SRI CHANDRASHEKAR NAGANAGOUDA PATIL,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6(2)(1), BANGALORE

This is an appeal by the Assessee against the order dated 31-07-2017 of the ld.CIT(A), Bangalore relating to assessment year: 2012-13.

The only issue that arises for consideration in this appeal is whether the revenue authorities were justified in considering the sum of Rs.45,55,000/- received by the Assessee as income under the head “income from other source” as against the claim of the Assessee that the said sum received is in the nature of capital gains and should be assessed under the head “capital gains (as long term capital gain (LTCG)).

The material facts giving rise to the appeal are that the Assessee is an individual. He entered into an agreement dated 09-02-2005 to purchase vacant site bearing BDA No.161, survey no.5, Srinivgilu Amanikere Village, Begur Hobli, Bangalore South Taluk, measuring 6900 sq.ft (herein after referred to as ‘the property’). The consideration agreed between the Assessee and Shri Channakesava, owner of the property was a sum of Rs.27,60,000/-. The Assessee paid an advance of Rs.2,75,000/- and agreed to pay the remaining sum at the time of registration of sale deed. The vendor of the property was required to make out a marketable title to the property. The Assessee under clause-8 of the agreement had a right to enforce the terms by way of specific performance.

The manner of payment of sale consideration has also been set out in clause-1 of the sale deed which reads as follows:

For assessment year 2012-13 the Asessee filed return of income declaring the sum received under the sale deed as giving rise to the capital gain and claimed deduction u/s 54F of the Income Tax Act, 1961 (Act). The AO was of the view that under the agreement for sale the Assessee did not have any right over the property except a right to get refund of advance paid under the agreement dated 09-05-2005. According to the AO the Assessee did not possess any right over the property and there is no question of relinquishing or 4 surrendering of such right and receipt of Rs.48,300/- under the sale deed had to be taken under the head “ income from other sources”. Consequently deduction U/s.54F of the Act was also denied to the Assessee.

Aggrieved by the order of AO, the Assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A) Assessee had relied on the decision of the Hon’ble Karnataka High Court in the case of CIT Vs H Anil Kumar (2011) 242 CTR 537 (Kar.). In the aforesaid decision, the Assessee received compensation for giving up his right to specific performance of an agreement to sell. The question before the Court was whether the sum received was assessable under the head “long term capital gains”. On appeal by the Assessee, the Hon’ble Karnataka High Court held that the word ‘capital asset’ means property of any kind held by the assessee which does not necessarily be confined to an immovable property. Similarly, when the word ‘transfer’ in relation to a capital asset though includes sale, exchange or relinquishment of the asset, the said asset need not necessarily be an immovable property. The right to obtain a conveyance of immovable property falls within the expression ‘property of any kind’ used in s. 2(14) and consequently it is a capital asset. It is because the expression ‘property of any kind’ is of wide import. When this expression is read along with the expression defined in s. 2(47)(ii) i.e., ‘extinguishment of any rights therein’, the giving up of a right of specific performance by the assessee to get conveyance of immovable property in lieu of receiving consideration, results in the extinguishment of the right in property, thereby attracting the rigor of s. 2(14) r/w s. 2(47). Giving up of a right to claim specific performance by conveyance in respect to an immovable property, amounts to relinquishment of the capital asset. Therefore, there was a transfer of capital asset within the meaning of the Act. The payment of consideration under the agreement of sale, for transfer of a capital asset, is the cost of acquisition of the capital asset. Therefore, in lieu of giving up the said right, any amount received, constitutes capital gain and it is exigible to tax. However, as is clear from s. 48, before the income chargeable under the head capital gains is computed, the deductions

The ld. CIT(A) however, confirmed the order of the AO by observing that in the case before the Hon’ble Karnataka High Court the Assessee had given up right for specific performance whereas in the case of the Assessee in this appeal, the Assessee did not file any suit for specific performance and did not have any right over the capital asset.

Aggrieved by the order of the ld. CIT(A) the Assessee is in appeal before the Tribunal. The ld counsel for the Asessee apart from relying on the decision of the Hon’ble Karnataka High Court in the case of H Anil Kumar (supra) also placed reliance on the decision of the Hon’ble Bombay High Court in the case of CIT Vs Vijay Flexible Containers 186 ITR 693(Bom.) and the decision of the Bombay High Court in the case of CIT Vs Tata Services Ltd., 122 ITR 594. The ld. counsel also placed reliance on the decision of the Hon’ble Kolkata Bench of the ITAT in the case of Gautam Jhunjhunwala Vs ITO in for assessment year 2012-13 vide order dated 07-09-2018, reliance was also placed on the decision of the Hon’ble ITAT Ahmedabad Bench ‘B’ Bench in the case of Smt. Sapnaben Dipakbhai Patel Vs ITO in ITA No.2414/Ahd/2013 for assessment year 2010-11 by an order dated 13-01-2016. In all these decisions the proposition laid down is similar to the decision of Hon’ble Karnataka High Court in the case of H.Anil Kumar (supra).

The ld. AR submitted that the agreement between the Assessee and Shri Chandrakeshava dated 09-02-2005 was an unregistered agreement. It was submitted by him that u/s 17(1)(b) of the Registration Act, 1908 agreement for sale requires compulsory registration for its validity and any document which requires compulsory registration, if it is not registered cannot be admitted as evidence of any transactions and does not affect any immovable properties comprised therein as laid down u/s 49 of Registration Act, 1908. He also placed reliance on the decision of the Hon’ble ITAT, Amritsar Bench in the case of Shagan Lal Vs ITO(2018) 89 Taxmann.com 177) (Amritsar-Trib.) wherein it was held that agreement to sell which is not registered could not be relied upon for any purposes.

We have given a very careful consideration to the rival submissions. We are of the view that right acquired under the Agreement by the Assessee has to be regarded as “Capital Asset”. The decision of the Hon’ble Karnataka High Court in the case of H.AnilKumar (supra) supports the plea of the Assessee. The Hon’ble High Court in the said decision held that the right to obtain a conveyance of immovable property falls within the expression ‘property of any kind’ used in s. 2(14) and consequently it is a capital asset. It is because the expression ‘property of any kind’ is of wide import. The Hon’ble Court held that when this expression is read along with the expression defined in s. 2(47)(ii) i.e., ‘extinguishment of any rights therein’, the giving up of a right of specific performance by the assessee to get conveyance of immovable property in lieu of receiving consideration, results in the extinguishment of the right in property, thereby attracting the rigor of s. 2(14) r/w s. 2(47). Giving up of a right to claim specific performance by conveyance in respect to an immovable property, amounts to relinquishment of the capital asset. Therefore, there was a transfer of capital asset within the meaning of the Act. The payment of consideration under the agreement of sale, for transfer of a capital asset, is the cost of acquisition of the capital asset. Therefore, in lieu of giving up the said right, any amount received, constitutes capital gain and it is exigible to tax. However, as is clear from s. 48, before the income chargeable

With regard to the submission of the ld.DR relying on the provisions of sec.17(1A) of the Registration Act, 1908, the relevant provisions which read as under; “…17. Documents of which registration is compulsory. (1) The following documents shall be registered, if the property to which they relate is situate in a district in which, and if they have been executed on or after the date on which, Act No.XVI of 1864 or the Indian Registration Act, 1866, the Indian Registration Act, 1871 or the Indian Registration Act, 1877, or this act or came or comes into force namely:- a) instruments of gift of immovable property; b) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or immovable property;

A perusal of the aforesaid provisions would show that these provisions are applicable only in the case of a claim made for application of the doctrine of part performance enshrined in Section 53A of the Transfer of Property Act, 1882. In the present case, there was no delivery of possession in part performance of the agreement for sale dated 09-02-2005 and therefore, there is no question of the agreement dated 09-02-2-005 being regarded as a document requiring compulsory registration. Therefore, the decision of the Hon’ble Supreme Court in the case of CIT Vs Balbir Singh Maini 398 ITR 531(SC) is not applicable to the facts of the present case. For the reasons given above, we are of the view that the sum in question is chargeable to tax under the head ‘capital gains”.

Taking into consideration the facts and circumstances of the present case, we are of the view that income from relinquishing rights under an agreement should be assessed under the head income from capital gains. We hold accordingly. We however find that the AO/CIT(A) have not examined the claim of the Assessee under the head “Capital Gain” in accordance with the provisions of Sec.48 of the Act and also claim for deduction u/s.54F of the Act. We therefore remand the question of computation of Capital Gain to the AO

In the result, the appeal of the Assessee is treated as allowed for statistical purposes.