A.T.SHERIFF vs. COMMISSIONER OF INCOME TAX

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BECHU KURIAN THOMAS MONDAY, THE 29TH DAY OF MARCH 2021 / 3RD AGRAHAYANA, 1939 ITA NO 66 OF 2017 ITA NO.312/Coch/2015 of the I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/RESPONDENT/ASSESSEE A.T.SHERIFF S/O. SRI. K.AHMED AMAL, KANOOKARA ROAD, THANA, KANNUR-2. BY ADV.ARUN RAJ S. ADV.SUJA C.T. ADV.DANIEL P. RESPONDENT/APPELLANT/REVENUE: COMMISSIONER OF INCOME TAX AAYAKAR BHAVAN, MANANCHIRA, CALICUT-673001. BY SRI.CHRISTOPHER ABRAHAM, SC

THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 29.3.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.Appeal No.66/17 -:2:-

“C.R.” JUDGMENT Dated this the 29th day of March, 2021 Bechu Kurian Thomas, J.

In this appeal filed under section 260A of the Income Tax Act, 1961, (for short, 'the Act') the main issue raised for consideration through the six questions of law framed is whether an unregistered agreement for joint development of a property could be deemed to be a contract under section 53A of the Transfer of Property Act, and treat the same as a transfer of a capital asset under section 2(47)(v) of the Act. 2. The issue involved in the instant case arises from the assessment year 2008-09. Pursuant to a notice under section 148 of the Act, alleging income escaped assessment, the assessing officer held, that, an unregistered joint development agreement entered into between the assessee and another entity for development of a property belonging to the assessee, as a transfer of a capital asset

I.T.Appeal No.66/17 -:3:- as defined in section 2(47)(v) of the Act and exigible to capital gains tax under section 45 of the Act. The Appellate Authorities, including the Tribunal, concurred with the finding of the assessing officer. The Tribunal found that the property was handed over to the developer on 17-07-2007 and in turn, as contemplated in the agreement, the developer constructed residential apartments and had independent rights to sell the same on the basis of the power of attorney executed in favour of the key personnel of the builder. On the basis of the afore factual findings, it was concluded that as per the joint development agreement, the parties to the contract have performed or are willing to perform their part of the contract and hence the Income Tax Authorities were justified in bringing to tax the short-term capital gains for the assessment year 2008-09. 3. Aggrieved by the order of the Tribunal, the assessee preferred this appeal, which was admitted on six questions of law: However after hearing the Counsel, we reframe the questions of law into a single question as follows: whether an unregistered agreement for joint development of a property could be deemed to be a contract under section 53A of the Transfer of Property Act, for treating the same as a transfer of a capital asset under section 2(47)(v) of the

I.T.Appeal No.66/17 -:4:- Act. 4. We have heard Adv. Arun Raj S. learned counsel for the appellant as well as Adv. Christopher Abraham, the learned Standing Counsel for Income Tax Department. 5. From the nature of the joint development agreement, as discernible from the orders of the assessing officer as well as the appellate authorities, it is understood that possession was handed over by the assessee to the developer on 17-07-2007 on the basis of the unregistered agreement. Pursuant to the said agreement, the acts of management, control, and supervision of the property were given to the developer for the purpose of developing the property by constructing a multi-storied residential building thereon, with a total built-up area of 11,116 ft². In consideration of the alleged transfer, it was found that 2779 ft² of the total built-up area will be handed over to the owners of the property, on completion of the building and the remaining extent could be sold to the respective purchasers. 6. It can be understood from the aforesaid that, the unregistered agreement provided for an agreement to facilitate the development of the property by the developers building a multi- storied residential building at their own cost and thereafter handover

I.T.Appeal No.66/17 -:5:- the same to the owners of the property and also sell part of the building to the respective purchasers. The short question that arises is whether the said unregistered joint development agreement can be treated as a transfer of a capital asset for the purpose of imposing capital gains. 7. The liability for capital gains under section 45 of the Act arises only when there is a transfer of a capital asset effected in the previous year. The word 'transfer' is defined in section 2(47) of the Act as encompassing six different types of transactions. The relevant transaction for the present case referred to in the said definition provision is the fifth clause. Accordingly, section 2(47)(v) is extracted as below: “S.2(47). “Transfer”, in relation to a capital asset, includes- (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). 8. It is apposite to note in this context that until 2001, the agreements, contemplated under section 53A of the Transfer of Property Act, 1882 (for short 'the TP Act') were not required to be registered. However, by the Registration and Other Related Laws (Amendment) Act, 2001, section 17 and section 49 of the

I.T.Appeal No.66/17 -:6:- Registration Act, 1908 were amended, apart from section 53A of the TP Act. By virtue of the amendments, a document, contemplated under section 53A of the TP Act will not have any effect for the purpose of the said section, unless the same is registered. Of course, an exception could be discerned from the proviso to section 49(c) of the Registration Act, 1908 for the limited purpose of using the said agreement as evidence of a contract in a suit for special performance or as evidence of any collateral transaction, not required to be effected by a registered instrument registration. 9. The effect of the amendments mentioned above is that, after 2001, an unregistered agreement cannot be treated as an agreement in the eye of law, as one referred to under section 53A of the TP Act. Section 53A of the TP Act, having been incorporated into section 2(47)(v) of the Act, by legislation, all essential ingredients of Section 53A of the TP Act are liable to be fulfilled to render such an agreement as transferring a capital asset. 10. As rightly contended by the learned counsel for the appellant, the issue involved in the case has already been considered in the decision in Commissioner of Income Tax v. Balbir Singh Maini (398 ITR 531), [(2018) 12 SCC 354]. In the said

I.T.Appeal No.66/17 -:7:- decision, possession transferred pursuant to a tripartite joint development agreement was treated by the Income Tax Authorities as a transfer of a capital asset, and capital gains were imposed on the transaction. The Punjab and Haryana High Court held that the possession delivered was as a licensee for development of the property and not in the capacity of a transferee and that in the absence of registration of the agreement, it cannot be treated as one falling under section 53A of the TP Act. On appeal, the Supreme Court while affirming the judgement, declared that, after 2001, unless a contract is registered, there is no contract in the eye of law in force for attracting S.53A of the TP Act. 11. The observations in paragraph 20 of the judgment in Balbir Singh Maini (supra) are relevant and the same is extracted as follows “20. 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 S.53A. In short, there is no agreement in the eyes of law, which can be enforced under S.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 S.2(47)(v) of the Act, there must be a “contract” which can be

I.T.Appeal No.66/17 -:8:- enforced in law under S.53A of the Transfer of Property Act. A reading of S.17(1A) and S.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 S.53A. The ITAT was not correct in referring to the expression “of the nature referred to in section 53A in S.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 S.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 S.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 the registration of a contract is required by the amendment act of 2001, yet the aforesaid expression “of the nature referred to in S.53A” would somehow refer only to the nature of contract mentioned in S.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 S.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”.

I.T.Appeal No.66/17 -:9:- 12. Thus the unregistered joint development agreement in the present case cannot be treated as creating a transfer of a capital asset. 13. In view of the discussions as above and in view of the binding pronouncement of the Supreme Court, we answer the question of law raised in this appeal in favour of the assessee. Consequently, the order of assessment, as confirmed by the Tribunal in ITA No.312 of 2015, shall stand set aside and the appeal is allowed. Sd/- S.V.BHATTI, JUDGE Sd/-

BECHU KURIAN THOMAS, JUDGE vps

I.T.Appeal No.66/17 -:10:- APPENDIX PETITIONER'S/S' EXHIBITS: ANNEXURE A TRUE COPY OF THE OBJECTION DATED 3.9.2012 FILED BY THE APPELLANT BEFORE THE INCOME TAX OFFICER, WARD-1, KANNUR ANNEXURE B TRUE COPY OF THE ASSESSMENT ORDER DATED 7.3.2013 PASSED UNDER SECTION 144 R.W.S. 147 OF THE ACT FOR THE AY 2008-09 ANNEXURE C TRUE COPY OF THE ORDER DATED 3.3.2015 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS), KOZHIKODE FOR THE AY 2008-09 ANNEXURE D TRUE COPY OF THE ORDER DATED 5.6.2017 IN ITA 312/COCH/2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN FOR THE AY 2008-09