Case Law Details
DECIDED BY: ITAT, BENCH `A’, CHENNAI, IN THE CASE OF: R.Gopinath (HUF) Vs. ACIT, APPEAL NO: ITA NOS. 29 & 30/Mds/2008, DECIDED ON JULY 24, 2009
RELEVANT PARAGRAPHS
8. We have considered the rival contentions and the relevant records as well as the decisions cited by both sides. In the case in hand, the capital asset was converted into stock-in-trade by the assessee and thereafter a development agreement entered into by the assessee with the developer, whereby the assessee provided his land measuring 44,000 sq.ft. to the developer for construction of residential apartments, the developer agreed to construct 83,760 sq.ft. (approximately the saleable area as per the plan to be approved by the authorities). Out of the total constructed area, the owners of the land were to get constructed area of 25,130 sq.ft The assessee handed over the possession of the property to the developer for construction purpose and also agreed to make the application to the authorities concerned for sanction of plan and for all other requirements in respect of the construction and effectively carried out the building project including the permission for retaining the vacant land for construction of building for providing amenities like water, electricity, sewerage, etc. It is undisputed that once the property in question was converted to capital asset to stock-in-trade, Section 45(2) of the Income Tax Act, 1961 will be applicable for determining the year of taxing of the capital gain arising from the conversion of the capital asset to the stock-in-trade. Therefore, there is no dispute regarding the applicability of Section 45(2) of the Income Tax Act, 1961 in this case in respect to determine the year in which the capital gain chargeable to tax. The assessee also offered the capital gain by applying the provisions of Section 45(2) of the Income Tax Act, 1961 on the basis of constructed flats sold in the previous year relevant to the assessment year and accordingly proportionate capital gain arising from the transfer of land and building to stock-in-trade was offered. But the Assessing Officer was of the view that this stock-in-trade was sold and transferred at the point when the assessee entered into the development agreement dated 01.09.2003. Therefore, the entire long term capital gain is chargeable to tax in the assessment year 2004- 2005 because as per the Assessing Officer the stock-in-trade was sold / transferred in the year 2003. We may point out here that from the record it is apparent that apart from the development agreement and supplementary development agreement, there is no other document executed by the assessee. The Assessing Officer treated the transaction of handing over the possession of the land and building to the developer as transfer u/s.2(47) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) also held that the capital asset stands transferred in accordance with the provisions of Section 2(47) r.w.s.53A of Transfer of Property Act. In our view, the lower authorities have not taken a correct view by analyzing the transaction by applying the provisions of Section 2(47) of the Income Tax Act, 1961 which is applicable only in case of capital asset. As per Section 2(14) of the Income Tax Act, 1961, capital asset does not include* stock-in-trade. Therefore, once capital asset is converted into stock-in-trade provisions of section 2(47) becomes irrelevant and does not apply. The learned Departmental Representative has contended that the transfer of immovable property satisfies the conditions of Section 53A of the Transfer of Property Act, then the transaction of transfer is complete. He has urged that in the case in hand, Section 53A of Transfer of Property Act applies and despite the conversion of the property into stock-in-trade, transaction of handing over of possession of land and building to the developer as per the development agreement amounts to transfer. Therefore as per the provisions of Section 45(2), the capital gain arising on conversion of capital asset into stock-in-trade is chargeable to tax in the year 2003 when the development agreement was entered into by the parties. He has urged that the lower authorities have rightly held that the entire capital gain arising from conversion of capital asset into stock-in-trade will be chargeable to tax in the assessment year 2004-2005.
9. We are unable to agree with the contentions of the learned Departmental Representative that the transaction of transfer is complete by applying the provision of Section 53A of Transfer of Property Act on the date when the possession of the property was handed over to the developer as per the development agreement dated 01.09.2003. Section 53A of the Transfer of Property Act, does not provide the conditions for transfer but it provides protection to the transferee of any immovable property by a written contract, the terms of which constitute the transfer and can be ascertained with reasonable certainty and the transferee as part performance of the contract taken the possessions of the property and has performed or willing to perform his part of contract, then even the said contract though required to be registered has not been registered and the transfer has not been completed in the manner prescribed therefore by law, the transferor is barred from enforcing against the transferee any right in respect of the property other than the right expressly provided by the terms of the contract Under the Income Tax Act, 1961 by inserting Clause (v) and (vi) of Section 2(47), the definition of the term transfer includes the transaction which fulfills the conditions provided u/s.53A of Transfer of Property Act. Therefore, Section 53A of the Income Tax Act, 1961 is borrowed only with respect to the transfer of capital asset as provided u/s.2(47) of the Income Tax Act, 1961 and the same is not applicable in other cases which do not fell u/s 2(47) of the Income Tax Act 1961. Section 45(1) of the Income Tax Act, 1961 deals with the profit and gain arising from the transfer of capital asset, whereas Section 45(2) deals with the profit or gain arising from the transfer by way of conversion of capital asset into stock-in-trade and shall be chargeable to income tax in the previous year in which such stock-in-trade is sold or otherwise transferred. Therefore, the time of chargeability to income tax of capital gain arising from the conversion of capital asset to stock-in-trade is the point when the stock-in-trade is sold or otherwise transferred, whereas the chargeability of capital gain u/s.45 of the Income Tax Act, 1961 from transfer of capital asset shall be in the previous year in which the transfer took place including the transfer as provided u/s.2(47) of the Income Tax Act, 1961. The sale / transfer of stock-in-trade cannot be equated with the transfer of capital asset under section 2(47). The decisions relied upon by the learned Departmental Representative as well as the lower authorities are with respect to the transfer of capital asset u/s.2(47) of the Income Tax Act, 1961 and not in respect of stock-in-trade. Therefore, these decisions are not relevant and applicable in the facts of the present case. As far as Section 53A of the Transfer of Property Act is concerned, the said provides only a protection to the transferee on fulfillment of certain conditions provided therein but does not provide that even on fulfillment of that condition the transfer is complete. As per provision of Section 53A of the Transfer of Property Act when a right is created in favor of the transferee which cannot be defeated, otherwise then terms and conditions expressly provided in the contract itself.
10. From the development agreement dated 01.09.2003 as well as the supplementary agreement dated 23.12.2003, the assessee handed over the possession of the property for construction of residential apartments by the developer. The assessee did not receive any consideration for handing over the possession of the property to the developer but as per the agreement the assessee got the right to get the built-up area of 25,130 sq.ft. and proportionate car parks as per schedule E and El of the agreement and the rest of the constructed area was to be sold out for recovery of the cost and margin of the developer. From the development agreement, the possession was handed over for carrying out the construction work by the developer and there is no other document except the development agreement which transfers the title of the property to the developer. In the absence of the transfer of the title of the property and any consideration at the time of development agreement, the handing over of the possession was merely a temporary measure for carrying out the construction work by the developer and the exclusive possession of the property in legal since remain with the assessee which was finally handed over at the time of execution of the sale deed of the constructed flats by the assessee. One cannot presume any intension in executing the documents between the parties other than what was stated or can be inferred reasonably from the documents itself. A regard must be given to the words Used in the documents. The nature the transaction between the parties by way of development agreement cannot be said to be a sale of immovable property which is stock-in-trade or otherwise transfer as provided in the Transfer of Property Act. We agree with the contentions of the learned Authorized Representative of the assessee that/the meaning of the words, “otherwise transferred”, in Section 45(2), should be according to its Ordinary popular and natural sense, and it should not include a transaction referred to under sub-clause (v) of sub-section (47) of Section 2 in relation to a ‘capital asset. By no stretch of imagination, the said transaction can be termed as transfer more less as sale. When the legal title and possession of the property was with the assessee, then the transfer of the said is not possible merely by allowing the developer to carry out the construction work.
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