DEVENDRA K CHEDA,MUMBAI vs. ITO 21(1)(1), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

“1. The learned CIT(A) erred in confirming order of Assessing officer assessing long term capital gains of Rs. 6,66,44,262/- as against returned long term capital loss of Rs. 4,47,826/- by invoking provision of S. 50C to sale of undetermined beneficial rights in the land at Chembur without appreciating that provisions of S. 50C are applicable only to sale of land and building and it does not apply to sale of rights in land and building. 2.The learned CIT(A) erred in confirming order of Assessing officer assessing long term capital gains of Rs. 6,66,44,262/- as against returned long term capital loss of Rs. 4,47,826/- by invoking provision of S. 50C to sale of undetermined beneficial rights in the land at Chembur without appreciating that Sale Agreement dated 28/7/2007 was not registered and hence provisions of S. 50C had no application to such sale transaction prior to 1/10/2009.

3. The learned CIT(A) failed to appreciate that if the argument of learned CIT(A) that provisions of S. 50C as existing post 1/10/2009 are applicable to the facts of the present case, then there can be no long term capital gains that could be said to have been accrued during the year especially when no possession has been given to the Assignee.”

3.1. On 28/07/2007, the assessee vide unregistered agreement sold his right to acquire / own 5000 sq.yards of land situated at Chheda Nagar, Ghatkopar for a consideration of Rs.23,53,000/-on as is where is basis to M/s. Chheda Reality Pvt. Ltd., The said land is part of large parcel of land of 140 acres. In the return, the assessee offered long term capital loss of Rs.4,47,826/-. The following list of dates and events would explain the flow of title to the property and the related litigation thereon:-

3.2. The assessee submitted that from perusal of para 2(i) to 2(iii) of the agreement, it is clear that as per the Revenue records as on date the owner of the said property is Government of India pursuant to the order dated 31/10/1976 passed by the Sub-Divisional Officer, Mumbai Sub urban District and the ownership of Government of India is still in dispute. Further land was encumbered and undivided. The assessee did not even have the possession of the land. Hence, the assessee had sold his right in the land on as is where is basis. It was reiterated by the assessee that assessee had not become the owner of the land in place of Government of India as per the Revenue records and the possession of the land is never given to assessee or to M/s. Chheda Reality Pvt. Ltd. It was also submitted that the land is in litigation and the matter is pending before the Hon’ble Bombay High Court. In view of these pending disputes, the assessee had to assign his rights in the land on as such on as is where is basis to M/s. Chheda Reality Pvt. Ltd., The assessee however offered long term capital loss in respect of sale of rights in the said land while filing the return of income. The ld. AO held that provisions of Section 50C of the Act would come into play and adopted the stamp duty ready reckoner rate at Rs.17,300/- per sq. mtr. as applicable for the year under consideration and arrived at the full value of consideration at Rs.7,23,24,899/- (4180.63 sq.mtrs x Rs.17,300/- per sq.mtr) and after deducting the indexed cost of acquisition, the ld. AO computed the long term capital gains at Rs.6,60,44,262/- in the assessment.

3.3. Before the ld. CIT(A), it was pleaded by the assessee that the agreement which gave the right to the assessee was not even registered and hence, the provisions of Section 50C of the Act would not come into operation at all. It was submitted by the assessee before the ld. CIT(A) that the provisions of Section 50C of the Act introduced the word “assessable” only w.e.f. 01/10/2009 and therefore, applicable only in respect of transactions of transfer carried out on or after 01/10/2009. In the instant case, the entire sale consideration was received by the assessee prior to 01/10/2009 as under:-

Date Amount (Rs.) 07/08/2007 50,000/- 27/08/2007 8,44,600/- 16/08/2009 9,12,600/- 26/09/2009 5,95,800/- ======= Total 24,03,000/- ======= 3.4. It was submitted that the word “assessable” inserted in Section 50C of the Act is only prospective in application and hence, cannot be used for the transactions carried out prior to that date. The ld. CIT(A) did not heed to these contentions of the assessee and upheld the action of the ld. AO. However, with regard to applicability of amended provisions of Section 50C of the Act w.e.f. 01/10/2009, the ld. CIT(A) held that the said amendment would only be prospective in application, but the said provision is nonetheless would be applicable to the facts of the assessee case herein in view of the fact that the execution of the documents which would have effect of transferring the properties to the assignees was not executed before 01/10/2009.

3.5. We find that the ld. CIT(A) had placed heavy reliance on the sub- clause 6 of clause xxiii on page 12 of the agreement which mentions as under:-

"It is agreed that in the event of the aforesaid litigations and/or any one or more of them remain pending for a period of 25 (Twenty Five) months from the date hereof then in such event the Assignees shall pay to the Assignor the entire balance amount within one month thereafter against which the Assignor shall execute the necessary document to enable the Assignees to deal with and dispose of the said balance plot in the manner they may deem fit."

3.6. Pursuant to the above clause, the ld. CIT(A) concluded that assessee had fulfilled its entire obligations as an assignor in favour of assignee despite the fact that the litigation with regard to the title of the property was not completed within a period of 25 months from the date of agreement. The ld. CIT(A) concluded that assessee in true spirit of the agreement entered into, had discharged its obligation in favour of the assignee. The ld. CIT(A) also concluded that assignee had also discharged its obligation by paying the agreed consideration to the assessee in the sum of Rs.24,53,000/- and final payment thereon was made on 26/09/2009. With these observations, the ld. CIT(A) upheld the action of the ld. AO.

3.7. At the outset, we find that what is transferred by the assessee is only rights in the land and not the land per se. This fact is very much evident from the fact that possession of the land was never handed over to the assessee. It is not in dispute that as per the Revenue records, the Government of India’s name is mentioned thereon vide order dated 31/10/1976 by Sub-Divisional Officer. It is also not in dispute that several litigations are pending with regard to the title of the land. Assessee had entered into an unregistered agreement of sale on 28/07/2007 knowing fully well about these litigations and the aforesaid facts. We hold that assessee had only rights in acquiring the land and never had the land in his possession and never owned the land. No doubt the right to acquire the land is a capital asset. When such capital asset is transferred, the assessee is bound to offer capital gains. In the instant case, the assessee had offered capital gains in the return of income for sale of such rights even though it has been erroneously mentioned as sale of land. We find that the ld. CIT(A) also had categorically stated that the disputes with regard to the ownership of the land was pending in the Hon’ble High Courts and the same were not completed and accordingly, the assessee (assignor) had discharged his obligation in favour of the assignee as agreed in sub-clause 6 of clause xxiii of the agreement. Substance of the transaction need to be seen than its form. Hence, we have no hesitation to conclude that assessee had transferred only the right in the land subject to pending litigations in favour of the assignee prior to 01/10/2009.

3.8. The provisions of Section 50C of the Act were amended w.e.f. 01/10/2009 including the word “assessable” thereon. This was introduced in the statute to plug the loophole that assessees’ were conveniently entering into unregistered agreements, receiving consideration, handing over the possession and not presenting the said agreement for registration before the stamp duty authorities in order to get out of the rigours of provisions of Section 50C of the Act and payment of stamp duty by the buyer. However, this amendment w.e.f. 01/10/2009 has been held to be prospective in operation by CBDT Circular No.5 of 2010 dated 03/06/2010 which is Explanatory Notes to Provisions of Finance(No. 2) Act, 2009. The relevant operative portion of the said Circular is reproduced hereunder:-

“23. Provisions for deemed valuation in certain cases of transfer. 23.1 The existing provisions of section 50C provide that where the consideration received or accruing as a result of the transfer of a capital asset, being land or building or both, is less than the value adopted or assessed by an authority of a State Government (stamp valuation authority) for the purpose of payment of stamp duty in respect of such transfer , the value so adopted or assessed shall be deemed to be the full value of consideration received or accruing as a result of such transfer for computing capital gain. However, the present scope of the provisions does not include transactions which are not registered with stamp duty valuation authority, and executed through agreement to sell or power of attorney. 23.2 With a view to preventing the leakage of revenue, section 50C is amended , so as to provide that where the consideration received or accruing as a result of transfer of a capital asset, being land or building or both is less than the value adopted or assessed or assessable by an authority of state Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be the full value of consideration received or accruing as a result of such transfer for computing capital gain. 23.3 Further, Explanation 2 has been inserted in the subsection (2) of the section 50C, so as to clarify the meaning of the term “assessable”. 23.4 Applicability- These amendments have been made applicable with effect from 1st October, 2009 and will accordingly apply in relation to transactions undertaken on or after such date.” (emphasis supplied by us) 3.9. Moreover, we find that the Hon’ble Madras High Court in the case of CIT vs. R Sugantha Ravindran reported in 352 ITR 488 had held that the amendment brought in Section 50C of the Act from 01/10/2009 cannot be made applicable for transactions carried out prior to 01/10/2009. The Hon’ble Madras High Court had also placed reliance on the CBDT Circular No.5/2010 dated 03/06/2010 while holding the aforesaid view. Hence, it could be safely concluded that the amendment in Section 50C of the Act by including the expression “assessable” could be made applicable only in respect of transfer of capital assets made on or after 01/10/2009. In the instant case, the transfer according to the Revenue had been completed prior to 01/10/2009. Hence, the amended provisions of Section 50C of the Act could not be applied at all by the Revenue, as admittedly the transfer of rights in land had happened pursuant to an unregistered agreement. Prior to 01/10/2009, we hold that provisions of section 50C of the Act cannot be applied for unregistered documents. Hence, there cannot be any substitution of stamp duty value as the full value consideration in terms of Section 50C of the Act in the instant case. This fact is also strengthened by the fact that assessee has also offered capital gains in the return of income as sale of rights in land has been transferred. As stated supra, the dispute between the Revenue and the assessee is only with regard to two issues (1) what is transferred is sale of land according to Revenue but what is transferred is sale of rights in land according to assessee (2) Revenue substituting stamp duty value in terms of Section 50C of the Act treating it as sale of land as against the actual consideration received in the sum of Rs.24.03 lakhs towards sale of rights in land. Both these issues have already been duly addressed by us hereinabove and hence, we direct the ld. AO to delete the full value of consideration substituted by him by adopting stamp duty value in terms of Section 50C of the Act and accept the sale consideration reported by the assessee herein. Since we have already deleted the addition made u/s.50C of the Act on the ground that the amended provisions of Section 50C of the Act could not be made applicable for transfers made prior to 01/10/2009, the adjudication of other grounds raised by the assessee with regard to reference to Departmental Valuation Officer (DVO), becomes infructuous and academic in nature. Hence, they are not adjudicated herein. In our considered opinion, the adjudication of grounds in the manner hereinabove would be in due compliance to the directions of Hon’ble High Court vide its order dated 23/11/2021. Accordingly, the grounds raised by the assessee are allowed.

Order pronounced on 14/10/2022 by way of proper mentioning in the notice board.