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Facts
The assessee, a real estate firm, purchased four immovable properties where the transaction consideration was less than the Stamp Duty value. The Assessing Officer (AO) invoked Section 56(2)(x) of the Income Tax Act, 1961, to add the differential amount as income. The assessee argued that the deeds of conveyance were executed and substantial formalities, including payment of stamp duty and symbolic possession, were completed on 31.03.2017, prior to the effective date of Section 56(2)(x) (01.04.2017), despite the registration occurring after this date.
Held
The Tribunal, relying on Supreme Court precedents (Kanwar Raj Singh), held that a registered deed of conveyance operates from the date of its execution, not merely its registration, especially if the entire consideration was paid on or before execution. Since the deeds of conveyance were executed and payments made on 31.03.2017, the provisions of Section 56(2)(x), which came into effect from 01.04.2017, are not applicable to these transactions. Consequently, the addition made by the AO was deleted.
Key Issues
Whether Section 56(2)(x) of the Income Tax Act, 1961, is applicable to property transactions where the deed of conveyance was executed and consideration paid before 01.04.2017 (the effective date of the section), but registered after this date, or if the operative date of the deed is its execution date.
Sections Cited
Section 56(2)(x) of Income Tax Act, 1961, Section 143(3) of Income Tax Act, 1961, Section 144B of Income Tax Act, 1961, Section 250 of Income Tax Act, 1961, Section 253(4) of Income Tax Act, 1961, Section 50C of Income Tax Act, 1961, Section 155 of Income Tax Act, 1961, Section 47 of Registration Act, 1908, Section 54 of Transfer of Property Act, 1984, Section 56(2)(vii)(b) of Income Tax Act, 1961
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SANDEEP SINGH KARHAILSHRI GAGAN GOYAL
Date of Hearing – 25/09/2024 Date of Order - 18/10/2024
O R D E R PER SANDEEP SINGH KARHAIL, J.M. The present appeal by the Revenue and the Cross Objection by the assessee have been filed against the impugned order dated 31.08.2023passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)-52, Mumbai[“learned CIT(A)”], which in turn arose from the assessment order dated 27.08.2021 passed under section 143(3) r/w section 144B of the Act, for the assessment year 2018-19.
In its appeal, the Revenue has raised the following ground: –
“On the facts and in the circumstances of the case, the Ld. CIT(A) erred in adopting the Stamp Duty value in the year 2010 i.e. year of Agreement for sale without appreciating the fact that the assessee LLP was not born in 2010 and it came into existence only on 21/12/2015 when it was registered with the ROC.”
While in its Cross Objection, the assessee has raised the following grounds: “
The Applicant files the present cross objections under section 253(4) of the Income-tax Act (the Act), in respect of the appellate order dated 31.08.2023 passed by the CIT(A), on the following amongst other grounds each of which is in the alternative and without prejudice to any other:
1. That the Ld. CIT(A) failed to appreciate that section 56(2)(x) of the Act could not have been invoked in the present case, as: a.in this case, the agreements for acquiring rights in the plot of land from Pooja Land & Investments Pvt. Ltd., though registered on 13.04.2017, were executed on 31.03.2017. That the registration on13.04.2017 will relate back to the said date. Hence, the said section which has been inserted by the Finance Act, 2017 with effect from01.04.2017 cannot apply to transactions executed prior thereto. b. in the present case, the rights in the immovable property including symbolic possession thereof were received by the Assessee on 31.03.2017 and, hence, section 56(2)(x) as inserted by the Finance Act, 2017 with effect from 01.04.2017 can have no application to its case. c. assuming without admitting that the said section is applicable to the present transactions, it cannot apply to acquisition of immovable property whose character is that of stock in trade. The Ld. CIT(A)erred in the holding that the said section will apply to receipt of any immovable property notwithstanding it being held as stock in trade and the Ld. AO erred in holding that the said plots of land could not be regarded as its stock in trade. d. the present transactions, do not fall within the object and purpose for which the said section was inserted in the Act.
2. That the Ld. CIT(A) ought to have held that the third proviso below section56(2)(x) is applicable to the present case and it was incumbent on the AO to refer the valuation of the said properties to a Valuation Officer. The AO not having followed this mandate of law, the assessment order passed by him including the addition made under the said section is illegal and bad in law.”
4. In its appeal, the Revenue has raised the grounds challenging the deletion of the addition made under section 56(2)(x) of the Act.On the other hand, the assessee has filed the Cross Objection, inter alia, challenging the applicability of the provisions of section 56(2)(x) of the Act to the present case. As the aforesaid issue raised by the assessee, vide its Cross Objection, goes to the very root of the addition made in the present case, therefore, we are considering the said issue at the outset.
The brief facts of the case are that the assessee is a limited liability partnership firm and is engaged in the development and construction of real estate. For the year under consideration, the assessee filed its return of income on 30.10.2018 declaring a total income ofRs. Nil. The return filed by the assessee was selected for complete scrutiny and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was observed that the assessee has purchased 4 properties during the year under consideration, whose transaction consideration was less than the value fixed by the Stamp Value Authority. Accordingly, the assessee was asked to show cause as to why the differential amount not be considered as income of the assessee under section 56(2)(x) of the Act. In response, the assessee submitted that the date of registration of the property was different from the date of the agreement for sale, as the assessee acquired the property under the agreement for sale entered on 27.08.2010 under which substantial payment was made to the seller. Accordingly, the assessee submitted that the stamp duty value of the property assessable as on the date of entering into the agreement for sale should be adopted instead of the value assessed as on the date of transfer (registration) of the property. The Assessing Officer (“AO”) vide order dated 27.08.2021 passed under section 143(3) r/w section 144B of the Act disagreed with the submissions of the assessee on the basis that the assessee was not born in 2010 and it came into existence only on 21.12.2015 when it was registered with the Registrar of Companies (“ROC”), as such the adoption of stamp value in this case as on 2010 does not arise. The AO further held that the crucial date in the present case is the date of registration for the applicability of the provision of section 56(2)(x) of the Act.Since two immovable properties were purchased from Valentine Properties Pvt. Ltd. and were registered with the Registrar of immovable properties on 10.04.2017 and the other two immovable properties purchased from Pooja Land and Premises Pvt. Ltd. were registered on 13.04.2017,as per the AO, the same falls in the financial year 2017-18 and not in the earlier year. Accordingly, the difference between stamp value and purchase consideration amounting to Rs.31,49,80,500/- was considered as income of the assessee under section 56(2)(x) of the Act.
In its appeal before the learned CIT(A), the assessee submitted that the provisions of section 56(2)(x) of the Act are not applicable to the present case as the deed for conveyance was entered with the seller on 31.03.2017 and all the other formalities including the handover of symbolic possession and payment of consideration were completed by that date. Thus, it was the plea of the assessee that section 56(2)(x) of the Act is only applicable when any person receives any sum of money or any other immovable property after 01.04.2017 and in the present case, the entire transaction is prior to 01.04.2017. The learned CIT(A), vide impugned order,rejected the submission of the assessee and held that under section 56(2)(x) of the Act the date of registration is relevant, which undisputedly in the present case is after 01.04.2017. The learned CIT(A) by referring to the extracts of ITR/Financials for the assessment year 2017-18 observed that this transaction was not considered in the balancesheet or in the notes to accounts by the assessee. The learned CIT(A) also relied upon the decision of the Hon’ble Supreme Court in the Suraj Lamp &Industries (P.) Ltd. vs. State of Haryana, reported in (2012) 340 ITR 1 (SC),to support the conclusion that registered deed of conveyance is the only mode of legal transfer of the immovable property and without it, the assessee would not have got valid rights in the immovable property. Accordingly, the learnedCIT(A), inter alia, upheld the findings of the AO that the provisions of section 56(2)(x) of the Act are applicable to the present case. The relevant findings of the learned CIT(A) in this regard are reproduced as follows: -
“5.10. The appellant has heavily harped on the word "receives" and has contendedthat the transactions have essentially been completed on 31.03.2017 barring the technicality of registration. The appellant has claimed that symbolic possession has been taken by it. I am unable to concur myself with this argument. The S.56(2)(x) is categorical in as much as it provides for a specific mechanism where the date of agreement and date of registration are different. it clearly states that if they are not the same, the stamp duty value on the date of agreement has to be taken into account. The logical corollary is that the date of registration has to be considered for the purpose of applying S.56(2)(x). The decision of Hon'ble Apex Court in 340 ITR 1, Suraj Lamp & Industries (P) Ltd. vs State of Haryana, relied upon by the AO is clearly applicable as otherwise the appellant would not have got valid full rights. Although accounting entries are not conclusive in nature, the very fact that the appellant has not accounted for such a purchase in its books of accounts is enough indicator to negate the claim of the appellant that it had taken symbolic possession on 31.03.2017. What else can explain the fact that the appellant has not accounted for the transaction in its books for the year ended 31.03.2017? A perusal of the extracts of the ITR / financials of AY 2017-18 do not indicate that this transaction was ever considered in its balance sheet or by way of any Notes to Account. The Accounting Standards provide for material events to be disclosed even if after the balance sheet date but before the approval of such results by the Board of Directors. In any case, the ratio laid down by the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd, 262 ITR 278, wherein it was held that, "The rules of interpretation would come into play only if there is any doubt with regard to theexpress language used. Where the words are unequivocal, there is no scope for importing any rule of interpretation", is very pertinent and relevant. Considering that S.56(2)(x) has given prime importance to "the date of registration" and also given specific leeway to cases where the "the date of registration" is different from "the date of agreement" (subject to non-cash payment mode), I am of the view that there is no scope for any interpretation in a manner canvassed by the appellant. The argument of the appellant that S.47 of the Registration Act has over-riding force has no merit in view of the unequivocal usage of words "the date of registration", which in this case is13.04.2017. In the case of Southern Technologies Ltd vs JCIT, 187 Taxman 346 (SC), it was categorically held by Hon'ble SC that provisions of RBI cannot over-ride provisions of I-T Act. Similarly, in the case of New India Industries Ltd vs ACIT, 18 SOT 51, ITAT Delhi (Special Bench), it was held by Hon'ble Tribunal that other Acts cannot over-ride the provisions of the Income-tax Act. The argument that S.56(2)(x) does not apply to a case where the "the date of registration" is after 01.04.2017 is not borne out from the provisions of the Act and stands rejected.”
Being aggrieved, the assessee has raised the ground in its Cross Objection filed before us.
We have considered the submissions of both sides and perused the material available on record.In the present case, the assessee is a limited liability partnership firm and its members are (i) Romell Real Estate Pvt. Ltd. which owns 99% of the capital of the assessee, and (ii) Romell Infrastructure Pvt. Ltd., which is 100% owned by Romell Real Estate Pvt. Ltd. and owns 1% capital of the assessee. Romell Real Estate Pvt. Ltd. had decided to acquire properties from Pooja Land & Premises Ltd. and other parties like Valentine Properties Pvt. Ltd. In this regard, payments were made by Romell Real Estate Pvt. Ltd. to the sellers for these properties in the year 2010. Subsequently, Romell Real Estate Pvt. Ltd. through one of its 100% subsidiaries, i.e. the assessee, acquired the properties from Pooja Land &Premises Pvt. Ltd. and Valentine Properties Pvt. Ltd. and it was agreed that the sum already paid by Romell Real Estate Pvt. Ltd. shall be considered as advance payment of full and final consideration payable to the vendor for the sale of the said property in favour of the assessee. It is evident from the deed of conveyance forming part of the paper book from pages 480-508 that the said deed was executed on 31.03.2017. We further find that the said deed of conveyance was registered on 13.04.2017. Before the execution, the documents were also submitted for adjudication before the Stamp Duty Authority and the stamp duty determined to be payable was paid by the assessee on 24.03.2017. Thus, it is the plea of the assessee that at the time of execution of the deed of conveyance on 31.03.2017, an adjudication order by the Stamp Duty Authority had come and the additional stamp duty was also paid and possession was also taken symbolically. Therefore, as per the assessee,section 56(2)(x) of the Act which was inserted by the Finance Act, 2017 w.e.f. 01.04.2017 is not applicable to the present case. On the contrary, as per the Revenue since the deed of conveyance was registered during the year under consideration, i.e., after 01.04.2017 therefore, section 56(2)(x) of the Act was rightly being invoked by the AO in the facts of the present case.
Before proceeding further,it is relevant to analyse the provisions of section 56(2)(x)(b) of the Act which are relevant for the adjudication of the issue at hand. Section 56(2)(x)(b) of the Act reads as follows: -
“(b) any immovable property,— (A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; (B) for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:— (i) the amount of fifty thousand rupees; and (ii) the amount equal to five per cent of the consideration: Provided that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for the purposes of this sub-clause : Provided further that the provisions of the first proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of agreement for transfer of such immovable property: Provided also that where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this sub-clause as they apply for valuation of capital asset under those sections;”
Therefore, as per the provisions of section 56(2)(x)(b) of the Act, where any person receives any immovable property from any person or persons on or after 01.04.2017 either without consideration or for consideration, the stamp duty value of such property exceeding such consideration shall be considered as its income from other sources, if the amount of such excess is more than the amount mentioned in the section. In the present case, the assessee has challenged the very applicability of the provisions of section 56(2)(x) of the Act on the basis that the property was received prior to 01.04.2017. In this regard, much emphasis has been placed on the fact that the deed of conveyance and other formalities such as payment of stamp duty and handingover of the symbolic possession were completed on 31.03.2017. As per the assessee, the Registration Act, 1908 requires lodging the document for registration within four months from the date of execution. Accordingly, as per the assessee, the registration of the deed of conveyance was done in the month of April 2017, i.e., within the time permitted for registration. In order to decide this dispute, at this stage it is also relevant to determine the date from which the deed of conveyance is operative. The answer to the aforesaid query is relevant as if it is decided that the same is operative from the date of execution, i.e., 31.03.2017 then the present case clearly falls outside the purview of provisions of section 56(2)(x) of the Act. However, if the deed of conveyance is found to be operative from the date of registration, i.e., April, 2017 then the present case clearly falls within the ambit of section 56(2)(x) of the Act for determination of income of the assessee.
10. We find that the Hon’ble Supreme Court in Kanwar Raj Singh (D) Th.Lrs. vs. Gejo (D) Th.Lrs.&Ors.,in Civil Appeal No.9098 of 2013, vide judgment dated 02.01.2024, while examining the provisions of section 47 of the Registration Act, 1908, which provides that a registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made, and not from the time of its registration, held that when a compulsory registerable document is registered according to Registration Act, it shall operate from a date before the date of its registration. The Hon’ble Supreme Court further held that if in a given case, a sale deed is executed and the entire agreed consideration is paid on or before execution of the sale deed, after it is registered, it will operate from the date of its execution. The relevant findings of the Hon’ble Supreme Court, in the aforesaid decision, are reproduced as follows: -
“5. The High Court, in the impugned judgment, has relied upon Section 47 of The Registration Act, 1908 (the Registration Act), which reads thus: “47. Time from which registered document operates.—A registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made, and not from the time of its registration.” 6.On plain reading of Section 47, it provides that a registered document shall operate from the time from which it would have commenced to operate if no registration thereof was required. Thus, when a compulsorily registerable document is registered according to the Registration Act, it can operate from a date before the date of its registration. The date of the operation will depend on the nature of the transaction. If, in a given case, a sale deed is executed and the entire agreed consideration is paid on or before execution of the sale deed, after it is registered, it will operate from the date of its execution. The reason is that if its registration was not required, it would have operated from the date of its execution.
7. Now, we come to the decision of the Constitution Bench in the case of Ram Saran Lall (Supra). In paragraph 8 of the judgment, the Constitution Bench held thus: “8. We do not think that the learned Attorney- General's contention is well founded. We will assume that the learned Attorney-General's construction of the instrument of sale that the property was intended to pass under it on the date of the instrument is correct. Section 47 of the Registration Act does not, however, say when a sale would be deemed to be complete. It only permits a document when registered, to operate from a certain date which may be earlier than the date when it was registered. The object of this section is to decide which of two or more registered instruments in respect of the same property is to have effect. The section applies to a document only after it has been registered. It has nothing to do with the completion of the registration and therefore nothing to do with the completion of a sale when the instrument is one of sale. A sale which is admittedly not completed until the registration of the instrument of sale is completed, cannot be said to have been completed earlier because by virtue of Section 47 the instrument by which it is effected, after it has been registered, commences to operate from an earlier date. Therefore we do not think that the sale in this case can be said, in view of Section 47, to have been completed on January 31, 1946. The view that we have taken of Section 47 of the Registration Act seems to have been taken in Tilakdhari Singh v. Gour Narain [AIR (1921) Pat 150]. We believe that the same view was expressed in Nareshchandra Datta v. Gireeshchandra Das [(1935) ILR 62 Cal 979] and Gobardhan Bar v. Guna Dhar Bar [ILR (1940) II Cal 270].” (underline supplied) 8.The Constitution Bench held that Section 47 of the Registration Act does not deal with the issue when the sale is complete. The Constitution Bench held that Section 47 applies to a document only after it has been registered, and it has nothing to do with the completion of the sale when the instrument is one of sale. It was also held that once a document is registered, it will operate from an earlier date, as provided in Section 47 of the Registration Act.
9.Section 54 of the Transfer of Property Act, 1984 (the Transfer of Property Act) reads thus: “54. “Sale” defined.—“Sale” is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. Sale how made—Such transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument. In the case of tangible immoveable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property. Delivery of tangible immoveable property takes place when the seller places the buyer, or such person as he directs, in possession of the property. Contract for sale.—A contract for the sale of immoveable property is a contract that a sale of such property shall take place on terms settled between the parties. It does not, of itself, create any interest in or charge on such property.”
Every sale deed in respect of property worth more than Rs. 100/- is compulsorily registerable under Section 54 of the Transfer of Property Act. Thus, a sale deed executed by the vendor becomes an instrument of sale only after it is registered. The decision of the Constitution Bench only deals with the question of when the sale is complete; it does not deal with the issue of the date from which the sale deed would operate. Section 47 of the Registration Act does not deal with the completion of the sale; it only lays down the time from which a registered document would operate.
11. Now, coming to the facts of this case, the consideration was entirely paid on the date of the execution of the sale deed. The sale deed was registered with the interpolation made about the description/area of the property sold. The first defendant admittedly made the said interpolation after it was executed but before it was registered. In terms of Section 47 of the Registration Act, a registered sale deed where entire consideration is paid would operate from the date of its execution. Thus, the sale deed as originally executed will operate. The corrections unilaterally made by the first defendant after the execution of the sale deed without the knowledge and consent of the purchaser will have to be ignored. Only if such changes would have been made with the consent of the original plaintiff, the same could relate back to the date of the execution. It is not even the first defendant's case that the subsequent correction or interpolation was made before its registration with the consent of the original plaintiff.Therefore, in this case, what will operate is the sale deed as it existed when it was executed.”
From the aforesaid decision, it is thus discernible that the sale deed operates from the date on which it is executed and if any changes are made with the consent of both parties the same also relates back to the date of the execution of the sale deed. Therefore, having considered the provisions of section 47 of the Registration Act, 1908,as interpreted by the Hon’ble Supreme Court in the judgment cited supra, we are of the considered view that the deed of conveyance in the present case shall operate from the date of its execution, i.e. 31.03.2017.
We further find that in Bajrang Lal Naredi vs. ITO, in the coordinate bench of the Tribunal vide order dated 20.01.2020 held that mere registration at later date would not cover a transaction already executed in the earlier years, where substantial obligations have already been discharged and a substantial right has accrued to the taxpayer therefrom. Similarly, in Rajib Rathindra Saha vs. ITO, reported in (2022) 95 ITR (Trib.) 216 (Mum.), the Tribunal held that since the agreement was executed on 31.03.2013, i.e. during the assessment year 2013-14, the provisions of section 56(2)(vii)(b) of the Act as applicable to the assessment year 2013-14 would apply and the registration of agreement on the subsequent date would not alter the situation, as the registration of agreement is a compliance of a legal requirement under the Registration Act, 1908.
During the hearing, the learnedDepartmental Representative (“learned DR”) by placing reliance on the 1st proviso to section 56(2)(x)(b) of the Act submitted that the section also refers to the date of registration. From the perusal of the 1st proviso to section 56(2)(x)(b) of the Act, we find that the same is applicable only in a case where the date of agreement and the date of registration are not the same. Accordingly, it has been provided that the stamp duty value on the date of agreement shall be considered for the purpose of section 56(2)(x)(b) of the Act provided the conditions of 2ndproviso to section 56(2)(x)(b) of the Act are satisfied. Undisputedly, in the present case, the impugned addition made by the AO was deleted by the learned CIT(A) having regard to the 1st and 2nd proviso to section 56(2)(x)(b) of the Act, however, these provisos nowhere provides that the agreement for sale shall be operative from the date of registration and not from the date of agreement. Thus, we find no merits in the aforesaid submission of the learned DR.
During the hearing, the learned DR also placed reliance on the decision of the Hon’ble Supreme Court in Suraj Lamp and Industries Pvt. Ltd. (supra) to support the contention that the registered deed of conveyance is the only mode of legal transfer of immovable property. From the perusal of the aforesaid decision of the Hon’ble Supreme Court, we find that the issue under consideration before the Hon’ble Supreme Court was whether an immovable property can be sold by executing a general power of attorney. Answering the issue in negative the Hon’ble Supreme Court held that a general power of attorney does not convey any title nor create any interest in an immovable property and therefore an immovable property can be legally and lawfully transferredor conveyed only by registered deed of conveyance. From the perusal of the aforesaid decision, we find that the Hon’ble Supreme Court nowhere examined the issue as from which date the deed of conveyance shall become operational,which issue, as noted above, was examined by the Hon’ble Supreme Court in its decision rendered in Kanwar Raj Singh (supra).
Therefore, in view of the facts and circumstances of the present case, legal position and judicial pronouncements as noted above, we are of the considered view that since the deed of conveyance was executed amongst the parties in respect of immovable property on 31.03.2017, the provisions of section 56(2)(x), which were inserted by Finance Act, 2017 w.e.f. 01.04.2017, are not applicable to the present case and the said section can be only applicable to the facts wherein the sale deeds are executed on or after 01.04.2017 pursuant to which immovable property is received by any person. As a result, grounds no.1(a) and 1(b) raised in assessee’s Cross Objection are allowed.
Since the relief has been granted to the assessee on the afore-noted jurisdictional aspect, the other grounds raised by the assessee in its Cross Objection are rendered academic and therefore,are left open.
Accordingly, the issue arising in Revenue’s Appeal is rendered academic and therefore is dismissed as infructuous.
In the result, the Cross Objection by the assessee is allowed, while the Revenue’s Appeal is dismissed. Order pronounced in the open Court on 18/10/2024