SEEMA SUBHASH ZAMBAD,,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 3,, AURANGABAD

PER R.S.SYAL, VP :

This appeal by the assessee is directed against the order passed by the CIT(A) on 26-06-2018 in relation to the assessment year 2014-15.

2 ITA No. 1280/PUN/2018 Seema S. Zambad

capital gain and of Rs.1,42,43,500/- as business income on sale of

land situated at Gut no. 123, Tisgaon Tal and Dist. Aurangabad.

with certain other persons purchased a piece of land admeasuring

6100 sq. mtrs on 4.4.2003 at Gut No.123, Tisgaon, Waluj,

Aurangabad, with her separate share at 66.67% coming to 4066

sq.mtrs. The assessee converted such land from capital asset to

stock in trade in the Financial year 2010-11 relevant to the

assessment year 2011-12 and computed deemed capital gain

u/s.45(2) of the Income-tax Act, 1961 (hereinafter also called `the

Act’) at Rs.89,54,638/-. Thereafter, a partnership firm with the

name and style of M/s. Fulzan Properties was brought into

existence by the assessee and her husband. The firm undertook

construction of a project on the said land owned by the assessee

and also simultaneously gave loan of Rs.3.86 crore to the assessee.

assessee was called upon to explain the nature of unsecured loan of

Rs.3.86 crore taken from M/s. Fulzan Properties. She submitted

that the partnership firm planned to set up a new Hotel project and

3 ITA No. 1280/PUN/2018 Seema S. Zambad

for that purpose land at Gut No.123 belonging to her was used, on

which the construction work was undertaken. The assessee claimed

that the land continued to be her own stock in trade which was

reflected in the balance sheet as such and not that of the

partnership firm. The Assessing Officer observed that M/s. Fulzan

Properties had shown a sum of Rs.1.63 crore in its Balance sheet

under the head Fixed Assets as “Gut No.123, Waluj” and capital

work in progress of Rs.44,40,471/-. When further enquired, it

transpired that M/s. Fulzan Properties started construction on the

land belonging to the assessee, which was also partly rented out.

The AO opined that M/s. Fulzan Properties had acquired a right in

the land owned by the assessee which was covered within the

purview of the definition of `transfer’ u/s. 2(47)(vi) of the Act. He,

therefore, held that income from such transfer was liable to be

taxed in the hands of the assessee. Considering the fact that the

assessee had herself computed deferred capital gain u/s.45(2) at

Rs.89,54,638/- in her return for the A.Y. 2011-12 when the capital

asset was converted into stock in trade, the AO computed business

profit at Rs.1,42,43,500/-, being, the value adopted for stamp duty

as on 01-04-2013 at Rs.4050 per sq.mtr on 6100 sq. mtrs as

4 ITA No. 1280/PUN/2018 Seema S. Zambad

reduced by the market value considered on the date of conversion

in the F.Y. 2010-11 at Rs.1.04 crore. He, therefore, added

Rs.89,54,638/- as capital gain in the hands of assessee and a further

sum of Rs.1.42 crore as business income on the transfer of such

land to M/s. Fulzan Properties. The ld. CIT(A) echoed the

assessment order on this point. The assessee is aggrieved by the

decision of the ld. CIT(A).

relevant material on record. It is an undisputed fact that the

assessee purchased Gut no. 123 at Village Tisgaon, Waluj,

Aurangabad on 04-04-2003 with a total area of 61R. This land was

shown by her as a capital asset till the F.Y. 2010-11, when it was

converted into stock in trade. Thereafter she continued to show the

same land as stock in trade in her balance sheets including for the

year under consideration. No agreement was entered into with

M/s. Fulzan Properties, a partnership firm in which the assessee is

a partner along with her husband, for transferring the land to the

firm. M/s. Fulzan Properties constructed building thereon and the

only business activity carried on by the firm is to commercially

exploit the property so constructed. A part of the building so

5 ITA No. 1280/PUN/2018 Seema S. Zambad

constructed on the said land was let out by M/s Fulzan Properties

to M/s Bhuvan, from which rental income to the tune of Rs.20.00

lakh was received and offered for taxation by the firm in its own

return for the A.Y. 2013-14. Notwithstanding the above, it is clear

from the above factual narration that the assessee did not legally

transfer the ownership of land to M/s. Fulzan properties and simply

gave its possession for constructing building thereon.

Hon’ble Supreme Court in CIT Vs. Balbir Singh Maini (2017) 398

ITR 531 (SC) in which the issue was about the ambit of “transfer”

u/s. 2(47) of the Act. While dealing with the issue, the Hon’ble

Supreme Court has held that if an agreement for transfer of

immovable property is not registered, it does not take effect and

hence transfer of immovable property, otherwise than through a

registered agreement, does not amount to `transfer’ u/s 53A of the

TPA in view of the 2001 amendment and also simultaneous

amendment to sections 17(1A) and 49 of the Registration Act,

1908. Their Lordships further observed in para 19 of the judgment

that: `An agreement of sale which fulfilled the ingredients of

Section 53A was not required to be executed through a registered

6 ITA No. 1280/PUN/2018 Seema S. Zambad

instrument. This position was changed by the Registration and

Other Related Laws (Amendment) Act, 2001. Amendments were

made simultaneously in Section 53A of the Transfer of Property

Act and Sections 17 and 49 of the Indian Registration Act. By the

aforesaid amendment, the words “the contract, though required to

be registered, has not been registered, or” in Section 53A of the

1882 Act have been omitted. Simultaneously, Sections 17 and 49

of the 1908 Act have been amended, clarifying that unless the

document containing the contract to transfer for consideration any

immovable property (for the purpose of Section 53A of 1882 Act) is

registered, it shall not have any effect in law, other than being

received as evidence of a contract in a suit for specific performance

or as evidence of any collateral transaction not required to be

effected by a registered instrument’. Thereafter, it observed in para

20 of the judgment that: `The effect of the aforesaid amendment is

that, on and after the commencement of the Amendment Act of

2001, if an agreement, like the JDA in the present case, is not

registered, then it shall have no effect in law for the purposes of

Section 53A. In short, there is no agreement in the eyes of law

which can be enforced under Section 53A of the Transfer of

7 ITA No. 1280/PUN/2018 Seema S. Zambad

Property Act.’. Finding that the assessee continued to be the owner

throughout the agreement and had at no stage purported to transfer

rights akin to ownership to the developer, it was held that at the

highest, possession alone was given under the agreement, and that

too for a specific purpose.

only no registered sale deed was executed by the assessee in favour

of M/s Fulzan Properties, but even the possession was also not

given to be enjoyed as an owner. There are two parts of the

ultimate property, namely, the superstructure which is owned by

the firm and the land beneath, which is owned by the assessee. In

view of the fact that the assessee did not transfer the land to M/s.

Fulzan Properties, we hold that the authorities below were not

justified in treating it as a case of sale, being, transfer of land by

the assessee to the firm.

for full value of consideration for transfer of assets other than

capital assets in certain cases’ as contained in section 43CA of the

Act, which has been heavily relied by the AO. Sub-section (1)

8 ITA No. 1280/PUN/2018 Seema S. Zambad

provides that : `Where the consideration received or accruing as a

result of the transfer by an assessee of an asset (other than a capital

asset), being land or building or both, is less than the value adopted

or assessed or assessable by any authority of a State Government

for the purpose of payment of stamp duty in respect of such

transfer, the value so adopted or assessed or assessable shall, for

the purposes of computing profits and gains from transfer of such

asset, be deemed to be the full value of the consideration received

or accruing as a result of such transfer.’ It is manifest from the

above provision that it is a deeming provision in so far as the full

value of consideration received as a result of transfer of some

property, which is held otherwise than a capital asset, is concerned.

It is not a charging provision in itself nor does the deeming fiction

extends to `transfer’. Unless the charge is created first under a

specific provision, the deeming provision for computation is not

activated. The ld. DR has not drawn our attention towards any

provision of the Act, which in the given circumstances, deems

`transfer’ of land so as to attract chargeability. Section 43CA of

the Act can be magnetized only when some building or land etc.,

held otherwise than as a capital asset, is transferred. In case the

9 ITA No. 1280/PUN/2018 Seema S. Zambad

property itself is not transferred, the question of deeming the stamp

value as the full value of consideration does not arise, which is

only a stage posterior to the `transfer’ of the property.

justified in making or confirming the addition in the hands of the

assessee under the head `Capital gains’ as well as `Profits and

gains from business or profession’ by treating it as a case of

transfer of land to M/s Fulzan Properties in as much as the land

itself was not transferred by the assessee during the year under

consideration.

Order pronounced in the Open Court on 08th November,

2019.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 08th November, 2019 सतीश

10 ITA No. 1280/PUN/2018 Seema S. Zambad

आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-1, Aurangabad 4. The Pr. CIT-1, Aurangabad िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “ए” / DR ‘A’, ITAT, Pune गाड� फाईल / Guard file 6. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 08-11-2019 Sr.PS 2. Draft placed before author 08-11-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *