Case Law Details

Case Name : Beena Shammi Chaudhari Vs ITO (ITAT Pune)
Appeal Number : ITA No.1849/PUN/2018
Date of Judgement/Order : 17/02/2022
Related Assessment Year : 2009-10

Beena Shammi Chaudhari Vs ITO (ITAT Pune)

`A registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made, and not from the time of its registration‟. A document is first executed and then submitted for registration, if required. Normally, it takes some time between executing a document and its registration because the same has to be submitted for registration; checked by the competent authorities; and then actually registered. Unless a document is revoked before its actual registration, the parties submit themselves to the contents of the document by signing it, which coincides with its execution itself. Unless contrary is agreed between the parties in the document, it is from its execution that the parties intend to act upon it and make it operational. Section 47 of the Registration Act states that a registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made (that is, on its execution). It means that the time lag between the execution of a document and its registration is ignored insofar as its operation is concerned. Thus, all the documents, whether or not requiring registration, operate from the date of their execution and the date of registration, where registration is mandatory, is irrelevant insofar as their operation is concerned. Whereas, section 17 of the Registration Act lists the documents whose registration is compulsory and section 49 of the Registration Act deals with the effects of non-registration of documents required to be registered u/s 17 of that Act, section 47 of the Registration Act deals with an altogether different aspect of time from which a registered document operates. It is only after a document required to be registered is actually registered as per section 17 of the Registration Act that the controversy of timing of operation of registration comes in to play, which is exclusively covered by section 47 of the Registration Act.

Section 45 of the Act, which is a charging section for capital gains, provides that 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 etc., 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. Manifestly, income under this head becomes chargeable to tax in the year in which the transfer takes place. `Transfer‟ takes place only when it becomes operational, that is, on executing the sale deed – neither before it, that is, when the parties are in the process of negotiations, nor after it, that is, when the registration of the deed actually takes place.

Adverting to the facts of the extant case, I find that the sale deed, even though registered on 17.04.2008, was admittedly executed on 15.12.2007, which date falls in the previous year relevant to the A.Y. 2008-09 and, as such, the amount of capital gain becomes chargeable to tax in such preceding assessment year. Since the `transfer‟ of the property took place on execution of sale deed in the preceding year, I hold that the amount of capital gain cannot be charged to tax for the A.Y. 2009-10 under consideration. On a specific query, the ld. AR candidly admitted that no capital gain was offered for taxation by the assessee in her return for the A.Y. 2008-09 or any other year. The AO is at liberty to take necessary action for taxing the amount in the correct assessment year as per law.

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal by the assessee takes exception to the order passed by CIT(A), Pune-5, Pune on 27.09.2018 in relation to the assessment year 2009-10. It is a recalled matter inasmuch as the earlier order passed by the Tribunal on 16.04.2019 u/s 254(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act‟) was partially recalled by the Tribunal vide its later order dated 15.01.2021 passed u/s 254(2) of the Act for adjudicating a specific issue of determining the correct year of taxability of capital gains that was not disposed of in the original order passed by the Tribunal.

2. Tersely stated, the factual matrix of the case is that the assessee sold a house property for a sum of Rs.26 lakhs by means of a sale deed registered during the year. No capital gain was offered for taxation. Proceedings were initiated by means of a notice u/s 148 of the Act. During the course of the reassessment proceedings, the assessee submitted that the transaction of sale of property was cancelled and the part of the amount earlier received was also returned by the assessee to the purchaser and hence no capital gain arose. The AO did not accept the assessee’s contention by observing that sale of the house property for a sum of Rs.26 lakhs took place vide sale deed registered and stamp duty paid on 17.04.2008. The assessee’s contention that cheques amounting to Rs.14 lakhs got dishonoured and out of the remaining amount of Rs.12 lakhs already received by the assessee, a sum of Rs.2 lakhs was returned and agreement to sell the property was cancelled, did not find favour with the AO in the absence of a registered cancellation deed. The AO held that the assessee concocted a story of cancellation deed in connivance with the buyer to overcome the consequences of non-declaration of capital gain in her return of income. The ld. CIT(A) echoed the assessment order. During the course of original proceedings u/s 254(1) of the Act, the assessee reiterated her submissions about the cancellation of the sale deed. The Tribunal reproduced the relevant clauses of the sale deed and held that the view taken by the authorities below was justified. The assessee also raised a contention before the Tribunal that the sale deed was executed on 15.12.2007 and the capital gain, if any, ought to have been charged to tax for the A.Y. 2008-09 and not the assessment year under consideration 2009-10. This contention of the assessee remained to be disposed off. Thereafter, the assessee filed a Miscellaneous Application before the Tribunal. Vide its order dated 15.01.2021, the Tribunal in MA No. 04/PUN/2020 observed that such a contention of the assessee about the year of chargeability was inadvertently not dealt with in the order u/s 254(1) of the Act. This is how, the Tribunal recalled the original order passed u/s 254(1) for the limited purpose of dealing with the contention about the correct year of taxability.

3. I have heard both the sides and scanned through the relevant material on record. The ld. AR opened his arguments by harping on the contention that the transaction of sale of property was cancelled by mutual consent and hence no transfer took place so as to attract chargeability under Chapter IV-E of the Act. This argument, in my opinion, has lost relevance anent to the Tribunal forum because it has already been dismissed by the Tribunal in its original order passed on 16.04.2019. It was only pursuant to the Miscellaneous Application filed by the assessee on the raison d`etre that the sale deed was executed on 15.12.2017 and transfer, if any, should have been considered in A.Y. 2008-09 and not A.Y. 2009-10 under consideration, that the Tribunal recalled the earlier order for the limited purpose of adjudicating the year in which the transfer is to be considered to have taken place. Thus, the decision of Tribunal, as per the original order passed u/s 254(1), on the question of transfer of property actually taking place has attained finality and cannot be re-agitated. No material has been placed to demonstrate the earlier order has been reversed, restored or modified pro tanto by the Hon‟ble High Court. As a corollary, the jurisdiction of the Bench in the current proceedings is limited only to decide the year in which the transfer took place and not whether transfer actually took place.

4. Now I espouse the core issue as to whether the transfer, to attract capital gains tax liability, took place on the date of execution of sale deed on 15.12.2007 or on the registration of sale deed on 17.4.2008. It is only if the transfer takes place on registration of sale deed that capital gain tax liability will arise in the year under consideration. Taking support from section 47 of the Registration Act, 1908, (hereinafter called `the Registration Act‟), the ld. AR submitted that transfer is considered as operative from the date of execution of sale deed and not its registration, which was countered by the ld. DR.

5. At this juncture, it would be apt to consider the ratio of the judgment of the Hon’ble Supreme Court in CIT vs. Balbir Singh Maini (2017) 398 ITR 531 (SC). In that case, the issue was about the taxability of certain amount as capital gain pursuant to joint development agreement. The AO made out a case that the transfer took place on part performance of the contract on the developer taking possession of the property and doing various acts in furtherance of the contract and hence capital gain was chargeable to tax. Per contra, the Revenue tried to build a case before the various judicial forums, including the Hon‟ble Supreme Court, that section 2(47)(v) of the Act read with section 53A of the Transfer of Property Act, 1882 (hereinafter called `the TPA‟) had the effect of making the transaction a `transfer‟, thereby attracting the liability towards capital gains tax notwithstanding the fact that the property was not registered in the name of the developer. Jettisoning the Departmental line of reasoning, the Hon‟ble Apex Court held that after the amendment of section 17(1A) and 49 of the Registration Act by the Registration and other related Laws (Amendment) Act, 2001 and consequent amendment in section 53A of the TPA, no transfer takes place unless a document is registered. The ld. AR contended that the decision in Balbir Singh Maini (supra) has no application to his case as the same has been rendered in the context of `transfer‟ u/s 2(47)(v) of the Act. Au contraire, the `transfer‟ in the case of the assessee was covered by section 2(47)(i) of the Act.

6. At this stage, it is significant to take note of the mandate of section 17(1) of the Registration Act with the caption “Documents of which registration is compulsory” providing, inter-alia, that non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property are required to be registered compulsorily. Section 49 of the Registration Act with the caption `Effect of non-registration of documents required to be registered‟ provides that no document required by section 17 of the Registration Act or by any provision of the TPA to be registered shall, inter alia, affect any immovable property comprised therein or be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered. On reading section 17 in juxtaposition to section 49 of the Registration Act, it becomes evident that immovable property of the value of one hundred rupees and upwards requires compulsory registration for transfer and if it is not accordingly registered, the transfer shall not take effect.

Transfer takes place only when it becomes operational

7. At this juncture, it is relevant to mention that section 53A of the TPA, prior to its amendment in 2001, construed completion of transfer on any person contracting to transfer for consideration any immoveable property by writing signed by him from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee, in part performance of the contract, has taken possession of the property etc. 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’ etc. in the manner prescribed therefor by the law for the time being in force, the transferor shall be debarred from enforcing against the transferee any right in respect of the property. The effect of this section was to treat the part performance of the contract, subject to the conditions given therein, as constituting transfer of immovable property notwithstanding the non-registration of the sale deed. Proviso to section 49 of the Registration Act, prior to 2001 amendment, also provided that an unregistered document affecting immovable property and required by this Act or the TPA, to be registered may be received, inter alia, as evidence of part performance of a contract for the purposes of section 53A of the TPA. Section 2(47)(v) of the Act provides that “transfer”, in relation to a capital asset, includes: `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‟. On a conjoint reading of section 2(47)(v) of the Act with section 53A of the TPA and section 17 and 49 of the Registration Act, before amendment, it transpires that part performance of the contract, subject to fulfilment of the stipulated conditions, amounted to transfer recognised by the Registration Act, giving rise to liability towards capital gain tax.

8. The position underwent change by the 2001 amendments, the object of which was to do away with the part performance of the contract as amounting to transfer unless the sale deed is actually registered. To give effect to this intention, firstly, sub-section (1A) came to be added to section 17 of the Registration Act providing that: `The documents containing contracts to transfer for consideration, any immovable property for the purpose of section 53A of the Transfer of property Act, 1882 shall be registered if they have been executed on or after the commencement of the Registration and other related laws (Amendment) Act, 2001 and if such documents are not registered on or after such commencement, then, they shall have no effect for the purposes of the said section 53A‟. Simultaneously, proviso to section 49(1) of the Registration Act was amended to exclude the expression `or as evidence of part performance of a contract for the purposes of section 53A of the Transfer of Property Act, 1882‟. Side-by-side, an amendment was also carried out in 2001 to section 53A of the TPA omitting the expression “the contract though required to be registered, has not been registered, or”. The net effect of these amendments is that the part performance of the contract without requiring registration, subject to fulfillment of certain conditions, which was hitherto considered as `transfer‟ for the purposes of the TPA and the Registration Act, and also consequently the Act, ceased to be so. The position after the 2001 amendments is that registration of the documents is compulsory even in part performance of contract cases and the effects of non-registration apply to such cases in the same manner as to the other general cases requiring registration. Necessarily and as a sequitur, it follows that the mandate of section 17 of the Registration Act requiring the registration as a pre-condition for transfer, after the 2001 amendment, applies to all the clauses of section 2(47) dealing with the immovable property including the part performance of the contract under clause (v). Transfer of any immovable property by means of sale covered u/s 2(47)(i) of the Act, which even prior to the 2001 amendments also required registration, continues to remain unaltered. It will not be treated as `transfer‟ unless the sale deed is registered in the same manner, as the position has become after the 2001 amendments qua the transaction of part performance of contract as per section 53A of the TPA covered under section 2(47)(v) of the Act. The contention of the ld. AR to the effect that the 2001 amendments have no bearing and the registration is not essential in the cases covered u/s 2(47)(i) of the Act, is therefore, sans merits.

9. Now I turn to contention of the ld. AR on section 47 of the Registration Act. This section with the heading `Time from which registered document operates‟ provides that : `A registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made, and not from the time of its registration‟. A document is first executed and then submitted for registration, if required. Normally, it takes some time between executing a document and its registration because the same has to be submitted for registration; checked by the competent authorities; and then actually registered. Unless a document is revoked before its actual registration, the parties submit themselves to the contents of the document by signing it, which coincides with its execution itself. Unless contrary is agreed between the parties in the document, it is from its execution that the parties intend to act upon it and make it operational. Section 47 of the Registration Act states that a registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made (that is, on its execution). It means that the time lag between the execution of a document and its registration is ignored insofar as its operation is concerned. Thus, all the documents, whether or not requiring registration, operate from the date of their execution and the date of registration, where registration is mandatory, is irrelevant insofar as their operation is concerned. Whereas, section 17 of the Registration Act lists the documents whose registration is compulsory and section 49 of the Registration Act deals with the effects of non-registration of documents required to be registered u/s 17 of that Act, section 47 of the Registration Act deals with an altogether different aspect of time from which a registered document operates. It is only after a document required to be registered is actually registered as per section 17 of the Registration Act that the controversy of timing of operation of registration comes in to play, which is exclusively covered by section 47 of the Registration Act.

10. Coming to section 45 of the Act, which is a charging section for capital gains, provides that 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 etc., 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. Manifestly, income under this head becomes chargeable to tax in the year in which the transfer takes place. `Transfer‟ takes place only when it becomes operational, that is, on executing the sale deed – neither before it, that is, when the parties are in the process of negotiations, nor after it, that is, when the registration of the deed actually takes place.

11. Adverting to the facts of the extant case, I find that the sale deed, even though registered on 17.04.2008, was admittedly executed on 15.12.2007, which date falls in the previous year relevant to the A.Y. 2008-09 and, as such, the amount of capital gain becomes chargeable to tax in such preceding assessment year. Since the `transfer‟ of the property took place on execution of sale deed in the preceding year, I hold that the amount of capital gain cannot be charged to tax for the A.Y. 2009-10 under consideration. On a specific query, the ld. AR candidly admitted that no capital gain was offered for taxation by the assessee in her return for the A.Y. 2008-09 or any other year. The AO is at liberty to take necessary action for taxing the amount in the correct assessment year as per law.

12. In the result, the appeal is allowed.

Order pronounced in the Open Court on 17th February, 2022.

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