ACIT CIR 16(2), MUMBAI vs. BHAVANI N. MEHTA, MUMBAI

Per Rajesh Kumar, Accountant Member:

2 Smt. Bhavani N. Mehta 3. The facts in brief are that the case of the assessee was reopened under section 148 on 24.09.2010 which was complied by the assessee by filing return of income on 08.10.2010. The reasons recorded for issue of notice under section 148 of the Act was that the assessee sold a property located at plot No.5, Lutyen’s Bunglow Zone, Mansing Road, New Delhi to M/s. Mineral Management Services (I) Pvt. Ltd. on 23.08.2006 by way of registered sale deed and thus the capital gain was taxable in A.Y. 2007-08. However, the same was not offered in the return of income filed for the A.Y. 2007- 08. The property was sold for Rs.1,44,37,93,500/- and the share of the assessee was 8.33% in the said property and the amount of consideration attributing to her share in capital gain was worked out at Rs.12,02,67,999/-. The AO observed that the said amount was not offered to tax in A.Y. 2007-08. As against this, the assessee has offered the capital gain in the previous year ended 31.03.06 relevant to AY 2006-07 on the ground that the property was sold/relinquished in favour of Duce Properties and Investment Pvt. Ltd. and has received full consideration on 21.10.05 whereas the sale deed was registered in financial year relevant to the A.Y. 2007-08. The assessee filed a reply dated 30.11.2011 submitting that the capital gain of the said property was taxable in the year A.Y. 2006-07 as the sale was complete in terms of provisions of section 2 (47)(V) of the Act r.w.s. 53A of Transfer of Property Act since assessee received full consideration under sale consideration under an agreement to sell dated 21.10.2005 and also the possession was handed over on 1.11.2005. The 3 Smt. Bhavani N. Mehta assessee Smt. Bhavani N. Mehta entered into an agreement to sell dated 21.10.2005 to sell her 8.33% undivided rights in the property bearing No.5, Mansingh, New Delhi along with construction thereon for a total consideration of Rs.13,35,00,000/- which was paid by Duce Properties & Services Pvt. Ltd. on 20.10.2005 and the sale consideration was also non refundable. The possession was also handed over to the vendee as stated above. The assessee has also made investments in bonds as prescribed under section 54EC of the Act during the A.Y.2006-07 and claimed exemption of the long term capital gain under section 54EC of the Act. As per the assessee, the assessee only sold the property to Duce Properties and Investment Pvt. Ltd. on 20.10.05 and in the subsequent year the assessee only confirmed the sale deed between the co-owners of the property and M/s. Minerals Management Services Pvt. Ltd. on 23.08.06 whereas the actual sale took place in A.Y. 2006-07 and not in A.Y. 2007- 08. However, the AO was not convinced with the submission of the assessee’s and worked out the capital gain of Rs.11,25,70,375/- and added the same to the income of the assessee.

4 Smt. Bhavani N. Mehta seal the transaction once for all and such date of handing over possession would be treated as date of transfer and the tax authorities need not wait till the sale deed is executed! registered. In the present case not only that these three ingradients are fulfilled, but also the consideration was received which was final and non- refundable. As discussed earlier, the fact of registering the sale deed is only in furtherance of the agreement and the transfer that has already taken place. Execution of sale deed in favour of Mineral Services cannot be regarded as a transaction independent to the sale agreement entered with Duce Properties. Thus, the facts on record and the legal position warrant the AO to consider the earliest possible date as date of transfer whereas AO chose to consider the farthest possible date as date of transfer, which is incorrect on the part of the AO. Therefore, in my considered opinion, in the given facts and circumstances, the impugned capital asset was transferred on 1/11/2005 i.e., in the FY relevant to the AY 2006- 07. Accordingly, I hold that the capital gains arising from the impugned transaction are taxable in the AY 2006-07 and not in the AY 2007-08 and the addition made by the AO for the year under consideration is deleted.”

6. The Ld. D.R., on the other hand, fairly agreed to the contention of the Ld. A.R. that in the case of co-owner Shri Devkumar Haresh Vaidya the co-ordinate bench of the Tribunal has already decided the issue in favour of the assessee.

5 Smt. Bhavani N. Mehta 7. Having heard both the parties and perusing the material on record, we find that the issue has been decided by the co- ordinate bench of the Tribunal in the case of co-owner Shri Devkumar Haresh Vaidya in the same property on identical facts as that of the assessee. In the present case before us the assessee has 8.33% shares in the undivided property and in consequence of sale the assessee received a sale consideration of Rs.13,35,00,000/- on which she computed the capital gain and showed the same in the return of income filed for A.Y. 2006-07 . The assessee claimed the same as exempt under section 54EC of the Act as the assessee made the investments in the bonds as specified under section 54EC of the Act. The assessee entered into agreement to sale in A.Y. 2006-07 and full sale consideration was also received and the possession of the property was also handed over. Thus the sale was complete in the A.Y. 2006-07. The relevant part of the decision of the co-ordinate bench of the Tribunal is reproduced as below: “5.4 As can be seen from the above, this agreement for sale was final and irrevocable and vendee i.e. M/s. Duce Property and Services Pvt. Ltd. shall have the option to purchase the property in its own name or with any other person. As part of the settlement, the assessee also signed a consent term for obtaining probates with reference will which are disputed, with reference to interse rights among the 12 family members. Thereafter, necessary permission for conversion of property to free hold was obtained from Land and development office, Delhi and conveyance deed was executed on 21.08.2006, and then selling property to M/s. Minerals Management Services India P. Ltd. on 23.08.2006. On behalf of the assessee and his family members, Shri Praveen Khandelwal executed documents, which supports assessee's contention that they have handed over the rights and title of the undivided share to M/s. Duce Property and Services Pvt. Ltd. In the light of these facts available on record, as far as the assessee and his family members are concerned they have transferred the property i.e. undivided and indeterminable share/rights in the property. As far as the assessee share in the property was concerned, not only the assessee but his sister and father has received equal share of 8.33% and as far as these assessees are concerned the transaction concluded on 25.10.2005, when they entered into agreement of sale issuing general power of 6 Smt. Bhavani N. Mehta attorney and special power of attorney, consent terms with Shri K. Pattani ,which ultimately helped in getting probate of will. Execution of indemnity bonds and will by each co-owner do indicate that as far as assessee is concerned the transaction was concluded by 25/10/2005. Therefore, there is no merit in the contentions of the revenue, that the transaction was concluded in August 2006.

5.5 The Hon'ble Bombay High Court in the case of Chatrabhuj Dwarkadas Kapadia vs. CIT (260 ITR 491) has held :

"Clauses (v) and (vi) were introduced in section 2(47) of the Income-tax Act, 1961, with effect from April 1, 1988. They provide that "transfer" includes (i) any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882, and (ii) any transaction entered into in a manner which has the effect of transferring or enabling the enjoyment of an immovable property. Therefore, in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under the genera' law. Under section 2(47)(v) any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act would come within the ambit of section 2(47)(v). In order to attract section 53A, the following conditions need to be fulfilled. There should be a contract for consideration; it should be in writing; it should be signed by the transferor; it should pertain to transfer of immovable property; the transferee should have taken possession of the property; lastly, the transferee should be ready and willing to perform his part of the contract. Even arrangements confirming privileges of ownership without transfer of title could fall under section 2(47)(v). Section 2(47)(v) was introduced in the Act from the assessment year 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of the conveyance. Assessees used to enter into agreements for developing properties with builders and under the arrangement with the builders, they used to confer privileges of ownership without executing conveyance and to plug that loophole, section 2(47)(v) came to be introduced in the Act. The assessee, an individual, had an undivided share in a property. By agreement dated August 18, 1994, the assessee herein agreed to sell to a builder his share of the immovable property for a total consideration of Rs. 1,85,63,220 with a right to the builder to develop the property in accordance with the rules and regulations framed under the Maharashtra Housing and Area Development Act. For that purpose, the assessee agreed under clause 8 to execute a limited power of attorney, authorising the builder to deal with the property and also obtain permissions and approvals from the Urban Land Ceiling Authority, Bombay Municipal Corporation and CRZ authorities. Under clause 9 of the agreement it was, inter alia, provided that on the builder obtaining all necessary permissions and approvals and upon receipt of no- objection certificate under Chapter XXC of the Income-tax Act, the assessee shall grant an irrevocable licence to enter upon the assessee's share of the property. Under clause 11 of the agreement, it was provided

7 Smt. Bhavani N. Mehta that after the builder was given an irrevocable licence to enter upon the assessee's share of the property and after the builder having obtained all necessary approvals, the builder was entitled to demolish buildings Nos. I to 3 and building No. 10 and any other buildings on the property, subject to settling the claims of the tenants. Under clause 14 of the agreement, the assessee was entitled to receive proportionate rent till the payment of the last installment and till that time, the assessee was bound to pay all outgoings. Under clause 20 of the agreement it was agreed that the sale should be completed by execution of conveyance. Till date, there was no conveyance. By March 31, 1996, the builder had paid almost the entire sale price of Rs. 1,85,63,220 except for the small amount of Rs. 9,98,000. However, the BMC issued a commencement certificate permitting construction of a building up to the plinth level only on November 15, 1996. In the meantime, the plan came to be amended. Ultimately, the power of attorney was executed on March 12, 1999. The assessee paid the capital gains in the assessment year 1999-2000 but the Assessing Officer held that it was payable in the assessment year 1996-9 7 and this was upheld by the Tribunal. On further appeal: Held, that section 2(47)(v) read with section 45 indicates that capital gains was taxable in the year in which such transactions were entered into even if the transfer of immovable property is not effective or complete under the general law. In this case, the test had not been applied by the Department. No reason had been given why that test had not been applied, particularly when the agreement in question, read as a whole, showed that it was a development agreement. Once under clause 8 of the agreement a limited power of attorney was intended to be given to the developer to deal with the property, then the date of the contract, viz., August 18, 1994, would be the relevant date to decide the date of transfer under section 2(47)(v) and, in which event, the question of substantial performance of the contract thereafter would not arise. This point had not been considered by any of the authorities below. The assessee had paid the capital gains tax for the assessment year 1999-2000. From mere substantial compliance of the agreement, one could not infer transfer in the accounting year ending March 31, 1996. There were mistakes apparent on the face of the record, in the order of the Tribunal. According to the Tribunal, the letter dated February 18, 1999, showed that the builder came into possession on the day next to March 31, 1996, i.e., April 1, 1997. The day next to March 31, 1996, would be April 1, 1996, and not April 1, 1997, and even if April 1, 1997, weretaken as a typing mistake, it could only be read as April 1, 1996, and if April 1, 1996, was the date on which the developer came into possession, then the possession was received by the developer during the financial year 1996-97 corresponding to the assessment year 1997-98. Therefore, this finding of the Tribunal was erroneous. Taking into account the totality of the circumstances the Tribunal was not justified in concluding that the assessee had transferred the property during the previous year relevant to the assessment year 1996- 97."

5.6 Respectfully following the above principles, it can be concluded that the assessee has transferred its undivided share being 1/3rd of 8.33% in the property

8 Smt. Bhavani N. Mehta along with others when he entered into irrevocable sale agreement. As property was ultimately registered by the power of attorney holder and assessee is no way connected with the ultimate sale deed, the contentions of the revenue that the transaction can be concluded only after registration has no merit. In fact this contention was contrary to the provisions of the Act. In order to block the loop hole of considering the transaction as final only after registration, the IT Act was amended so as to bring into tax the capital gain in the year in which possession was handed over to the buyer as part performence, otherwise, no capital gain could be levied till registration was done. In this case what the assessee was having is only an undivided share in the property in Delhi, which was agreed to sold, transferred/ assigned to M/s. Duce Property and Services Pvt. Ltd. We can conclude that the transfer is complete, as per clause -11 of the agreement for sale.

5.7 Similar situation was also considered by the co-ordinate Bench in the case of Smt. Rajshree Bihani vs. ITO [2011] 16 taxmann.com 44(Kol) wherein it was held as under :-

"It was to be held that the assessee sold her 1/3rd undivided share in plot of land vide agreement of sale dated 28.12.2000 entered into with the purchaser in part performance of the contract after handing over the possession of the land on 28.12.2000 vide possession letter dated 28.12.2000. It meant that the assessee fulfilled the conditions of the provision of section 2(47)(v) and the said transaction fell within the ambit of transfer. Once, this was a transfer effected as on 28.12.2000, the provisions of section 50C, which are with effect from 1.4.2003 for and from the assessment year 2003-04, would not apply to the instant transaction. The assessee also made investment of the sale consideration of plot of land of her share in purchase of residential flat for a total cost of Rs.23.50 lakh vide deed of agreement for sale dated 23.3.2001 and possession of the flat was also delivered to the assessee on 27.4.2001, the conditions for exemption u/s. 54 were fulfilled and the assessee was eligible for exemption. Accordingly, the issue under consideration was to be allowed in favour of the assessee in entirety."

Therefore in this case also, as assessee had already received consideration and handed over possession of rights, mere execution of convenience deed, that too by general power of attorney holder who acquires it from assessee, in subsequent year can not shift the date of transfer to next assessment year.

5.8 The assessee has already offered capital gains in assessment year 2006-07 which was also accepted under section 143(3) by the AO, therefore, there is no merit in the revenue's contentions to bring it to tax in the year 2007-08. Not only that, other co-sharers also offered the incomes in the same asset. Year.

9 Smt. Bhavani N. Mehta "Moreover, as per the said agreement, only the assessee has right to maintain its possession over the alleged property. In this regard, relevant part of the said agreement of Para No. 12 is reproduced as under:

"From the date of execution of the agreement for sale and till such time the sale deed is executed in favour of Duce Properties & Services Pvt. Ltd, the assessee shall not alienate, transfer, assign, mortgage, create any charge or encumbrance over the said property in any manner whatsoever."

In view of above, the assessee had the possession over the alleged property till the dated of execution of sale deed and M/s. Mineral management Services India Pt Ltd. has taken the possession from the assessee after the exaction of the sale deed." As can be seen from the above, the wording of this extract of para-12 varies from actual para-12 extracted in the order elsewhere, which indicates that the AO was prejudiced to tax in the year 2007-08 only to deny the deduction under section 54EC, which was restricted due to amendment to law later. However, assessee has no inclination of restriction under sec. 54EC, when it entered into transaction in AY 2006- 07 and offered capital gain. Accordingly, by investing the amount as per provisions then existing to claim deduction assessee offered capital gain. This deduction was also accepted under section 143(3) after scrutiny by AO. Therefore, there is merit in assessee's contention that same amount can not be brought to tax in two separate assessment years. Therefore, the grounds raised by the assessee on the merits of the issue are upheld.”

Order pronounced in the open court on 16.4.2018.