Case Law Details

Case Name : M/s Mangilall Estates (P) Ltd. Vs. DCIT (ITAT Kolkata)
Appeal Number : ITA No. 156/Kol/2015
Date of Judgement/Order : 21/02/2018
Related Assessment Year : 2012-13
Courts : All ITAT (4864) ITAT Kolkata (355)

Mangilall Estates (P) Ltd. Vs. DCIT (ITAT Kolkata)

The dispute in question is for the transfer of the property in the manner prescribed in sub-clauses (v) introduced in section 2(47) with effect from April, 1988. In our considered view the events which had taken place constituted transfer which includes any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882. Thus any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property amounts to transfer under section 2(47) of the Act. Accordingly capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete by way of registration under the general law. Under section 2(47)(v ) any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in section 53A of the 1882 Act would come within the ambit of section 2(47)(v). In order to attract section 53A, therefore, there should be an agreement for consideration; it should be in writing; it should be signed by the transferor, it should pertain to transfer of immovable property; the transferee should have taken possession of the property and the transferee should be ready and willing to perform his part of contract. Therefore, capital gains would be taxable in the year in which such transactions were entered into, even if the transfer of the immovable property was not effective or complete for want of registration under the general law. Therefore, the tax ability of capital gains at the hands of the assessee did not fall in the assessment year 2012-2013.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-20, Kolkata dated 09.12.2014. Assessment was framed by DCIT, Central Circle-V,, Kolkata u/s 143(3)/153D of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 30.01.2014 for assessment year 2012-13.

Shri Subash Agarwal, Ld. Advocate appeared on behalf of assessee and Shri A.K. Tiwari, Ld. Departmental Representative appeared on behalf of Revenue.

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

“1. That the Ld. CIT(A) erred in confirming the action of Assessing Officer in not allowing the various administrative expenses claimed by the assessee against income from other sources without appreciating the fact that they are necessary expenditure to run a company.

2. That the Ld. CIT(A) erred in taxing the capital gain in the year under consideration ignoring the fact that transfer within the meaning of sec. 2(47) had already taken place in AY 1992-93 within the meaning of sec. 53A of Transfer of Property Act.

3. That the Ld. CIT(A) erred in not appreciating the fact that section 50C is not applicable in the case of appellant as the agreement to sell was entered into prior to introduction of section 50C in statute.

4. That the Ld. CIT(A) erred in not accepting the plea of the appellant that even if sec 50C is made applicable, stamp duty val9uation as on the date of agreement should be adopted and not of the date of registration.

5. The appellant craves leave to add to, alter, to delete from or substantiate the above ground of appeal”

3. First issue raised by assessee in ground No.1 is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the dis allowance of various administrative expenses on the ground that no business activity was carried on by assessee.

4. Briefly, the facts are that the assessee is a private limited company and engaged in business of letting out of immovable property. The assessee in the year under consideration has shown certain income in its computation as detailed under:-

“ Income from house property    
Rent received 1,071,600  
Less: municipal taxes 2,903  
  1,068,697  
Standard deduction @ 30% 320,609 748087.90
Income from business & profession    
Income as per profit/loss account 447,924
Less: Income from other sources 79,667  
Less: Rent received 1,071,600  
Add: rates & taxes 35,039  
Add: repairs to building 113,059  
Add: Depreciation 5,027  
Add: Electricity 76,267  
    -473950.91
Income from other sources    
Interest income 79,667 79667.00
Total income   353803.99
Total income   353800.00”

There was no income shown by assessee from the business activity but assessee has claimed certain expenses to maintain the status of the company active. The details of such expenses claimed by assessee under the head “business and profession” stand as under:-

Sl.No. Particulars Amount
1. Employee benefit expenses 2,67,949.00
2. Depreciation 5,027.00
3. Other expenses
a) Rates & taxes 69,745.00
b) Electricity 76,267.00
c) Services charges for security 1,28,689.00
d) Audit fees 8,000.00
e) Repair & maintenance

i) Building repairing

1,13,059.00

ii) Other repairing

820.00
f) Misc. expenses 35,006.00
7,04,562.00.00 

However, assessee suo motu has disallowed the expenses while working out the income from business and profession as detailed under:-

Add: rates & taxes 35,039
Add: repairs to building 113,059
Add: Depreciation 5,027
Add: Electricity 76,267
2,29,392

Thus, assessee has claimed the net expenses of Rs. 4,75,170.00 which was adjusted with an amount of Rs. 1220.00 representing the sundry credit balance written back. Accordingly a loss of ₹473,950 under the head “business and profession” was shown by the assessee. However the impugned business loss was disallowed by the Assessing Officer on the ground that no business activity was carried on by assessee in the year under consideration.

5. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who has confirmed the order of AO.

Aggrieved by this, the assessee has come up in appeal before us.

6. Ld. AR before us filed a paper book which is running from pages 1 to 85 and submitted that the expenses have been incurred towards day-to-day running of business. The assessee being a private limited company has incurred certain expenses which are imperative for its existence. Such as audit fees, directors meeting fees, filing fees etc. Similarly there are other indirect expenses which need to be incurred for its day-to-day working. Such as banking charges, telephone expenses, printing and stationary, & salary etc., Ld.AR in support of assessee’s claim has relied on the judgment of Hon’ble jurisdictional High Court in the case of CIT vs. Ganga Properties Ltd. reported in 199 ITR 94 (Cal) wherein it was held as under:-

A limited company even if it does not carry on business, even if it derives income from other sources, has to maintain its establishment for complying with statutory obligation so long as it is in operation and its name is not struck off the register or unless the company is dissolved. So long as the company is in operation, it has to maintain the status as a company and it has to discharge certain legal obligations and for that purpose it is necessary to appoint clerical staff and secretary or accountant and incur incidental expenses. In this background, the conclusion of the Tribunal that the expenses incurred were wholly and exclusively for the activities to earn income was a reasonable conclusion.

The Tribunal was, thus, justified in allowing the expenditure claimed by the assessee as deduction.”

On the other hand, Ld. DR submitted that no detail was furnished by assessee suggesting that the impugned expenses were incurred for the purpose of the business. As such, assessee has shown its major income under head “house property” wherein it has already claimed statutory deduction as specified u/s. 24(a) of the Act. Thus, further claim made by assessee will lead to double deduction of same expenses. Ld. DR supported the order of Authorities Below.

7. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, the assessee has claimed certain expenses to keep the status of the assessee- company active. These expenses were claimed as business loss under the head “business and profession”. Out of total expense claimed by the assessee as discussed above certain expenses were disallowed by the assessee sou motu. The details of expenses claimed as deduction and disallowed by the assessee stand as under:-

Sl.No. Particulars Amount claimed as
deduction
Amount disallowed Deduction claimed
1 Employee benefit 267949 267949
2 Depreciation 5027 5027 – –
3 Rates and
taxes
69745 35039 34706
4 Electricity 76267 76267 – –
5 Service charges of
security
128689 – – 128689
6 Audit fees 8,000 – – 8,000
7 Repair &
maintenance
113059 113059 – –
8 Mis. Expenses 35006 – – 35006

It is well settled law that a private limited company being a body corporate has to incur certain expenses to keep its status active. In this regard, we find support and guidance from the judgment of Hon’ble jurisdictional High Court in the case of Ganga Properties Ltd. (supra). However, the question arises whether the expense claimed by the assessee are essential to keep the status of the assessee- company as active. It is the duty of the assessee to establish that the expenses claimed by it were necessary for its company.

We note that the assessee has claimed the expenses under total 8 heads as discussed above. Out of the total 8 heads of expenses the assessee has made the disallowance in respect of 4 heads of expenses which has already been discussed in the preceding paragraphs.

In the instant case, the assessee has shown the major income under the head House Property and has claimed the statutory deduction u/s 24(a) of the Act towards the repairs and maintenance of the expenses. The relevant provision of section 24(a) reads as under :

[Deductions from income from house property.

24. Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:—

(a) a sum equal to thirty per cent of the annual value;

Once the assessee has claimed the above deduction then the same deduction cannot be allowed under any other head of income. The assessee before us has not brought any material on record suggesting that the expenses claimed under the head of business were incurred exclusively for the business purpose and no part of it was incurred in connection with the rental income declared by the assessee. In the absence of information we apprehend that the assessee should not avail the double deduction of the same expenses.

Indeed, the assessee being a body corporate has to incur the expenses for its existence despite of no business activity as held by the Hon’ble Calcutta High Court in the case of Ganga Properties Limited (Supra). Therefore the dis allowance of the entire expenses cannot be made. But at the same time the amount of expenditure necessary for the sustenance of the company and which has nexus with the business activity of the assessee is eligible for deduction.

However the expenses incurred in connection with the rental income cannot be allowed as deduction. It is because the assessee for the rental income is entitled for the deduction as per the provisions of section 24(a) of the Act which it has already claimed.

Thus in the absence of the information we are of the view that all the expenses incurred by the assessee cannot be treated as business expenses. Therefore in our view after considering the entire facts of the case the justice shall be served if the dis allowance made by the AO is restricted to the reasonable extent. Hence, in the interest of justice & fair play we are inclined to restrict the dis allowance of the expenses to the tune of 10% of the expenses claimed by the assessee in the manner specified below :

Sl.No. Particulars Amount claimed as
deduction
Amount disallowed Further dis allowance
1 Employee benefit 267949 10 %
2 Depreciation 5027 5027 NIL
3 Rates and
taxes
69745 35039 NIL
4 Electricity 76267 76267 NIL
5 Service charges of security 128689   – – 10 %
6 Audit fees 8,000 – – NIL
7 Repair &
maintenance
113059 113059 NIL
8 Mis. Expenses 35006 – – 10%

In view of above we restrict the dis allowance to the extent of 10% of the expenditure as discussed above. Thus the ground of appeal of assessee is partly allowed.

8. Next ground No. 2 to 4 are inter-related is as regards that Ld. CIT(A) erred in confirming the order of AO by treating the transfer of the property as income after ignoring the provision of Sec. 53A of the Transfer of Property Act. As per the AIR, it was revealed that assessee has transferred immovable property on 21.07.2011 which was valued for the purpose of stamp duty at ₹1 ,90,83,227/- only by the District Registrar, Chaibas. The AO observed that the transaction for the sale of the property was not shown in its income tax return. Thus, an explanation was sought by AO from assessee. The assessee, accordingly, submitted that it has transferred the impugned property for ₹1 .90 lakh in the year 1991. It has also received an advance of ₹ 19,000/- which was duly reflected in the book of assessee. But the sale deed was not executed in the name of transferee due to some problem related to the title of the property. The assessee also submitted that the agreement was duly made with the transferee vide dated 22.03.1992 for the transfer of the impugned property. The relevant clause of the agreement reads as under:-

“NOW THIS AGREEMENKT WITNESSETH as follows:-

1. That the company hereby declares that the Company is in absolute owner of all those Kayami Right plots of land bearing No. 656 (a,b,c,d,e,f,g,h,i,j,k,l, and m) measuring 3 Acres 19.304 decimals in Municipal Holding Nos. 157 of Ward No.1 Chaibasa Municipality, District Singhbhum (Bihar0 hereinafter referred to as the said properties)

2. The Transferer agreed to sell and the Transferee agreed to purchase all the said Plots of land hereinafter referred to as the said properties at and for the price of Rs. 1,90,000/- (Rupees one lac ninety thousand), only out of which the Transferee has paid a sum of 19,00/- (Rupees nineteen thousand) only as and by way of earnest money and agrees to pay the balance amount to or before the execution and registration of proper sale Deed in the name of transferee or his nominee or nominees by one or more sale deeds.

3. The Transferer will make out a good and marketable title free from all encumbrance whatsoever nature in favor of the Transferee.

4. The Transferrer shall pay all rates, taxes and outgoings up to the date of completion of sale or up to the date of giving possession of the said properties agreed to be sold to the Transferee which ever event takes place earlier.

5. The Transferer will put the transferee either in the vacant possession or by issuance of letter of Attornment on the existing occupier.

6. The sale will be completed within 15 days from the date of obtaining necessary permissions by the Transferer from the appropriate authority or authorities concerned and also obtaining income tax clearance certificate, if necessary for completion of sale and time of 15 days will be calculated from the date of Transferer’s supply of copies of order after obtaining such permission and supply of Income Tax Clearance Certificate to the Transferer by the Transferee whichever period expires last.

7. That in case of delay in obtaining necessary permissions and income Tax clearance certificate etc. the tranferere will deliver the possessions of the said properties to the Transferee and the Transferee will be entitled to hold the said properties and to use the same for his own purpose and my also let out the same on such terms and conditions as he may think fit and proper and no further permission will be required to be taken in this respect from the Transferer.

8. That so long the Transferee is ready and willing to have the sale Deed executed and registered on fulfillment of the terms and conditions mentioned herein, the Transferer shall have no right to cancel this Agreement and the Transferer will not take any step for taking repossessions of the said properties from the Transferee.

9. In case the Transferee wants to resell the properties, he shall be at liberty to resell the same on such terms and conditions and at such price he may think fit and proper subject to observation and performance of all the provisions of law applicable to such transfer but in the event the transferee shall always remain liable to pay the balance of the agreed price under this agreement to the Transfer

10. That the balance agreed price which remains payable under this Agreement by the Transferee to the Transferer will form charge on the said properties.

11. In case of any acquisition or requisition of the said properties by any Government or Semi Government authority, the compensation to be received will belong to the Transsferee. The Transferer will give full co-operation to the Transferee to enable it to enjoy the properties in such manner as the Transferee may think fit and proper.

12. The Transferer hereby agrees to sign such papers, documents, pleadings etc. as may be required by the Transferee for protecting his own possession and occupation in the said plots of land and for that purpose the transferee can file suits and proceedings take legal steps, appoint Advocate, sign Vakalatnama for and/or on behalf of and in the name of the Transferer but all costs to be incurred in this connection will be borne and paid by the Transferee.

13. That this document is being executed in duplicate either party will retain a copy of the same.

In fact, the delay in registration of said property was explained by the assessee that the impugned property was transferred vide agreement dated 22.03.1992 for a sum of ₹ 1.90 lakh only. The assessee against the transfer of the property also received advance of ₹ 19,000/- which was duly disclosed in its balance-sheet. But the impugned property was not registered in the name of the transferee in the year of agreement due to the fact that assessee failed to make the title of the impugned property free from all encumbrances as per the clause No.3 of the agreement. It was the duty of the transferor to make out a good marketable title free from all encumbrances whatsoever in favor of transferee. In fact, a suit was filed by Shri Sidram Soren before the lower court i.e. Upayukth, Paschim Singhbhum challenging the ownership of the assessee on the impugned land. However, the suit was decided vide Appeal No. 19/2006-07 dated 18.03.2008 in favor of assessee. However, subsequently Shri Sidram Soren filed the revision petition before Upayukth Paschim Singhbhum which was again decided in favor of assessee vide revision petition No. 02/2009 dated 22.07.2013.

However, the assessee in the meantime transferred the impugned property vide sale deed dated 02.07.2011 but no tax was offered by assessee in the year under consideration. Therefore, the AO called upon assessee to explain the reason for not disclosing the capital gains on the transfer of impugned property. The assessee in compliance thereto submitted that the property was transferred in the financial year 1991-92 vide agreement dated 22.03.1992. Against such transfer, an advance for a sum of ₹19,000/- was also received by the assessee. Thus, as per the provision of Section 53A of the Transfer of Property Act, the transfer has taken place in the financial year 1991-92. Therefore, no income of capital gains on the transfer of such impugned property was offered to tax. However, the AO disregarded the contention of assessee and observed the fact that the property was transferred in the financial year 2011-12 corresponding to Assessment Year 2012-13 and therefore capital gains on such transfer is liable to be taxed in the year under consideration. Accordingly, the AO treated the stamp value determined for the purpose of stamp duty of ₹1,90,83,227/- as sale consideration u/s 50C of the Act and determine the capital gains income of ₹ 1,89,1,1 70/- and added to that total income of assessee.

10. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the impugned property was transferred vide agreement dated 22.03.1992, consequently there arose capital gains income which has to be taxed in the financial year 1991-92. The provision of Section 50C came into force with effect from 01.04.2003. Therefore, same cannot be applicable to the transfer of the impugned property which has taken place in the financial year 1991-92. However, Ld. CIT(A) disregarded the contention of assessee confirmed the order of AO by observing as under:-

“6. I have perused the impugned order and the material placed on record. I have also considered the submissions of the assessee. It is not in dispute that the sale deed was registered on 21.07.2011 in the office of the Registrar and the market value of the property for the purposes of stamp duty was determined by the stamp valuation authority at Rs. 1,90,83,227/-. It is also not in dispute that no capital gain on transfer of the said property was disclosed by the assessee in its return for the relevant assessment year 2012-13. The Ld. AR claimed that the possession of the property was handed over on the date of the agreement 22.03.1992. The AO however noted in the impugned order that the sale deed dated 02.07.2011 has clearly recorded that the assessee continued to be the absolute owner of the property and that the property was still in its possession: whereas the seller herein is absolute owner and name stands recorded in the last two survey settlement khatiyans and is in possession of the plot of land…”. The Ld. AR has argued that in view of the definition of ‘transfer’ contained in section 2(4 7), the transfer of the property had taken place in the financial year 199 1-92 and consequently the capital gain arising out of such transfer was asses sable in the assessment year 1992-93. The Ld AR has however admitted in course of the appellate proceedings that no capital gain on transfer of the property was declared by the assessee in its return for the assessment year 1992-93. I therefore find that though the assessee claimed to have transferred the property in the financial year 199 1-92 but it has not declared any capital gain arising out of such transfer in its return for the assessment year relevant to the previous year 199 1-92. In other words, the assessee though claimed that the property was transferred in the financial year 199 1-92 but such transfer was not declared by the assessee in its return for the relevant assessment year 1992-93. In this factual background, I find that the assessee has claimed that the property was transferred in the financial year 199 1-92 in view of section 2(4 7) but then the assessee has itself not followed the legal provisions of section 2(4 7) as it has not offered the transfer for taxation in the relevant Assessment Year 1992-93. I am therefore not impressed with the contention of the assessee that the transfer was made in the financial year 199 1-92 and that the capital gain arising out of such transfer was assessable in the assessment year 1992-93. The assessee has not been able to bring sufficient positive material on record to support its contention that the transfer of the property was made in the financial year 1991-92. I therefore find merit in the finding of the AO that the transfer of the property was made on 21-07-2011 when the deed was registered in the office of the Registrar and consequently the capital gain arising out of such transfer was asses sable in the relevant assessment year 2012-13. I also find that the AO was justified in applying the provisions of section 50C for the purposes of computing the capital gain. I have perused the judicial decisions relied upon by the assessee as well as by the AO. I find that the issue in the present appeal is squ9arely covered by the judgment of the jurisdictional High Curt income of Bagri Imp ex (P Ld. vs. ACIT (supra). For better appreciation of the judicial decision, the order of the Hon’ble court is reproduced hereunder:

1. The undisputed facts of the case are as follows :-

The assessee was owner of 2/5th share in a land situated at 14A, Burdwan Road, Kolkata. Naturally, there were co-owners owning the residuary right in the land in question. The co-owner the group companies. The case of the assessee is that the land in question or the interest of the assessee was agreed to be sold on 15th October, 1996 to 15 several buyers. Deeds of conveyance in favor of five buyers were executed on 15.1.1998 The balance 10 deeds of conveyance were executed on 26th May, 2006 and registered on 27th November,2007. The stamp duty was assessed on 27th November, 2007. The assessee offered the sale proceeds for taxation during the financial year 2005-06 assessment year 2006-07. Case of the assessee is that it had received money before executing the deed of conveyance. It would appear that the deed of conveyance was executed in the financial year 2006-07 and the registration took place in the financial year 2007-08. The question arose whether section 50C of the Income Tax Act is applicable to the transaction. It shall be convenient to set out section 50C, which prior to its amendment on 1st October, 2009, was as follows:-

Special provision for full value of consideration in certain cases.

50C.(1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than’ the value adopted or assessed by any authority of a State Government (hereafter in this section referred to as the stamp valuation authority) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall, for the purposes of section 48 be deemed to be the full value of the consideration received or accruing as a result of such transfer.

2. After the amendment with effect from 1st October, 2009 the provision of section 50C stood as follows :-

Special provision for full value of consideration in certain cases.

50C.(1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed [or asses sable] by any authority of a State Government (hereafter in this section referred to as the stamp valuation authority) For the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed [or asses sable] shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

3. The case of the assessee is that the provision of section 50C has no manner of application because on the date when he received the money by way of sale proceeds neither the deed of conveyance had been executed and naturally it could have been registered on that date. We already have indicated that the sale proceeds were claimed to have been received in the financial 2005-06; the deed of conveyance was executed in the financial year 2006-07 and the registration of the deed of conveyance took place in the financial year 2007-08.

4. The submission of the assessee was accepted by the CIT(A). The Revenue preferred an appeal. The Ld Tribunal reversed the order of CIT(A). The assessee has once again come up before this Court. The following question of law has been advanced:

“Whether, on the facts and circumstances of the case, the Ld Tribunal was justified in law in not considering that the words “or asses sable” was introduced in section 50C (1) of the Income Tax Act, 1961 with effect from t» October, 2009 and thus erred in taking the value of the capital asset as assessed by the Stamp Valuation Authority on 27th November, 2007 instead of actual transfer price for the relevant assessment year 2006-07?’

5. Mr Bharatdwaj, Ld Advocate for the appellant submitted that the word Transfer” in relation to capital asserts has been defined in section 2(4 7) of the Income Tax Act which provides as follows :

Transfer, in relation to a capital asset, includes:-

(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

(v) The maturity or redemption of a zero coupon bond; or

(vi) 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

(vii) 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 employment of, any immovable property.”

6. He submitted that going by the definition of word “Transfer”, appearing from s.2 (4 7) (v) of the IT Act, the sale was completed when the consideration was received in the financial year 2005-06. Possession had already been given in the year 1996 pursuant to an agreement for sale, as indicated earlier. Section 50C had no manner of application because the valuation of the land for the purpose of stamp duty was J1.et to be assessed. In the circumstances, the Ld Tribunal erred in applying section 50C to the case of the assessee.

7. We have not been impressed by this submission. It is true that “Transfer” has been defined in Section 2(4 7) quoted above. But the aforesaid definition was made before Section 50C was introduced to the Income Tax Act. After section 50C was introduced in the year 2003, the value of land or building or both sold or otherwise transferred has to be the value assessed by the authority of the State Government for the purpose of stamp valuation. The submission that in the financial year 2005-06 when the consideration was received, the Deed of Conveyance had not even been executed has not found favor with us for the simple reason that the intention of the Parliament is that in a case where the land or building or both are sold or otherwise transferred, such transfer shall be deemed to have taken place only after the stamp duty has been assessed by State Government, because it is on the valuation made for the purpose of stamp duty that the tax is payable under the Income Tax Act. The amendment made in the year 2009 may have made the things simpler, but the intention of the legislature was very clear from the beginning that the value for the purpose of income tax shall be the same as the value for stamp duty. By adopting devices to defeat the provision, the assessee cannot be heard to contend that section 50C would not be applicable merely because the Deed of Conveyance had not at that time been executed or registered. The contention that the property stood transferred in the financial year 2005- 06 when the sale proceeds were received on the basis of the definition appearing from s.2(47)(v) of the IT Act is without any substance for reasons already discussed. The assessee itself did not follow s.2(47)(v) of the IT Act because it did not offer the transfer for taxation in the year 1996, when the possession is claimed to have been made over on the basis of the agreements for sale in accordance with s.2(47)(v) quoted above. Designs to evade tax cannot be permitted. The Assessing Officer on the date of assessment for the assessment year 2006-07 had before him the valuation made by the state for the purpose of stamp duty and rightly applied the same.

7. The Hon’ble High Court has noted in its order that transfer was defined in section 2(4 7) but then it was made before section 50C was introduced. But, once section SOC was introduced, the value of the property transferred has to be the value assessed by the stamp valuation authority for the purposes of stamp duty. The Hon’ble Court has clarified the intention of the legislature in introducing section 50C that where the property was transferred, such transfer shall be deemed to have taken place only after the stamp duty was assessed by the stamp valuation authority because it was on such valuation that the tax was payable under the Income Tax Act. The Hon ‘ble Court has held that no design or device to defeat the legal provisions with a view to evade tax could be permitted and the assessee could not be allowed to take refuge behind the argument that the deed of conveyance was registered at a later date. The Hon’ble Court has further held that the assessee could not be allowed to argue that transfer had already taken place on the basis of section 2(4 7) when the assessee itself did not follow section 2(4 7) by not offering in that year such transfer for taxation. I find that similar ingredients are present in the case of the assessee. For, the assessee claimed that transfer of the property had taken place in the financial year 199 1-92 on the basis of section 2(47) but then the assessee itself did not follow section 2(4 7) as it did offer such transfer for taxation in the relevant assessment year 1992-93. Following the judgment of the jurisdictional High Court in the case of Bagri Impex (P) Ltd vs ACIT (supra), it is to be held that the AO was justified in holding that the transfer of the property was made in the financial year 2011-12 and consequently the capital gain arising out of such transfer was asses sable in the relevant assessment year 2012-13 and also that the AO has rightly invoked section 50C for the purposes of computing the capital gain. The impugned order of the AO is upheld. Ground no 2 to 5 is dismissed. Ground no 6 is general in nature.”

The assessee being aggrieved by this order of Ld. CIT(A) came in second appeal before us.

11. Ld. AR before us submitted that the impugned property has been transferred vide agreement dated 22.03.1992 as per the provision o Section 53A of the Transfer of Property Act. The ld. AR in support of assessee’s claim drew our attention on pages 18 to 23 of the paper book where the copy of agreement dated 22.03.1992 was placed. The possession of the impugned property was also duly handed over to the transferee as per the agreement dated 22.03.1992 which has also been discussed in the preceding paragraph. Ld. AR in support of assessee’s claim also drew our attention on pages 42 and 43 of the sale deed made on 20.07.2011 which reads as under:-

“AND WHEREAS the Seller having earlier agreed to sell the Schedule Property to the purchasers on the basis of their mutual understanding which was reduced into writing vide an agreement dated 22.03.92 and the purchasers are in the possession of the property since then, this Sale Deed is made on the terms and conditions settled and agreed by and between the parties and covenanted herein below:-

Ld. AR also submitted that part payment was duly received by it in the financial year 1991-92 and he further submitted that the balance amount of ₹1.71 lakh was duly received in the financial year 2011-12. Ld. AR in support of assessee’s claim drew our attention on pages 45 to 49 of the paper book which reads as under:-

“1. That the seller had already received a sum of Rs. 19,000 (Nineteen thousand only) by way of earnest money at the time execution of the agreement dated 22.03.92 and hereby acknowledges to have received from the purchasers balance amount of Rs. 1,71,000/- (Rupees one lac seventy one thousand only) by way of two cheques issued by ICICI Bank Limited Chaibasa Branch being cheque no 001219 dated 19.07.2011 amounting to Rs.85,500/- (Eighty Five Thousand Five Hundred) and being cheque no 000482 dated 19.07.2011 amounting to Rs.85,500/- (Eighty Five Thousand Five Hundred) only as full and final consideration amount,”

In view of the above, Ld. AR stated that the transfer of the impugned property has taken place in pursuance to the provision of Sec. 2(47) r.w.s. Sec. 53A of Transfer of Property Act.

On the other hand, Ld. DR for the Revenue submitted that no capital gains income was offered by the assessee in Assessment Year 1992-93. It was also submitted by Ld. DR that the entire transactions was planned to escape from tax liability. Ld. DR in support of Revenue’s case relied on the judgment of Hon’ble jurisdictional High Court in the case of Bagri Imp ex (P) Ltd. vs. ACIT reported (2013) 31 taxmann.com 39 (Cal). He vehemently relied on the order of Authorities Below.

12. We have heard the rival contentions of both the parties and perused the materials available on record including the cited case laws by both the parties. In the instant case, the impugned property was registered by assessee in favor of transferee vide sale deed dated 20.07.2011 .The impugned property was valued at ₹1,90,83,227/- for the purpose of stamp duty. However, assessee did not disclose the impugned property in its IT return. As per the assessee the impugned property was transferred in financial year 1991-92 vide agreement dated 22.03.1992. Therefore, no capital gain has arisen to it in the year under consideration. As per assessee, the transfer of the property has taken place in the financial year 1991-92 as per the provision of Section 2(47) r.w.s. 53A of Transfer of Property Act Thus Simply, the impugned property was registered by way of sale deed in the year under consideration cannot be the basis charging the capital gains in the year under consideration. However, AO treated the said transactions of sale of the impugned property pertaining to the year under consideration and accordingly addition on account of capital gains was made to the total income of assessee. The view taken by AO was subsequently confirmed by Ld. CIT(A). Now the issue before us arise so as to whether the capital gain income has arisen in the hands of assessee in the year under consideration in the given facts & circumstances. It is undisputed fact that the impugned property was transferred to the transferee vide agreement dated 22.03.1992 and the possession was also duly handed over to the transferee. Against such transfer an amount of ₹1 9,000/- was also received by assessee. Thus, we note that all the ingredients for the transfer of impugned property as specified u/s 53A of Transfer of Property Act has been duly completed in the transactions of the impugned property. The relevant provision of Sec. 2(47) of the Act reads as under:-

(47) 30[“transfer”31, in relation to a capital asset, includes,—

(i) the sale31, exchange31or relinquishment31 of the asset ; or

(ii) the extinguishment of any rights therein31; 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 ;] 32[or]

33 [(iva) the maturity or redemption of a zero coupon bond; or]

34 [(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 53A35 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.

Similarly, the provision of Sec. 53A of Transfer of Property Act is also reproduced below:-

“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 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 therefor 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.”

12.1 Therefore, we hold that the transfer of impugned property has taken place in the financial year 1991-92 and accordingly the tax liability arose under the head capital gains has to be subjected to tax in that financial year. In holding so we find support and guidance from the judgment of Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkads Kapadia Vs. CIT reported in 260 ITR 491 wherein it was held as under:

“Under section 2(47)( v), any transaction involving allowing of possession to be taken over or retained in part-performance of a contract of the nature referred to in section 53A of the Transfer of Property Act would come within the ambit of section 2(47)(v ). In order to attract section 53A, the following conditions need to be fulfilled. There should be a contract for consideration; it should be in writing; it should be signed by the transferor; it should pertain to transfer of immovable property; the transferee should have taken possession of the property; lastly the transferee should be ready and willing to perform his part of the contract. Even arrangements confirming privileges of ownership without transfer of title can fall under section 2(47)(v ). Section 2(47)( v) was introduced in the Act from assessment year 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of the conveyance. Consequently, assessees used to enter into agreements for developing properties with the builders and under the arrangement with the builders, they used to confer privileges of ownership without executing conveyance and to plug that loop hole, section 2(47)(v) came to be introduced in the Act. It was argued by the assessee that there was no effective transfer till grant of irrevocable license.”

Similarly we also find support from the third member bench of the Bombay Tribunal in the case of Ms. Rubab M. Kazerani Vs. JCIT, reported in 91 ITD 429 wherein it was held as under:

From the MOU it was clear that the assessee had entered into an agreement with ‘SA’ to dispose of the said property for a total consideration of Rs. 5.5 crores. The possession of the property was handed over to the builder ‘SA’ and original documents were also given to him on that day with an understanding that he will obtain all necessary clearance certificate under the Urban Land (Ceiling and Regulation) Act, 1976 and certificate under section 269UC. Therefore, the MOU was not for the purpose of simply identifying the prospective buyer or the consideration received by the assessee was only a security deposit. That was a transaction by which the assessee transferred the property in question in the manner prescribed in sub-clauses (v) and (vi ), introduced in section 2(47) with effect from April, 1988. The events which had taken place constituted transfer which includes any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882, and any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property. Similarly, using the nomenclature MOU will not change its character of sale agreement. Further, capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete for want of registration under the general law. Under section 2(47)(v ) any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in section 53A of the 1882 Act would come within the ambit of section 2(47)(v). In order to attract section 53A, therefore, there should be an agreement for consideration; it should be in writing; it should be signed by the transferor, it should pertain to transfer of immovable property; the transferee should have taken possession of the property and the transferee should be ready and willing to perform his part of contract. Therefore, capital gains would be taxable in the year in which such transactions were entered into, even if the transfer of the immovable property was not effective or complete for want of registration under the general law. Therefore, the conclusion of the Accountant Member that it was merely documents to identify buyer and an assured security deposit was not correct in the eye of law. [Para 15]

Therefore, tax ability of capital gains at the hands of the assessee did not fall in the assessment year 2000-2001”

On careful consideration of the principles laid down in the above judgments, we note that the transfer of the property in the instant case has taken place in the FY 1991-92 and it can be brought to tax in the assessment year 1992-93 only.

12.2 We further note that the facts of the case relied by Ld. DR are not applicable to the instant facts of the case. The relevant question raised before the Hon’ble court reads as under:-

Whether, on the facts and circumstances of the case, the learned Tribunal was justified in law in not considering that the words “or asses sable” was introduced in section 50C(1) of the Income Tax Act, 1961 with effect from 1st October, 2009 and thus erred in taking the value of the capital asset as assessed by the Stamp Valuation Authority on 27th November, 2007 instead of actual transfer price for the relevant assessment year 2006-07?”

Thus the question was raised in connection with the applicability of the provisions of section 50C(1) of the Act which is not the dispute in the case on hand. The dispute in question is for the transfer of the property in the manner prescribed in sub-clauses (v) introduced in section 2(47) with effect from April, 1988. In our considered view the events which had taken place constituted transfer which includes any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882. Thus any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property amounts to transfer under section 2(47) of the Act. Accordingly capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete by way of registration under the general law. Under section 2(47)(v ) any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in section 53A of the 1882 Act would come within the ambit of section 2(47)(v). In order to attract section 53A, therefore, there should be an agreement for consideration; it should be in writing; it should be signed by the transferor, it should pertain to transfer of immovable property; the transferee should have taken possession of the property and the transferee should be ready and willing to perform his part of contract. Therefore, capital gains would be taxable in the year in which such transactions were entered into, even if the transfer of the immovable property was not effective or complete for want of registration under the general law. Therefore, the tax ability of capital gains at the hands of the assessee did not fall in the assessment year 2012-2013. Thus the ground of appeal raised by the assessee is allowed.

13. In the result, assessee’s appeal stands allowed partly as indicated above.

Order pronounced in the open court 21/02/2018

Download Judgment/Order

More Under Income Tax

Posted Under

Category : Income Tax (26967)
Type : Judiciary (11144)

Leave a Reply

Your email address will not be published. Required fields are marked *