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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
This appeal preferred by the assessee is against the order of the Ld. CIT(A)-2, Kolkata dated 04.09.2015 for AY 2008-09.
The main grievance of the assessee is against the action of the Ld. CIT(A) in confirming the addition of Rs.1,75,00,000/- by holding that the amount received on an agreement of assignment of immovable property which is unregistered is transfer u/s. 48 read with sec. 2(47)(v) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) read with sec. 53A of the Transfer of Property Act, 1882 (hereinafter referred to as the “T. P. Act, 1882”).
Brief facts of the case are that the assessee had filed its return of income u/s. 139(1) of the Act on 24-09-2012 disclosing total income of Rs. 7,89,577/- for the assessment year under dispute. During the course of assessment proceedings, the AO noted that the assessee received sum of Rs.1.75,00,000/- from M/s. Improved Realtors (P.) Ltd. by virtue of an unregistered agreement of assignment of the leasehold rights dated 17-08-2007. So, 2 Mallika Investment Co. Pvt. Ltd., AY 2008-09 according to AO, the assessee was liable to be taxed on the capital gains, since the transaction for which assessee received the amount fall within the scope and ambit of sec. 48 read with sec. 2(47)(v) of the Act read with sec. 53A of T.P. Act, 1882. The assessee had brought to the knowledge of the AO that the assessee is not the owner and was in possession of the property only in the capacity of a lessee by virtue of a duly executed Indenture of Lease drawn on 14-02-1970, and later in this assessment year by virtue of an unregistered agreement of assignment of the leasehold rights dated 17.08.2007 had handed over its possession of the property to M/s Improved Realtors (P) Ltd. by which the entirety of the interest of the assessee in the property was transferred to it. According to assessee, since it was not the owner of the immovable property and had no power to transfer the right, title and/or interest as an owner to anyone, therefore there was no valid transfer within the meaning of sec. 2(47)(v) of the Act. However, not satisfied with the explanation tendered by the assessee, the Assessing Officer held that since the consideration was paid during relevant assessment year and the possession was also handed over during the relevant year, there was deemed transfer of 'Capital asset’ within the meaning of the said clause, (sec. 53A of T. P. Act, 1882) it would be tantamount to transfer for computing 'Long Term Capital Gains'. Thereafter the Assessing Officer while computing the amount of the 'Capital Gains' has taken the 'cost of acquisition' of the capital asset, being the leasehold right in the property, to be ‘NIL’ and concluded that the entire value of consideration of Rs. 1,75,00,000/- was assessable as Long Term Capital Gains, which was added to the total income of the assessee. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) who confirmed the action of AO. Aggrieved, assessee has preferred this appeal before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee is not the owner of the immovable property and was only the lessee enjoying the leasehold rights in the property by virtue of an Indenture of Lease dated 14.02.1970 (for ten years) which was extended for further sixty years from 14.02.1980 as per the terms and conditions of original lease document dated 14.02.1970. So, according to assessee it was only a lessee and not an owner of the immovable property. So the lessee can only enjoy leasehold rights and cannot transfer any other rights other than the leasehold rights, that too subject to the terms of lease agreement. So the assessee cannot 3 Mallika Investment Co. Pvt. Ltd., AY 2008-09 transfer any right/interest in the immovable property, what it does not enjoy. However we note that transfer of a capital asset is chargeable to tax under the head “capital gain” and is deemed to be the income of the financial year in which the transfer took place. And capital asset is defined u/s. 2(14) of the Act which means property of any kind held by an assessee whether or not connected with his business or profession, unless specifically excluded. However, according to Ld. AR, for the purpose of Income-tax Act, the consideration which assessee received for unregistered agreement/rights have been brought to tax by AO/Ld. CIT(A) erroneously under section 2(47)(v) of the Act read with sec. 53A of Transfer of Property Act, 1882. For saying so, he relied on the Apex Court judgment wherein the Hon’ble Supreme Court held that after the amendment in Indian Registration Act in year 2001 and corresponding amendment in sec. 53A of Transfer of Property Act, 1882, without registration of the agreement there can be no valid transfer of immovable property in the eyes of law. We note from a perusal of page 18 of paper book that an agreement of assignment of the leasehold rights was executed by the assessee on 17.08.2007 in favour of M/s. Improved Realtors Ltd. and we note that the this agreement was an unregistered document till 31.03.2008. The Ld. AR drew our attention to the fact that since the document (assignment of leasehold right) has not been registered, according to him, in the eyes of law no transfer even by an owner of an immovable property can be legally made by invoking section 53A of TP Act 1882. And consequently the amount received by the assessee cannot be taxed invoking sec. 2(4&)(v) of the Act since the assignment of leasehold right in any case cannot be termed as transfer, even by invoking sec. 53A of the of TP Act 1882 ; and the lower authorities erred in treating the transaction as transfer of immovable property invoking section 53A of TP Act 1882. For that he relied on the order of the Hon’ble Supreme Court in CIT Vs. Balbir Singh Mani (2017) 398 ITR 531 (SC) and drew our attention to page 547 of the order wherein the Hon’ble Supreme Court held as under: “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 Dhotra [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 simulta-neously 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 4 Mallika Investment Co. Pvt. Ltd., AY 2008-09 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(lA) 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 IT of the Specific Relief Act, 1877 (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 IDA 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(lA) 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 Income-tax Appellate Tribunal was not correct in referring to the expression 11 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, with effect from April 1, 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 53 & which would then in turn not require 5 Mallika Investment Co. Pvt. Ltd., AY 2008-09 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 HUs 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 to the facts of this case, we need not go into any other factual question.”
In the facts of the present case the admitted fact is that the document in question which is an agreement of assignment of property wherein the assessee who had held only the leasehold rights was not registered till 31.03.2008. This being the factual position, we note that the position which existed earlier that an agreement of sale which fulfilled the ingredients of section 53A of T. P. Act, 1882 was not required to be executed through a registered instrument, has changed by the Registration and other related Law (Amendment) Act 2001. We note that Amendments were made simultaneously in sec. 53A of T. P. Act, 1882 and section 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 T. P. Act, 1882 have been omitted. Simultaneously, section 17 and 49 of Registration Act, 1908 have been amended, clarifying that unless the documents containing the contract to transfer for consideration any immovable property (for the purpose of sec. 53A of T. P. Act, 1882) is registered, it shall not have any effect in law; other than for being received as evidence of a contract for specific performance or as evidence of any collateral proceedings not required to be effected by a registered instrument. The effect of the amendment brought in by the 2001 Act to the Registration Act as well as the simultaneous amendment in sec. 53A of the Transfer of Property Act is that on and after the commencement of the Amendment Act of 2001, if a contract for transfer is executed but not registered, then it shall have no effect in law for the purpose of sec. 53A of Transfer of Property Act like in this case by no stretch of imagination an agreement for assignment (the leasehold rights) cannot be held as transfer of an immovable property. In any case, we find that the instrument/document (assignment of leasehold rights) is not registered, then it shall in no way be held as transfer by roping in section 53A of T. P. Act, 1882 as erroneously done by AO, since after the amendment Act 2001, unless the document is registered have no 6 Mallika Investment Co. Pvt. Ltd., AY 2008-09 effect in law for the purpose of sec. 53A of Transfer of property Act. We note that this case of assessee stands on a better footing than that of the case decided by the Hon’ble Supreme Court in Balbir Singh Mani (supra). So, in any event, since the agreement in question is not registered, in short there no is agreement in the eyes of law which can be enforced u/s. 53A of the Transfer of Property Act. This being the case, we are of the view that the Ld. CIT(A) as well as the AO erred in referring to the expression “of the nature referred to in sec. 53A” in section 2(47)(v) in order to arrive at the impugned conclusion , so we are inclined to set aside the impugned order. However, we note that any profit or gain arising from the transfer of a capital asset is chargeable to tax under the head “capital gain” and is deemed to be the income of the financial year in which the transfer took place. And capital asset is defined u/s. 2(14) of the Act which means property of any kind held by an assessee whether or not connected with his business or profession. As held by the Hon’ble Karnataka High Court, the term capital asset has an embracing connotation and includes every kind of property as generally understood except those that are expressly excluded in the definition. So too, expression property includes every conceivable thing, right or interest (Syndicate Bank Ltd. Vs. Addl. CIT (1985) 155 ITR 681 (Kar). And so, if the capital asset is transferred as envisaged under section 2(47) of the Act, then it has to be taxed as per law. So, in the light of the aforesaid discussion, we are of the considered opinion that the issue of taxing the consideration in respect of assignment of leasehold rights need to be de novo carried out by the AO untrammeled by the finding/observations [supra] and of the Ld. CIT(A) while deciding the appeal of the assessee. Needless to say, opportunity to be granted to the assessee before passing a speaking order in accordance to law. Appeal of assessee is allowed for statistical purposes.
In the result, the appeal by the assessee is allowed for statistical purposes. Order pronounced in the open court on 12th December, 2018. Sd/- Sd/- (M. Balaganesh) (A. T. Varkey) Accountant Member Judicial Member Dated: 12th December, 2018 Jd.(Sr.P.S.)
Copy of the order forwarded to: