Seshasayee Steels P. Ltd. Vs ACIT (Supreme Court)
SC held that, under the sale agreement, the Taxpayer had granted mere license to Vijay Shanthi Builders Ltd. which cannot be equated with possession of property which necessarily requires control over the property and not mere occupation and, hence, provisions of Transfer of Property Act, 1882 were not attracted.
On a reading of the agreement to sell dated 15.05.1998, what is clear is that both the parties are entitled to specific performance. (See Clause 14)
Clause 16 is crucial, and the expression used in Clause 16 is that the party of the first part hereby gives ‘permission’ to the party of the second part to start construction on the land.
Clause 16 would, therefore, lead to the position that a license was given to another upon the land for the purpose of developing the land into flats and selling the same. Such license cannot be said to be ‘possession’ within the meaning of Section 53A, which is a legal concept, and which denotes control over the land and not actual physical occupation of the land. This being the case, Section 53A of the T.P. Act cannot possibly be attracted to the facts of this case for this reason alone.
We now turn to the argument of the learned senior counsel appearing on behalf of the assessee based on Section 2(47)(vi) of the Income Tax Act.
Given the test stated in paragraph 25 of the aforesaid judgment, it is clear that the expression “enabling the enjoyment of” must take colour from the earlier expression “transferring”, so that it can be stated on the facts of a case, that a de facto transfer of immovable property has, in fact, taken place making it clear that the de facto owner’s rights stand extinguished. It is clear that as on the date of the agreement to sell, the owner’s rights were completely intact both as to ownership and to possession even de facto, so that this Section equally, cannot be said to be attracted.
Coming to the third argument of the learned senior counsel on behalf of the appellant, what has to be seen is the compromise deed and as to which pigeonhole such deed can possibly be said to fall under Section 2(47) of the Income Tax Act. A perusal of the compromise deed shows that the agreement to sell and the Power of Attorney are confirmed, and a sum of Rs.50 lakhs is reduced from the total consideration of Rs.6.10 crores. Clause 3 of the said compromise deed confirms that the party of the first part, this is the appellant, has received a sum of Rs.4,68,25,644/- out of the agreed sale consideration. Clause 4 records that the balance Rs. 1.05 crores towards full and final settlement in respect of the Agreement entered into would then be paid by 7 post-dated cheques. Clause 5 then states that the last two cheques will be presented only upon due receipt of the discharge certificate from one M/s. Pioneer Homes.
In this context, it is important to advert to a finding of the ITAT, which was that all the cheques mentioned in the compromise deed have, in fact, been encashed.
This being the case, it is clear that the assessee’s rights in the said immovable property were extinguished on the receipt of the last cheque, as also that the compromise deed could be stated to be a transaction which had the effect of transferring the immovable property in question.
The pigeonhole, therefore, that would support the orders under appeal would be Section 2(47)(ii) and (vi) of the I.T. Act in the facts of the present case.
FULL TEXT OF THE SUPREME COURT JUDGEMENT
The appellant-assessee entered into an agreement to sell, on 15.05.1998, with one Vijay Santhi Builders Limited for a total sale consideration of Rs. 5.5 crores.
The important clauses of the sale agreement are set out hereinbelow:
“1. The consideration for the sale of the property shall be Rs. 5,50,000/- (Rupees Five Lakhs Fifty Thousand only) per ground. The total area of the property to be sold is around 100 grounds and the total sale consideration of Rs.5,50,00,000/-(Rupees Five Crores Fifty Lakhs only) will be paid directly by the nominees/members on behalf of PARTY OF THE SECOND PART or by the PARTY OF THE SECOND PART, whichever is earlier. The property shall be free of all encumbrances at the time of registration.
2. It is agreed that the total extent of the property is 100 grounds approximately including the areas allotted for road and other amenities, plus the actual extent available for flats.
12. THE PARTY OF THE FIRST PART has already handed over to the PARTY OF THE SECOND PART Xerox copies of all land documents of the schedule mentioned property for their legal counsel’s scrutiny and opinion. THE PARTY OF THE SECOND PART have also satisfied themselves about the title deeds. The PARTY OF THE FIRST PART agree to show the original title deed which are kept with them to the nominees of the second part as and when required after fixing prior appointment.
14. Both the parties are entitled to specific performance of this agreement.
16. THE PARTY OF THE FIRST PART hereby gives permission to the PARTY OF THE SECOND PART to start advertising, selling, construction on the land herein mentioned. Advertisements, sales catalogues and leaflets shall be approved by the PARTY OF THE FIRST PART before publication or circulation.
SCHEDULE OF PROPERTY
