SMT. SHANTHA VIDYASAGAR ANNAM vs. INCOME TAX OFFICER, WARD-4(2) HYDERABAD

t 34181 IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD TUESDAY, THE SEVENTH DAY OF JANUARY TWO THOUSAND AND TWENW FIVE PRESENT THE HONOURABLE THE CHIEF JUSTICE ALOK ARADHE AND THE HONOURABLE SRI JUSTICE J SREENIVAS RAO INCOME TAX TRIBUNAL APPEAL NO: 527 0F 2006 Appeal filed under Section 260-4 of the lncome Tax Act' 196'1 against the orderdated09-06-2006passedinl.T.A.No.885/Hyd/2003forAssessmentyear 1997-98 on the file of the lncome Tax Appellate Tribunal, Hyderabad 'A'Bench' Hyderabad preferred against the Assessment Order dated 21-02-2002 passed in PAN/GIRNo'ACHPA5446M/S-.1759^/t/d.4(2)onthefileofthelncomeTaxofficer, Ward 4(2), HYderabad. Between: Smt. Shantha Vidyasagar Annam' 3-4-612' Narayarraguda' Hyderabad ...Appellant AND lncome Tax Officer, Ward4(2), Hyderabad ...Respondent Counsel for the APPellant Mr S Ravi, Senior Counsel Rep.M/sRSAssociates Counsel for the ResPondent Mr J V Prasad Sr. SG for lncome Tax DePartment The Court delivered the following Judgment :

THE HON'BLE THE CHIET JUSTICE ALOK ARI\DHE AND THE HON'BLE SRI JUSTICE J.SREENIVAS RAO I.T.T.A. No.527 0F 20,06 JUDGMENTT (per the Hon'bLe the Chief Justice Alok Aradhe) Mr. S.Ravi, learned Senior Counsel re presenting M/ s. R. S.Associate s for the appellant. Mr. J.V.Prasad, learned Senior Standing Counsel lor Income Tax Department fbr the respondent. 2. This Appea-l under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act) has been fired by thr: assessee against the order. dated 09.O6.2006 passed by the Income Tax Appellate Tribunal, Hyderabad Bench A,, Hyderabad (hereinafter referred to as 'the Appellate Tribunar). The subject matter of the appeal pertains to assessment year l_gg7 _gg. The appeal was admitted on the follou,ing substantial questions of law: "i) Whether on the facts and circumstances of r.he case, the findings of the Income Tax Appellate Triburral that the appellant has handed over possession of the entire property enabling the developer to enjoy 600/o of tne constructed area of the building is not perverse? ii) Whether on the facts and circumstances of the case, the appellate authorit5r was correct in law in holdi tg .\

2 that the appellant is liable to capital gains tax during the assessment year 1997 -98?" 3. Facts leading to hling of this appeal in nutshell are that the assessee is a Non Resident Indian (NRI). A notice under Section 148 of the Act was issued to her. In response to the said notice, assessee filed return of income on 27 .1 1.2OOO, wherein the assessee declared her income as Nil. However, in the note accompanying the return, the assessee stated that she had entered into a development agreement on 04.05.1996 with a builder for construction of residential flats on sharing basis A copy of the agreement along with the return was enclosed. According to the assessee, the possession of the land owned by her was handed over to the builder only for the purposes of construction and the builder did not get arly right to tralsfer the property or to execute sale deeds. Therefore, according to the assessee, the same was not a transfer within the meaning of Section 2$71{vl of the Act read with Section 53 of the Transfer of Property Act, 1882. In reply, it was stated that consideration was to be received, after completion of construction and only on receipt of possession of built up area, the property could be said to have been transferred. Thus, according to the assessee, she did not have any liability for capital Ein for the year ending 3I.03.1997.

3 The assessing ofrrcer disagreed with the assessee and a show cause notice dated 23.03.2001 was issued to her p roposing to complete the assessment under Section 144 of the Act after determination of the long term capital gain arising out of the transaction at Rs. l3,7g,gOO/_. The assessee submittecL a reply on 03.04.200 l, wherein it was stated that the built_u1r area was received from the builder from the year 1999 on.vards and therefore, the relevant financial year through which capital gain arose was l99g_99, relevarrt for the assessment year J ggg_2OOO. It was also stated that the assessee received 6560 squ are feet of residential built_up area on surrender of her land meas;uring 570 squa_re yards. According to the assessee, she is eligrbl: to claim exemption under Section 54F of the Act as considerati,)n can be said to have been re-invested in residential house propery. 5. The assessing offrcer by arr order d,ated 21.O2.2OO2 inter atia held that the clevelopment agreement dated 04.05.1,196 is a transfer within the meaning of Section 2$7) of the Act. The assessing officer firrther held that the assessee is not eetitled to benefit of Section 54F of the Act. The assessing officer, therefore, determined the taxable capital gain at Rs.13,7g,9OO/_ rrnd held that the assessee is iiable to pay a total tax of Rs.7,5 O,6Zit/ - along with interest under Sections 2344. and.234Bof the Act. 4

4 6. The assessee challenged the aforesaid order in an appeal. The Commissioner of Income Tax (Appeals) by order dated 21.O3.2OO3 inter alia held that the development agreement dated 04.05.1996 amounts to transfer as all other conditions mentioned in Section 53A of the Transfer of Property Act, 1882 except the condition of receipt of consideration were satisfied. It was further held that the receipt of consideration is not mandatory condition to be specihed under Section 2$71(vl of the Act. The Commissioner of Income Tax (Appeals), therefore, affrrmed the order passed by the assessing officer. The assessee challenged the a-foresaid order of Commissioner of Income Tax (Appeals) before the Appellate Tribunal. The Appellate Tribunal, by order dated 09.06.2006 hetd that the development agreement amounts to transfer as the same is covered under Section 2$71(vil of the Act' In the result, the appeal preferred by thg assessee was dismissed' In the aforesaid factual background, this appeal has been frled' 7. Learned Senior Counsel for the assessee submitted that the Appellate Tribunal ought to have appreciated that under the development agreement, the assessee has handed over the vacant possession of the land for the purposes of carrying out development only and there was no transfer of ownership in the year 1996 and the same, therefore, would not be covered in terms

5 of Section 2@Z) of the Act. It is contended that from pe rusal of the development agreement dated 04.05 .1996, it is evident that the transfer of title has been contemplated only a_fter conr;truction of the building' It is also contended that the transfer of pcssession in part performa,ce of any agreement to sell cannot be treated as transfer of ownership under section 53A of the riansfer of Propertlz Act, 1882. It is pointed out that there is no transfer of capital asset in the assessment year lgg7 _gg and consequently no profit or gain accrued to the assessee in order to attra(:t Sections 45 and Section 4g of the Act. In support of the aforesaid submissions, reliance has been placed on decision of thr: Supreme Court in Seshasayee Steels private Limited vs. Assistant Commissioner of Income Tax, Chennai r and decisions on Principal Commissioner of Income Tax, Kolkata_l vs. Infinity Infotech Parks Limited2 and Chaganrat Mulji Dholu rs. Joiat Commissioner of Income Tax, JCIT (OSDI Circle3 rerrdered by the Calcutta ald Gujarat High Courts respectively. 8. Learned Senior Standing Counsel for the Revenue has invited the attention of this Court to various clause s of the development agreement and has submitted that tlLe sarne i ',l2ozol tt scc tt+ : lzo2ol 42r trR 46 (sc) '[20181407 trR 137 (cat) -[2023j 291 Taxmann.com 304 (Gui)

5 announts to transfer within the meaning of Section 2$7)(vl of t}re Act. It is further submitted that in pursuance of the development agreement, the possession was handed over to the developer. In support of his submissions, reliance has been placed on the Division Bench decisions of the erstwhile High Court of Andhra Pradesh in Potla Nageswara Rao vs. Deputy Commissioner of Income Tax a , High Court of Bombay in Commissioner of Incorne Tax, Pune vs. Arvind S Phakes, Kerala High Court in Commissioner of Income Tax vs. Harbour Viewo and the order of the Supreme Court in Harbour View vs. Commissioner of Income Tax7. 9. By way of rejoinder, learned Senior Counsel for the assessee has invited the attention of this Court to substaltial questions of law framed in P.T.Narasimhachar vs. the Assistant Settlement Oflicer, Chittoor e and has submitted that the aforesaid substantial questions of law do not pertain to the issue involved in this appeal and therefore, the aforesaid decision has no application to the fact situation of the case. It is contended that even if the decision in Potla Nageswara Rao vs. Deputy 4 2014 Lawsuit (AP) 377 s 2017 Lawsuit (som) 2871 6 [2018] 409 trR s99 (Ker) ' [zozl] +eo trn +g: (sc) t 1970 SCC OnLine eP 117 : 1971 (2) ALT 17

7 Commissioner of Income Tax (supra), is held appli:able to the fact situation ol- the case, the same has been implied ly overruled in view of the decision of the Supreme Court in Seshas;ryee Steels Private Limited vs. Assistant Commissioner of Income Tax, Chennai (supra). In support of the aforesaid submission, reliance has been praced on the Division Bench decision of the erstwhile Andhra Pradesh High Court in p.T.Narasimhachar. vs. The Assistant set'ement oflicer, chittoors. It is also urgr:d that the decision in Commissioner of Income Tax vs. Harhour View (supra) and the Commissioner of Income Tax vs. T.Bi.Dayaluro rendered by the Kerala and Karnataka High Courts rt:spectively have no application to the fact situation of the cirse. It is contended that in the instant case, agreement was executed without any consideration. It is therefore argued that in view of the decision of the Supreme Court in Seshasayee Steels private Limited vs. Assistant Commissioner of Income Tax, Chennai (supra), the substantiar questions of law deserve to be arxiwered in favour of the assessee. 10. We have considered the rival submissions on both sides and have perused the record. 9 1970 SCC OnLine Ap 117 2077 (2O2) taxman 531 t0

1 1 . Before proceeding further, it is apposite to take note of relevant statutory provisions of the Income Tax Act, 1961. Section 2(47) defines the expression 'transfer' in reration to capital assets. The aforesaid definition is inclusive in nature and reads as under: "2(471 "transfer", in relation to a capital asset, includes_ (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock_in_trade of a business carried on treatment; or by him, such conversion or (iva) the maturit5z or redemption of a zero coupon bond; or (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 53_A of the Transfer of Property Act, 1882 (4 of 1882); or (vi) any fansaction (whether by way of becoming a member of, or acquiring shares in, a cooperative societSz, company or other association of persons or by way of any agreement or any arrangem€nt or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explaaation- 1.-For the purposes of sub_clauses (v) and (vi) 'immovable prgpeq/ shall have the same meaning as in clause (d) of Section 26g_t. \.

9 Explanation-2.-For the removal of doubts, it is hereby clarified that ..transfer" includes and shall be dr:emed to have always included disposing of or partingl with an asset or any interest therein, or creatinll any interest in any asset in any manner whats,tever, directly, or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of al agree ment (whether entered into in India or outside Indja) othenvise, notwithstanding that such transft:r rights has been characterised as being effeckd dependent upon or flowing from the transfer of a lihare or shares of a outside India;" company registered or rncorpo -ated 12. In section 2$zl(v) of the Act, reference has been made to Section 53A of the Transfer of property Act, lg,l2, which incorporates the doctrine of equity of part performance (,f contract. Section 53A introduces in limited form the doctrine o equity of part performalce in India where requirements mentioned in the provrslons are satisfied (see Ramachandra5Sra vs. Section 53A of the Transfer of property Act, 1882 reads as under: or of or Satyanarayana rr). "53A. contracts Part Performance:- Where any perr;on tc, transfer for consideration any immova ble property by writing signed by him or on his behalf from ArR 1964 5C 877

10 which the terms necessary to constitute the transfer can be ascertained with reasonable certaint5r, 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 therefor 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'" 13. Thus, it is evident that in order to attract the applicability of Section 53A of the Transfer of Property Act, 1882, as held by the Supreme Court in Shrimant Shamrao Suryavanshi vs' Prahlad

a:.1 11 Bhairoba Suryavanshir2, the following conditions are required to be fulfilled: "(1) there must be a contract to transfer for consideration of any immovabie propert5r; (21 tt.e contract must be in writing, signed by the transferor, or by someone on his behalf; (3) the vzriting must be in such words from which the terms necessary to construe ascertained; (4) the Yansferee must in the transfer can be part-performance of the contract take possession of the property, or of any 1>art thereof; (g the transferee must have done some act in furtherance of the contract; and (6) the transferee must have performed or be willingl to perform his part of the contract." 14. Now we may advert to the facts of the case in hand. Clauses 4' 6 and 8 of the deveropment agreement dated 04.05.r996 read as under: "4. That 60% of the constructed portion along with 6C% undivided share in land would be retained by the Second Party in lieu of their developing the total area of the schedule property with their funds and tne other 4(Pk constructed prortion al0ng with 40% undivided share n land with all the amenities will be delivered to the Fir,rt Party in lieu of utilization of the owner,s land by tte "1zooz1 : scc oze

Second Party for construction. The total super built up area to be delivered to the First Party will not be less than 6O00 sq.ft. spread over Ground, First and Second Floors for the first revised sanction or in any other manner agreed upon by both parties. It is agreed that the ratio of 40% wili apply for further floors, if constructed, according to the sanction for construction granted by the Municipal Corporation of Hyderabad or Government which shall include a pent house in the owner's portion wttl:, 4ooh terrace rights. 6. That as a performance guarantee the Second Party have deposited an amount of Rs.2,0O,000/- (Rupees two lakhs only) with First Party vide Pay Order No'OO2314 dated 04.05.1996 for Rs.2,O0,OOO/- (Rupees two lakhs only) drawn on Bank of Bahrain and Kuwait B'S'C', Somajiguda, Hyderabad. The receipt of which the First Party hereby admits and acknowledged, which is returnable to the Second Party without any interest after the execution of the work entrusted to the Second Party under this agreement and after completion of all further floors. It is hereby clarihed ttrat 4fo/o of the builtup portion includes usable area i.e., floor area as also the other areas Iike Balcony, Staircase, Lifts, Corridors, and other common spaces etc. Similarly, apart from this, 40%o of the Car Park area shall be given to the First Party, all these will be clearly demarcated on the plan after obtaining sanction from the MCH or Government' 8. The owner shall be liable to pay Municipal taxes, non-agriculfure and other charge'r and duties relating to

Possession to the developers.. 13 Propert5r upto the date of deiivery of the schedule i5. The assessee vide letter dated possession of the land to the develope 16. Thereafter, 11.0S.1996 handeC over the r. The relevant extract of the aforesaid letter, rvhich is referred to by the assessing officer in para 5.5 of the orcler reads as under: "5.5 By virtue I 1.05.1996 ,,n. .""... of " Possession Letter dar.ed said rand to trre oeverop?,T:fJ::::",T::::" ",,.. "[n pursuance of th d a te d 4 rh r, r,, r r u,- L :r"r::"t":ffJTT",T."") : have handed over this schedule land mention.t ot' vacant possession of the pu rpose or cerrryin g "", ;.'::T,::*: :;:::::rs ro r tL e supplementary agreement dated 26.12.1996 was executed between the parties, which contains a recital that developer had obtained municipal sanction for construcl ion of a residentiai complex rrnder permit No.6 of 1959, dated 26.O2.16 and has commenced r:onstruction work. lt 17. Thus, from the ,f616,,1sntioned facts, it is evident that even though there is a contract to transfer the immovable proiler[r, which is signed by the parties, yet the contract has not been i

L4 executed for consideration. A sum of Rs.2,00,000/- mentioned in paragraph 6 of the development agreement is only the performance gua-rantee which is refundable. The aforesaid amount of Rs.2,00,00O/- has not been paid by way of consideration of the transaction. The developer has been handed over the possession for the limited purpose of carrying out the development work' Therefore, in pursualce of the development agreement, the possession of the immovable property has not been handed over to the developer as contemplated under Section 53A of the Transfer of the Property Act, 1882. Therefore, the same does not fall within the definition of 'transfer'under Section 2$71 of the Act' 18. Insofar as reliance placed by the learned Senior Standing Counsel for the Revenue in Potla Nageswara Rao vs' Deputy Commissioner of Itlcome Tax (supra) is concerned, the same is an authority for the proposition that elernent of factual possession and agreement are contemplated as transfer within the meaning of Section 2$71 of the Act. It has further been held that when the transfer is complete, the consideration mentioned in the agreementforsalehastobetakenintoconsiderationforthe purpose of assessment of income. In the instalt case' under the development agreement there is no transfer and the consideration has also not been paid' Therefore, the aforesaid decision of the

15 t Division Bench has no application to the fact situation of the case. Similarly, in the case of Commissioner of Income Tax 's. Arvind S Phake (supra), the possession was handed over to the deveroper and the entire consideration was paid. In the instant case, consideration has not been paid. Therefore, the Divisi,tn Bench decision of the Bombay High Court a_lso does not apply to the fact situation of the case. In Commissioner of Income Tax vs. Harbour View (suora), the Division Bench of Kerala High Court on the facts of the case found that the possession of the prol)erty was handed over under Section 53A of the Transfer of property Act, 1882. Therefore, the aforesaid decision also has no application to the fact situation ol the case. 19' However, the finding has been recorded by the TribtLnal that the appellant has halded over the possession of the entire property enabling 1.he developer to enjoy-60% of the constructed area of the building cannot, but be said to be perverse. Similarly, the frnding that th e assessee is liable to pay capital girins tax during the assessment year lgg7 _gg also cannot be sustaitred. 20. For the aforementioned reasons, the substantia_l ques tions of law framed in this appeat are answered in favour of the assessee and against the revenue. t I I I I I I \ I i I il

4 16 21. In the result, the orders dated 09.06'2006 passed by the Income Tax Appellate Tribunal, dated 21.03'20O3 passed by the Commissioner of Income Tax (Appeals)-V, Hyderabad and dated 21.O2.2OO2 passed by the Assessing Offrcer are quashed' The appeal is accordingly allowed. There shall be no order as to costs' Miscellaneous petitions, pending if any, shall stand closed' I Sd/- K. SRINIVASA RAO JOINT REGISTRAR /TTRUE COPYI/ SECTION OFFICER To, 1. The lncome Tax Appellate Tribunal' Hyderabad 'A' Bench' Hyderabad The lncome Tax Officer, Ward 4(2)' Hyderabad One CC to M/s R.S. Associates' Advocate [OPUC] oneCCtoMrJ.V.Prasad,seniorStandingCounselforlncomeTax Department IOPUCI 5. Two CD CoPies VA/gh 2 3 4 Il, I I I Iir it

HIGH COURT DATED:0TtO1tzLls JUDGMENT ITTA.No.527 ot 2006 ALLOWING THE ITTA ?*- -'t/ J t) 0 i it\.|.i ?[?5 o \r A I E k\ \?\ rl -t-.j ".i' / ( q 'trlo c.\ :1.: \''cu' 2-\ -7 I \ t