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Income Tax Appellate Tribunal, B BENCH : BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K.
ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the Ld.CIT(A)-2, Panaji dated 29/10/2024 in respect of the A.Y. 2012-13 and raised the following grounds: “
1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT[A] is not justified in upholding the assessment of capital gains for the year under appeal with regard to the transaction entered into with one Mr. Srinath Hebbar without appreciating that the appellant had not granted possession of the property to Mr. Srinath Hebbar in terms of any registered agreement of sale entered into during the year and therefore, the provisions of section 2[47][v] of the Act read with section 53A of the Transfer of Property Act was not attracted to the case of the appellant under the facts and in the circumstances of the appellant's case.
3. The learned CIT[A] ought to have appreciated that there was only an unregistered agreement of sale dated 29/08/2012 entered into by the appellant with Mr. Srinath Hebbar in the next financial year that regulated the understandings between the appellant and Mr. Srinath Hebbar based on which the appellant had duly recognized transfer of his undivided interest in land as and when sale deeds were registered in favour of the nominees at the instance of Mr. Srinath Hebbar and therefore, the taxation of long term capital gains for the year under appeal was erroneous in law.
3. Without prejudice to the above, the learned CIT[A] erred in enhancing the extent of capital gains by erroneously reducing the extent of cost of land allowed by the learned A.0. as a deduction under the facts and in the circumstances of 7-e appellant's case. 3.1 The learned CIT[A] is not justified in enhancing the assessment without issuing a notice for enhancement to the appellant as mandated u/s 251[2] of the Act under the facts and in the circumstances of the appellant's case.
4. Without prejudice to the above, the learned CIT[A] is not justified in refusing to allow the deduction of Rs. 2,60,00,000/- for acquiring 24 cents of land from Janatha Construction Company and a further sum of Rs. 42,00,000/-towards eviction of tenants in the property under the facts and in the circumstances of the appellants case.
Without prejudice to the above the extent of capital gains assessed is excessive and liable to be reduced substantially.
6. The learned CIT[A] is not justified in upholding the disallowance of the interest paid of Rs.1,09,965/- claimed under the head under the head “Other sources” under the facts and in the circumstances of the appellant's case. 6.1 The learned A.O. had overlooked the fact although a graphic nexus of the amounts borrowed vis-a-vis the income earned subjected to tax under the head Other sources could be portrayed and demonstrated since the funds have been utilized for the composite activities of the business and the activity resulting in the income derived from other sources and such monies borrowed have not been utilized for personal purposes, the said claim made is allowable under the head “Business” if for any reason it is not allowable as a deduction under the head “Other Sources”.
7. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies himself liable to be charged to interest u/s.234-A, 234-B and 234-C of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled.
8. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
The brief facts of the case are that the assessee is an individual and not filed his return of income. Thereafter a survey was conducted u/s. 133A on 28/06/2012. Notice u/s. 142(1) was issued and the assessee filed his return of income on 31/12/2012. Notice u/s. 143(2) was issued on 18/01/2013 and the assessee appeared and submitted various documents. At the time of scrutiny proceedings, the AO verified the books of accounts of the assessee and came to the conclusion that during the F.Y. 2011-12, the assessee had entered into a transaction with one Mr. Srinath Hebbar of Land Traders for transferring the property situated in Kadri A&B village of Mangalore for constructing a residential apartment complex. Further, based on the documents impounded and information received at the time of survey, the AO arrived a conclusion that the assessee had agreed for transferring the property to Mr. Srinath Hebbar for a sale consideration of Rs. 30,00,00,000/-. The AO treated the same as transfer and alleged that the assessee had not offered any Capital Gains on such transfer.
The assessee by way of objections had stated that the transaction with Mr. Srinath Hebbar should not be taxed in the A.Y. 2012-13, but taxed only in the A.Y. 2013-14. The assessee stated that the property has been agreed to be sold to Mr. Srinath Hebbar by way of an agreement dated 29/08/2012 and received a part payment and the balance would be paid at the time of registration of Sale Deed. The assessee further stated that the possession was with Mr. Srinath Hebbar before the agreement of sale and continuous to be in possession after the agreement also and therefore section 53A would not be applicable. The AO issued another notice on 26/12/2013 and reiterated his opinion that the capital gains would arise because the possession of land was handed over and substantial investment was made by the Developer and MUDA has issued the commencement certificate on 07/09/2011 and consideration was received by the assessee and also based on the statement given on oath. The AO based on the POA and the statement given at the time of survey, had treated the handing over of the possession as deemed transfer liable to Capital Gains. The assessee stated that the POA executed on 31/01/2012 is not an agreement for Sale but only gives power to do acts on behalf of the assessee. Even the entering into possession and carrying out the work, would at the best be treated as acting on behalf of the assessee. Further stated the transaction could not be treated as transfer under the Transfer of Property Act or under section 2(47)(v) of the I.T. Act. The assessee stated that only in cases where possession is given within the meaning of transfer under Transfer of Property Act or u/s. 2(47)(v) of the Act, Section 53A could be invoked. But the requirement of written agreement is essential for invoking section 53A of the Transfer of Property Act. The assessee further submitted that the possession was given based on oral understanding and not based on any agreement in writing and registered. The assessee, therefore, requested that the Capital Gains for the A.Y. 2012-13 may not be levied.
The AO considered the objection filed by the assessee and discussed the same with the following findings:
1. 1. The assessee had not followed the consistency in his statements.
2. The assessee, by letting Mr. Srinath Hebbar to enter into the land and allow him to start construction activities, that too after paying a part payment, amounts to transfer. Further the instrument POA can be treated as a written agreement even though it doesn’t require a registration as per section 53A of the Transfer of Property Act and therefore the assessee had transferred the land for a valid consideration and amounts to transfer u/s. 2(47)(v) of the I.T. Act.
3. The assessee during the survey on oath has given a statement, that the possession of land has been transferred during the F.Y. 2011-12, which was also vouched by the said Mr. Srinath Hebbar by giving a statement on oath that the construction has already been started.
4. Assessee had known the facts of the transaction and admitted that possession was handed over and consideration received.
5. Commencement certificate has been obtained on 07/09/2011 from MUDA and also possession lies in the hands of the builder and the fact of the investing of money by the builder and constructing the building in the property of another, would shows that there was a transfer, attracting the provisions of Capital gains.
6. Assessee made the builder as party in the Sale Deeds and the transaction indicates that the relationship is owner and builder when the possession was handed over and sale consideration received. Further no TDS has been deducted, therefore the builder could not be treated as an agent based on the POA.
5. As against the order, the assessee filed an appeal before the Ld.CIT(A) and contended that the agreement for Sale was entered into only on 29/08/2012 and therefore the doctrine of part performance u/s. 53A of the Transfer of Property could not be invoked for the A.Y. 2012-13. The assessee also filed written submissions and submitted that he had offered Capital Gains in the A.Ys. 2013-14 and 2014-15 in which the Sale Deed was executed with the buyers of the flats. The assessee further submitted that he had not entered into any joint development agreement with the builder. The assessee also disputed the handing over of possession.
The Ld.CIT has not accepted the case of the assessee that there is no double taxation since the AO had not accepted the capital gains offered during the A.Ys. 2013-14 and 2014-15. The Ld.CIT referred section 2(47)(v) of the Act and concluded that there is a transfer and the provision of capital gains would arise. The Ld.CIT mainly relied on the facts that POA was executed on 31/01/2012, commencement certificate was obtained on 07/09/2011 and construction of project has commenced during the A.Y. 2012-13. The Ld.CIT, therefore, concluded that possession of land has been completely given and the assessee had relinquished the asset against agreed consideration of Rs. 30 Crores during the F.Y. 2011-12 itself. The Ld.CIT further observed that the assessee has no control over the property and the consideration was yet to be received in equal monthly instalment would not be a reason to conclude that possession was not given or asset is not being relinquished. In the result, the Ld.CIT dismissed the appeal.
As against the said order, the assessee is preferring this appeal before this Tribunal.
At the time of hearing, the Ld.AR argued that there is no transfer effected from the assessee to Mr. Srinath Hebbar during the F.Y. 2011-12. The Ld.AR further submitted that the AO as well as the Ld.CIT on assumption had held that there was a transfer because of the POA, handed over of the possession, the commencement certificate and the commencement of the construction of the project. The Ld.AR further submitted that PoA was given only for the purpose of doing the preliminary works and based on that the Agent had commenced the works as an agent of the assessee and no ownership has been transferred to the Agent in order to attract section 2(47)(v) of the Act. The Ld.AR further submitted that the AO as well as the Ld.CIT without having any documents to show that there is a transfer, had made a wild guess work and therefore the orders are perverse orders, liable to be set aside. The Ld.AR filed a paper book and a case law compilation and prayed to allow the appeal.
The Ld.DR submitted that possession was handed over to Mr. Srinath Hebbar and Power of Attorney was also given on 31/01/2012 and construction was commenced after obtaining the commencement certificate on 07/09/2011 and therefore the capital asset has been transferred during the F.Y. 2011-12 and liable for Capital Gains during the A.Y. 2012-13. The Ld.DR filed the copies of the statements of the assessee as well as Mr. Srinath Hebbar and relied on the statements and submitted that the possession was handed over during the F.Y. 2011-12 and prayed to dismiss the appeal filed by the assessee.
We have heard the arguments of both sides and perused the materials available on record.
We understand that the assessee had given a Power of Attorney to Mr. Srinath Hebbar on 31/01/2012 which is an unregistered one. Subsequently, the said Mr. Srinath Hebbar made the preliminary works as an agent of the assessee. The license to construct the said project was obtained by the assessee and his wife with the Mangalore City Corporation on 13/01/2012. The said copy of the license was filed by the assessee. Before that the assessee was issued a commencement certificate on 07/9/2011. Thereafter Mr. Srinath Hebbar commenced the construction activities and also paid some amounts to the assessee as sale consideration. During the A.Y. 2012-13, there was no agreement of sale or contract of sale executed by the assessee with the said Mr. Srinath Hebbar as envisaged u/s. 53A of the Transfer of Property Act. It is the case of the assessee, subsequently on 29/08/2012, he entered into a sale agreement with Mr. Srinath Hebbar for a sale consideration of Rs. 30 Crores which is also an unregistered document. In the said agreement, it was mentioned about the part of the sale consideration received by the assessee. The authorities have concluded that the possession of the land was given to Mr.Srinath Hebbar, pursuant to the POA and the said Mr. Srinath Hebbar, after obtaining commencement certificate and license from the authorities, had commenced the project and also paid several instalments towards the sale consideration and therefore as per section 53A of the Transfer of Property Act, part performance was done by the Builder and therefore as per section 2(47)(v) of the Act, transfer has been effected during the F.Y. 2011-12 which is liable for capital gains during the A.Y. 2012-13.
In the present case, we have to first decide whether any transaction of transfer has been effected u/s. 2(47)(v) of the Act, in order to attract the provisions of the capital gains.
Section 2(47)(v) defines a transfer as follows: “Definitions. 2. In this Act, unless the context otherwise requires,— (47) "transfer", in relation to a capital asset, includes,— (i) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or (iva) the maturity or redemption of a zero coupon bond; or (v) 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 (4 of 1882) ; or” (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.”
In order to attract the provision of transfer, the following are required: Firstly there should be an agreement for sale or any instrument as a contract as referred in section 53A of the Transfer of Property Act. Thereafter the transferee should be allowed to take possession of the immovable property or retained the possession in part performance of a contract or the nature as referred in section 53A of the Transfer of Property Act.
In the present case, there is only a POA appointing the said Mr. Srinath Hebbar as agent to do some works in respect of the property. The Authorities had relied on the second part of the definition and alleged that PoA has been executed, commencement certificate was obtained and construction of project had commenced and therefore the assessee had relinquished his right over the property against the sale consideration of Rs. 30 crores and therefore possession has been given, which is a transfer u/s. 2(47)(v) of the act.
Section 53A of the Transfer of Property Act reads as follows: “[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 2***, or, 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.]”
17. The section says that even though there is an instrument of transfer and the transfer has not been effected as per the existing laws, the transferor cannot take any action against the transferee in respect of the property which is in the possession of the transferee. It gives protection to the transferee if the conditions have been complied with. Therefore the authorities had come to the conclusion that there is a transfer since Mr. Srinath Hebbar is in possession of the property and also did some part performance of a contract, by developing the project.
Section 53A of the Transfer of Property Act was amended from 2001, in which the words that “contracts need not be a registered one” was deleted. Simultaneously, sections 17 and 49 of the Indian Registration Act, 1908 was amended and after the said amendment any contract for transfer, if it is not registered, shall not have any effect in law, including for section 53A of the Transfer of Property Act. Therefore from 2001, to avail the benefit conferred under section 53A of the Transfer of Property Act, the contract for transfer should be registered one.
19. In the present case, there is no iota of evidence to show that there is a registered contract available for transfer during the A.Y. 2012-13. Further there is no evidence to show that the possession was given in the year 2012- 13 based on the registered agreement for sale. When there is no registered agreement for sale or POA and also no documents available to show that the ownership has been transferred during the A.Y. 2012-13, we cannot come to the conclusion that transfer has been effected during the A.Y. 2012-13.
Further, there is no evidence to show that the assessee had relinquished his right over the property in the A.Y. 2012-13.
20. We have also gone through the judgment of the Hon’ble Supreme Court relied on by the assessee reported in 86 taxmann.com 94 (SC) in the case of CIT vs. Balbir Singh Maini, wherein it was held that, “19. It is also well-settled by this Court that the protection provided under Section 53A is only a shield, and can only be resorted to as a right of defence. See Rambhau Namdeo Gajre v. Narayan Bapuji Dhgotra (Dead) through LRs. (2004) 8 SCC 614 at 619, para 10. An agreement of sale which fulfilled the ingredients of Section 53A was not required to be executed through a registered 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. Section 17(1A) and Section 49 of the Registration Act, 1908 Act, as amended, read thus: “17(1A). The documents containing contracts to transfer for consideration, any immovable property for the purpose of Section 53A of the Transfer of Property Act, 1882 (4 of 1882) shall be registered if they have been executed on or after the commencement of the Registration and Other Related Laws (Amendment) Act, 2001 and if such documents are not registered on or after such commencement, then they shall have no effect for the purposes of the said Section 53A.” “49. Effect of non-registration of documents required to be registered. No document required by Section 17 or by any provision of the Transfer of Property Act, 1882 (4 of 1882), to be registered shall- (a) affect any immovable property comprised therein, or (b) confer any power to adopt, or (c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered: Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1887 (1 of 1877) or as evidence of any collateral transaction not required to be effected by registered instrument.”
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 Property Act. This being the case, we are of the view that the High Court was right in stating that in order to qualify as a “transfer” of a capital asset under Section 2(47)(v) of the Act, there must be a “contract” which can be enforced in law under Section 53A of the Transfer of Property Act. A reading of Section 17(1A) and Section 49 of the Registration Act shows that in the eyes of law, there is no contract which can be taken cognizance of, for the purpose specified in Section 53A. The ITAT was not correct in referring to the expression “of the nature referred to in Section 53A” in Section 2(47)(v) in order to arrive at the opposite conclusion. This expression was used by the legislature ever since sub- section (v) was inserted by the Finance Act of 1987 w.e.f. 01.04.1988. All that is meant by this expression is to refer to the ingredients of applicability of Section 53A to the contracts mentioned therein. It is only where the contract contains all the six features mentioned in Shrimant Shamrao Suryavanshi (supra), that the Section applies, and this is what is meant by the expression “of the nature referred to in Section 53A”. This expression cannot be stretched to refer to an amendment that was made years later in 2001, so as to then say that though registration of a contract is required by the Amendment Act of 2001, yet the aforesaid expression “of the nature referred to in Section 53A” would somehow refer only to the nature of contract mentioned in Section 53A, which would then in turn not require registration. As has been stated above, there is no contract in the eye of law in force under Section 53A after 2001 unless the said contract is registered. This being the case, and it being clear that the said JDA was never registered, since the JDA has no efficacy in the eye of law, obviously no “transfer” can be said to have taken place under the aforesaid document. Since we are deciding this case on this legal ground, it is unnecessary for us to go into the other questions decided by the High Court, namely, whether under the JDA possession was or was not taken; whether only a licence was granted to develop the property; and whether the developers were or were not ready and willing to carry out their part of the bargain. Since we are of the view that sub-clause (v) of Section 2(47) of the Act is not attracted on the facts of this case, we need not go into any other factual question.”
From the above judgement, it came to light that to attract section 2(47)(v) of the Act, there should be a registered document of the nature referred in section 53A of the Transfer of Property Act for transferring the property. If there is no registered document available as per section 53A of the Transfer of Property Act, there is no transfer under the provisions of the Income Tax Act. In the above judgment, the Hon’ble Apex Court ruled that even though there was a JDA, there is no transfer as per section 2(47)(v) of the Act, since the JDA was not a registered document. In the present case, there is no registered document available during the A.Y. 2012-13 and therefore there is no transfer effected as per section 2(47)(v) of the Act. Further, there is only a POA given by the assessee to Mr. Srinath Hebbar, that too an unregistered document and therefore there is no valid contract available for transferring the property in the eye of law.
We have also gone through the another judgment of the Hon’ble Supreme Court in Civil Appeal No. 6377 of 2012 dated 01/09/2025 in the case of Ramesh Chand (D) Thr. LRS. vs. Suresh Chand & Anr. wherein it was held as follows: “16. The scope of an agreement for sale has been highlighted by this court in the case of Suraj Lamp and Industries Private Limited (2) through Director v. State of Haryana and Another 3, wherein this Court observed that “16. Section 54 of the TP Act makes it clear that a contract of sale, that is, an agreement of sale does not, of itself, create any interest in or charge on such property. This Court in Narandas Karsondas v. S.A. Kamtam [(1977) 3 SCC 247] observed: “32. A contract of sale does not of itself create any interest in, or charge on, the property. This is expressly declared in Section 54 of the Transfer of Property Act. (See Ram Baran Prasad v. Ram Mohit Hazra [AIR 1967 SC 744]). The fiduciary character of the personal obligation created by a contract for sale is recognised in Section 3 of the Specific Relief Act, 1963, and in Section 91 of the Trusts Act. The personal obligation created by a contract of sale is described in Section 40 of the Transfer of Property Act as an obligation arising out of contract and annexed to the ownership of property, but not amounting to an interest or easement therein.
In India, the word ‘transfer’ is defined with reference to the word ‘convey’. … The word ‘conveys’ in Section 5 of the Transfer of Property Act is used in the wider sense of conveying ownership. *** 37. … that only on execution of conveyance, ownership passes from one party to another….”
In Rambhau Namdeo Gajre v. Narayan Bapuji Dhotra [(2004) 8 SCC 614] this Court held: “10. Protection provided under Section 53-A of the Act to the proposed transferee is a shield only against the transferor. It disentitles the transferor from disturbing the possession of the proposed transferee who is put in possession in pursuance to such an agreement. It has nothing to do with the ownership of the proposed transferor who remains full owner of the property till it is legally conveyed by executing a registered sale deed in favour of the transferee. Such a right to protect possession against the proposed vendor cannot be pressed into service against a third party.”
18. It is thus clear that a transfer of immovable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immovable property can be transferred.
19. Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of Sections 54 and 55 of the TP Act and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted under Section 53-A of the TP Act). According to the TP Act, an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of the TP Act enacts that sale of immovable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge on its subject-matter.”
General Power of Attorney 18. A power of attorney is a creation of an agency whereby the grantor authorizes the grantee to do the acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done by him. It is revocable or terminable at any time unless it is made irrevocable in a manner known to law. A General Power of Attorney does not ipso facto constitute an instrument of transfer of an immovable property even where some clauses are introduced in it, holding it to be irrevocable or authorizing the attorney holder to effect sale of the immovable property on behalf of the grantor. It would not ipso facto change the character of the document transforming it into a conveyance deed.
A power of attorney is not a sale. A sale involves transfer of all the rights in the property in favour of the transferee but a power of attorney simply authorises the grantee to do certain acts with respect to the property including if the grantor permits to do certain acts with respect to the property including an authority to sell the property.”
In the above said judgment, the Hon’ble Supreme Court had held that the agreement of sale is not a sale deed and therefore it does not confer a valid title of the plaintiff as it is not a deed of conveyance. In the present case, there is not even an agreement of sale is available.
Similarly, insofar as the POA, it was held that the POA would not change the character of the document transforming it into a Conveyance Deed.
Therefore based on the POA, the authorities cannot come to a conclusion that there was a transfer as per section 2(47)(v) of the Act.
In view of the foregoing discussions, we hold that there is no transfer as per section 2(47)(v) of the Act contemplating capital gains u/s. 45 of the Act for the A.Y. 2012-13.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 18th September, 2025.