THE COMMISSIONER OF INCOME TAX-111 PUNE vs. DR ARVIND S PHAKE

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ITXA/139/2015HC Bombay20 November 2017Author: HON'BLE SHRI JUSTICE A.S. OKA, HON'BLE SHRI JUSTICE A. K. MENON7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the judgment of the Division Bench in Chaturbhuj Dwarkadas Kapadia v/s. Commissioner of Income Tax (supra) is binding. That judgment established that the date of the contract is relevant if its terms indicate the passing of complete control over the property to the developer. The ITAT considered various clauses of the development agreement, including a clause stating that construction would be undertaken by the developer after full payment of consideration. It was noted that the entire consideration was not received by the assessee on the date of the agreement's execution. Physical possession was parted with on March 1, 2008, and it was held that on this date, complete control over the property passed to the developer. The ITAT's finding that March 1, 2008, was the date of transfer was deemed consistent with the law laid down in Chaturbhuj Dwarkadas Kapadia. Consequently, the investment of ₹50,00,000 in REC Ltd. bonds on August 22, 2008, was considered within the period specified under Section 54EC. The Court found no fault with the ITAT's impugned judgment. No substantial question of law arose, and the appeal was dismissed.

What were the facts?

The appeal concerns Assessment Year 2008-09, involving Dr. Arvind S. Phake (assessee) and the Commissioner of Income Tax-III, Pune (revenue). The dispute centers on the disallowance of exemption claimed under Section 54EC of the Income Tax Act, 1961, for Long Term Capital Gains (LTCG) on the sale of immovable property. The assessee entered into a Development Agreement on September 13, 2007, for a property in Pune. The total consideration was ₹5,32,00,000. The assessee claimed LTCG of ₹5,32,00,000, a deduction under Section 54 of ₹20,00,000, and an exemption under Section 54EC of ₹50,00,000. The Assessing Officer disallowed the investment in REC Ltd. bonds made on August 22, 2008, as it was beyond six months from the date of transfer. The Income Tax Appellate Tribunal (ITAT) held that the date of transfer was March 1, 2008, when physical possession was handed over, making the REC investment within the stipulated period.

What were the issues?

1. Whether, on the facts and in law, the ITAT correctly held the date of transfer to be March 1, 2008 (date of handing over physical possession), instead of September 13, 2007 (date of execution of the Development Agreement and irrevocable General Power of Attorney)? This issue turns on the interpretation of 'transfer' under the Income Tax Act, particularly in the context of development agreements. 2. Whether the ITAT correctly ignored the provisions of Section 2(47)(v) of the Income Tax Act, which indicates the year of chargeability is the year of contract execution, even if the transfer is not complete under general law? This question concerns the applicability of specific clauses defining transfer for tax purposes. 3. Whether the ITAT erred in ignoring the High Court's judgment in Chaturbhuj Dwarkadas Kapadia v/s. CIT (2003) 260 ITR 491 (Bom), which held that the date of contract is relevant if it indicates the passing of complete control over the property to the developer? Assessee's Contention: The assessee argued that the entire consideration was received when possession was handed over on March 1, 2008. The ITAT's finding that March 1, 2008, was the date of transfer, making the investment in REC bonds timely for Section 54EC exemption, was consistent with the principles laid down in Chaturbhuj Dwarkadas Kapadia. Revenue's Contention: The revenue contended that the date of transfer should be September 13, 2007, the date of the Development Agreement execution, citing the provisions of Section 2(47)(v) and the judgment in Chaturbhuj Dwarkadas Kapadia. They also relied on the High Court of Andhra Pradesh's decision in Potla Nageswara Rao v/s. CIT, which distinguished the Chaturbhuj Dwarkadas Kapadia case, and a Tribunal decision in Jasbir Singh Sarkaria, In Re.

Which sections of the Income-tax Act were involved?

Section 2(47)(v),Section 54,Section 54EC

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1 4.itxa-139.15.doc sbw     IN THE HIGH COURT OF JUDICATURE AT BOMBAY                   ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.139  OF 2015  The Commissioner of Income Tax­111 Pune. .. Appellant Vs. Dr. Arvind S. Phake .. Respondent Mr. Tejveer Singh  for the appellant.  Mr. Mihir C. Naniwadekar  for the respondent.  CORAM  :  A. S. OKA &  A. K. MENON, JJ. DATED   :   20TH NOVEMBER, 2017

ORAL JUDGMENT (PER A. S. OKA, J.)

1.

Heard   the   learned   counsel   appearing   for   the   appellant.   The challenge is to the judgment and order passed by the Income Tax Appellate   Tribunal,   Pune   Bench   A   at   Pune   (for   short   “Appellate Tribunal”)   on 30th  April, 2014. The substantial questions of law which are placed into service are the questions which reads thus:­ “ (i) Whether on the facts and in the circumstances of the case and in law, the ITAT is correct in holding, the date of transfer as the date of handling over of physical possession of the property i.e. 01.03.2008 by the assessee, as against the date of Execution of Development Agreement alongwith irrevocable General Power of Attorney i.e. 13.09.2007? (ii) Whether on the facts and in the circumstances of the case and in law, the ITAT is correct in ignoring the provisions of CNR No : HCBM020243962014 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:52:28

2 4.itxa-139.15.doc Section 2(47)(v) of the Income Tax Act, which indicates that the year   of   chargeability   is   the   year   in   which   the   contract   is executed   even   if   the   transfer   of   immovable   property   is   not effective or complete under the general law? (iii) Whether on the facts and in the circumstances of the case and in law, the ITAT has erred in ignoring the judgment of this Court in the case of Chaturbhuj Dwarkadas Kapadia v/s. CIT (2003) reported in 260 ITR 491 (Bom) wherein it is held that if the   contract,   read   as   a   whole,   indicates   passing   of   or transferring of complete control over the property in favour of the developer, then the date of contract would be relevant to decide the year of chargeability?”

2.

In this Appeal, we are concerned with the Assessment Year 2008­09. A return was filed by the respondent­assessee declaring his income on   account   of   Long   Term   Capital   Gain   on   sale   of   immovable property,   income   from   business   and   profession   of   medical practitioner and other sources.   The dispute before the Appellate Tribunal was in respect of part disallowance of exemption claimed by the assessee under Section 54EC of the Income Tax Act, 1961 while   computing   the   Long   Term   Capital   Gain   on   the   sale   of immovable   property.     The   respondent­assessee   was   holding immovable   property   at   Pune.     He   entered   into   a   registered Development Agreement dated 13th  September, 2007 in respect of the   said   property.     The   total   consideration   was   agreed   to   be Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:52:28

3 4.itxa-139.15.doc `.5,32,00,000/­ out of which a sum of  `.20,00,000/­ was to be adjusted   against   the   cost   of   construction   of   the   area   in   the reconstructed building which was to be retained by the respondent­ assessee.  The construction of the said area was to be made by the developer.  The Long Term Capital Gain was accordingly claimed at `.5,32,00,000/­. The deduction under Section 54 of the said Act amounting to  `.20,00,000/­ was claimed by way of investment in new residential property.   The exemption under Section 54EC of the Act   to   the   tune   of  `.50,00,000/­   was   claimed   on   account   of investment in National Highway Authority of India (NHAI) Bonds. Initially net taxable Capital Gain was claimed at `.2,74,88,690/­. A revised return filed on 31st March, 2008  was filed as a result of a supplementary deed entered into on 30th March, 2010. As per the revised   return,   the   Long   Term   Capital   Gain   was   quantified   at `.1,87,28,690/­.

3.

As indicated earlier, the real dispute before the Appellate Tribunal was in relation to the claim of deduction under section 54EC.  The investment of `.50,00,000/­ was made in the Bonds of NHAI on 28th March, 2008 and  `.50,00,000/­ in the Bonds of REC Ltd. on 22nd August, 2008. The Assessing Officer held that investment in the bonds of NHAI was within the period specified  under Section 54EC Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:52:28

4 4.itxa-139.15.doc of the Act and the investment of `.50,00,000/­  made in the bonds of REC Ltd.  was beyond the  period provided in the  said provision inasmuch as the investment made on 22nd  August, 2008 was not within six months from the date of the transfer of assets.   The finding   recorded   by   the   Appellate   Tribunal   in   the   impugned judgment and order is that  the physical possession of the property was given by the respondent­assessee to the developer on 1st March, 2008. The Appellate Tribunal observed that on the date of execution of the development agreement, full consideration was admittedly not paid,   and   therefore,   the   contention   of   the   department   that   the transfer was effected on 13th September, 2007 cannot be accepted. Therefore, taking the date of transfer as 1st March, 2008 on which day the   possession was delivered, it was held that investment made on   22nd  March,   2008   was   well   within   the   time   specified   under Section 54EC.

4.

The   learned   counsel   appearing   for   the   appellant­Revenue   relied upon a decision of High Court of Andhra Pradesh in the case of Potla Nageswara Rao v/s. Commissioner of Income Tax in Income1 He submitted that in the said decision, the law laid down by a Division Bench of this Court in the case of Chaturbhuj Dwarkadas Kapadia v/s. Commissioner of Income Tax has been distinguished. 1        Tax Appeal No.245 of 2014. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:52:28

5 4.itxa-139.15.doc He also relied upon a decision of the Tribunal in the case of Jasbir Singh Sarkaria, In Re.2  He pointed out that the said decision relies upon the decision of this Court in Chaturbhuj Dwarkadas Kapadia v/s. Commissioner of Income Tax3. He would, therefore, submit that   considering   the   terms   and   conditions   incorporated   in   the development agreement, the date of transfer for the purposes of Income Tax Act ought to be taken as 13th September, 2017 when the agreement was executed.

5.

The learned counsel for the respondent on a query made by the Court pointed out that when the possession was handed over by the respondent­assessee to the developer on 1st March, 2008 the entire consideration under the development agreement was received by the respondent­assessee.

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 2 (2007) 294 ITR 0196 3 (2003) 260 ITR 491 (Bom.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:52:28

6 4.itxa-139.15.doc Bench laid down the test 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.     Sub­clause   (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 respondent­assessee.   The physical possession of the property subject matter of development agreement was parted with by the respondent­assessee 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 `.50,00,000/­ by the respondent­assessee on 22nd August. 2008 was within the period specified under Section 54EC of the said Act. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:52:28

7 4.itxa-139.15.doc

7.

In the circumstances, no substantial question of law arises.  Hence, there is no merit in the appeal and the same is accordingly disposed of. (A. K. MENON, J.) (A.S.OKA, J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:52:28 Powered by TCPDF (www.tcpdf.org)

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