by assessee in total consideration.
4. Briefly, in the facts of the case, the assessee during the year under consideration had declared long term capital gains on sale of plot at Talwade, Pune for ₹ 85 lakhs. In the computation of income, the assessee had claimed cost of selling at ₹ 5 lakhs, investment in Bonds issued by Rural Electrification Ltd. of ₹ 50 lakhs. Further, the assessee had deposited ₹ 20 lakhs in Bank of India under Capital Gain Saving Account on 29.03.2007, which amount was withdrawn in the name of Prabhu J. on 10.01.2008 and deposited in Citi Bank. The case of assessee was taken up for scrutiny. The Assessing Officer noted that the assessee along with Shri Sahebrao Narayan Kalokhe had entered into an agreement dated 05.11.1997 with Shri Ishwar Pandu Chavan, Suresh Ishwar Chavan and others for purchase of land bearing Gat No.338 at Taluka-Haveli, Pune. The Assessing Officer notes that sale consideration was not mentioned in the said agreement. As per para 2, it is mentioned that purchaser i.e. assessee could develop the said land as per his wish. Further, the assessee along with Shri Sahebrao Narayan Kalokhe had also entered into another purchase agreement dated 02.09.1997 with same parties for purchase of land bearing Gat No.339, 340 and 341 at Taluka-Haveli, Pune for consideration of ₹ 6,10,000/- with right to develop the said land as per his wishes. Further, the assessee on 07.12.2004 entered into Development Agreement with Shri Suresh Ishwar Chavan and others for development of said plot of land i.e. Gat Nos.338, 339, 340 and 341 for consideration of ₹ 10,01,000/-. As per para 2A of the said agreement, the assessee got right to develop the land and to construct ownership flats, etc. and sell it to different peoples. He also got right to utilize FSI / TDR of the land. Thereafter, on 29.11.2006, the assessee enters into Development Agreement as consenting party with Shri Suresh Ishwar Chavan and others as owners and M/s. Infinity Techno, the Developers. The Assessing Officer thus, noted that the assessee had purchased development rights from the owner vide agreement dated 07.12.2004. The assessee had transferred his development rights of the said plot of land to M/s. Infinity Techno vide agreement dated 29.11.2006 for consideration of ₹ 85 lakhs. The Assessing Officer was of the view that the holding period was less than 36 months, therefore, the assessee was requested to explain as to why the gain arising on sale of land should not be treated as ‘Short term capital gains’. The assessee was also asked to explain as to why deduction claimed under section 54F and 54ED of the Act should not be denied. The assessee filed explanation and pointed out that the land was held for more than 36 months, since the said land was purchased in 1997, which is evidenced by agreement to sell and possession receipt executed by the landlord. He thus, claimed that since the rights had been bought in the land and physical possession of the land had been taken over, therefore the said property was owned for more than 36 months and for the purpose of capital gains, the gain arising was long term capital gains. The assessee also explained that the funds which were received on sale of his rights were utilized for construction of his house and it was pointed out that sum of ₹ 20 lakhs which was transferred on 10.01.2007 was to the joint account of Jethani brothers. The said funds were allocated for construction of house and the first name in the joint bank account was Prabhu Jethani and the funds were jointly contributed by brothers and utilized for the construction of jointly owned house and hence, the assessee’s claim of deduction under section 54F of the Act merits to be allowed. The Assessing Officer did not accept the plea of assessee and was of the view that where the holding period of development right was not more than 36 months, gain arising therefrom was to be assessed as ‘Short term capital gains’.
5. The CIT(A) after referring to the definitions under various sections and definition of transfer referred in section 53A of Transfer of Property Act and relying on the decision of the Hon’ble Bombay High Court in CIT Vs. R.R. Sood reported in 161 ITR 92 (Bom) held that the Assessing Officer was right in holding that capital gains in question were ‘Short term capital gains’ and not ‘Long term capital gains’, since the property was acquired through registered deed executed on 07.12.2004 and sold through transfer agreement dated 29.11.2006 and the period of holding was clearly less than 36 months.
6. The assessee is in appeal against the order of CIT(A).
7. The learned Authorized Representative for the assessee stressed that the assessee had entered into two agreements i.e. on 05.11.1997 and 02.09.1997 for purchasing the rights in two pieces of land. He further stated that total consideration paid was about ₹ 10 lakhs and ₹ 6 lakhs out of said amount was paid by cheque. He further stressed that the possession of said land was received by assessee but it was not legally received as the said land was ‘maherwatan’ land. He pointed out that the said agreements were not registered. He explained that the owners were occupant class-2 i.e. they had limited rights; but by paying 50% of land value, they could become occupant clause-1 owners and then transfer the land. The learned Authorized Representative for the assessee pointed out that this consideration was paid on a later date. Our attention then was drawn to the registered document dated 07.12.2004, which was again between the same parties and same consideration as mentioned in earlier agreement 1997 was mentioned. He thus, stressed that rights which were acquired by assessee were way back in 1997 though for recognizing the rights transferred to the assessee, the registered agreement was executed on 07.12.2004. He then referred to sale deed dated 29.11.2006, under which original owners have sold the property to M/s. Infinity Techno, wherein the assessee was made the consenting party. He further pointed out that in all the agreements the assessee had development rights, which were acquired in 1997 and on sale of such development rights, the assessee had received sale consideration, which was after period of holding 36 months and hence, assessable as ‘Long term capital gains’.
8. The learned Departmental Representative for the Revenue referred to document placed at page 82 of Paper Book, which is dated 07.11.1997 and also referred to the receipt of money, which is dated 05.11.1997. He then pointed out that the receipts of money in 1997 were not available. He also pointed out that in the first agreement, Shri Sahebrao Narayan Kalokhe was the consenting party. He also went through both the deeds and pointed out that where the assessee gets the rights through registered document, which was dated 07.12.2004, then once the said rights were transferred vide document dated 29.11.2006, it cannot be said to be ‘Long term capital gains’ in the hands of assessee.
9. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is with regard to transfer of development rights acquired by assessee in a piece of land. It may be pointed out that as early as September / November 1997, the assessee enters into two separate agreements for two separate pieces of land, under which the assessee was to develop the said land. In respect of one agreement dated 05.11.1997, sale consideration was not mentioned but in respect of second agreement dated 02.09.1997, ₹ 6 lakhs has been paid by cheque and was mentioned in the sale agreement and the same is not disputed by any of the parties. The date of handing over of cheque of ₹ 6 lakhs is dated 02.09.1997 and the same has not been found to be incorrect by the authorities below. The assessee explained that the land which was ‘maherwatan’ land, wherein the owners were occupant class-2 and had limited rights in the said land. The owners could become complete owners of the said pieces of land only after payment of 50% of land value and then transfer or develop the said pieces of land. This exercise was done by the owners on a later date. Consequently, earlier agreement through which the assessee had paid ₹ 6 lakhs by cheque and balance ₹ 4 lakhs for which details were not available, but for which an agreement is executed in 1997, were re-written in the agreement dated 07.12.2004. The perusal of contents of said agreement, which is registered document between the same parties reflects the same consideration. If the case of Revenue was to be believed, then in the changing scenario where the value of said property in 1997 was about ₹ 10 lakhs would not remain to be the same in 2004 i.e. on the date of execution of registered document on 07.12.2004. It was only because of certain technicalities, the earlier document could not be registered and the possession was legally transferred. However, the said development rights acquired by assessee in 1997 have been finally culminated through registered document in his favour on 07.12.2004 but in such scenario, it cannot be said that the assessee had acquired rights on 07.12.2004 and not in 1997. We find no merit in the stand of authorities below in this regard. We are of the view that whatever rights the assessee had acquired in the said pieces of land start from 1997, on which date for one of the transactions the amount was also paid through cheque of ₹ 6 lakhs. The said consideration of ₹ 6 lakhs was recognized in the later registered document which establishes the case of assessee of having acquired the rights way back in 1997. Accordingly, the gain arising on transfer of development rights in the hands of assessee is to be assessed as ‘Long term capital gains’. Further, we hold that the assessee is entitled to the claim of deduction under section 54ED of the Act on account of investment in Bonds issued by Rural Electrification Ltd. and 54F of the Act on account of investment in construction of joint family property. The said claim of assessee cannot be rejected by the Assessing Officer observing that the amount which was put into capital gains account has been transferred to some person. The explanation of assessee in this regard was that the amount has been transferred to joint bank account of his brothers and himself, wherein the money was utilized for construction of joint ancestral house. We thus, direct the Assessing Officer to allow the said claim also in the hands of assessee. The grounds of appeal raised by assessee are thus, allowed.
10. In the result, the appeal of assessee is allowed.
Order pronounced on this 30th day of April, 2019.
