prpri Capital Gain cannot be taxed in absence of Transfer in Relevant Assessment Year Capital Gain cannot be taxed in absence of Transfer in Relevant Assessment Year

Case Law Details

Case Name : Zuari Estate Development and Investment Company Pvt. Ltd. Vs JCIT (ITAT Panaji)
Appeal Number : ITA No. 90/PAN/2000
Date of Judgement/Order : 04/05/2016
Related Assessment Year : 1991-92

Zuari Estate Development and Investment Company Pvt. Ltd. Vs. JCIT (ITAT Panaji)

A perusal of the agreement and the above undisputed facts shows that till date no transfer of the property in question has been completed under the Transfer of Property Act, 1882. Still further, the registered sale deed has not been executed by the assessee in favour of the Bank and consequently, sale is not yet completed. However, a part performance of the nature specified under section 53A of the Transfer of Property Act, 1882 has definitely taken place.

A reading of the above provisions of section 53A of the Transfer of Property Act shows that the following are the essential elements of transaction to be covered by the aforesaid provisions:

(a) There should be contract for consideration;

(b) It should be in writing;

(c) It should be signed by the transferor;

(d) It should pertain to the transfer of immovable property;

(e) The transferee should have taken possession of property;

(f) Lastly, transferee should be ready and willing to perform the contract”.

Thus, in the facts and circumstances, it is observed that part performance of the contract referred to in Section 53A took place in the instant case in the financial year 1984-85 vide agreement dated 19/06/1984. Except deferment of execution of the registered deed for five years and payment of balance consideration of 5%, all the activities for sale of property in question were completed.

A perusal of section 45 of the Income Tax Act, 1961 which is a charging section for the purposes of capital gains shows that the capital gains can be charged to tax in the year, in which the transfer of the capital asset takes place.

A perusal of the above shows that no transfer of the capital asset in question took place in the previous year relevant to the Assessment Year under consideration, as neither sale of immovable property as defined Transfer of Property Act, 1882 took place during the Assessment Year 1990-91, nor it can be said that the transaction of the nature referred to in section 53A of the Transfer of Property Act, 1882 took place in the financial year 1990-91.

In fact, in the instant case, it is not the case of any party that sale of immovable property in question took place in the year under consideration. The contention of the Revenue is that in view of the provisions contained in sub-clause (v) of section 2(47), a transfer of the capital asset in question took place in the previous year relevant to the Assessment Year 1991-92. The basis of the Revenue for the above claim is that as the purchaser Bank has exercised its option under clause 5 of the agreement dated 19/06/1984 on 12/06/1990 and, therefore, a transfer within the meaning of section 2(47)(v) took place on that date. A reading of section 2(47)(v) shows that it provides that the date of transfer would be the date on which 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 take place. In the instant case, the possession was taken by the Bank from the assessee on 20/06/1984 is not in dispute. Further, no material has been brought on record to show that on 12/06/1990, the assessee allowed the said bank to retain the possession in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. In fact, contract of the nature referred to in section 53A was entered into on 19/06/1984 and the possession was allowed to be taken over by the Bank on 20/06/1984 in part performance of that contract. Thus, in our considered view, transfer within the meaning of section 2(47)(v) took place on 20/06/1984 and not on 12/06/1990.

In the above circumstances, in our considered view, transfer within the meaning of section 2(47) of the Income Tax Act, of the capital asset in question did not take place on 12/06/1990 or during the previous year relevant to the Assessment Year 1991-92. Therefore, the Commissioner of Income Tax (Appeals) was not justified in sustaining the action of the Assessing Officer in including the capital gains in relation to capital asset in question during the Assessment Year under consideration. We, therefore, delete the addition of ₹ 52,08,297/- as capital gains of the assessee under consideration.

FULL TEXT OF THE ITAT JUDGEMENT

This is an appeal filed by the assessee against the order of Commissioner of Income Tax (Appeals), Belgaum, dated 21/08/2000 for the Assessment Year 199 1-92.

2. The assessee has raised the following grounds of appeal:-

“1. The Commissioner of Income-tax (Appeals) erred in holding that the reassessment proceedings were validly initiated by the Assessing Officer.

2. The Commissioner of Income-tax (Appeals) erred in holding that the Appellant had transferred the office premises at Maker Chambers Ill to Bank of Maharashtra during the previous year relevant to assessment year 1991-92 and was consequently liable to be assessed to the capital gain arising thereon.

3. The Commissioner of Income-tax (Appeals) erred in holding that when the appellant gave possession of the premises to Bank of Maharashtra on 20th June, 1984 the same would not amount to grant of possession in part performance of the agreement for sale as contemplated by section 53A of the Transfer of property Act.

4. The Commissioner of Income-tax (Appeals) erred in holding that on the date of exercise of option by the Bank of Maharashtra i.e June 12th 1990, a transaction of the nature referred to in section 53A of the Transfer of Property Act had taken place and hence transfer within the meaning of section 2(47) was effected.

5. The Commissioner of Income-tax (Appeals) erred in observing that the appellant and Bank of Maharashtra had undertaken an exercise to defraud the government and that the failure on the part of the appellant to complete the formalities for transfer, which failure was deliberate, besides position being a breach of contract with the bank was an act of fraud on the revenue.

6. The Commissioner of Income-tax (Appeals) erred in observing that no plausible reason has been advanced by the Appellant for the failure on its part to complete the formalities for transfer of the office premises overlooking the fact that a perfectly reasonable explanation for such alleged failure had been advanced by the Appellant.

7. The Commissioner of Income-tax (Appeals) erred in holding that the latter part of the letter dated 12th June 1990 would constitute “the doing of some act in furtherance of the contract within the meaning of section 53A of the Transfer of Property Act.

8. The Commissioner of Income-tax (Appeals) erred in holding that the Assessing Officer was justified in levying interest under section 234A and 234B in the reassessment framed under section 143(3) read with section 147.

The Appellant craves leave to add, alter and/or modify all or any of the aforesaid grounds at the time of hearing.”

3. This appeal was decided by the Tribunal vide its order dated 29/01/2004 wherein the Tribunal quashed the order of the Assessing Officer on the ground that proceedings initiated under sec. 147 was without jurisdiction by following the order of the Hon‘ble Bombay High Court at Goa in Writ Petition No. 15/1997, order dated 30/07/2003. Thereafter, the Revenue filed appeal to the Hon‘ble Supreme Court and the Hon‘ble Supreme Court vide its order dated 17/04/2005 passed in Civil Appeal No. 6758/2004 set aside the judgment of the High Court dated 30/07/2003 and the order of the Tribunal in ITA No. 90/PNJ/2002 dated 29/01/2004 and remanded the matter back to the Tribunal to decide the appeal of the assessee on merits. Hence, this appeal.

4. Ground No.1 of the appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) holding that the reassessment proceedings were validly initiated by the Assessing Officer.

5. The Hon‘ble Bombay High Court at Goa has held vide its order dated 30/07/2003, passed in Writ Petition No. 15/1997 that assessment made under section 147 of the Act in the instant case was invalid. However, on appeal before the Hon‘ble Supreme Court, the Hon‘ble Supreme Court set aside the order of the Hon‘ble High Court and held that the notice issued under section 148 in the instant case cannot be held to be issued on basis of change of opinion and thereby, the said notice is not invalid on that ground. In absence of any other plea by the assessee in respect of this issue, we do not find any merit on this ground of the appeal of the assessee and accordingly, the same is dismissed.

6. Grounds Nos.2 to 7 of the appeal, the grievance of the assessee is that the Commissioner of Income Tax (Appeals) erred in holding that there was transfer of three office premises along with four car parking spaces by the assessee in favour of the Bank of Maharashtra during the previous year relevant to the Assessment Year 1991-92 and consequently, the assessee was liable to pay capital gains during the said Assessment Year.

7. The Commissioner of Income Tax (Appeals) has decided the issue as under:-

“4. All other grounds of appeal and the written submissions in the course of appellate proceedings contest the assessment of Rs.52,08,297/- as net income under the head capital gains. It was done by the AO by assuming transfer of office premises no.22, 22-A and 23 and four car parking spaces in Maker Chambers III at Nariman Point, Mumbai by the appellant to Bank of Maharashtra during this year. The amount was assessed as long term capital gains by taking recourse to the extended meaning of transfer as contained in section 2(47)(v) of the Act as amended with effect from 1-4-1988. On the basis of this provision, the relevant transaction was held as transfer giving rise to capital gains u/s 45 of the Act.

5. The relevant facts, briefly stated, are like this. The appellant had purchased the aforesaid office premises no. 22, 22A and 23 in Maker Chamber III from the builders, M/s. Prerna Premises Pvt. Ltd., on 28-6- 1982. Subsequently, the said builder, allotted six parking spaces, i.e. no.17,18,19, 20,77 and 78 to the appellant on 13/09/1983. The appellant entered into an agreement for sale of all the three office premises No. 22, 22A & 23 and four out of six car parking spaces, i.e. those bearing no. 17, 18, 19 & 20 to Bank of Maharashtra on 19-6-1984 for a price calculated at the rate of Rs.1,600/— per sq. ft. for the total built up area of 5.138 sq. ft. plus Rs. 80,000/- for each of the four car parking spaces. This worked out to Rs.85,40,800/-. The appellant had received Rs.2 lacs as earnest money on the same date i.e. 19-6-1984 but before the execution of the said agreement dated 19-6-1984. The remaining price was to be paid at the execution of final documents for sale and transfer of the property. It was however provided in clause 2(b) of the agreement that if the purchaser is put in possession of the premises before execution of the final documents, then the purchaser shall pay 95% of the agreed price minus Rs.2 lacs paid as earnest money. In that case only the remaining amount of 5% was to be paid at the time of execution of the final documents of sale and transfer of the property. Clause 5 of the agreement provided that the sale of the premises shall be completed only after the expiration of five years but before the expiration of six years from the date of aforesaid agreement and the purchaser shall have the option either to complete the transaction or rescind the same. It was agreed in this clause that in the event of the agreement being rescinded by the purchaser, the vendor, i.e. the appellant, shall refund all the amounts paid by the purchaser till then, within a period of one year from rescinding, but only against return of possession of the said premises by the purchaser to the vendor. It is further provided in this clause that if the amount is not refunded within the said period of one year, then the same shall carry interest at the then prevailing rates.

5.1. In pursuance of the said agreement, Bank of Maharashtra paid 95% of the agreed price minus earnest money on 20-6-1984 and the possession of the premises was handed over to the hank on the same date.

5.2. On 12-6-90, the Bank wrote a letter to the appellant communicating its option to purchase the property and requesting to complete the Formalities of conveyancing the property before 18-6-90 i.e. the date when six years from the date of agreement was to expire. For one purported reason or the other (which stand unsubstantiated), the appellant has not completed the formalities till date, nor is it in a position to specify the date by which it intends to complete the said formalities in future.

5.3. When the return of the appellant for the assessment year 1994- 95 was taken up for scrutiny u/s 143(3) of the Act, the AO came across a note on accounts given by the auditors (quoted in full on page 1 of- the impugned assessment order) indicating the above facts in relation to the nature of the impugned property which was shown in the assets side of the balance-sheet drawn on 31-3-94. In this note, it was staled that as against the said property shown at Rs.28,66,634/- i.e. the cost paid by the appellant, in the assets side, a sum of Rs.84,47,111/- received from the purchaser was shown on the liability side of the said balance-sheet. On the basis of this note, the AO formed belief within the meaning of section 147 of the Act that a transaction of transfer took place on 12-6-1990 within the meaning of section 2(47)(v) of the Act read with section 53A of the Transfer of Property Act giving rise to long term capital gains in the previous year relevant to the assessment year 1991-92 (under appeal). He accordingly issued a notice u/s 148 of the Act for this year after recording reasons on 4-12-96, a copy whereof has since been supplied to the appellant. After the aforesaid interim order was passed by the High Court in the writ petition filed by the appellant, the AO passed the assessment order u/s 143(3) read with section 147 of the Act and served the demand notice after obtaining permission of the High Court as aforesaid. It is this assessment order that is impugned in this appeal.

6. The first contention of the appellant is that the transaction of the nature referred to in section 2(47)(v) of the Act read with section 53A of the Transfer of Property Act took place on the date of giving possession in pursuance of the agreement for sale dated 19-6-84 i.e. on 20-6-84 itself, which fell in the previous year relevant to the assessment year 1985-86. Had the amended provisions of section 2(47)(v) been in force in that year, the capital gains could be taxed in that year. Since, the amendment became effective only from 1-4-88, the capital gains in this case will be chargeable to tax only in the year in which the sale deed is registered giving rise to a valid transfer of an immovable property. It cannot be taxed in the assessment year 1991-

92 on the premise that a transfer within the meaning of section 2(47)(v) of the Act read with section 53A of the Transfer of Property Act took place on 12-6-90 because the same act cannot be performed twice, the appellant submits.

6.1. On careful consideration, I do not find merits in this contention. Section 53A of the Transfer of Property Act refers to contract for transfer in writing from which ―the terms necessary to constitute the transfer can be ascertained with reasonable certainty‖. In the present case, clause 5 of the relevant agreement for sale as paraphrased above renders the transaction articulated in the agreement as wholly uncertain of its import in regard to transfer. As per this clause, whether the transaction will amount to transfer or not will depend on the option to be exercised by the purchaser in the sixth year. By giving the purchaser an option to rescind the transaction in the sixth year, the agreement as executed on 19-6-1984 was clearly taken out of the purview of section 53A of the Transfer of Property Act. It is significant to note that in clause 5 itself the time stipulated for exercising option, i.e. after the expiry of five years but before the expiry of sixth year, is described as the essence of the contract. Hence it cannot be said that there was a contract on 19-6-84 for transfer in writing from which the terms necessary to constitute a transfer could be ascertained with reasonable certainty within the meaning of section 53A of the Transfer of Property Act. Hence, there was no such transfer in the previous year relevant to the assessment year 1985-86 as is envisaged in section 2(47)(v) of the Act. This contention of the appellant must fail.

7. The second contention of the appellant, without prejudice, is that even if it is assumed that there was no transfer within the meaning of section 53A in the previous year relevant to the assessment year 85-86, there was no such transfer in the previous year relevant to the assessment year 91-92 (under appeal) either. This contention has to be examined in the face of the revenue‘s stand that the agreement for sale dated 19-6-84 read with the Bank‘s letter dated 12-6-90 exercising the option to purchase in pursuance of the stipulation contained in clause 5 of the said agreement constituted a contract for transfer in writing from which the terms necessary to constitute the transfer could be ascertained with reasonable certainty within the meaning of section 53A of the Transfer of Property Act and this contract materialised on 12-6- 90. The appellant‘s argument is that if it is said that such a contract materialised on 12-6-90 with the Bank exercising the option to purchase, one ingredient required for attracting section 53A was still missing. That was doing of same act by the purchaser in furtherance of the contract as stipulated in section 53A of the Transfer of Property Act. The appellant‘s counsel strongly relies on relevant phrase in section 53A and argues that such an act should be different from and subsequent to the contract. He cites the Supreme Court decision in the case of Govindrao Mahadik vs. Devi Sahai AIR 1982 SC 989, 1000-1001 in support of this contention. While advancing this argument it was admitted by the appellant‘s counsel that all other conditions attracting section 53A including the condition of written contract to transfer for consideration signed by the transferor, and the condition of the transferee who was already in possession, continuing in possession in part performance of the contract, were fulfilled in the relevant previous year. It is also admitted that section 53A of the Transfer of Property Act was enacted to protect the right of possession of the transferee by imposing a bar on the transferor asserting his title on the plea of non-registration of relevant sale agreement but it does not confer any title on the transferee (Ref: Garaj Narain V. Babulal 53 Pat 543).

7.1. I have carefully considered this contention. When section 2(47)(v) of the Act refers to section 53A of the Transfer of Property Act to bring a transaction of the nature described therein within the purview of transfer for the purpose of charging capital gains, the whole perspective changes. Section 53A does not specify the point of time when the transaction envisaged therein can be said to have taken place. It is not required because, as stated above, this section does not confer a title. But under the Income-tax Act, the time of transaction assumes crucial significance inasmuch as all incomes are taxed in a particular previous year as per rates prescribed by the relevant Finance Act. Hence, when section 2(47)(v) incorporates a provision from another enactment in order to extend the meaning of a particular concept, the object behind such extension has to be kept in view and a harmonious interpretation has to be resorted to so as to give a meaning to the provision in conformity with its object that would make it workable and not to defeat the object.

7.2. As would be seen presently, no act was left to be done by the purchaser after exercising its option except for payment of 5% of consideration that was to coincide with the execution of final documents for valid conveyance by the appellant. But that would be a transfer by registration and section 53A envisages a transaction falling short of such transfer by registration. Even if it is assumed that some act remained still to be done by the purchaser to bring the transaction within the purview of section 53A, it would be of inconsequential nature. The question is whether the date of such inconsequential act could he treated as the date of transaction within the meaning of section 53A. Since, as stated above, date is not a relevant factor for section 53A, ‗then the transaction of the nature described therein is incorporated in section 2(47)(v) of the Income-tax Act for which the date is a crucial factor, a date has to be identified on which most crucial event out of the events mentioned in section 53A took place so as to make section 2(47)(v) workable. When clause 5 of the relevant agreement itself enjoins the time i.e. the sixth year, in which the option had to be exercised by the purchaser as the essence of the contract, there is no need to grope in darkness to ascertain the said date. It is on this date that the transaction of the nature referred to in section 53A (which is neutral of date) can be said to have taken place for the purpose of section 2(47)(v) which would be rendered meaningless in the absence of such date.

7.3. It is in this perspective that an attempt has to be made to understand and apply the ratio of the Supreme Court decision in the case of Govindrao Mahadik (supra) to the facts of the present case. The Supreme Court decision was a decision arising from a dispute between the mortgagor and the mortgagee where the mortgagee was claiming protection of section 53A against the registered sale of the concerned property by the mortgagor to a third party. The Supreme Court ruled against the mortgage in view of there being no payment towards sale consideration except Rs.1,000/- towards purchase of stamps and registration charges which was made prior to the date of contract. The Supreme Court observed that the correct view would be to look at the written agreement that is offered as a contract for transfer for consideration and then examine the acts said to have been done in furtherance of the contract and find out whether there is a real nexus between the contract and the acts pleaded as in part performance. If there is such nexus, refusal of relief (to the transferee) would be perpetuating the fraud of the party (transferor) who, after having taken advantage or benefit of the contract, backs out and pleads non-registration as defence, the Supreme Court held (para 31, page 1000 of AIR).

7.4. In the present case, the facts are so unique that unless a third and hidden party is brought into the spectrum, the underlying pattern cannot be visualized. That hidden party is the Government exchequer through the Income-tax Department which is entitled to 50% share as revenues on the capital gains arising by way of surplus of consideration received over the cost paid. As the facts irresistibly point, the whole exercise was to defraud that entity. A written agreement took place on 19-6-84 which was clear in all respects except for the date when it will assume the character of an agreement for sale. This ambiguity was brought in by incorporating a clause giving option to the purchaser to complete or rescind the transaction in the sixth year. Consideration was fixed and 95% of the same was received by the appellant. The possession of the property was handed over to the purchaser. The purchaser exercised the option to purchase before the end of the sixth year as stipulated in the agreement. Once that option was exercised by the purchaser, there was nothing left to be done by him except for payment of remaining 5% of consideration which he was willing to pay. On his exercising this option, the appellant had no course legally left hut to complete the formalities of transaction on his part which would have coincided with the payment of remaining 5% of the agreed consideration. But that completion of formalities would amount to transfer by registration whereas section 53A envisages a transaction falling short of such transfer. In the facts of the case, it cannot he said that at no stage a transaction of the nature referred to in section 53A took place and there would he straightway transfer by registration because that would amount to negating the effect of all that has taken place in relation to the property between the appellant and the Bank. The fact is that the appellant has committed a breach of contract and continues doing so till date and the most affected party of this breach is the revenue.

7.5. When no act was left to be performed by the purchaser to complete the transaction on his part, the aforesaid letter has to be viewed as rendering the agreement as a contract for transfer as well as doing of an act on the tart of the purchaser in furtherance of the contract. In the peculiar facts of the present case, there is no way but to treat the two acts as simultaneous and coterminous. This is particularly so in view of the prejudice that would be caused to the revenue on holding otherwise. The failure on the part of the appellant to complete the formalities which must be deliberate, besides being breach of contract with the Bank, is an act of fraud on the revenue.

7.6. The said formalities have not been completed by the appellant for a period of more than ten years despite several reminders issued by the Bank including a legal notice dated 18-9-96. There is no foreseeable date by which the appellant intends to do that. No plausible reason has been advanced by the appellant for this failure. As pointed out above, the party that has really suffered in the process is the revenue. The appellant collected 95 of the consideration way back in 1984 and is enjoying the amount since then along with interest accretion from year to year. The purchaser is in secure possession of the property without much detriment except for transfer of title by registration of documents. This does not materially affect his interest till such time as he decides to resell the property which for the present is only hypothical. If it is assumed that the appellant has retained the ownership (as is its version as also reflected in the balance-sheet), the question is why it is, not offering income from also under the head house property despite the fact that the consideration received coupled with recurring interest benefit assumes the character of rentals. The appellant is thus having both sides of the coin. The design is clear. In view of the provisions of section 48 as amended with effect from 1-4-93, the appellant is waiting for the indexed cost to increase so as to wipe out the sale consideration and render the capital gains as nil or eventually loss. There is no other conceivable ground for indefinite postponement of completion of formalities for conveyance despite the purchaser willing to perform his part of contract which is very insignificant. Thus, the purchaser, under ignorance, if not under collusion, by abstaining from taking action to enforce his rights1 has helped the appellant in its design to defraud the revenue.

7.7. This explains how different the facts before the Supreme Court in the aforesaid case of Mahadik vs. Devi Sahai were from the facts of the present case. There was a mortgagee who was seeking protection of section 53A taking advantage of his continued possession by paying nothing hut a paltry sum towards sale consideration. In the present case, the purchaser has paid 95% of the consideration. There is a real nexus between the contract and the exercise of option by the purchaser (as referred to by the Supreme Court) which renders the contract as a clear contract for transfer as well as amounts to an act in furtherance of the contract on the part of the purchaser because that as the only act left for him to be done. To refuse to recognize this position would amount to help the appellant to perpetuate fraud not only on the Bank but also on the government exchequer and the latter of more serious nature. This is what the Supreme Court was so keen to avoid. It is a typical case where the vendor having taken substantial advantage of the contract backs out and pleads non-registration as defence, not against the purchaser, but against the legitimate charge of revenue, thereby defeating the very purpose of legislation of section 2(47)(v).

7.8. There is another side of the question to he looked at. The aforesaid letter dated 12-6-90 of the Bank (extracted in full on page 2 of the assessment order) contains two parts. In the first part, it exercises option and renders the agreement as agreement for sale. In the second part, it requests the appellant to complete the formalities of conveyance before 18th June, 1990 after obtaining clearance certificate from the Income-tax Department u/s 230A of the Act and encloses a draft of the conveyance document for approval. In the peculiar facts of the case, this latter part can very well be taken as doing of ‗some‖ act in furtherance of the contract within the meaning of section 53A of the Transfer of Property Act. From this point of view also, AO has a strong case.

7.9. Having regard to the facts and circumstances of the case, I am of the considered view that a transaction of the nature referred to in section 2(47)(v) of the Act did take place in the relevant previous year attracting capital gains u/s 45 of the Act. The assessment of capital gains by the AO is accordingly confirmed on merits.‖

8. Authorized Representative of the assessee submitted that the assessee purchased office premises No. 22, 22A & 23 in Maker Chamber III at Nariman, Bombay from the builders M/s. Prerna Premises Pvt. Ltd. on 28/06/1982. Subsequently, the builder allowed 06 parking spaces Nos. 17, 18, 19, 20, 77 & 78 to the assessee on 13/09/1983. The assessee entered into an agreement for sale of all the 03 office premises No. 22, 22A & 23 and 04 out of 06 parking places Nos. 17, 18, 19 & 20 to Bank of Maharashtra on 19/06/1984. The Bank of Maharashtra vide its letter dated 12/06/1990, copy of which is placed at page No. 58 of the paper book, informed the assessee that as per clause 5 of the agreement for sale dated 19/06/1984 (copy placed at page Nos. 46 to 57 of the paper book), the sale of the premises at Maker Chamber III, Flat Nos. 22, 22A & 23 shall be completed only after expiration of 05 years from 19/06/1984, but before the expiration of sixth year from 19/06/1984. It was further agreed that the purchaser i.e. Bank of Maharashtra shall have the option either to complete the transaction or rescind the same. The bank stated in the letter that the bank has exercised the option to purchase the premises and could not exercise this option earlier as because the agreement of sale is pending with the Superintendent of Stamps, Bombay for adjudication and the appeal of the Bank under sec. 53 of the Bombay Stamp Act, 1958 before the Chief Controlling Revenue Authority and I.G.R. State of Maharashtra, Pune had also not yet decided. In these circumstances, the bank is exercising the rights and requested the assessee to complete the formalities of conveyancing before 18/06/1990. He further submitted that the assessee replied to the letter of the Bank on 16/06/1993, copy of which is placed at page Nos. 59 & 60, wherein the assessee stated that office premises and four open car parking spaces was handed over by the assessee to the bank on 20/06/1984 in part performance of the agreement for sale dated 19/06/1984. The assessee confirmed to have received ₹ 81,13,760/- which was part of the total consideration and accordingly sum of ₹ 4,27,040/- was due and payable to the assessee at the time of completion of sale. The assessee also confirmed that it shall take necessary steps for transfer of property along with share certificates of Maker Chamber III Premises Cooperative Society Ltd. in the name of the bank on or before 30/09/1993. The Authorized Representative of the assessee further submitted that at page Nos. 61 to 66 of the paper book are placed at annual accounts of the financial year 1990-91 and it will be seen that the assessee has shown the amount of ₹ 84,47,111/- under the head ‗current liabilities‘ as advance against deferred sale of building. It was further submitted that at page Nos. 67 to 70 of the paper book is placed letter of the assessee dated 18/10/1996 to DCIT, wherein it was stated that capital asset involved is an ownership building and the same is represented by the shares in the cooperative society. The property was agreed for sale vide agreement dated 19/06/1984. As stated in Note 2 vide Schedule D annexed to the balance sheet & profit & loss account for the year ended 31/03/1994, 95% of the consideration was received during the financial year 1984- 85 and purchasers had an option to purchase the same. It was stated that when the transaction took place in June 1984 i.e. in the financial year 1984-85, the extended definition vide sub-clause (v) &(vi) in section 2(47) did not exist. By insertion of new sub-clauses (v) & (vi) and a new explanation, certain transaction of the nature referred to in the relevant clauses were brought within the definition of transfer. The Departmental circular No. 495 dated 22/09/1987 vide para 11.1 to 11.3 explains the position. As per para 11.3 of the circular amendments have come into force w.e.f. 01/04/1988 and, are applicable from Assessment Year 1988-89. It was further submitted that to bring a transaction within sec. 53A of the Transfer of Property Act, there should be an agreement followed by possession of the property. In the instant case, the agreement and granting of possession and receipt of part consideration were all during June 1984 i.e. before the amendment was carried in Sec. 2(47). The insertion of sub-clause (v) & (vi) in sec. 2(47) by itself did not in any manner improve the position under sec. 53A of the Transfer of Property Act, 1882 so as to bring the transaction exigible to Capital Gains Tax in the Assessment Year 1991-92. It was further stated that as it could be seen from the substance of the transaction, all the material events have taken place prior to 01/04/1987 and the condition of exercise of option was also a part of the original agreement and hence nothing new was brought up and as such mere exercise of option by the purchaser cannot give rise to Capital gains in the hands of the assessee. It was further stated that the assessee was yet to receive balance amount of sale proceeds and other dues. It was also stated that these provisions being substantive law cannot be operative with retrospective effect as such have to be operative from assessment year 1988-89. Therefore, the question of assessing the said capital gains in Assessment Year 1991-92 or in the Assessment Year 1994-95 does not arise. It was further stated that sec. 2(47) has to be read with section 53A of the Transfer of Property Act, 1882. As per section 53A of the Transfer of Property Act, 1882 dealing with part performance of the contract terms necessary to constitute transfer should be ascertainable with reasonable certainty whereas in our case as per clause (9) of the said agreement even after exercise of option by the purchasers the transaction has to be confirmed and accepted by the sellers. In view of this, exercise of option by the purchasers is only a counter offer which has to be accepted and confirmed by the sellers to give a finality to the transaction. Therefore, even with extended meaning of ―Transfer‖ as occurring in sec. 2(47) the said transaction is out of the definition sincethe provisions of sec. 53A of Transfer of Property Act, 1882 are wanting. It was submitted that the Transfer of Property in the case of the Assessee will be on execution of the conveyance as envisaged in the agreement. It was submitted that the purchasers lawyers are working out on the draft conveyance and it is expected to be completed in a short time and hence, the gains be taxed in the year of execution of the sale deed. It was submitted that page Nos. 71 to 83 are placed the appellant‘s letter to DCIT with enclosures dated 05/11/1996. He submitted that at page Nos.121 to 124 is placed the order of summons from Bombay High Court in Suit No. 3144/2002 along with rider dated 10/10/2002 restraining the disposal of the property or interfering with or obstructing the possession use and enjoyment of the said premises by the Bank of Maharashtra. He submitted that at page Nos. 125 to 128 is placed letter from Advocates of Bank of Maharashtra dated 22/02/2003 wherein it is stated the in terms of clause (3) of the agreement dated 19/06/1984, though, the out goings by way of maintenance charges, municipal taxes etc. in respect of the premises were paid to the bank till 30/06/1991. Thereafter, despite submission of bills and repeated demands, you failed and neglected to pay the outgoings w.e.f. 01/07/1991 and committed breach of the agreement dated 19/06/1984. It was also stated that M/s. Zuari Estate Development & Investment Company Ltd. by its conduct treated the agreement as cancelled and terminated with effect from the said date as is evident from the fact that M/s. Zuari Estate Development & Investment Company Ltd. did not file any suit against Bank of Maharashtra for specific performance of the said agreement within the period of limitation prescribed under the Limitation Act, which period of limitation expired on 18/06/1993. He submitted that at page Nos.129 & 130 of the paper book is placed letter from the Advocates of the assessee dated 03/04/2003, by which it was informed to the bank that the assessee had taken a fair stand that specific performance cannot be granted by the Hon‘ble Court on account of relief having become time barred and the agreement for sale cannot be enforced and that the assessee was entitled to recover the possession of the office premises and compensation for illegal use of the same, the obligation to pay the outgoings of the society solely rest with the bank. The assessee has filed a suit before the Hon‘ble High Court of Judicature at Bombay against Bank of Maharashtra seeking compensation of ₹ 9,34,86,470/- for illegal and unauthorized use and occupation. Copy of plaint is placed at page Nos. 272 to 315 of the paper book. It was submitted that at page Nos.131 to 148 of the paper book is placed a plaint filed in Suit No.3144/2002 by the Bank of Maharashtra before the High Court of Judicature at Bombay for transfer of the property and shares in the name of Bank to recover ₹ 3,47,67,416/- and the amount paid with further interest on ₹ 81,13,760/- @ 18% p.a. etc. He also stated that both the suits are still pending adjudication by the Hon‘ble High Court till date, the outcome of which will have a bearing on the assessment of Capital Gains. Hence, it was the submission of the Authorized Representative of the assessee that as the suits were pending in the High Court which is yet to be decided for taking possession of the premises back from the bank and the bank has also filed suit against the assessee for getting registration of the said property, the transfer of property has not taken place at all. He submitted that if the suit is decided by the Court in favour of the bank, then the assessee has to register the property in the name of the bank and the transfer of property will take place only on such registration of sale deed and capital gains will arise in the year of the happening of this event. On the other hand, the assessee wins the case, then the assessee will reclaim the premises and will have to return the amount received from the bank and in that case the transfer of the property will not take place and no capital gains will arise.

9 He also relied on the synopsis of date-wise events placed at page Nos. A to D of the paper book which reads as under:-

 19/06/1984 : Appellant entered into an agreement with Bank of Maharashtra for sale of an office premises situated at Maker Chambers III, Nariman Point, Bombay for Rs. 8,540,800/- plus reimbursement of non-refundable deposits, etc. In terms of the sale agreement the transaction was to be completed after completion of 5 years but before the end of 6 years & the purchasers were given option either to complete or rescind the transaction.

 20/06/1984 : Bank of Maharashtra paid Rs. 8,447,111/- being 95% of the consideration agreed upon viz, Rs.8,1 13,760/- deposit of Rs.127,831/- and transfer fees of Rs. 205,520/-.

 20/06/1984 : Upon receipt of the amount, in part performance of the Agreement possession was handed over to Bank of Maharashtra.

 12/06/1990 : Bank of Maharashtra by letter exercised option to purchase the premises and accordingly called upon Appellant to complete the transaction by 18/06/1990.

 31/03/ 1991 : As the transfer of premises was not completed, Appellant in its accounts for the year ended 31/3/1991 disclosed the amount of Rs. 8,447,111/-, as a current liability under the heading “Advance against deferred sale of building”

In view of this, Appellant carried a note in the final accounts for year ended 31.3.1991 onwards to bring out these facts.

 18/10/1996 : In reply to the DCIT query, raised in the course of the assessment proceedings for AY 1994-95 as to why the capital gains arising on the sale of the premises should not be taxed in the AY 1991-92, Appellant filed a detailed letter exhaustively giving relevant facts.

 05/11/1996 : Appellant further submitted details sought by DCIT.

 04/12/1996 : DCIT passed order U/s 143(3) for the A.Y 1994-95 alongwith Notice u/s 148 dated 04/12/1996 for A. Y 1991-92, both received by Appellant on 12/12/1996.

 30/01/1997 : Appellant requested DCIT to furnish reasons recorded
to issue notice u/s 148.

13/01/1997 : Appellant filed Writ Petition No.15/1997 before Hon. High Court of Bombay at Panaji for quashing notice u/s.148.

27/01/1997 : Hon. High Court of Bombay at Panaji passed Order allowing department to proceed with the assessment, and demand if any to be made on the basis of such assessment only after obtaining order from Court.

12/02/1997 : Appellant filed Return of Income pursuant to notice u/s. 148, declaring an income of Rs. 9110/-.

12/05/1997: DCIT issued letter from DCIT giving reasons for reopening for issuance of notice u/s 148.

28/05/1997 : Appellant filed objections to the said reopening reiterating the facts that what is contemplated in section 2(47)(v) were over as back as on 20/06/1 984 itself and that exercise of option by the purchasers on 19/06/1990 cannot bring the transaction within the preview of the section 2(47)(v).

22/03/1999 : JCIT issued letter enclosing assessment order u/s 143 rws 147 dated 28/01/1999 for A.Y 1991 -92 and also mentioned that the notice of demand u/s 156 will be served only after obtaining order from the High Court.

In the said order JCIT added Rs.5,208,297/- to Net Profit as per Profit & Loss A/c of Rs. 1,084/- as Capital Gains and assessed tax Rs. 8,746,370/- including interest u/s 234A Rs.1,19,812/- and 234B Rs. 56,31,164/-.

19/04/1999 Appellant filed Appeal no.12 before CIT (Appeals), Belgaum against the Order dated 28/01/1999.

07/06/1999 : DCIT filed Misc. Application No.430/1999 in W. P.15/1997 with a prayer to make the necessary orders permitting the DCIT to serve the assessment order and to make necessary demand.

27/09/1999 : Appellant filed submissions to amend the Memorandum of Writ Petition No.15/1997 to incorporate certain facts.

Oct – 1999 : Appellant filed reply of Misc. Application No.430/1999 in W.P 15/1997 before Hon. High Court.

02/12/1999 : DCIT filed Affidavit in Rejoinder before Hon. High Court and once again requested to allow issuing demand notice as CIT(Appeals) will not be able to proceed unless notice of demand is attached to the appeal memo.

 06/12/1999 : Hon’ble High Court passed Order allowing the application of DCIT to issue demand notice.

 07/12/1999 : DCIT served notice u/s 156 upon Appellant with demand of Rs.8,746,370/-.

 05/01/2000 : Appellant filed Appeal no.59 before CIT (Appeals), Belgaum against demand notice dt. 07/12/1999.

 21/08/2000 : CIT (Appeals) passed Order dismissing appeal no.12.59/PNJ/99-2000 filed by Appellant confirming A. O Order on merits & for jurisdiction solely depending on merits, confirmation subject to final outcome of Writ petition pending before the Hon. High Court.

 24/10/2000 : Aggrieved by the Order of CIT (Appeals) Appellant filed an appeal before ITAT.

ADDITIONAL FACTS

 23/09/2002 : Bank of Maharashtra filed suit being suit no. 3144 of 2002 in Hon. High Court of Judicature at Bombay to transfer the property and shares in name of Bank & Recover Rs.34,767,416/- and the amount paid with further interest on Rs.8,113,760/- @ 18% p.a etc.

 23/06/2003 : Appellant filed suit before Hon. High Court of Judicature at Bombay against Bank of Maharashtra seeking for compensation for illegal and un-a utho rised use and occupation of Bank of Rs. 93,486,470/- for period from 1.7. 1991 to 31.05.2003.

 30/07/2003 : Hon. Bombay High Court at Panaji in Writ Petition No.15/1997 passed Judgement holding that the entire exercise of jurisdiction by the A. O is without jurisdiction and thereby setting aside all the Notices & Orders passed there from.

 29/01/2004 : ITAT, Panaji passed Order allowing Appellant’s appeal and quashed Order of the CIT (Appeals) as well as of the AO, both on legal ground as well as on merit.

 02/04/2004 : DCIT filed Special Leave Petition No.13998 of 2004 alongwith application for Condonation of Delay before Hon ’ble Supreme Court of India.

 07/10/2004 : Appellant filed Counter Affidavit on Special Leave
Petition No.13998 of 2004.

 17/04/2015 : Hon ’ble Supreme Court passed Order in Civil Appeal No. 6758/2 004 setting aside the Judgement of the High Court dated 30/07/2003 & ITAT Order dt. 29.1.2004 thereby remitting matter back to ITAT to decide appeal on merits.

10. On the other hand, the Departmental Representative supported the orders of the lower authorities

11. We have heard rival submissions and perused the orders of the lower authorities and the material available on record. In the instant case, the dispute is whether there was any transfer of three office premises in the property Maker Chamber III situated at Plot No. 223 of Block III, Backbay Reclamation, Nariman Point, 2nd floor, Bombay 400 021 along with four car parking spaces by the assessee in favour of the Bank of Maharashtra during the previous year relevant to the Assessment Year 1991-92 or not and consequently, whether there was any liability to pay capital gains tax during the said assessment year or not.

12. The relevant facts are that the assessee entered into a written agreement for sale with Bank of Maharashtra in respect of property in question on 19/06/1984. In connection with this agreement, the said Bank paid earnest money of ₹ 2 Lac. to the assessee on 19/06/1984. Clause 2(b) of the said agreement provided as under:-

“(b) The remaining amount shall be paid at the time of execution of the final documents for sale and transfer of the property by the vendors to the purchaser provided however, that if the vendors put the purchaser in possession of the premises before execution of the final documents of sale and transfer of the property then the purchaser shall pay 95% of the agreed price to be paid on completion of the sale minus ₹ 2 Lac paid as above and remaining amount will be paid at the time of execution of the final documents of sale and transfer of the property in favour of the purchaser.”

13. In pursuance to the above clause, the Bank paid ₹ 84,47,111/- being 95% of the agreed sale consideration less ₹ 2 Lac on 20/06/1984 comprising of ₹ 81,13,760/-, deposit of ₹ 1,27,831/- and transfer fee of ₹ 2,05,520/- and the possession of the property was handed over to the bank on 20/06/1984. Thus, except for the payment of balance amount of 5% of the agreed sale consideration by the bank to the assessee and execution of registered sale deed by the assessee in favour of the bank, all the related activities were completed in the financial year 1984-85 for sale of the property in question.

14. Further, the clause 5 of the agreement dated 19/06/1984 provided for deferment of actual transfer as under:-

“The sale of the said premises hereby agreed to be sold shall be completed only after the expiration of five years from the date hereof but before the expiration of 6th year from the date of hereof (time in this behalf being the essence of the contract). It is, however, agreed that the purchasers shall have the option either to complete the transaction or rescind the same. In the event of the agreement being rescinded by the purchasers the vendors shall refund all the amount that may have been paid by the purchasers to the vendor till then in pursuance of this agreement within a period of one year from rescinding the agreement but only against return of possession of the said premises by the purchasers to the vendors. If the amounts are not refunded by the vendors within the said period of one year, then the same shall carry interest at the then prevailing rates.”

Further, it is also not in dispute that even till date the transfer under the Transfer of Property Act, 1882 has not yet been completed of the properties in question in favour of the bank by the assessee.

15. A perusal of the agreement and the above undisputed facts shows that till date no transfer of the property in question has been completed under the Transfer of Property Act, 1882. Still further, the registered sale deed has not been executed by the assessee in favour of the Bank and consequently, sale is not yet completed. However, a part performance of the nature specified under section 53A of the Transfer of Property Act, 1882 has definitely taken place. Section 53A of the Transfer of Property Act, 1882 reads as under:-

“Section 53A : Part performance – Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute 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 thereof 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 the right specifically 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.”

16. A reading of the above provisions of section 53A of the Transfer of Property Act shows that the following are the essential elements of transaction to be covered by the aforesaid provisions:

(a) There should be contract for consideration;

(b) It should be in writing;

(c) It should be signed by the transferor;

(d) It should pertain to the transfer of immovable property;

(e) The transferee should have taken possession of property;

(f) Lastly, transferee should be ready and willing to perform the contract”.

17 Thus, in the facts and circumstances, it is observed that part performance of the contract referred to in Section 53A took place in the instant case in the financial year 1984-85 vide agreement dated 19/06/1984. Except deferment of execution of the registered deed for five years and payment of balance consideration of 5%, all the activities for sale of property in question were completed.

18 A perusal of section 45 of the Income Tax Act, 1961 which is a charging section for the purposes of capital gains shows that the capital gains can be charged to tax in the year, in which the transfer of the capital asset takes place. The said section reads as under:-

“45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54F, 54G 54EA, 54EB, and 54H be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.”

19. Transfer as referred to in section 45(1) has been defined in section 2(47) of the Act, which reads as under:-

“(47) “transfer”, in relation to a capital asset, includes,²

(i) the sale, exchange or relinquishment of the asset ; or

(ii) the extinguishment of any rights therein ; or

(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 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;

20 A perusal of the above shows that no transfer of the capital asset in question took place in the previous year relevant to the Assessment Year under consideration, as neither sale of immovable property as defined Transfer of Property Act, 1882 took place during the Assessment Year 1990-91, nor it can be said that the transaction of the nature referred to in section 53A of the Transfer of Property Act, 1882 took place in the financial year 1990-91.

21. In fact, in the instant case, it is not the case of any party that sale of immovable property in question took place in the year under consideration. The contention of the Revenue is that in view of the provisions contained in sub-clause (v) of section 2(47), a transfer of the capital asset in question took place in the previous year relevant to the Assessment Year 1991-92. The basis of the Revenue for the above claim is that as the purchaser Bank has exercised its option under clause 5 of the agreement dated 19/06/1984 on 12/06/1990 and, therefore, a transfer within the meaning of section 2(47)(v) took place on that date. A reading of section 2(47)(v) shows that it provides that the date of transfer would be the date on which 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 take place. In the instant case, the possession was taken by the Bank from the assessee on 20/06/1984 is not in dispute. Further, no material has been brought on record to show that on 12/06/1990, the assessee allowed the said bank to retain the possession in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. In fact, contract of the nature referred to in section 53A was entered into on 19/06/1984 and the possession was allowed to be taken over by the Bank on 20/06/1984 in part performance of that contract. Thus, in our considered view, transfer within the meaning of section 2(47)(v) took place on 20/06/1984 and not on 12/06/1990.

21 In the above circumstances, in our considered view, transfer within the meaning of section 2(47) of the Income Tax Act, of the capital asset in question did not take place on 12/06/1990 or during the previous year relevant to the Assessment Year 1991-92. Therefore, the Commissioner of Income Tax (Appeals) was not justified in sustaining the action of the Assessing Officer in including the capital gains in relation to capital asset in question during the Assessment Year under consideration. We, therefore, delete the addition of ₹ 52,08,297/- as capital gains of the assessee under consideration. Accordingly, the ground Nos. 2 to 7 of the appeal of the assessee are allowed.

22 In ground No.8 of the appeal, the grievance of the assessee is that the Commissioner of Income Tax (Appeals) erred in holding that the Assessing Officer was not justified in levying interest under section 234A & 234B in the reassessment framed under section 143(3) read with section 147.

23 At the time of hearing, no arguments were made by the Authorized Representative of the assessee on the above ground of appeal taken by the assessee. Therefore, we hold that charging of interest under section 234A & 234B is a consequential and dismiss this ground of appeal of the assessee.

24 In the result, appeal of the assessee is partly allowed.

Order Pronounced in the Court at the close of the hearing on Wednesday, the 04rd day of May, 2016 at Goa.

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