INCOME TAX OFFICER 10(3) -1, MUMBAI vs. ALFREIGHT INTERNATIONAL PVT. LTD., NAVI MUMBAI

P a g e | ITO Vs. M/s Alfreight International pr ope rtie s for an a ggre ga te conside ration of Rs. 1, 18, 87, 715/ -. It wa s f urthe r notice d by the A. O, that the assessee had a lso cla ime d to ha ve made addition in the same „blo ck of asse ts ‟ of off ice pre mise s, a s unde r: -

Da te of Par ticula rs Value of addition Pr ope rty (a s pe r the asse sse e ) 27. 11.2008 Pur cha se of Re side ntia l Rs. 26,50,101/ - pr ope rty a t Na gpur. 18. 03.2009 Pur cha se of Row house Rs. 70,00,000/ - (be longing to the dire ctor of the asse sse e company, viz. Mr. L. D Fe rna nde s) Tota l Rs. 96,50,101/ - The A.O after deliberating on the facts pertaining to the purchase of the aforesaid properties during the year under consideration, had certain doubts as regards the veracity of the claim of the assessee. Thus, the A.O being of the view that the purchase transactions of the aforesaid properties had not concluded during the year under consideration, therefore, called upon the assessee to explain as to why the additions of the aforesaid properties in the „block of asset‟ under office premises may not be excluded and the income arising from the sale of the properties forming part of the said „block of assets‟, be not assessed as short term capital gain under Section 50 of the Income-tax act,1961, as well as the depreciation of Rs.12,699/- claimed on the said „block of assets‟ be disallowed.

P a g e | ITO Vs. M/s Alfreight International 4. The assessee in compliance to the directions of the A.O, submitted as under:-

(A). Residential property at Nagpur: i). That the residential property marked as 15, Mehar Colony, Nagpur, was purchased vide agreement dated 26.08.2006 for an amount of Rs.25,00,101/-. ii). That the physical possession of the property was received by the assessee on 21st October, 2008. The assessee in order to fortify its claim that the possession of the property was delivered on 21.10.2008, furnished with the A.O a copy of the possession receipt evidencing the said fact. iii). The aforesaid property was put to use for its business purposes w.e.f. 27.11.2008. iv). That it had had capitalized in its „books of accounts,‟ the purchase consideration of Rs. 25,00,101/- that was paid in terms of the agreement dated. 26.08.2006. v). That the substantial amount of purchase consideration was paid to the seller on or before F. Y. 2008-09. vi). That though the aforesaid purchase transaction stood concluded during the year under consideration, however, in order to secure the title, the sale deed in favour of the assessee was executed on 24.08.2009, i.e in assessment year 2010-11. vii). That as the possession of the property was delivered to the assessee and the same was put to use for its business purpose during the year under consideration, viz. A.Y. 2009-10,

P a g e | ITO Vs. M/s Alfreight International therefore, depreciation was allowable as per the provisions of section 32 of the „Act‟.

(B).Property marked as 94, Sector 2, Koparkhairane, Navi Mumbai: i). The Property marked as 94, Sector 2, Koparkhairane, Navi Mumbai was purchased by assessee, vide agreement dated 18.03.2009 for a consideration of Rs. 70.00,000/-. ii). The physical possession of the property was delivered to the assessee on 18.03.2009. The assessee in order to fortify its contention of having been put into possession of the property on 18.03.2009, placed on the record of the A.O a copy of the possession receipt evidencing the said fact. iii). The property was put to use for the business purposes of the assessee w.e.f. 18.03.2009. iv). That the assessee had capitalized the purchase consideration of Rs.70.00 lac in its books of account. v). That substantial amount of purchase consideration was paid by the assessee to the seller on or before F.Y.2008-09. vi). That the clause in respect of the final installment of the purchase consideration to be paid on or before 31.03.2012 in the agreement was just a standard clause for payment term. vii). That as the assessee after receiving the possession of the property, had put to use the same for its business purpose during the F.Y.2008-09, therefore, depreciation was allowable as per the provisions of Section 32 of the „Act‟.

P a g e | ITO Vs. M/s Alfreight International 5. The A.O after deliberating on the details furnished by the assessee in order to drive home its contention that the purchase transactions of the respective properties had concluded in the period relatable to the year under consideration, viz. A.Y. 2009-10, however, did not find favor with the same, for the following reasons :-

(A). Residential property at Nagpur: i). The A.O observed that as the „Agreement of sale‟, dated 26.08.2006 in respect of the aforesaid property was executed on a Non-Judicial Stamp Paper of Rs.100/- and the stamp duty on the value of the property was not paid, therefore, it could safely be concluded that the same was not a valid agreement as per the Stamp Duty Act. ii). The A.O observed that as per Clause 4 of the „Agreement of sale‟, it was clearly mentioned that physical vacant possession will be handed over by the seller to the purchaser at the time of sale deed. The A.O in the backdrop of the aforesaid recital in the agreement, thus concluded that as the sale deed was registered only on 24.08.2009, i.e in the period relevant to A.Y.2010-11, therefore, the physical possession of the property would have been delivered to the assessee only in A.Y. 2010-11.

(B).Property marked as 94, Sector 2, Koparkhairane, Navi Mumbai: i). The A.O observed that the aforesaid property, which was a row house belonged to the director of the assessee company, viz. Mr. L.D. Fernandes who had 85.99% share holding in the assessee company. ii). The AO observed that the assessee company had claimed to have purchased the row house property for a P a g e | ITO Vs. M/s Alfreight International consideration of Rs.70,00,000/-, vide an unregistered deed of assignment and transfer, dated.18.03.2009, executed on a Non Judicial stamp paper of Rs.100/-. That it was further observed by the A.O that the stamp duty on the value of the transaction of Rs. 70,00,000/- evidenced by the deed of assignment and transfer was not paid, therefore, it could safely be concluded that the same was not a valid agreement as per the Stamp Duty Act.

(iii). The A.O observed that neither the property was registered, nor the full payment of purchase consideration was paid, during the year under consideration.

(iv). The A.O observed that as per the deed of assignment and transfer dated.18.03.2009, the property was subject to prior approval from CIDCO in order to facilitate any transfer. That as per the A.O the assessee had during the course of assessment proceedings not furnished the copy of any such approval by the CIDCO.

(v). The A.O observed that the character of the aforesaid property which was being used by the director of the company for residential purpose was also not changed before and after the execution of the deed of assignment and transfer dated. 18.03.2009.

The A.O on the basis of his aforesaid observations, thus, holding a conviction that the purchases transactions of the aforesaid properties had not yet concluded during the year under consideration, as claimed by the assessee, therefore, excluded the respective additions of the same from the „block of P a g e | ITO Vs. M/s Alfreight International assets‟ of office premises. Thereafter, the A.O after reducing from the opening „written down value‟ (as on 01.04.2008) of the „block of assets‟ of office premises, the sale consideration of Rs.1,18,87,715/- of two properties forming part of the said block which were sold by it during the year under consideration, thus, assessed the Short term Capital Gain of Rs. 93,96,127/- in the hands of the assessee under Sec.50 of the „Act‟. The A.O further disallowed the depreciation of Rs. 12,699/- that was claimed by the assessee in respect of the aforesaid „block of asset‟.

9.1 I have gone through the assessment order and also the contention of the appellant before me. The major issue to be decided is whether conveyance of the property is made or not and whether transfer is complete in absence of full payment. From the documents submitted before me it is seen that the appellant company has taken the possession of the property during the A.Y. 2009-10 and even the AO is not disputing this fact. As per Section 2(47) – 'transfer', in relation to a capital asset, includes, -

P a g e | ITO Vs. M/s Alfreight International (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 by him, such conversion or treatment; or (iva) the maturity 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 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. Explanation-2 says that "transfer' includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterized as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. 9.2 Now from the plain reading of section 2(47) it is seen that the appellant’s case falls under it. The property has been transferred in the name of the company and the property has been used for business purposes is proved by the documentary proof of office expenses, telephone expenses and other expenses bills produced and which were reflected in the profit and loss account. It is also seen that the sale of the said property has been duly shown in the return of income of Mr. L.D. Fernandes for the A.Y 2009-10 in which the Capital Gain on sale of the New Mumbai premises has been shown. The A.O has not accepted the same citing that the property was not registered and final amount have not been paid. It is seen that out of Rs.70,00,000/- only Rs.2,95,232/-is payable and hence, in my opinion, two properties have been rightly entered in the block of assets and the depreciation claimed by the appellant company should be allowed and it is not P a g e | ITO Vs. M/s Alfreight International liable for Short Term Capital Gain. Hence, addition on account of Short Term Capital Gain is hereby deleted and the AO is directed to consider the said amount in the block of assets and to allow depreciation made by the appellant. 10. In the result, appeal is allowed.”

P a g e | ITO Vs. M/s Alfreight International available on record. We have given a thoughtful consideration to the facts of the case and are of the considered view that our indulgence in this case is sought to adjudicate as to whether in the backdrop of the facts borne from the records, it can be concluded that the purchase transactions of the aforementioned properties, viz. (i). Residential property at Nagpur; and (ii). Property marked as 94, Sector 2, Koparkhairane, Navi Mumbai, as claimed by the assessee, had concluded during the year under consideration, viz. A.Y. 2009-10, or not. We have deliberated on the contentions of the authorized representatives for both the parties in the backdrop of the facts available on record, and our view as regards the respective purchase transactions of the aforementioned properties, is as under:-

(A). Residential property at Nagpur: (i). We find that as regards the residential property at Nagpur, the same is claimed to have been purchased by the assessee by way of an unregistered agreement to sell, dated. 26.08.2006, executed on a Non-judicial Stamp Paper of Rs. 100/-, while for the sale deed stood executed only as on 24.08.2009. We further find that the assessee taking support of the possession receipt, had claimed that the physical possession of the said property was received on 21.10.2008, i.e during the period relevant to the year under consideration. That as stands gathered from the records, the A.O had disbelieved the claim of the assessee that the possession of the property was delivered to it during the year under consideration, viz. A.Y. 2009-10, on the ground that as per the recital in the agreement to sell, the possession of the property was to be delivered at the time of execution of the sale deed, which took place only as on 24.08.2009, i.e in the A.Y. 2010-11.

P a g e | ITO Vs. M/s Alfreight International (ii). We have given a thoughtful consideration to the facts pertaining to the purchase of the property under consideration. We are of the considered view that it remains as a matter of fact that as per the terms of the agreement to sell, the assessee was to be put into possession of the property only at the time of the execution of the „Sale deed‟, which we find was executed only as on 24.08.2009, i.e in the period relevant to A.Y. 2010-11. However, the claim of the assessee that it had received the possession of the property on 21.10.2008, i.e during the year under consideration itself, had been substantiated by the assessee on the basis of the possession receipt, remains a fact that cannot be lost sight of. We are of the considered view that now when the genuineness and veracity of the possession receipt had not been disproved by the A.O, therefore, the aforesaid claim of the assessee which is backed by a documentary evidence, cannot be dislodged. We further find that as stands gathered from the order of the CIT(A), the assessee had upto 20.03.2009, i.e during the year under consideration paid an amount of Rs. 20,34,901/- (out of total purchase consideration of Rs. 25,00,101/-) to the seller, while for only an amount of Rs. 4,78,979/- remained payable. We thus in the backdrop of the aforesaid facts, viz. (i). possession of the property was received by the assessee during the year; and (ii). substantial part of the purchase consideration of Rs. 20,34,901/-(supra) was paid by the assessee to the seller during the year under consideration, viz. A.Y. 2009-10, would hereinafter proceed with and adjudicate the issue before us.

(B). Property marked as 94, Sector 2, Koparkhairane, Navi Mumbai

P a g e | ITO Vs. M/s Alfreight International (i). We find that as regards the aforesaid property marked as 94, Sector 2, Koparkhairane, Navi Mumbai, the same is claimed to have been purchased by the assessee from its director Shri. L.D Fernandes, who had been using the same for his residential purpose. The aforesaid property was purchased by the assessee by way of an unregistered deed of assignment and transfer, dated. 18.03.2009, executed on a Non-judicial Stamp Paper of Rs. 100/-. We further find that the assessee taking support of the possession receipt, had claimed that the physical possession of the said property was received by him on 18.03.2009, i.e during the period relevant to the year under consideration. That as stands gathered from the records, the A.O had disbelieved the claim of the assessee that the possession of the property was received by him during the year under consideration, i.e A.Y. 2009-10. The A.O held a conviction that in the backdrop of certain material facts, viz. (i). the deed of assignment and transfer was unregistered, on the basis of which the same fell short of a valid document; (ii). no prior approval from CIDCO as statutorily required was obtained to facilitate the transfer; (iii). the total purchase consideration had not been parted with by the assessee in favor of the seller of the property, viz. Shri. L.D Fernandes; and (iv). the character of the user of the property which was earlier being used by the seller for his residential purposes, was not changed by the assessee, it could thus safely be concluded that the purchase transaction of the property under consideration had not concluded during the year under consideration.

(ii). We have given a thoughtful consideration to the facts pertaining to the purchase of the property under consideration. We are of the considered view that the very fact that the deed of P a g e | ITO Vs. M/s Alfreight International assignment and transfer, dated. 18.03.2009 was unregistered, would undoubtedly justify raising of doubts on the part of the A.O as regards the claim of the assessee that it was put into possession of the property on the basis of the said unregistered document. However, the claim of the assessee that it had received the possession of the property on 18.03.2009, i.e during the year under consideration itself, had been substantiated by the assessee on the basis of the possession receipt, remains a fact that cannot be lost sight of. We are of the considered view that now when the genuineness and veracity of the possession receipt had not been disproved by the A.O, therefore, the aforesaid claim of the assessee which is backed by a documentary evidence, viz. possession receipt, cannot be dislodged. That still further we find that the other facts, viz. (i). „Affidavit‟ of the Managing Director of the assessee company viz. Mr. L.D Fernandes therein deposing that the property was purchased by the assessee on 18.03.2009 for office purpose and staff was employed at the said location; (ii). copy of the board resolution authorizing the assessee company to sell the other office premises and purchase the properties under consideration, i.e at Koparkhairane and Nagpur; and (iii). copy of the return of income of the seller of the property, viz. Mr. L.D Fernandes for A.Y. 2009-10, reflecting the Capital gain on sale of the property, substantially evidences the fact that the purchase transaction of the aforesaid property concluded place during the year under consideration itself. We further find that as stands gathered from the order of the CIT(A), the assessee had during the year under consideration paid an amount of Rs. 67,04,768/- (out of total purchase consideration of Rs. 70,00,000/-) to the seller, while for only an amount of Rs. 2,95,232/- remained payable. We thus in the backdrop of the aforesaid facts, viz. (i). possession of P a g e | ITO Vs. M/s Alfreight International the property was delivered to the assessee during the year; and (ii). substantial part of the purchase consideration of Rs. 67,04,768/- (supra) was paid by the assessee to the seller during the year under consideration, viz. A.Y. 2009-10, would hereinafter proceed with and adjudicate the issue before us.

P a g e | ITO Vs. M/s Alfreight International of the „Act‟. However, we are of the considered view that the facts, viz. (i). possession of the respective properties were received by the assessee during the year; and (ii). substantial part of the purchase consideration in respect of both the properties was paid by the assessee to the respective sellers during the year under consideration, viz. A.Y. 2009-10, shall have a material bearing on the adjudication of the issue as to whether a „transfer‟ of the property under consideration could be said to have taken place in favor of the assessee, therein vesting with him the rights as that of the „Owner‟ of the property during the said year, or not.

“Explanation-2 says that "transfer' includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterized as being effected or dependent upon or flowing from the transfer or a share or shares of a company registered or incorporated outside India.”

We thus are of the considered view that on the basis of the facts, viz. (i). possession of the aforementioned properties was delivered to the assessee during the year; and (ii). substantial purchase

P a g e | ITO Vs. M/s Alfreight International consideration in respect of both the properties was paid by the assessee to the sellers during the year under consideration, viz. A.Y. 2009-10, therefore, it can safely be concluded that in terms of the clarificatory Explanation 2 of Sec. 2(47)(v) as had been made available on the statute by the legislature in all its wisdom w.r.e.f 01.04.1962, the „transfer‟ of the respective properties under consideration, viz. (i). Residential property at Nagpur; and (ii). Property marked as 94, Sector 2, Koparkhairane, Navi Mumbai, can safely be held to have concluded during the year under consideration, viz. A.Y. 2009-10. We further in the backdrop of our aforesaid observations find ourselves to be in agreement with the contentions raised by the assessee before the lower authorities that though the execution of the sale deed would be indispensably required to secure a legal title in favor of the purchaser of the property in the revenue records, but however, the same can neither be determinative, nor can be allowed to become a tool for deferring the incidence of “transfer” and facilitating keeping in abeyance the tax liability of the seller of the property, to the extent the chargeability of tax under the Income tax Act, 1961, is concerned. We find that our aforesaid view stands fortified by the judgments of the Hon’ble Supreme Court in the following cases:-

(i). R.B. Jodha Mal Kuthiala Vs. CIT (1971) 82 ITR 570 (SC). (ii). CIT vs. Podar Cement (P) Ltd. Etc.. (1997) 226 ITR 0625 (SC)

P a g e | ITO Vs. M/s Alfreight International The Hon‟ble Apex Court in the aforesaid judgments had concluded that „Owner' for the purposes of Sec. 22 is a person who is entitled to receive income from the property in his own right, and the requirement of registration of sale-deed in the context of s. 22 is not warranted. That still further we find that the Hon’ble Supreme Court in the case of Mysore Minerals Ltd. vs. CIT (1999) 239 ITR 0775 (SC), had held as under:

“It is well-settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the legislature in enacting s. 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent. To take the case at hand it is the appellant-assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the buildings for the purpose of its business in its own right. Still the assessee has been denied the benefit of s.

P a g e | ITO Vs. M/s Alfreight International 14. For the foregoing reasons, in our opinion, the High Court was not right in taking the view which it did. The appeal is allowed. The judgment of the High Court is set aside. The question referred by the Tribunal to the High Court is answered in the negative, that is, against the Revenue and in favour of the assessee. No order as to the costs.”

Order pronounced in the open court on 25.09.2017.