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Income Tax Appellate Tribunal, A BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. KESHAV DUBEY
Per Laxmi Prasad Sahu, Accountant Member :
This is an appeal filed by the assessee against the Order passed by the learned CIT(A) - 15, Bangalore, vide DIN :ITBA/APL/M/250/2024- 25/1067958580(1) dated 26.08.2024.
Briefly stated facts of the case from the Assessment Order are that assessee is a proprietor of M/s. Cargo of India. Assessee has filed his revised return of income under section 139(5) of the Act on 31.05.2017 declaring total income of Rs.34,02,060/-. Return was processed under section 143(1) of the Act. The case was reopened under section 147 of the Act for escaped income chargeable to tax. Subsequently notice under section 148 of the Act, dated 26.03.2021 was issued and served on the assessee. Assessee did not file return Page 2 of 30 of income in pursuance to notice under section 148 of the Act. Thereafter, show cause notices were issued to the assessee on different dates. In spite of giving opportunities assessee did not file his return of income and another opportunity was given to the assessee before completing assessment under section 144 of the Act. From the information available with the Income Tax Department it was noticed that assessee has sold non agricultural land bearing survey Nos.17/1, 17/4 measuring 5 acres each and survey No.29/6 measuring 14 guntas situated at Kunikeri Village of Koppal Taluk and District on 10.08.2015 for a total consideration of Rs.58,00,000/-. However, as per Sale Deed, the guidance value is Rs.1,50,00,000/- and assessee was given show cause notice as to why guidance value should not be considered for computation of capital gain income as per section 50C of the Act. However, assessee did not make any submission against show cause notice issued. It was verified from the return of income filed by the assessee that sale consideration declared by the assessee was only Rs.58 lakhs. Accordingly assessee opted claiming indexation cost has declared LTCG of Rs.2,67,705/-. However TDS for the above mentioned properties was deducted at Rs.1,50,000/- that was claimed as tax credit. AO applied section 50C of the Act since there was difference between guidance value of the registered property and value offered for computation of capital gain. Accordingly AO made addition of Rs.92 lakhs and completed assessment under section 144 of the Act.
3. Aggrieved from the above Order, assessee filed appeal before learned CIT(A). The learned CIT(A)after considering the detailed submission observed that AO has rightly applied section 50C of the Act for computing capital gain and rejected all the pleas taken by the assessee.
Page 3 of 30 4. Feeling aggrieved from the above Order, assessee filed appeal before the Tribunal. The learned Counsel reiterated the submissions made before the lower authorities and has filed written submissions which is as under:
1. The appellant most respectfully submit as under: 1.1 That the appellant has filed the subject appeal challenging the order dated 26.08.2024 passed by the Learned Commissioner of Income Tax (Appeals) 11- Bengaluru. u/s 250 of the Income Tax Act 1961 upholding the order of re- assessment dated 28.03.2022 for the assessment year 2016- 17 passed by the learned assessing officer u/s 147 r w s 144 of the Income Tax Act 1961 making an addition of Rs 92,00,000/- under section 50C of the Income Tax Act 1961; 1.2 That the learned Commissioner of Income Tax (Appeals) has unjustly rejected the appellant’s claim that the alleged sale was only a transaction of gift between relatives and the initial mistake of executing a sale deed on 10.08.2015 was duly corrected by way of a deed of cancellation dated 21.03.2022 and that the appellant had neither received any consideration from his father in law nor he had handed over the possession of the subject land and consequently there was no transfer as defined under section 2(47) of the Income Tax Act 1961.
2. FACTS IN BRIEF: 2.1 The appellant had filed his return of income for the A.Y 2016-17originally on 05.08.2016 and which was subsequently revised on 31.05.2017, declaring his total income at Rs. 34,02,060/- which included an offer of a long- term capital gains relating to a gift of immovable property made by the appellant in favour of his father -in- law, wrongly documented and registered as a transaction of sale by the document writer. 2.2 The learned assessing officer had initiated re-opening proceedings u/s.147 of the Income Tax Act 1961 relating to the said sale deed dated 10.08.2015 determining the appellant’s total income at Rs 1,26,02,060/- making an Page 4 of 30 addition of Rs. 92,00,000/- vide re-assessment order dated 28.03.2022, under section 50C of the Income Tax Act 1961, impugned in the subject appeal. 2.3 That though the Appellant had corrected the mistake by way of a cancellation deed dated 14.03.2022 which the learned lower authorities have unjustly rejecting the same by observing that; (i) The said cancellation deed was as an afterthought; (ii) That it required an order of a competent court, contrary to facts and law on the issue; (iii) Even if the consideration was not actually received the sale deed would trigger capital gains u/s 50C and further; (iv) That the neither receipt of consideration NOR handing over the possession were relevant for the purpose of section 50C of the Income Tax Act 1961.
3. Present proceedings: Being aggrieved for the above orders of the learned lower authorities, the appellant has filed the subject appeal challenging the above orders, urging the followings grounds: (1) That the impugned order is highly arbitrary, unjust and contrary to facts and circumstances of the case and the settled law on the issue under agitation. (2) That, in the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals ) 11, Bengaluru is not justified to have dismissed the appeal in a mechanical manner without proper appreciation of the fact and circumstances of the Appellant’s case. (3) That in the facts and circumstances of the Appellant’s case the learned Commissioner ought to have appreciated that the alleged sale deed executed on 10th August 2015 between the appellant and his father-in-law Mr. Nandakumar Obaleppanavar had been erroneously documented by the document writer and hence was not a valid document under law for want of “consensus ad idem” (4) That in the facts and circumstances of the Appellant’s case Page 5 of 30 the learned Commissioner ought to have appreciated that the basic ingredients for a valid sale transaction Viz., (i) payment of the consideration by the vendor to the appellant; (ii) handing over of the possession of the immovable property in favour of the vendor were absent and hence there was no “transfer” within meaning of section 2(47) of the Income Tax Act 1961 and consequently the said transaction could not be subject taxation under long term capital gains as computed by the learned assessing officer. (5) That, in facts and circumstances of the case, the Learned Commissioner of Income Tax ought to have appreciated that the alleged transaction was between relatives i.e. between son –in-law and father – in – law and that the intension of the parties was to effect a deed of gift by the appellant to his father –in – law and not effect a sale as erroneously documented by the document writer (6) That, in the facts and circumstances of the case, the learned Commissioner is not justified in holding that the cancellation deed dated 14.03.2022 was not valid in law for want of a court order failing to appreciate that so far as the appellant’s case is concerned, the same being a consented cancellation, requirements of an order of a competent court order were not applicable. (7) That, in the facts and circumstances of the case, the learned Commissioner ought to have appreciated that the case law relied upon by the learned assessing officer was distinguishable from that of the appellant’s case in that there were no disputes between the Appellant and the Vendor and the cancellation deed had been executed between them total mutual consent duly recording the erroneous documentation done originally. (8) That, in the facts and circumstances of the case, the Learned Commissioner ought to have appreciated that the Karnataka Stamp Act 1957, specifically permits cancellation of documents under Article 14(a) and the said Article does not envisage any order from the competent court to execute a deed of cancellation and hence the deed of cancellation was a valid and legally binding document.
4. Appellant’s submissions in support of the grounds urged Page 6 of 30 as above: 4.1 Withdrawal of ground numbers 1&2: It is most respectfully submitted that the Appellant is not pressing ground Nos 1& 2 and the same kindly may be treated as withdrawn 4.2 In support of ground No 3& 4: 4.2.1 It is most respectfully submitted that apart from the legal validity of the deedof cancellation dated 14.03.2022, as submitted hereunder, it is also submitted that the original sale deed dated 10.08. 2015 had not resulted in any transfer of the land in question in favor of the appellant’s father-in-law as defined u/s 2(47) of the Income Tax Act 1961 in view of the following facts and circumstances: The appellant had not received any sale consideration from his father-in-law relating to the sale deed dated 10th August 2015. The appellant had not handed over the possession of the land in question to his father-in-law and the appellant continues to enjoy the physical possession of the land. ( Kind reference is invited to the Affidavit in page No 158 of the Additional Paper book). That the appellant, even otherwise, couldn’t have handed over the land in question to his father in law since certain manufacturing facilities (Co-gen plant) of the appellant’s family owned the steel manufacturing company i.e. ILC Iron and Steel Pvt Ltd has been setup on the said land and which is still in operation. Accordingly, in the absence of any consideration being received and also not handing over the possession of the land in the question therewas no transfer of the land in question in favor of the appellant’s father-in-law as defined u/s 2(47) of the Income Tax Act 1961 and consequently the said transaction could not be subject to tax u/s 45 of the Income Tax Act 1961.
Page 7 of 30 4.2.2 It is further submitted that the impugned addition made by the learned assessing officer u/s 50C of the Income Tax Act 1961 had resulted in subjecting a “hypothetical income” to tax which is not permissible under law and which mandates at only the “real income” can be subjected to taxation under the Income Tax Act 1961. 4.2.3 In support of our above submission the appellant rely upon the following decisions and the ratios of which are squarely applicable to the issue under agitation. (i) Commissioner of Income Tax Vs Balbir Singh Maini (SC) (ii) Shri Sriniva Pampati Vs ITO (ITAT-HYD) (iii) Sunil Kumar, Vs Income Tax Officer, - ITAT – Delhi Relevant paras of the above decisions are extracted below for kind and ease of reference: Quote (i) Commissioner of Income Tax Vs Balbir Singh Maini (SC) 22. The object of Section 2(47)(vi) appears to be to bring within the tax net a de facto transfer of any immovable property. The expression “enabling the enjoyment of” takes color from the earlier expression “transferring”, so that it is clear that any transaction which enables the enjoyment of immovable property must be enjoyment as a purported owner thereof.1 The idea is to bring within the tax net, transactions, where, though title may not be transferred in law, there is, in substance, a transfer of title in fact.
A reading of the JDA in the present case would show that the owner continues to be the owner throughout the agreement, and has at no stage purported to transfer rights akin to ownership to the developer. At the highest, possession alone is given under the agreement, and that too for a specific purpose -the purpose being to develop the property, as envisaged by all the parties. We are, therefore, of the view that this clause will also not rope in the present transaction.
The matter can also be viewed from a slightly different angle. Shri Vohra is right when he has referred to Sections 45 and 48 of the Income Tax Act and has then argued that some real income must “arise” on the assumption that there is transfer of a capital asset. This income must have been received or have “accrued” under Section 48 as a result of the transfer of the capital asset.
Page 8 of 30 25. This Court in E.D. Sassoon & Co. Ltd. v. CIT, (1955) 1 SCR 313 at 343 held: “It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro; See W.S. Try Ltd. v. Johnson (Inspector of Taxes) [(1946) 1 AER 532 at p. 539], and Webb v. Stenton, Garnishees [11 QBD 518 at p. 522 and 527]. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.”
This Court, in Commissioner of Income Tax v. Excel Industries, (2014) 13 SCC 459 at 463-464 referred to various judgments on the expression “accrues”, and then held: “14. First of all, it is now well settled that income tax cannot be levied on hypothetical income. In CIT v. ShoorjiVallabhdas and Co. [CIT v. ShoorjiVallabhdas and Co., (1962) 46 ITR 144 (SC)] it was held as follows: (ITR p. 148)“… Income tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a ‘hypothetical income’, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account.”
15. The above passage was cited with approval in Morvi Industries Ltd. v. CIT [Morvi Industries Ltd. v. CIT, (1972) 4 SCC 451 : 1974 SCC (Tax) 140 : (1971) 82 ITR 835] in which this Court also considered the dictionary meaning of the word “accrue” and held that income can be said to accrue when it becomes due. It was then observed that: (SCC p. 454, para 11) … the date of payment … does not affect the accrual of income. The moment the income accrues, the assessee gets vested with the right to claim that amount even though it may not be immediately.”
This Court further held, and in our opinion more importantly, that income accrues when there “arises a corresponding liability of the other party from whom the income becomes due to pay that amount”.
It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee.
Insofar as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement passbook, there was no corresponding liability on the Customs Authorities to pass on the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is, therefore, not the income of the assessee.” 27. In the facts of the present case, it is clear that the income from capital gain on a transaction which never materialized is, at best, a hypothetical income. It is admitted that, for want of permissions, the entire transaction of development envisaged in the JDA fell through. In point of fact, income did not result at all for the aforesaid reason. This being the case, it is clear that there is no profit or gain which arises from the transfer Page 10 of 30 of a capital asset, which could be brought to tax under Section 45 read with Section 48 of the Income Tax Act.
In the present case, the assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained. This being the case, in the circumstances, there was no debt owed to the assessees by the developers and therefore, the assessees have not acquired any right to receive income under the JDA. This being so, no profits or gains “arose” from the transfer of a capital asset so as to attract Sections 45 and 48 of the Income Tax Act.
We are, therefore, of the view that the High Court was correct in its conclusion, but for the reasons stated by us hereinabove. The appeals are dismissed with no order as to costs. (ii) Shri Srinivas Pampati, Income Tax Officer, Ward-2- ITAT- HYD 7. We have heard both the parties and perused the material available on record. We have also carefully examined para no.10 of the JDA placed at page no.44 of the paper book, which is to the following effect : “ 10. That the First Party land owners have granted license to the Second Party to enter the land under development to the Second Party developers for the limited purpose of carrying on the construction activity in accordance with terms mentioned herein, and the possession of land for all practical and administrative purpose be deemed to have been given only at the time of passing of consideration in the form of built up area handed over to the landowners i.e., the First Party. However the First Party Land Owners shall not be entitled to interfere in the construction activity in any manner or obstruct the Second Party developers in connection with the process of construction or in taking any decision, in appointing the employees, labourers, contractors etc., in execution of the construction work. However the land owners are at liberty to make inspection of the construction work during the course of the work at all reasonable times and shall not cause any hindrance or obstructions to the construction work.”
8. On perusal of above, it is evident that the developer was permitted to enter the land only for the limited purpose of carrying out construction activity in accordance with the terms of the JDA. It is further stipulated that possession for Page 11 of 30 all practical and legal purposes would be deemed to have been given only upon handing over of the built-up area to the landowners by the developer. The fact that no consideration was received by the assessee during the year under consideration further strengthens the conclusion that there was no transfer in the year within the meaning of section 2(47)(v) of the Act. In such circumstances, the essential conditions of transfer having not been satisfied, there can be no charge of capital gains under section 45(1) of the Act in this assessment year.
9. We also note that during reassessment proceedings, the assessee had submitted photographs showing that the project was still under construction, which substantiates that the transaction was not complete. Therefore, we hold that the addition of Rs.1,71,13,333/- made by the Ld. AO and sustained by the Ld. CIT(A) is unsustainable. The same is directed to be deleted. (iii) Sunil Kumar, Vs Income Tax Officer, - ITAT – Delhi 2. Heard and perused the record. The issue arises out of addition of Rs.1,40,00,000/-, being consideration amount mentioned in conveyance deed, executed by late Sunil Kumar, as received, from his wife Mrs Bimila Devi, who was alleged purchaser. Ld. AO treated same as undisclosed income on account of capital gain on transfer of immovable property to spouse. The assessee, deceased now represented through son, is an individual who filed his original return of income on 19.06.2013 declaring total income of Rs. 1,98,030/. The assessee was suffering from kidney ailments and has expired on 15.04.2025. The case of the assessee was reopened under section 147 of the Income Tax Act, 1961 on account of transaction of transfer of immovable property for consideration of Rs. 1,40,00,000/-. Due to COVID - 19 pandemic and bad health the assessee could not comply with the notices issued under section 142(1) of the Act. Final show cause notice dated 07.09.2021 was issued to the assessee proposing to make an addition of Rs. 1,40,00,000/- on account of capital gain being sale consideration for transfer of immovable property to submit response by 13.09.2021. The assessee filed response on 13.09.2021 submitting that he had transferred immovable property A- 14, Nehru Ground, NIT, Faridabad (Haryana) to his wife Smt. Bimla Devi on 30.11.2012 and he had not received any consideration towards the transfer of property. The Page 12 of 30 consideration amount of Rs. 1,40,00,000/- mentioned in the conveyance deed was for the purpose of payment of stamp duty to facilitate the transfer of property in revenue records only and no money consideration had exchanged hands on account of the transfer of said property. The assessee filed copies of bank accounts to substantiate the fact that no consideration was received towards the transfer of property. Same are also relied before us. The assessment was framed ex parte by the National Faceless Assessment Centre vide order dated 15.09.2021 and ld. ClT(Appeals) sustained the addition of Rs.1,40,00,0000/- holding that: “5.1.2...... the claim of the assessee that the said transfer was effected without any receipt of sale consideration is also found to be incorrect as it has been clearly mentioned in the sale deed that entire sale consideration has been received by the assessee and nothing is pending to be paid by his wife on the date of execution of sale deed. Therefore, the AO is found to be correct in his action of charging a sum ofRs. 1,40,00,000/- as capital gains to the Total Income of the assessee as no details about the purchase consideration for the impugned Property has been brought on record by the assessee."
Ld. AR has submitted that the transaction of transfer of immovable property was between the husband and wife without a consideration and was, in fact, compelled due to the bad health of the assessee and on going family disputes over the property existing on the date of transfer which is substantiated by the fact that the disputes were settled through family settlement on 30.10.2018 copy of which is pages PB 45 to 50. The consideration amount of Rs. 1,40,00,000/- was mentioned in the conveyance deed for the purpose of payment of stamp duty only and to facilitate the transfer of property in revenue records. In reality no money had exchanged hands for transfer of the property resulting into earning of capital gain. The copies of bank accounts submitted by the assessee before the Assessing Authority & CIT(Appeals) also substantiate the fact that no consideration was received by the assessee towards execution of conveyance deed in favour of his wife.
Though ld. DR has defended the impugned additions and submitted that if there was family settlement there was no need for sale deed and the defence is after thought story.
Page 13 of 30 However, what is relevant is that in the conveyance deed it is mentioned and verified by the sub-registrar that ‘NIL’ consideration/ amount was paid by vendor to vendee. The bank account statement of wife of assesse do not indicate there was any source of wife to have arranged funds form the bank. In any case when wife herself has deposed on affidavit that no amount was paid then treating her to be an independent assesse, ld. AO could have examined the issue further in her hands. In any case, when wife could have been benefited by family settlement or even by gift deed, to transfer title without payment of consideration then it will not be justified to allege intention to conceal any capital gains. Thus payment of consideration seems to be a sham transaction. Ld. Tax authorities have failed to have prudent approach to the issue. Unquote 4.3 Submissions: It is most respectfully submitted that based on the facts of the case and the binding decisions relied upon by the appellant, Hon’ble Tribunal may kindly be pleased to allow the appeal on this ground alone in the interest of justice.
In support of ground Nos 5,6&7 5.1 It is most respectfully submitted that the learned Commissioner of Income Tax (Appeals) has chosen to disbelieve the deed of cancellation dated 14.03.2022 by failing to appreciate that, under a mutually consented arrangement, cancellation of a registered deed of conveyance is governed by the provisions of the Karnataka Stamp Act 1957 and that the requirement of the order of the competent court does not arise; 5.2 Further the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that the competent authority to decide such issues is the concerned sub - registrar and not the income tax department as erroneously assumed by him. 5.3 The learned Commissioner of Income Tax (Appeals) has also failed to appreciate that it is only the concerned sub- registrar who is empowered to act on such requests duly guided by Article 14 of the Karnataka Stamp wherein such powers are vested with him (to register the cancellation Page 14 of 30 deed) which does not envisage the requirement of court order. 5.4 As far as the legal position on this issue is concerned kind reference is invited to the decision of Hon’ble High Court of Madras in the case of Sri G.D. Subramaniam vs The Sub Registrar, in WP No 8567/2008 dated 10.02.2009 wherein this issue has been clarified as under: Para- 31 “Out of the foregoing discussions, the emerging conclusions are summed up as follows:- (i) Challenging registration of a unilaterally executed deed of cancellation of a sale, a writ petition is maintainable under Article 226 of the Constitution of India; (ii) A deed of cancellation of a sale executed by mutual consent by all parties to the sale deed, if presented for registration, the registering Officer is bound to register the same provided the other requirements like Section 32- A of the Registration Act have been complied with. (iii) The Registering Officer is obliged legally to reject and to refuse to register a deed of cancellation of a sale unilaterally executed without the knowledge and consent of other parties to the sale deed and without complying with sec.32A of the Registration Act.” 5.5 The appellant also rely upon the law declared in the following cases wherein this principles have been followed: (iv) ACIT Vs Sh. IJYARAJSINGN (ITAT- Jaipur) (v) Hira Lal Ram Dayal Vs CIT – HC (P&H) (vi) Appasahab Baburao Lankar Vs ITO (ITAT – Pune)
Extracts of the relevant paras of the above decisions are as under: (iv) ACIT Vs Sh. IJYARAJ SINGH (ITAT- Jaipur) “26. In the instance case, given that the sale transaction fell through in view of non-fulfillment of the terms of sale deed Page 15 of 30 whereby cheques have been dishonored by Sh. Rajeev Singh and he has failed to discharge the full sale consideration, there is no transfer and no income which has accrued or arisen to the assessee besides the fact that there is no receipt of sale consideration, thus no real income in hand of the assessee and in absence thereof, the assessee is not exigible to capital gains tax. Similar view has been taken by the Coordinate Bench in case of Appasaheb Baburao Lonkar vs ITO [2019] 176 ITD 115 (Pune) and the relevant findings reads as under: "9. From the perusal of above said facts, it is clear that though an agreement was entered into between the parties on 16.09.2010 which was also registered with the authorities, but admittedly total consideration was not paid to the assessee as the cheques which were handed over by the purchaser, were stopped for payment. The dispute arose between the parties, wherein the sellers i.e. assessee and his family filed an injunction against the purchaser restraining him from creating any third party interest in the suit property till the decision of suit and an interim order was passed, which was challenged and subsequently, Civil Suit between the parties was decided, under which the suit of assessee and co-owners for cancellation of sale deed was dismissed. The co-owners of the property filed an appeal before the Hon'ble Bombay High Court. In the said appeal, it has been clearly mentioned that the possession of immovable property had not been parted with till the date and also the assessee had not received complete consideration for the purported sale transaction. Though the case of purchasers was that they had entered into sale transaction with the understanding that the assessee would get no objection from the other co-owners and for this reason, sale deed was executed and the cheques were handed over. The claim of purchasers before the Civil Courts was that they were put in possession since they had handed over the cheques, however, the said cheques were stopped for payment by the purchasers only, as it is clear from the communication placed on record by the assessee.
10. The issue which arises in such circumstances is that in view of the dispute between the parties, can it be said that the assessee has completed sale transaction and hence is eligible for assessability of capital gains in his hands.
11. Section 2(47) of the Act lays down that transfer in relation to capital asset includes various modes of transfer in which under clause (v) it involves a transaction wherein allowing of possession of any immovable property is taken or retained in part performance of the contract of the nature referred to in section 53A of the Transfer of Property Act, 1882. Under section 53A of the Transfer of Property Act, where any person contracts to transfer for consideration any immovable property in writing, from which the terms necessary to constitute the transfer can be ascertained and the transferee has in part performance of the contract, taken possession of the property or any part thereof, and the transferee has performed or is willing to perform his part of contract, then it is called 'Part Performance'. So, in part performance, there has to be willingness to perform his part of contract by the transferee and the transferee should have been put in possession in such part performance of the contract and the transferor has agreed to transfer the property for consideration. However, in the facts of the case before us, though there is a contract in writing between the parties but there is dispute between the parties as to the possession of the said property, wherein the transferor claims that possession has not been given and the transferee claims that the possession has been given but the said possession was subject to encashment of cheques which were issued by the transferee. Since the transferee had stopped payment of cheques issued by him, then the parties approached the Court to decide differences arising between them and the matter is pending before the Hon'ble High Court of Bombay in this regard. In such scenario, it cannot be said that part performance of the contract has been completed.
12. The Hon'ble Apex Court in CIT v. Balbir Singh Maini [2017] 86 taxmann.com 94/251 Taxman 202/398 ITR 531 and bunch of other appeals arising from the order of Hon'ble High Court of Punjab & Haryana CIT v. Balbir Singh Maini [2015] 123 DTR 49 has deliberated upon the relevant sections i.e. section 53A of the Transfer of Property Act and sections 2(47), 45 and 48 of the Income Tax Act and also took note of the provisions of section 2(47)(vi) of the Act and vide para 27 held that the income from capital gains on a transaction which never Page 17 of 30 materialized was at best, a hypothetical income. In the facts of the case before the Apex Court, the entire transaction of development envisaged in the JDA fell through because of want of permission and hence, the Apex Court in such circumstances, held that In point of fact, income did not result at all for the aforesaid reason. This being the case, it is clear that there is no profit or gain which arises from the transfer of a capital asset, which could be brought to tax under Section 45 read with Section 48 of the Income Tax Act.
The assessee in the affidavit explaining the delay in filing the appeal late before the Tribunal has also mentioned the factual aspects and the legal dispute and has stated on oath that sellers had never parted with the possession of said land, for which litigation was pending before the Hon'ble High Court. In such circumstances, where the assessee has not received sale consideration and where the possession of land having not been transferred to the purchasers, provisions of section 45 of the Act are thus, not attracted.
14. Now, applying the ratio laid down by Apex Court to the facts of present case, wherein the initial contract was between the parties on the ground that the assessee would get permission of other co-owners numbering about 13 so as to transfer immovable asset to the purchasers. This was the basic condition of the said agreement between the parties. Admittedly, the said permission could not be obtained by the assessee and though sale deed was registered, transaction could not be culminated. It is further evidenced by the fact that only sum of Rs. 15 lakhs was paid as against total consideration of Rs. 2,75,73,600/- settled between the parties. As per sale deed, sale consideration was to be paid as per Schedule A to the said agreement, for which postdated cheques were issued, which were to be encashed as per the conditions mentioned for encashment of cheques. As per clause 8 of the sale deed, the purchasers had given postdated cheques to sellers and it was their responsibility to see that the postdated cheques get cleared for payment. In view of the said cheques being stopped for payment and the dispute arising between the parties and even the dispute being who is in possession of the said property, reflects that even part performance of the contract has not been settled. In such circumstances, we find guidance from the ratio laid Page 18 of 30 down by the Apex Court in Balbir Singh Maini (supra) that where the transaction has not materialized, then no profit or gain which arises from the alleged transfer of capital asset could be brought to tax under section 45 r.w.s. 48 of the Act. We hold so. The grounds of appeal
raised by assessee are thus, allowed."
27. This brings us to another aspect of the matter as to whether the provisions of Section 2(47)(v) are attracted in the instant case which provides that the transfer includes "any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882" and the latter provisions reads as under: "53A. Part performance.- - Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof."
28. In order that the provisions of Section 53A of the Transfer of Property Act are attracted, there are two essential conditions. Firstly, the transferee must, in part performance of the contract, have taken possession of the property or any part thereof. Secondly, the transferee must have performed or be willing to perform his part of the Page 19 of 30 agreement. It is only if these two important conditions, among others, are satisfied that the provisions of Section 53A can be said to be attracted on the facts of a given case. In the instant case, as we have noted above, the ld CIT(A) has returned a finding that "possession of the said land was never handed over & land is still in the possession of appellant himself" and Hon'ble Rajasthan High Court in SB Civil First Appeal No. 72/2013 vide stay order dated 11.02.2013 has directed to maintain status quo as regards possession, transfer, alienation and sale of the suit property. Further, the Hon'ble Rajasthan High Court vide order dated 19.07.2013 has restricted any party from approaching UIT for conversion of the impugned property or issue of Patta. Thus, the transferee, Shri Rajeev Singh has not taken possession of the property. Secondly, he has not discharged the sale consideration nor there is any willingness on his part to discharge the sale consideration as can be gauged by the fact that he himself has ordered and instructed his bank for stop-payment of cheques issued earlier by him towards the sale consideration in respect of both the sale deeds. Therefore, in the instant case, the transferee has not taken possession of the land and also, he has neither performed nor there is any willingness to perform his part of the sale deed and thus, the provisions of section 55A of the Transfer of the Property Act cannot be attracted and there is no transfer even in terms of section 2(47)(v) of the Act.
29. In light of aforesaid discussions and in the entirety of facts and circumstances of the case and following the decisions referred supra, we hereby affirm the findings of the ld CIT(A) and the matter is decided in favour of the assessee and against the Revenue.” Unquote (v) Hira Lal Ram Dayal vs Commissioner of Income-Tax HC- P&H Quote “7. After hearing the learned counsel for the parties, we are of the opinion that the Tribunal fell in legal error in recording the following finding; " If we are to ignore a document which is duly registered with the Sub-Registrar, we will be defeating the purpose of the Indian Registration Act of 1908, when an assessee intends Page 20 of 30 to derive certain benefits from a statute, and that too the Indian Registration Act, where the registration of a document is a condition precedent and he cannot ignore the document so * registered, much less can we. Therefore, when the assessee contends that the sale deed executed and registered with the Sub-Registrar should be taken to be a sham and a bogus document and should be ignored we can do no better than condemn his contention, a contention which, if we may say so, is preposterous and 'dishonourable. We will not go by any other consideration but the one that the document before us is a registered document duly registered with the Sub-Registrar, and whatever it says has to be accepted on its face value. We have, therefore, no hesitation in agreeing with the revenue authorities that the registered document is a genuine one and because the said document shows a consideration of Rs, 1,31,400 the sale consideration which passed is Rs. 1,31,400. The cost of the assets as shown is Rs. 12,887, Therefore, the capital gain has been rightly computed at Rs. 1,18,513 which we confirm.
8. It is no doubt true that the evidentiary value has to be attached to a registered document but the said document cannot be a final word in the matter. It has to be remembered that capital gains accrue only if there is a sale or any othertransfer of the capital asset and if the assessee is able to prove that in fact no sale took place in that case no capital gain accrued which could be assessed to income- tax. If the assessee, even in the face of the registered sale deed, is able to prove by cogent satisfy the Tribunal that no sale in fact took place, in that case, the Tribunal has to come to the conclusion that there was no capital gain. As is apparent from the observations made in the order of the Tribunal, the Tribunal was under the misapprehension that the registered sale deed was final and, therefore, refused to look into the ,other material produced by the assessee with a view to prove its case that the sale transaction was a sham transaction. It is, however, a different matter that the Tribunal may not feel convinced that the sale transaction was a sham transaction and refuse to rely on the material produced by the assessee for good reasons, but the said material had to be taken into consideration and could not be ignored. As already observed, the enquiry before the Tribunal was to be directed to find out whether there had been a sale and if the Page 21 of 30 Tribunal comes to the conclusion that the sale had taken place, in that case, the capital gains tax would become payable. The matter can be viewed from another angle. It is a matter of daily happening that people, who want to avoid payment ,of tax, would sell the property by getting the sale deeds registered at an under-estimated value. If it is held that the sale deed is final, in that case, the I.T. authorities will be debarred from looking into as to how much sale consideration passed under the transaction, which is not the law. The factum of sale and the sale proceeds are the real questions to be determined by the I.T. authorities. From what has been stated above, it is clear that the Tribunal fell into an error in refusing to examine the material put forth by the assessee to prove that the sale was a sham transaction.” Unquote (vi) AppasahebBbaurao Lonkar - Pune vs Income-Tax Officer –(ITAT- PUNE) “8. The assessee claims that possession of immovable property has not been parted with, till date as it has not received consideration against purported sale transaction."
From the perusal of above said facts, it is clear that though an agreement was entered into between the parties on 16.09.2010 which was also registered with the authorities, but admittedly total consideration was not paid to the assessee as the cheques which were handed over by the purchaser, were stopped for payment. The dispute arose between the parties, wherein the sellers i.e. assessee and his family filed an Injunction against the purchaser restraining him from creating any third party interest in the suit property till the decision of suit and an interim order was passed, which was challenged and subsequently, Civil Suit between the parties was decided, under which the suit of assessee and co-owners for cancellation of sale deed was dismissed. The co-owners of the property filed an appeal before the Hon'ble Bombay High Court. In the said appeal, it has been clearly mentioned that the possession of immovable property had not been parted with till the date and also the assessee had not received complete consideration for the purported sale transaction. Though the case of purchasers was that they had entered into sale transaction with the understanding that the assessee would Page 22 of 30 get no 7 Appasaheb Baburao Lonkar objection from the other co-owners and for this reason, sale deed was executed and the cheques were handed over. The claim of purchasers before the Civil Courts was that they were put in possession since they had handed over the cheques, however, the said cheques were stopped for payment by the purchasers only, as it is clear from the communication placed on record by the assessee.
The issue which arises in such circumstances is that in view of the dispute between the parties, can it be said that the assessee has completed sale transaction and hence is eligible for assessability of capital gains in his hands. Section 2(47) of the Act lays down that transfer in relation to capital asset includes various modes of transfer in which under clause (v) it involves a transaction wherein allowing of possession of any immovable property is taken or retained in part performance of the contract of the nature referred to in section 53A of the Transfer of Property Act, 1882. Under section 53A of the Transfer of Property Act, where any person contracts to transfer for consideration any immovable property in writing, from which the terms necessary to constitute the transfer can be ascertained and the transferee has in part performance of the contract, taken possession of the property or any part thereof, and the transferee has performed or is willing to perform his part of contract, then it is called 'Part Performance'.
So, in part performance, there has to be willingness to perform his part of contract by the transferee and the transferee should have been put in possession in such part performance of the contract and the transferor has agreed to transfer the property for consideration. However, in the facts of the case before us, though there is a contract in writing between the parties but there is dispute between the parties as to the possession of the said property, wherein the transferor claims that possession has not been given and the transferee claims that the possession has been given but the said possession was subject to encashment of cheques which were issued by the transferee. Since the transferee had stopped payment of cheques issued by him, then the parties approached the Court to decide differences arising between them and the matter is pending before the Hon'ble High Court of Bombay in this regard. In such Page 23 of 30 scenario, it cannot be said that part performance of the contract has been completed.
The Hon'ble Apex Court in Civil Appeal No.15619 of 2017 in CIT Vs. Balbir Singh Maini and bunch of other appeals arising from the order of Hon'ble High Court of Punjab & Haryana (2015) 123 DTR 49 (P&H) has deliberated upon the relevant sections i.e. section 53A of the Transfer of Property Act and sections 2(47), 45 and 48 of the Income Tax Act and also took note of the provisions of section 2(47)(vi) of the Act and vide para 27 held that the income from capital gains on a transaction which never materialized was at best, a hypothetical income. In the 14. Now, applying the ratio laid down by Apex Court to the facts of present case, wherein the initial contract was between the parties on the ground that the assessee would get permission of other co-owners numbering about 13 so as to transfer immovable asset to the purchasers. This was the basic condition of the said agreement between the parties. Admittedly, the said permission could not be obtained by the assessee and though sale deed was registered, transaction could not be culminated. It is further evidenced by the fact that only sum of £ 15 lakhs was paid as against total consideration of £ 2,75,73,600/- settled between the parties. As per sale deed, sale consideration was to be paid as per Schedule A to the said agreement, for which postdated cheques were issued, which were to be encashed as per the conditions mentioned for encashment of cheques. As per clause 8 of the sale deed, the purchasers had given postdated cheques to sellers and it was their responsibility to see that the postdated cheques get cleared for payment. In view of the said cheques being stopped for payment and the dispute arising between the parties and even the dispute being who is in possession of the said property, reflects that even part performance of the contract has not been settled. In such circumstances, we find guidance from the ratio laid down by the Apex Court in CIT Vs. Balbir Singh Maini (supra) that where the transaction has not materialized, then no profit or gain which arises from the alleged transfer of capital asset could be brought to 10 Appasaheb Baburao Lonkar tax under section 45 r.w.s. 48 of the Act. We hold so. The grounds of appeal raised by assessee are thus, allowed. facts of the case before the Apex Court, the entire Page 24 of 30 transaction of development envisaged in the JDA fell through because of want of permission and hence, the Apex Court in such circumstances, held that In point of fact, income did not result at all for the aforesaid reason. This being the case, it is clear that there is no profit or gain which arises from the transfer of a capital asset, which could be brought to tax under Section 45 read with Section 48 of the Income Tax Act.
13. The assessee in the affidavit explaining the delay in filing the appeal late before the Tribunal has also mentioned the factual aspects and the legal 9 Appasaheb Baburao Lonkar dispute and has stated on oath that sellers had never parted with the possession of said land, for which litigation was pending before the Hon'ble High Court. In such circumstances, where the assessee has not received sale consideration and where the possession of land having not been transferred to the purchasers, provisions of section 45 of the Act are thus, not attracted.” Unquote 6. WITHOUT PREJUDICE TO OUR ABOVE SUBMISSIONS, IT IS ALSO SUBMITTED AS UNDER: It is most respectfully submitted the impugned additions 6.1 are not sustainable in law since the alleged transaction was only between relatives and consequently the deemed consideration shall be treated as deemed gift and consequently exempt from the levy of tax. In this connection, the Appellant rely upon one of the recent 6.2 decisions of the Hon’ble ITAT RAJKOT in the case of Dilip Kantilal Kubavat Vs ITO Ward 2(3) wherein the Hon’ble Tribunal, dealing with a similar case, was pleased to declare as under: Quote Para- 13. I have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
Page 25 of 30 In my considered view, it was wholly erroneous on the part of the authorities below to determine the tax, on the gift, from relative of the family. It is a settled Law that,only the real income has to be taxed. It is the duty of the tax authorities to act properly and judiciously. As per CBDT circular dated 03.11.1955 cited in Choksi vs. CIT (107 ITR 363) and also as held in the decisions of CIT vs. Ahmedabad Miles (128 ITR 486), CIT vs/ Mattu (139 ITR 1020), CIT vs. Mahalaxmi Mills (160 ITR 920) (SC) CIT vs/ Anger Pressings (161 ITR 159) (SC) and other such cases, it is the dutyof the Assessing Officer to draw attention of the assessee to the deductions, relief, and refund to which, he / she himself / herself to be entitled, under facts of the case, if assessee is omitted to make the claim. The Hon'ble Justice Khanna in the case of Simon Carves (105 ITR 12) (SC) has held that tax authorities would not be acting properly and judiciously, if they exercise their power in the manner most beneficial to the revenue and consequently most adverse to the assessee....” The same ratio was held in the case of (i) Raghuram Grah Pvt. Ltd.(281 ITR 1147) and (ii) Jayamal v/s CIT (230 ITR 142). The courts have held in cases given below that if excess tax has been paid by in advance, the Assessing Officer is bound to refund it under the general law and independently of Chapter XIX or any other provisions of the Act. (i) OCM v/s CIT (138 ITR 689) (ii) Depchand v/s CIT (145 ITR 676) (iii) CST v/s Auriya 167 ITR (vi) Salonah v/s Supt of Taxes 172 ITR 42 (SC) (v) C F Sundaram (163 ITR 662) (vi) Narayan Row v/s Model Mills (64 ITR 67) (SC) (vii) Vallabh v/s Union of India (UOI) (155 ITR560)(SC) Therefore, a combined reading of the above decisions of the Hon'ble courts leads to a conclusion that if an assessee is entitled to the benefit or relief, then, he / she cannot be denied for the reasons that he /she failed to claim it, and excess tax recovered from the assessee by the department, wrongly, should be refunded to the assessee.
In the assessee`s case under consideration, the assessee has duly submitted the fact at the very beginning of the assessment that he had transferred the immovable property to a relative, that is, his younger brother's wife, that is, Page 26 of 30 sister-in-law- Ritaben Kubavat, which is not disputed by the Assessing Officer. Due to the mistake of bond writer, it was treated as sale consideration, even when the property wastransferred to relative of the assessee. Moreover, I find that assessee under consideration is a relative, has not been disputed by the assessing officer. At this juncture, it is appropriate to refer the explanation of Section 56(2), which defines "Relative" as under: “Explanation. For the purposes of this clause, "relative" means- (i) spouse of the individual. (ii) brother or sister of the individual. (iii) brother or sister of the spouse of the individual. (iv) brother or sister of either of the parents of the individual. (v) any lineal ascendant or descendant of the individual. (vi) any lineal ascendant or descendant of the spouse of the individual. (vii) spouse of the person referred to in clauses (ii) to (vi);”
At this juncture, it is relevant to refer the provisions of Section 56(2)(x) of the Act, which are as under: “Section 56(2)(x) - where any person receives, in any previous year, from any person or persons on or after the 1st day of April 2017, - (a)any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum; (b) any immovable property, - (A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property. (B) for consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:- (i) the amount of fifty thousand rupees; and (ii) the amount equal to ten per cent of the consideration:
Page 27 of 30 Provided that this clause shall not apply to any sum of money or any property received- (1) from any relative; or Therefore, considering the above provisions of the law, that is, Section 56(2)(x), any property transferred to the relative for inadequate/lower consideration is not be termed as income and therefore, the same is not taxable as per the provisions of the law. Also, the provisions of Section 50C are not applicable in such case where it is expressly excluded as per the law. The assessee submitted copies of the ration cardsevidencing their relationship which are enclosed from Page No. 22 to 25 of paper book. According to the family chart, and Rasan card, Smt. Rita Kubavat is the wife of brother of the assessee, that is, Kaushik Kubavat, the assessee and who are real brothers. Therefore, the transaction covered is considered among the relatives as per above explanation. All these facts are duly mentioned in the Affidavits filed by the assessee at the appellate stage also.
16. I find that on facts, as the CIT(A) as well as assessing officer have failed to consider the basic fact that the assessee has sold the property to his sister in law (younger brother's wife), that is, to a relative and in the notarized affidavits of the assessee as well as his sister-in-law wherein it is clearly mentioned that the stamp duty value over and above sale consideration is to be considered as gift. Therefore, based on these facts and circumstances, I delete both the additions and allow the appeal of the assessee. Unquote
7. PRAYER: In the facts and circumstances of the case which are supported by the decisions relied upon by the appellant it’s most respectfully submitted that the Hon’ble Tribunal may kindly be pleased to allow the Appeal in the interest of justice Page 28 of 30 5. In addition to the written synopsis assessee has also filed Paper Book containing Page Nos.63 to 152, Page Nos.1 to 62 is copy of appeal set and he has also filed case laws containing 6 cases from Paper Book Page Nos.1 to 86. The documents filed by the assessee are not certified. We noted from the Paper Book that some of the documents are in vernacular language and translated copies are provided. The property is duly registered in the name of father in law Shri. Nandakumar Obaleppanavar and submitted that initially property was gifted by son- in -law to father- in- law. The document writer got registered property as purchase and sale. It is mistake of the document writer. Later on when the mistake was noticed assessee immediately approached Sub Registrar Office multiple times to rectify the mistake from 19.10.2015 and subsequent visits on 20.10.2015, 12.05.2016, 26.02.2018 and 19.02.2019 and follow up reminder letter was submitted on 10.04.2019. Later on 13.09.2022 Order was passed for rectifying mistake observing as under:
Page 29 of 30 6. The learned Counsel strongly contested that it does not come under the purview of definition of 2(47) of the Act since there was no consideration received by the son- in- law and possession is still with the son –in- law as per provision of section 50C it cannot be considered as a transfer even as per Income Tax Act. Learned CIT(A) also noted that these all arrangements were done by the assessee and it as an after thought to avoid payment of income tax on the sale of property as the sale made is below guidance value. The documents can be cancelled by the competent Court only. Assistant Commissioner has no power to cancel the registered documents.
Considering the entire arguments and findings observed by the lower authorities and submissions of the learned Counsel of the assessee containing Page Nos.63 to 152, we are remitting this issue back to the file of AO for de novo assessment after considering the documents filed before us and decide the issue as per law after giving reasonable opportunity of being heard to the assessee and assessee shall substantiate his case with cogent documents for early disposal of the case. In case of failure no second leniency shall be granted to the assessee.
In the result, appeal filed by the assessee is allowed for statistical purposes.