PURAV MAHENDRA MEHTA,MUMBAI vs. CIRCLE 24(1), MUMBAI

It was submitted that for the sale of property to be completed, what is essential is the execution of the registered sale agreement, full payment of agreed consideration and thirdly, handing over the possession of the property. It was submitted that except for the execution of the registered agreement, the remaining two conditions were not fulfilled during the financial year relevant to the impugned assessment year. In this regard, our reference was drawn to Clause No.7 of the agreement which provides that the purchaser shall be entitled to get the said office to his name at any time after the payment of full consideration and Clause No.8 of the agreement provides that the vendor shall hand over to the purchaser all the other documents/papers relating to the said office in their possession after the payment of the full consideration. It was submitted that during the course of assessment proceedings, the assessee has also submitted the letters issued by the purchasers, wherein they have confirmed that the amount was outstanding and they have not taken over the possession over the property. It was accordingly submitted that the AO has erred in holding that the transfer of property has happened during the financial year relevant to the impugned assessment year and whole of the sale consideration has been brought to tax.

Further reliance was placed on the decision of the Hon‟ble Bombay High Court in the case of CIT vs. Dr.Arvind S. Phake, dt. 20-11-2017, wherein the relevant findings reads as under: “6. We have carefully considered the submissions. What binds this Court is that the judgment of the Division Bench in the case of Chaturbhuj Dwarkadas Kapadia v/s. Commissioner of Income Tax (supra). The Division Bench held that the date of contract is relevant provided the terms of the contract indicate passing off or transferring of complete control over the property in favour of the developer. The Division Bench laid down the rest for determining the date which should be taken into account for determining the relevant accounting year in which the liability accrues. In the present case, the Appellate Tribunal has taken into consideration various clauses in the development agreement. Sub-clause (d) of clause (3) of the agreement provides that after full payment of consideration, the construction shall be undertaken by the developer. Admittedly, on the date of execution of the development agreement, the entire consideration was not received by the respondent-assessee. The physical possession of the property subject matter of development agreement was parted with by the respondent-assessee on 1st March, 2008. It was held that on that day, complete control over the property was passed on to the developer. After having perused the various clauses in the agreement and the aforesaid factual aspects, the Tribunal has taken 1st March, 2008 as the date of transfer. This finding is fully consistent with the law laid down by the Division Bench in the case of Chaturbhuj Dwarkadas Kapadia (supra). Therefore, no fault can be found with the impugned judgment of the Tribunal when it was held that the investment made in the sum of Rs.50,00,000/- by the respondent-assessee on 22nd August. 2008 was within the period specified under Section 54EC of the said Act.”

Further reliance was also placed on the decision of the Co-ordinate Bench of the Mumbai Tribunal in the case of Ashok M. Seth vs. DCIT, in & 188/Mum/2015 (AY. 2010-11), dt. 15-02-2017, wherein the relevant findings contained from pars No. 8 to 11 and the contents thereof reads as under:

Thus, overall facts of the case indicate that sale could not have been said to be completed in absolute terms in the year 2009. For completion of sale in absolute terms fulfilment of all the three conditions mentioned above are must i.e., execution and registration of conveyance deed, handing over of possession and payment of full consideration. In the case before us, only first condition was completed and the remaining two conditions were still pending to be executed and were not completed in the impugned year. In addition to that, all the legal formalities for effecting the transfer of the property in the name of purchaser were also not complied with and the same were completed only after payment of maintenance charges by the assessee to the said society. The said flat came into full and exclusive control of the new purchasers only after when the possession of the same was handed over to them by the assessee on 26th June, 2011. Thus, the said flat was available for enjoyment by the purchaser only after the said date. Thus, taking into account all the facts and circumstances of the case, the sale of the flat cannot be said to be completed in the year before us. In this regard our view finds support from the judgment relied upon by learned counsel of the assessee of Hon'ble Patna High Court in the case of Raj Rani Devi Ramna (supra) wherein their Lordships opined as under: "The properties do not necessarily pass as soon as the instrument is registered, for the true test is the intention of the parties. Registration Is prima facie proof of an intention to transfer, but it is no proof of an operative transfer if there is a condition precedent as to the payment of consideration or delivery of the deed. Thus, the seller may retain the deed pending payment of price and, in that case, there is no transfer until the price is paid and the deed is delivered. In the present case. from the statement of case itself as drawn up by the Tribunal, it is apparent that the parties had clearly intended that despite the execution and registration of sale deeds transfer by way of sale will become effective only on payment of the entire consideration amount and in this background of facts. It has to be held that there was no transfer of land covered by the three sale deeds in question during the period under consideration making the assessee liable for capital gains tax under s. 45- Nital Chandra Gavaskar vs. Smt. Champakiata Debi (1919) 29 CL-7 250, Panchoo Sahu vs. Janku Mandar AIR 1952 Pat 263 and Shiva Narayan Sat vs. Baidya Nath Prasad Tiwary AIR 1973 Pat 386 relied on."

Thus, if we analyse all the documents and facts of this case and based upon the same gather the intention of the parties, we find that the substance of the transaction shows that sale was not intended to be completed in the year before us. Therefore, the resultant gain arising on the sale of the flat concluded in the subsequent year could not have been brought to tax in the impugned year. Further. In any case, the taxable amount of capital gain has already been offered to tax by the assessee in the asst. yr. 2012-13 and has been accepted as such by the Revenue as per the information provided to us. Under these circumstances, it would not be justified to adopt a hyper-technical approach and tax the same in this year also which will lead to double taxation and avoidable hardship to the assessee, Therefore, keeping in view the peculiar facts and circumstances of this case and in the interest of justice and all fairness we direct the AO to delete the addition. As a result, ground 1 is allowed.”

It was further submitted that in the FY. 2017-18 relevant to AY. 2018- 19, the assessee has received the balance sale consideration and possession was also handed over to the buyers. It was submitted that in the return of income filed for the AY. 2018-19, the assessee has duly offered the Long Term Capital Gain on sale of three properties amounting to Rs. 1,06,43,565/-. It was submitted that the said return of income has since been processed and accepted by the Revenue in terms of order passed u/s. 143(1) of the Act, dt. 16-04-2019. It was stated at the Bar that though the figure of long term capital gains of Rs. 1,06,43,565/- has been determined taking into consideration cost of acquisition without indexation (though the assessee is eligible for indexation) and is at a higher figure than the figure of Rs 80,76,511/- determined by the AO for the impugned assessment year 2015-16, the assessee has not and will not challenge the same and has thus accepted the same as so determined in terms of intimation u/s 143(1) of the Act. It was accordingly submitted that where the capital gains have already been offered and accepted in the subsequent assessment year and that too at a higher figure, there remains no basis for bringing the said capital gains to tax for the impugned assessment year leading to double addition.

Per contra, the Ld.DR is heard, who has relied on the order passed by the AO as well as that of the Ld.CIT(A). It was submitted that in respect of three properties, the agreement of sale was registered during the financial year relevant to the impugned assessment year and therefore, the transfer of capital asset has happened during the financial year relevant to the impugned assessment year and the AO has rightly brought the sale consideration to tax under the head „capital gains‟ which has been confirmed by the ld CIT(A). Regarding the claim of the Ld.AR that the capital gains have already offered in the subsequent financial year, it was submitted that the same needs necessary verification and where the Bench so direct, the matter may be remitted to the file of the AO for necessary verification.

We have heard the rival contentions and pursued the material available on record. We find merit in the contention advanced by the Ld. AR that for the purposes of determining the transfer of capital asset, it is essential to examine the conditions as agreed to between the parties subject to which they have agreed to transfer the capital asset and in particular, the conditions in terms of discharge of full consideration and handing over the possession of the property. Unless and until these conditions are fulfilled, the transfer of property cannot be said to have been effected merely basis registration of the agreement to sell and not of the instrument of transfer of immoveable property through a conveyance deed. Infact, there is nothing on record when the conveyance deed has been executed and registered in respect of properties under consideration. In the instant case, it is evidently clear that in respect of all three properties and the underlying agreements to sell (which are similarly worded), Clause No.7 of the agreement provides that the purchaser shall be entitled to get the said office to his name at any time after the payment of full consideration and Clause No.8 of the agreement provides that the vendor shall hand over to the purchaser all the other documents/papers relating to the said office in their possession after the payment of the full consideration. During the financial year relevant to impugned assessment year, admittedly, the assessee has only received part consideration in the range of 5% to 13% of total agreed consideration and thus, the condition so specified has not been fulfilled. A fact which has been confirmed by the respective buyers in their separate communication, wherein they have confirmed that they have not paid full consideration and they have not taken over the possession over the property. In light of the same, we are of the considered view that the transfer of capital asset has not happened in respect of properties under consideration during the financial year relevant to impugned assessment year 2015-16 and chargeability to tax therefore doesn‟t arise for consideration.

In the result, the appeal filed by the assessee is allowed.