M/S. SESHASAYEE STEELS P. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(2), CHENNAI

CIVIL APPEAL No. 9209/2019Supreme Court[2019] 15 S.C.R. 19604 December 2019Bench: 3 JudgesAuthor: R.F. NARIMAN, ANIRUDDHA BOSE, V. RAMASUBRAMANIAN SUPREME COURT REPORTS11 pages
AI SummaryDismissed

What were the facts?

The assessee, M/s. Seshasayee Steels P. Ltd., entered into an agreement to sell an immovable property with Vijay Santhi Builders Limited on May 15, 1998, for a total sale consideration of Rs. 5.5 crores. The agreement granted permission to the builder to commence construction. Subsequently, a compromise deed was executed, confirming the agreement and power of attorney, and reducing the sale consideration by Rs. 50 lakhs. The assessee received Rs. 4,68,25,644/- and the balance of Rs. 1.05 crores was to be paid via seven post-dated cheques. The Assessing Officer treated the entire sale consideration as capital gains. The ITAT found that all cheques were encashed. The appeal challenges the order of the Income Tax Appellate Tribunal (ITAT) which upheld the Assessing Officer's action.

What did the Supreme Court hold?

The Supreme Court held that Section 53A of the Transfer of Property Act, 1882, was not attracted. For Section 53A to apply, the transferee must have taken possession in part performance of the contract and performed or be willing to perform their part. The court found that the permission granted to the builder to construct was a license, not 'possession' in the legal sense required by Section 53A, which denotes control over the land. Therefore, Section 53A was not attracted. Regarding Section 2(47)(vi) of the Income Tax Act, 1961, the court clarified that the expression 'enabling the enjoyment of' must take colour from 'transferring', implying a de facto transfer where the owner's rights are extinguished. Initially, on the date of the agreement, the owner's rights were intact. However, upon a perusal of the compromise deed and the ITAT's finding that all cheques were encashed, the court concluded that the assessee's rights in the property were extinguished upon receipt of the last cheque. Thus, the compromise deed constituted a transaction with the effect of transferring the immovable property, falling under Section 2(47)(ii) and (vi) of the Income Tax Act. The appeal was dismissed.

What were the issues?

1. Whether Section 53A of the Transfer of Property Act, 1882, is attracted to the facts of the case, considering the nature of permission granted for construction and the performance of the agreement? (Mixed law and fact, turns on Section 53A of the Transfer of Property Act, 1882 and Section 2(47)(vi) of the Income Tax Act, 1961). Assessee's contention: Not explicitly recorded in the provided text, but implied by the challenge to the taxability of capital gains. Revenue's contention: Not explicitly recorded in the provided text, but implied by the assessment order treating the transaction as a capital gain. 2. Whether the transaction, as evidenced by the agreement to sell and the subsequent compromise deed, constitutes a transfer of immovable property under Section 2(47)(vi) of the Income Tax Act, 1961, leading to the extinguishment of the assessee's rights? Assessee's contention: Not explicitly recorded in the provided text, but implied by the challenge to the taxability of capital gains. Revenue's contention: Not explicitly recorded in the provided text, but implied by the assessment order treating the transaction as a capital gain.

Which sections of the Income-tax Act were involved?

Section 53A,Section 2(47)(vi),Section 2(47)(ii)

AI-generated summary — verify with the full judgment below

A B C D E F G H 196 SUPREME COURT REPORTS [2019] 15 S.C.R. M/S. SESHASAYEE STEELS P. LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(2), CHENNAI (Civil Appeal No. 9209 of 2019) DECEMBER 04, 2019 [R. F. NARIMAN, ANIRUDDHA BOSE AND V. RAMASUBRAMANIAN, JJ.] Transfer of Property Act, 1882: s.53A – Applicability of – Essential ingredients – Held: In order that the provisions of s.53A be attracted, the transferee must, in part performance of the contract, have taken possession of the property or any part thereof and the transferee must have performed or be willing to perform his part of the agreement – In the instant case, as per agreement to sell, assessee gave permission to the builder company to start construction on the land – This showed that a license was given upon the land for the purpose of developing the land into flats and selling the same – Such license cannot be said to be ‘possession’ within the meaning of s.53A, which is a legal concept, and which denotes control over the land and not actual physical occupation of the land – That being the case, s.53A was not attracted to the facts of this case – Income Tax Act, 1961 – s.2(47)(vi).

Income Tax Act, 1961:

The order continues below.

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