Property registration not must for constituting ‘Transfer’ as per pre-amended section 53A of TPA Act

Vasant Laxman Khandge Vs ITO (ITAT Pune)

Conclusion: Assessee had handed over possession of the property to M/s. V.S. K Associates in the year 2000 on receiving substantial part of consideration which constituted transfer u/s. 2(47)(v) read with section 53A of the TPA attracting taxability of capital gain in the A.Y. 2001-02. Thus, the same could not once again be taxed in the assessment year 2007-08. 

Held: Assessee filed return for the assessment year 2007-08 declaring total income of Rs.1,16,567/-. AO received information from DCIT, Pune that assessee and his brother, had entered into a development agreement with M/s. V.S. Kolbhor & Associates for sale of land for a consideration of Rs.93,25,000/-. The sale deed was registered on 03-08-3006, on which date the stamp value was Rs.2,43,28,953/-. AO issued notice u/s.148 by holding in the assessment order that the actual date of transfer of the property was the date as per registered sale deed, viz. 03-08-2006, which fell in the previous year relevant to the assessment year under consideration. Invoking the provisions of section 50C, the AO added a sum of Rs.75,01,976/- in the total income of the assessee, being one half share of additional capital gain. On appeal. It was held that as pre-amended section 53A of the Transfer of Property Act did not require registration of a contract as a necessary condition, a fortiori is that section 2(47)(v) also could not require such condition, with sequitur that the transaction of giving possession of the property by transferor to the transferee pursuant to some contract coupled with the transferee performing his part of contract by paying full or part consideration, would complete `transfer’ at that stage thereby attracting capital gain de hors the actual registration. It was seen that assessee handed over possession of the property to M/s. V.S. Kolbhor & Associates in the year 2000 on receiving substantial part of consideration. This constituted transfer u/s. 2(47)(v) read with section 53A of the TPA attracting taxability of capital gain in the A.Y. 2001-02. As the `transfer’ took place in the said earlier year, it could not once again take place in the assessment year 2007-08 attracting taxation. Therefore, the transfer took place in the A.Y. 2001-2002 and not 2007-08, leading to taxation of capital gain only in the earlier year and not the latter.

FULL TEXT OF THE ITAT JUDGEMENT

These two appeals by different but connected assessees emanate from the orders passed by the ld. CIT(A) on 30-12-2016 and 01-12-2016 respectively in relation to the assessment year 2007-08. Since there is a common lis and similar ground in both the appeals, we are, ergo, proceeding to dispose them by this consolidated order for the sake of convenience.

2. Firstly, we espouse the appeal by Sh. Vasant Laxman Khandge (ITA No.653/PUN/2017). The factual matrix of the case is that the assessee filed return for the assessment year 2007-08 declaring total income of Rs.1,16,567/-. The Assessing Officer (AO) received information from DCIT, Circle-8, Pune that the assessee and his brother, Dattatraya Laxman Khandge, the other assessee in the present batch of appeals, entered into a development agreement with M/s. V.S. Kolbhor & Associates for sale of land at Survey Nos. 676/677/679 at Talegaon Dabhade for a consideration of Rs.93,25,000/-. The sale deed was registered on 03-08-3006, on which date the stamp value was Rs.2,43,28,953/-. Considering the fact that the income escaped assessment on this score, the AO issued notice u/s.148 of the Income-tax Act, 1961 (hereinafter also called `the Act’). After entertaining and disposing of the assessee’s objections separately against the initiation of reassessment, the AO came to hold in the assessment order that the actual date of transfer of the property was the date as per registered sale deed, viz. 03-08-2006, which fell in the previous year relevant to the assessment year under consideration. Invoking the provisions of section 50C of the Act, the AO added a sum of Rs.75,01,976/- in the total income of the assessee, being one half share of additional capital gain. The assessee’s contention that the transfer took place way back on 06-05-2000 on entering into contract and handing over the possession of the property to M/s V.S. Kolbhor & Associates after receipt of substantial part of sale consideration, did not find favour with the AO. The ld. CIT(A) echoed the assessment order on this issue. Aggrieved thereby, the assessee has come up in appeal before the Tribunal.

3. We have heard the rival submissions through virtual court and scanned the relevant material on record. The facts are not in dispute. However, a little elaboration of the primary and essential facts is essential. The assessee and his brother, Dattatray Laxman Khandge, the other assessee in the present batch of appeals, inherited land at Survey Nos. 676/677/679 after the death of their father Shri Laxman Tukaram Khandge. An agreement was entered into on 03-12-1984 by their father with one Mr. Kuldeep Singh Nanda for transfer of the said land. The matter went into litigation. Mr. Kuldeep Singh Nanda filed a Civil suit, which ended with a Compromise decree on 04-01-2000 whereby Mr. Kuldeep Singh Nanda was to be paid a sum of Rs.62,75,000/-. As Sh. Laxman Tukaram Khandge had died by that time, the assessee and his brother executed the Compromise decree. In order to finance the payment to Mr. Kuldeep Singh Nanda, the assessee entered into an agreement for transfer of the land with M/s. V.S. Kolbhor & Associates for a consideration of Rs.93,25,000/-. Form 37-I, accompanied by the Agreement dated 06.05.2000, was filed on 10­05-2000 with the competent authority under the Income-tax Act seeking approval to the transaction. It is a matter of record that the competent authority also accorded its clearance vide certificate u/s.269-UL(3). Eventually, a registered sale deed was executed on 03-08-2006. In the backdrop of the above facts, the moot question which arises in the instant case is to find out the date of transfer triggering the provisions of Chapter IV-E of the Act. The AO has opined that transfer took place on execution of the sale deed on 03­08-2006 and hence capital gain became chargeable u/s.45 of the Act in the previous year relevant to the assessment year 2007-08 under consideration. Au contraire, the assessee has canvassed a view that the transfer took place on 06.05.2000 and hence, the capital gain could not be charged to tax in the year under consideration.

4. Without prejudice to the core argument that the transfer took place in the assessment year 2001-2002, the ld. AR also took an alternate argument that the case was covered by the first proviso to section 50C of the Act and hence, the stamp value, if at all, should be considered with reference to the date of agreement entered into on 06.05.2000 and not on the date of registration on 03-08-2006. This was countered by the ld. DR by arguing that the first proviso to section 50C was inserted by the Finance Act, 2006 w.e.f. 01-04­2017 and hence, the same cannot apply to the assessment year 2007-08 under consideration.

5. We first take up the alternate argument raised by the ld. AR for consideration. Before embarking upon this issue, it would be apt to take note of the mandate of first proviso to section 50C(1) of the Act, which states 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 … 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.’ This proviso unequivocally states that if the date of agreement fixing the amount of consideration is different from the date of registration for the transfer of the capital asset taking place later on, the stamp value should be considered with reference to the date of agreement and not the date of registration. The second proviso to section 50C(1) concomitantly states 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 … on or before the date of the agreement for transfer’. On going through the prescription of the two provisos which have been inserted by the Finance Act, 2016 w.e.f. 01-04-2017, it is overt that the adoption of the stamp value with reference to the date of agreement as discussed in the first proviso will be valid only if the full or part consideration has been received through banking channel on or before the date of agreement of transfer. To put it simply, stamp value on the date of agreement, in contrast to the date of registration, can be considered as full value of consideration in terms of section 50C of the Act only when the date of agreement is different from the date of registration and the transferor receives whole or part of the consideration before the date of agreement for transfer.

6. We now advert to the facts of the instant case. The date of agreement is 06.05.2000 and the date of registration is 03-08-2006. It is found from the bank statement of M/s. V.S. Kolbhor & Associates, copy given at page 36 of the paper book, that the assessee received substantial amount of sale consideration through banking channel before the date of the agreement in the year 2000. Since the prescription of both the provisos to section 50C(1) is satisfied, ex consequenti, it is only the stamp value on the date of agreement which, if warranted, needs to be considered as full value of consideration u/s.50C for the purpose of calculation of capital gain u/s.45 of the Act.

7. The debatable point involved herein is to ascertain the date of applicability of the beneficial proviso to section 50C(1) which gives a breathing space to all such assessees who enter into agreement for transfer of property on a date anterior to the date of actual registration and also receive full or part of the consideration for such transfer. Admittedly, the proviso was inserted by the Finance Act, 2016 w.e.f. 1.4.2017 and the assessment year under consideration is 2007-08. It is pertinent to note that but for the proviso, mandate of sub-section (1) of section 50C applies, by which the stamp value on date of registration – which is usually higher because of the same falling later in the point of time from the date of agreement – is required to be taken as a full value of consideration notwithstanding the fact that the deal got finalized in the past on receiving full or part of the consideration, thereby exposing the assessee to higher tax bill.

8. The Hon’ble Supreme Court in a Constitution Bench decision in CIT Vs. Vatika Township Pvt. Ltd. (2014) 367 ITR 446 (SC) has extensively dealt with the prospective or retrospective application of the provisions by holding that a legislation is ordinarily presumed to be prospective unless contrary intention appears. It further went on to hold that: `where a benefit is conferred by legislation, the rule against a retrospective construction is different. If legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective.’ When we examine the content of the two provisos to section 50C(1) in juxtaposition to the language of sub-section (1), it gets graphically clear that the beneficial proviso has been inserted in order to benefit some assesses who enter into agreement prior to the date of registration and also simultaneously receive full or a part of consideration. Such beneficial provision does not inflict a corresponding detriment to other assessees or the public generally. Since object of the first proviso to section 50C(1) is to confer a benefit to certain class of assesses in the given situation, going by the ratio laid down in Vatika Township (supra), this proviso will have to be held as retrospective applicable from the date of insertion of section 50C w.e.f. 01-04-2003. Our view is fortified by a recent judgment rendered by the Hon’ble Madras High Court in CIT Vs. Vummidi Amarendra (2020) 429 ITR 99 (Madras). It is, therefore, held that the alternate plea raised by the ld. AR for adopting stamp value on the date of agreement in the year 2000 instead of the date of registration in 2006 is hereby countenanced, in principle.

9. Now we proceed to the primary argument of the ld. AR that the transfer took place on 06.05.2000, being the date of agreement, which has been contradicted by the Revenue by making out a case that the date of registration, being, 03-08-2006 is the real date of transfer attracting section 45 of the Act. If we concur with the view point of the Revenue, then capital gain will be chargeable to tax in the A.Y. 2007-08 subject to the adoption of stamp value of the property as prevalent on 06.05.2000, being the date of agreement, on the strength of the first proviso to section 50C(1) as discussed above. If, on the other hand, we agree with the view point of the assessee, then capital gain on the transfer of the capital asset will be subjected to taxation in the A.Y. 2001-02 subject to its computation in accordance with the relevant provisions but without any application of section 50C as this section itself came to be inserted by the Finance Act, 2002 w.e.f. 01-04-2003.

10. Section 2(47) of the Act defines the term “transfer”. Sub-section (47) has six clauses. It is seen from the orders of the authorities below that they have not referred to any specific clause from the definition of `transfer’ for magnetizing section 45 of the Act. The ld. DR vehemently argued that the case is directly covered by clause (v) of section 2(47) of the Act. He did not invite our attention towards any other clause of section 2(47) getting triggered. As such, we will focus only on clause (v), which states that “transfer”, in relation to a capital asset, includes:`(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).’ As clause (v) is directly referring to section 53A of the Transfer of Property Act (TPA), the doctrine of incorporation will get attracted and have the effect of bodily lifting and reading such later provision in section 2(47)(v) of the Act. Section 53A of the TPA, as applicable on the date of agreement, namely, 06-05-2000, read as under:

`53A. Part performance.—Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty,

and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,

and the transferee has performed or is willing to perform his part of the contract,

then, notwithstanding that the contract though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed there for by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:

Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.’

(emphasis supplied by italicizing)

11. Thus on reading section 2(47)(v) of the Act in a holistic manner as also having the mandate of section 53A of Transfer of Property Act incorporated into it, one can easily deduce that where any person contracts to transfer any immovable property for consideration by writing which depicts the terms necessary to constitute transfer and the transferee in part performance of the contract takes possession of the property or a part thereof and further has performed or is willing to perform his part of the contract, then notwithstanding that the contract though required to be registered has not been registered, shall be construed as constituting `transfer’ for the purpose of section 45 of the Act. Reverting the factual scenario prevailing in the instant case, it is seen that the assessee agreed to transfer the immovable property to M/s. V.S. Kolbhor & Associates by a written agreement on 06.05.2000 for a consideration of Rs.93,25,000/-. M/s. V.S. Kolbhor & Associates took possession of the property in the year 2000 itself and performed their part of the contract by paying a sum of Rs.62.75 lakh there and then. In such circumstances, the case gets covered u/s. 2(47)(v) of the Act read with section 53A of the Transfer of Property Act having the effect of constituting `transfer’ on 06.05.2000 notwithstanding the fact that the contract though required to be registered was not registered at that time. It is vital to note that section 53A of the TPA underwent a change w.e.f. 24-09-2001 omitting the words “the contract though required to be registered, has not been registered, or”. Simultaneous with this amendment, an alteration was also carried out to the Registration of Property Act, 1908 by inserting sub­section (1A) to Section 17 dealing with documents of which registration is compulsory by providing that: `The documents containing contracts to transfer for consideration, any immovable property for the purpose of section 53A of the Transfer of Property Act, 1882 (4 of 1882) shall be registered if they have been executed on or after the commencement of the Registration and Other Related laws (Amendment) Act, 2001 (48 of 2001) and if such documents are not registered on or after such commencement, then, they shall have no effect for the purposes of the said section 53A.’. The amendments carried out to section 53A of the TPA and Section 14 of the Registration Act, 1908, both with effect from 24­09-2001, necessitate registration of the contract as sine qua non for constituting “transfer” u/s.2(47) of the Act. Thus, in the period posterior to the amendment to section 53A of the Transfer of Property Act and Section 14 of the Registration Act w.e.f. 24-09­2001, registration of contract has now become mandatory to constitute “transfer”. The Hon’ble Apex Court in CIT VS. Balbir Singh Maini (2017) 398 ITR 531 (SC) has held that: `after the commencement of the Amendment Act of 2001, if an agreement, like the JDA in the present case, is not registered, then it shall have no effect in law for the purposes of Section 53A.’ As a logical corollary, the position is otherwise in the period anterior to the said amendments. As pre-amended section 53A of the TPA did not require registration of a contract as a necessary condition, a fortiori is that section 2(47)(v) also could not require such condition, with sequitur that the transaction of giving possession of the property by transferor to the transferee pursuant to some contract coupled with the transferee performing his part of contract by paying full or part consideration, would complete `transfer’ at that stage thereby attracting capital gain de hors the actual registration.

12. Reverting to the factual panorama, it is seen that the assessee handed over possession of the property to M/s. V.S. Kolbhor & Associates in the year 2000 on receiving substantial part of consideration. This, in our opinion, constituted transfer u/s. 2(47)(v) of the Act read with section 53A of the TPA attracting taxability of capital gain in the A.Y. 2001-02. As the `transfer’ took place in the said earlier year, it cannot once again take place in the assessment year 2007-08 attracting taxation. Setting aside the impugned order, we hold that the transfer took place in the A.Y. 2001-2002 and not 2007-08, leading to taxation of capital gain only in the earlier year and not the latter. As the ld. CIT(A) has upheld taxability of the capital gain in the A.Y. 2007-08, we hereby overturn the same. The Revenue is at liberty to examine the taxability of the capital gain, if any, arising from the transaction in the earlier year, subject to the relevant provisions. In view of our favorable decision on the main argument of the ld. AR, the alternate claim of the assessee and the discussion made (supra) has been rendered academic insofar as the instant appeal is concerned. We, therefore, order to delete the addition of Rs.75,01,926/- made in the hands of the assessee.

Santosh D. Khandge L/H of Sh. Dattatraya Laxman Khandge – ITA No.652/PUN/2017 :

13. This assessee was a co-owner of the property transferred along with Sh. V.L. Khandge, whose appeal has been disposed off hereinabove. Both the sides are consensus ad idem that the facts and circumstances of this assessee are mutatis mutandis similar to those of Mr. Vasant Laxman Khandge. The AO made similar addition of equal amount of Rs.75,01,976/- in the hands of this assessee as well, which got affirmed by the ld. first appellate authority. In view of the identical facts, we adopt the same raison d’etre as given supra and order to delete the addition from the income of the assessee for the A.Y. 2007-08. Here again, the Revenue is at liberty to proceed against the assessee for the A.Y. 2001-02 as per law.

14. In the result, both the appeals are allowed.

Order pronounced in the Open Court on 23^rd December, 2020.