Case Law Details

Case Name : Shri S.S. Manthirikumar Vs ITO (ITAT Chennai)
Appeal Number : ITA No. 1931/Chny/2016
Date of Judgement/Order : 07/03/2019
Related Assessment Year : 2008-09
Courts : All ITAT (7317) ITAT Chennai (297)

Shri S.S. Manthirikumar Vs ITO (ITAT Chennai)

Conclusion: Mere execution of power of attorney could not be considered to be transfer of property. For transfer of property, assessee had to enter into an agreement for sale either by himself or through power of attorney agent and also hand over the physical possession of the property as contemplated under Section 53A of Transfer of Property Act.

Held: AO made an addition in respect of long-term capital gains arising from transaction of property based on a presumption that the property was sold on the date on which the power of attorney was executed. Assessee claimed that the possession of the property was handed over to the power of attorney agent for negotiating the sale and it was not handed over to the purchaser. It was contended that no consideration was received from power of attorney agent also, therefore, there was no sale during the year under consideration. It was held mere execution of power of attorney could not be considered to be transfer of property. For transfer of property, assessee had to enter into an agreement for sale either by himself or through power of attorney agent and also hand over the physical possession of the property as contemplated under Section 53A of Transfer of Property Act. Moreover, in case there was agreement between assessee and purchaser, by which the purchaser was allowed to continue to enjoy the property, then also there might be transfer within the meaning of 2(14). It was not the case of Revenue that assessees entered into an agreement for sale or arrangement allowing the purchaser to continue to enjoy the property. The execution of sale deed and handing over possession pursuant to sale deed would be the date of sale. Therefore, AO should verify the sale deed and find out when actually the possession of the property was handed over

FULL TEXT OF THE ITAT JUDGMENT

Both the appeals of the two independent assessees are directed against the respective orders of the Commissioner of Income Tax (Appeals), Puducherry, for the assessment year 2008- 09. Since common issues arise for consideration in these appeals, we heard both the appeals together and disposing the same by this common order.

2. The first issue arises for consideration is the market value of property as on 01 .04.1981 for computation of capital gain.

3. Shri S. Sridhar, the Ld.counsel for the assessees, submitted that the assessees along with their brother Shri S.S.R. Ramadoss, sold 53,380 sq.ft. of land to M/s Himadri Enterprises Pvt. Ltd. for a total consideration of Rs. 5,18,23,000/- by means of a registered sale deed dated 30.10.2007. Out of the sale consideration, according to the Ld. counsel, the assessee in I.T.A. No.1931/Chny/2016 received Rs. 2,25,00,086/- towards his share. The assessee in I.T.A. 1 970/Chny/201 6 received Rs. 20,00,000/-. The balance amount of Rs. 48,22,828/- was paid by the seller in favour of M/s REPCO Bank, Pondicherry towards settlement of the outstanding loan amount. According to the Ld. counsel, the assessee admitted capital gain of Rs. 49,03,255/- in the return of income. For the purpose of computation of capital gain, according to the Ld. counsel, the assessees have taken fair market value as on 01.04.1981 at Rs. 1 00/- per sq.ft. However, the Assessing Officer has taken the value at Rs. 1 .38 per sq.ft. Referring to the valuation report obtained by the Revenue in the case of Shri Ramadoss, one of the co-owners, copy of which is available at page 1 of the paper-book, the Ld.counsel submitted that the Departmental Valuation Officer fixed the value at Rs. 39.66 per sq.ft. This is an average valuation fixed by the Departmental Valuation Officer. According to the Ld. counsel, the Departmental Valuation Officer has taken three sale instances. In the case of first instance, the rate was fixed at Rs. 59.78 per sq.ft. In the case of second instance, it was fixed at Rs. 38.51 per sq.ft. In the third instance, the Assessing Officer has taken the instance at Rs. 22.69 per sq.ft. In an average, he has taken Rs. 39.66 per sq.ft. According to the Ld. counsel, the property is situated at a prime location in Cuddalore town. In fact, the property is located on the rear side of busy Lawrence Road. Even in the year 1981, according to the Ld. counsel, the land was having high potential for development of commercial campus and cinema theatres, etc. The frontage of building was 178 ft. Having located in a prime location of Cuddalore, according to the Ld. counsel, the Assessing Officer failed to consider the factors which were required to be considered for the purpose of estimating the valuation. Therefore, according to the Ld. counsel, the CIT(Appeals) is not correct in confirming the valuation made by the Assessing Officer.

4. On the contrary, Ms. M. Subashree, the Ld. Departmental Representative, submitted that the Assessing Officer after getting report from the Sub-Registrar, found that the value of the land as on 04.1981 is Rs. 1 .38 per sq.ft. Since the Assessing Officer followed the value adopted by the Sub-Registrar for registration of property, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.

5. We have considered the rival submissions on either side and perused the relevant material available on record. Valuation of property as on 01.04.1981 has to be made on the basis of the location of the property, potential for future development, availability of infrastructure around the property, access to the infrastructure facilities, etc. In this case, the Assessing Officer has simply followed the guideline value fixed by the Sub-Registrar for registration of property at Rs. 1 .38 per sq.ft. It is well settled principles of law that the guideline value is only to guide the Sub-Registrar to find out market value of the property for the purpose of collection of stamp duty. The guideline value may not always represent the market value. The market value is something different from guideline value, which is prescribed for guiding the Sub-Registrar to find out the market value. This Tribunal is of the considered opinion that market value is not a constant figure. It would fluctuate depending upon various factors such as the area of the land, location of land, availability of infrastructure facilities around the land, potential for future development, access to the infrastructure facilities to the land, etc. The Assessing Officer without considering any of these factors, has simply adopted the guideline value of the Registration authority.

6. From the Departmental Valuation Officer’s report in the case of one of the co-owners, it appears that the property is located in prime location of Cuddalore. The property appears to have been located on the eastern side of link road to railway over bridge and Cuddalore main bus stand. The Departmental Valuation Officer has also noted that it is located on the rear side of busy Lawrence Road and even in the year 1981, the Departmental Valuation Officer found that there was high potential for development of property as commercial campus / cinema theatres / Kalyana Mandapam, etc. The frontage of the building is admittedly 178 ft. By considering the nature of building, future development and potential for establishing commercial campus / cinema theatres, this Tribunal is of the considered opinion that the value of the property could naturally be estimated at Rs. 100 per sq.ft. as estimated by the assessees. Even though the Valuation Officer has taken three instances, this Tribunal is of the considered opinion that by considering the location and potential for future development, it would easily fetch Rs. 100/- per sq.ft. as on 01.04.1981. Therefore, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, orders of both the authorities below are set aside and the Assessing Officer is directed to take the market value as on 01.04.1981 at Rs. 1 00/- per sq.ft. and thereafter recompute the capital gain.

7. Now coming to the claim of exemption under Section 54F of the Income-tax Act, 1961 (in short ‘the Act’), Shri S. Sridhar, the Ld.counsel for the assessees, submitted that the assessees have made additional construction in the building. However, the Assessing Officer mistook the claim of the assessees and found that it was only a renovation of existing building. According to the Ld. counsel, the additional construction was made for which the assessees are claiming exemption under Section 54F of the Act. The Ld.counsel submitted that since the Assessing Officer found that it is a renovation of existing building, the matter may be remitted back to the Assessing Officer for reconsideration.

8. On the contrary, Ms. M. Subashree, the Ld. D.R. submitted that the assessees spent the capital gain for renovation of existing According to the Ld. D.R., for the purpose of claiming exemption under Section 54F of the Act, the assessees have to invest the capital gain in a new property. Since admittedly, the assessees spent the money for renovation of building, according to the Ld. D.R., the assessees are not eligible for exemption under Section 54F of the Act.

9. We have considered the rival submissions on either side and perused the relevant material available on record. The Assessing Officer found that the assessees renovated the existing building. Now the assessees claim before this Tribunal that they have put up an additional construction. The valuation report said to be filed by the assessees before the Assessing Officer indicates that the assessees spent the money for improving the building. Therefore, there was a confusion whether it is renovation of existing building or additional construction as claimed by the assessees or it is improvement of existing building as claimed by the valuation officer. In those factual situation, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer. Accordingly, the orders of both the authorities below are set aside and the issue of claim of exemption under Section 54F of the Act is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter and find out the nature of work that was carried on by the assessees by spending the capital gain and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessees.

10. The next issue arises for consideration is disallowance of loan availed from REPCO Bank and interest paid thereof.

11. Shri S. Sridhar, the Ld.counsel for the assessees, submitted that the assessees claimed before the Assessing Officer repayment of loan and interest to the extent of Rs. 48,22,828/-. According to the Ld. counsel, the assessees borrowed the loan from REPCO Bank by mortgaging the property. Therefore, according to the Ld. counsel, unless the assessees cleared the loan, the property cannot be sold, hence, the repayment of loan and interest to REPCO Bank has to be allowed while computing the capital gain.

12. On the contrary, Ms. M. Subashree, the Ld. D.R. submitted that the assessees borrowed commercial loan by mortgaging the property along with co-owners. Under the scheme of Income-tax Act, according to the Ld. D.R., what is to be allowed is expenditure for sale of property. The property was mortgaged long back before the sale of property. Therefore, according to the Ld. D.R., the loan said to be obtained from REPCO Bank is neither for purchase of property or for sale of property. Therefore, neither the loan amount nor the interest can be allowed while computing the capital gain.

13. We have considered the rival submissions on either side and perused the relevant material available on record. The assessees along with other co-owners appear to have borrowed loan from REPCO Bank, Pondicherry. While transferring the land, the purchaser of the land paid Rs. 48,22,828/- directly to REPCO Bank towards settlement of loan for releasing the document. The assessees claim that this amount has to be allowed while deducting capital gain. Even though the Revenue claims that it was a commercial loan borrowed by the assessees and other co-owners by mortgaging the property, it is not known the purpose for which the loan was borrowed. Unless the purpose for which the loan borrowed was brought on record, this Tribunal is of the considered opinion that it is difficult to decide whether it is allowable deduction or not. Therefore, this Tribunal is of the considered opinion that the matter needs to be reconsidered. Accordingly, orders of both the authorities below are set aside and the claim of deduction of repayment of loan and interest to REPCO Bank is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter on the basis of the material that may be filed by the assessees and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessees.

14. The assessees have raised one more ground with regard to long term capital gains arising from transaction of property.

15. Shri S. Sridhar, the Ld.counsel for the assessees, referring to para 7.5.3 of the order of the CIT(Appeals), submitted that the possession of the property was handed over to the power of attorney agent for negotiating the sale and it was not handed over to the purchaser. Moreover, according to the Ld. counsel, no consideration was received from power of attorney agent also, therefore, there was no sale during the year under consideration. According to the Ld. counsel, execution of power of attorney in favour of third party for negotiating the sale cannot be considered to be sale of property within the meaning of Section 2(14) of the Act.

16. We heard Ms. M. Subashree, the Ld. D.R. also. According to the Ld. D.R., the assessees have not produced any evidence to show that the possession of the property was handed over and sale proceeds were received on the date of sale. Therefore, according to the Ld. D.R., the presumption is that the property was sold on the date on which the power of attorney was executed.

17. We have considered the rival submissions on either side and perused the relevant material available on record. Power of attorney agent is only to manage or negotiating the property for The power of attorney executed by the assessees does not confer or transfer any right over the property on any person. At the best, the power of attorney agent may act on behalf of the assessee. Therefore, this Tribunal is of the considered opinion that mere execution of power of attorney agent cannot be considered to be transfer of property. For transfer of property, the assessee has to enter into an agreement for sale either by himself or through power of attorney agent and also hand over the physical possession of the property as contemplated under Section 53A of Transfer of Property Act. Moreover, in case there was agreement between the assessee and purchaser, by which the purchaser was allowed to continue to enjoy the property, then also there may be transfer within the meaning of 2(14) of the Act. In the case before us, it not the case of the Revenue that the assessees entered into an agreement for sale or arrangement allowing the purchaser to continue to enjoy the property. In those circumstances, this Tribunal is of the considered opinion that the execution of sale deed and handing over possession pursuant to sale deed would be the date of sale. Therefore, the Assessing Officer shall verify the sale deed and find out when actually the possession of the property was handed over. Accordingly, orders of both the authorities below are set aside and the matter is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter in the light of the sale deed and other material that may be filed by the assessee and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.

18. In the result, both the appeals filed by the assessees are allowed for statistical purposes.

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