DCIT NON CORPORATE CIRCLE 9(1) , CHENNAI vs. ANIL SHETH , CHENNAI

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

In this appeal filed by the Revenue, which is directed against an order dated 28.04.2017 of the ld. Commissioner of Income Tax

(Appeals)-10, Chennai, it is aggrieved on a view taken by ld. Commissioner of Income Tax (Appeals) that income of the assessee

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was to be considered under the head ‘’business income’’ and not under

‘’short term capital gains’’.

Facts apropos are that assessee engaged in the business of 2.

marbles and granites had entered into a joint development agreement

on 23.01.2009 with one M/s. S & S Scapes Pvt. Ltd for development of an plot of land owned by him bearing No.60, Door No.D-6, 2nd Main

Road, North Jaganath Nagar, Villivakam, Chennai-49 measuring 3440

sq.ft. As per the joint development agreement, developer was to

construct a building and allot 54% of the built up area to the assessee

while retaining 46% to itself. Assessee was paid a refundable deposit

of Rs.22,00,000/- by the developer. Possession of the property was

handed over on the date of joint development agreement for making

construction therein. Ld. Assessing Officer was of the opinion that

there was a transfer coming within the meaning of Section 2(47) (v) of

the Income Tax Act, 1961 (in short ‘’the Act’’) and assessee was liable

to pay tax on capital gains arising from such transfer. A show cause

notice was issued to the assessee. Its reply went as under;- 1. The land at Villiwakkam has been purchased on 14.09.2006. 2. The land was given for joint-venture to Mrs. S & S Scapes Pvt Ltd, vide Joint Venture Agreement on 23.01.2009. 3. The land was given for' development on 46:54 basis. Therefore 5 flats are given as the share of the Assessee in exchange for 46% share of land given to the builder. This

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,agreement is entered on 23.01.2009. 4. The advance given by the Developer has erroneously offset against the land and there is another error of Rs. 2 lakhs received has erroneously wrongly shown against the land instead of giving credit to the other account and therefore there is a Credit entry of Rs. 2 lakhs shown under Unsecured loans in the Balance sheet drawn on 31.03.2009. (i.e. Asst. Yr. 2009-10).

Assessee was also required to explain how its claim for exemption

u/s.54F of the Act was justified. Reply of the assessee on this aspect

was as under:-

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"The property is given for joint development on 23/01/2009 with an agreement to authorize them to develop and construct a new building at plot no. 60, Door no, 0-6, Old no. 60, 2nd Main Road, North Jagannathan Nagar, Villivakkam, Chennai - 600049. The agreement is made with the following terms. The developers will hold 46% of build up plinth area and give 54% of build up plinth area to the owner of the property i. e. me. During the F. Y. 2009-10 out of 54% of my share I have sold an apartment and same is shown as Contract receipt in my income and expenditure account, since this is a business transaction and the balance apartments are shown in the closing stock during F. Y. 2009-10.

These apartments, which is of my share is not my residential purpose and it is for sale. Hence it is shown as business income during the F. Y. 2009-10 to the extent of sale made and the balance is shown as closing stock. During the financial year 2010-11, I have sold my land at plot no. 12/2, 12/3, 12/4 and 12/5 of Kovalam Village, Chenglepet Taluk, Kanchipuram dist. And out of the capital gain I have invested in flat at door no. 100 to 102, Egmore, Egmore nungambakkam Taluk, Chennai. This apartment is meant for my residential purpose. Therefore I have claimed exemption u/s 54F during the F. Y. 2010- 11. Therefore I request you to consider the above facts and request to allow capital gain exemption u/s 54F for the investment made by me for my residential property at Door No.l00 to 102, Egmore, Egmore Nungambakkam Taluk, Chennai."

above replies. According to him, there was a transfer when assessee

entered into a joint development agreement and handed over

possession to the developer. Further, as per the ld. Assessing Officer,

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nature of business of the assessee as given in form 3CB submitted by

it was ‘’ trading of marbles/granites’’. Ld. Assessing Officer took a view

that the gains arising from transfer was short term capital gains and

not business income. Total cost of the project as confirmed by the

Managing Director of M/s. S & S Scapes Pvt. Ltd was Rs.96,00,000/-.

Short term capital gains was worked out by the ld. Assessing Officer

as under:-

Total deemed sale consideration of property = 54% of 96 lakhs = 51,84,000/- Less: Cost of 46% of land purchased = 46% of 22 lakhs = 10,12,000/-

41,72,000/-

(Appeals) was successful. As per the ld. Commissioner of Income Tax

(Appeals), assessee was declaring its income from the projects under

the head business from assessment year 2011-12 onwards. Ld.

Commissioner of Income Tax (Appeals) noted that assessee had

declared the sale proceeds under the head business income, and was

engaged in the business of promoting apartments. Ld. Commissioner

of Income Tax (Appeals) took a view that terms of the joint

development agreement indicated assessee’s intention to do business.

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He directed the ld. Assessing Officer to consider the income under the

head income from business and not as short term capital gains.

Now before us, the ld. Departmental Representative strongly 5.

assailing the order of the ld. Commissioner of Income Tax (Appeals)

submitted that assessee was never engaged in the business of sale of

flats or property. As per the ld. Departmental Representative, the

transaction considered by ld. Assessing Officer was the only one

entered by the assessee, in relation to any immovable property, upto

and including the impugned assessment year. Thus, according to the

ld. Departmental Representative, assessee had no intention to do a

business in real estate. Further, as per the ld. Departmental

Representative, assessee had in its own return claimed to be a trader

of marbles and granites. Thus, as per the ld. Departmental

Representative, ld. Commissioner of Income Tax (Appeals) fell in error

in directing the ld. Assessing Officer to consider the income under the

head ‘’income from business/profession’’.

Per contra, ld. Authorised Representative submitted that 6.

there was no transfer during the relevant previous year since joint

development agreement was not registered. Further, according to her,

no power of attorney was executed by the assessee in favour of the

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developer. Relying on clause No.25 of the joint development

agreement, ld. Authorised Representative submitted that assessee

remained the sole owner of the property. According to her, vacant

possession was given only for developing the property. There being

no transfer, as per the ld. Authorised Representative, there could have

been no assessment under the head income from capital gains or any

other head. Reliance was placed on the judgment of Hon’ble Apex

Court in the case of CIT vs. Balbir Singh Maini, 398 ITR 531.

We have considered the rival contentions and perused the 7.

orders of the authorities below. Fundamental issue which has been

raised by the ld. Authorised Representative is that there was no

transfer falling within the meaning of Section2(47) of the Act during

the relevant assessment year and therefore there could not have been

any income for the assessee under the head short term capital gains or

for that matter any other head. Reliance has been placed on the

judgment of Hon’ble Apex Court in the case of Balbir Singh Maini

(supra). Their lordships in the above case had clearly held that there

can be no transfer without registering the document signifying the

transfer. What was held by their lordships at para 17 to 28 is

reproduced hereunder:-

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‘’17. The relevant sections that are necessary for us to decide the present matter are as under:

Transfer of Property Act

“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 where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore 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.]

Income Tax Act

Section 2 - Definitions

In this Act, unless the context otherwise requires, -

(47) "transfer", in relation to a capital asset, includes, -

(i) to (iv) xxx xxx xxx

(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.

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(i) expenditure incurred wholly and exclusively in connection with such transfer;

(ii) the cost of acquisition of the asset and the cost of any improvement thereto:”

“16. But there are certain conditions which are required to be fulfilled if a transferee wants to defend or protect his possession under Section 53- A of the Act. The necessary conditions are:

(1) there must be a contract to transfer for consideration of any immovable property;

(2) the contract must be in writing, signed by the transferor, or by someone on his behalf;

(3) the writing must be in such words from which the terms necessary to construe the transfer can be ascertained;

(4) the transferee must in part-performance of the contract take possession of the property, or of any part thereof;

(5) the transferee must have done some act in furtherance of the contract; and

(6) the transferee must have performed or be willing to perform his part of the contract.”

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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.”

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Section 2(47)(vi), any transaction which has the effect of transferring or enabling the enjoyment of any immovable property would come within its purview. The High Court has not adverted to the expression “or in any other manner whatsoever” in sub-clause (vi), which would show that it is not necessary that the transaction refers to the membership of a cooperative society. We have, therefore, to see whether the impugned transaction can fall within this provision.

“It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt

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owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro; See W.S. Try Ltd. v. Johnson (Inspector of Taxes) [(1946) 1 AER 532 at p. 539], and Webb v. Stenton, Garnishees [11 QBD 518 at p. 522 and 527]. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.”

“14. First of all, it is now well settled that income tax cannot be levied on hypothetical income. In CIT v. Shoorji Vallabhdas and Co. [CIT v. Shoorji Vallabhdas and Co., (1962) 46 ITR 144 (SC)] it was held as follows: (ITR p. 148)

“... Income tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a ‘hypothetical income', which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account.”

“11. ... the date of payment ... does not affect the accrual of income. The moment the income accrues, the assessee gets vested with the right to claim that amount even though it may not be immediately.”

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When the lower authorities was considering assessee’s case they did

not have the benefit of the judgment of Hon’ble Apex Court in the

case of Balbir Singh Maini (Supra). Unless and until a careful

examination of the joint development agreement entered with the

M/s. S&S Scapes Pvt. Ltd is made and compared with the joint

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development agreement considered by Hon’ble Apex Court in the case of Balbir Singh Maini (supra), we are of the opinion that the question whether any income arose to the assessee, cannot be addressed. In the fitness of the things, we are of the opinion that the matter needs to be revisited the ld. Assessing Officer. We therefore set aside the orders of the lower authorities and remit the issue back to ld. Assessing Officer for denovo consideration.

In the result, the appeal of the Revenue is allowed for 8. statistical purpose.

Order pronounced on Monday, the 11th day of June, 2018, at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन)) (अ�ाहम पी. जॉज�) (N.R.S. GANESAN) (ABRAHAM P. GEORGE) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai �दनांक/Dated:11th June, 2018 KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF