INDRAPRASTH GRIH NIRMAN SHAKARI SANSTHA MRYADIT,GOVINDPURA vs. DCIT 3(1) BHOPAL, BITTAN MARKET

Before the Tribunal the Ld. AR of the assessee has submitted that due to the subsequent development of suspension of the governing body of the society by the Co-operative Department and taking over the administration by the Government as well as no approval of the revised plan, the buyers of the plots requested the assessee not to encash the cheques and therefore, both the parties decided to get the sale deed cancelled in the mutual interest of the parties. Ld. AR has submitted that initially a Memorandum of Understanding dated 05.02.2011 was entered into between the parties under which advance cheques shall be given by the buyers but it shall be presented only after the revised layout plan is got approved. Possession of the plots shall be handed over to the buyers only after the revised layout plan is approved and cheques are encashed. In view of the development of dissolution of the governing body of the society by the office of the Registrar, Cooperative, Govt. of Madhya Pradesh the activity of the society came to the stand still and lead to the delay in approval of the revised layout plan therefore, a second Memorandum of parties and the transactions were decided to be rescinded/abandoned. Thereafter the non encashed cheques were returned by the seller to the buyers and a settlement agreement dated 05.09.2019 was also entered into between the parties. Ld. AR has submitted that since neither the possession of the land was handed over to the buyers nor the payment was received by the seller and the sale deeds would stand void and resulted no transfer of the plots of land. This settlement agreement contains an arbitration clause and consequently the dispute was referred to the Arbitrator who has passed an award dated 12.02.2022 and resolved the disputes by awarding compensation to the buyers with interest @12% w.e.f 01.04.2011. The assessee society challenged the arbitration award before the Court of Additional District Judge, Bhopal in respect of the payment of interest @12% from 01.04.2011. The said petition of the assessee was finally disposed by the Court of Additional District Judge, Bhopal in the Lok Adalat vide order dated 14.05.2022 by revising the rate of interest to 9% from August 2019 to May, 2022. Now the dispute is finally settled by the order of Additional District Judge, Bhopal and interest @9% to the buyers. Thus in view of the said arbitration award and order of the Additional District Judge, Bhopal the sale transactions stands cancelled and there would be no income on this account The Ld. AR has thus submitted that when there is no real income arising from the said transactions on transfer of plots by the assessee group housing cooperative society to the buyers then the addition made by the A.O is not justified and same is liable to be deleted. He has relied upon the decision of the Jaipur Bench Tribunal in case of ACIT v/s Ijyaraj Singh 183 ITD 237(Jaipur-Trib.).

On the other hand the Ld. DR has submitted that the assessee could not produce any documentary evidence to show that the transaction of sale of plots vide registered sale deeds got cancelled.

We have considered the rival submissions and relevant material on record. The A.O has issued notice u/s 148 of the Act based on the information regarding the sale of 3 plots by the assessee during the year, the details of which are given by the A.O in the assessment order as under:

6.5 It is pertinent to note that the mere registration of sale deed cannot be a valid title in favour of the buyer if the intentions of the parties is not to pass on the title immediately but subject to satisfaction of certain conditions. Normally the registered sale deed is a good evidence to prove the transfer of an immoveable property however, the intention of the parties cannot be ignored to treat the transfer as an effective one on satisfaction of the conditions only. The Jaipur Bench of the Tribunal in case of ACIT V/s Ijyaraj Singh (supra) while considering the issue of transfer of immoveable property has held in para 19 to 29 as under:

“19. We now refer to the decision of the Hon'ble Punjab & Haryana High Court in case of Hira Lal Ram Dayal v. CIT [1979] 2 Taxman 579/[1980] 122 ITR 461 wherein the question for consideration before the Hon'ble High Court was "whether it is open to the assessee to prove that the sale transaction evidenced by the registered sale deed was sham transaction and no sale in fact took place." The Hon'ble High Court while answering the said question held that the Tribunal fell in legal error where it says that it cannot ignore a document which is duly executed and registered with the Sub-Registrar and the findings of Hon'ble High Court read as under: "It is no doubt true that the evidentiary value has to be attached to a registered document but the said document cannot be a final word in the matter. It has to be remembered that capital gains accrue only if there is a sale or any other transfer of the capital asset and if the assessee is able to prove that in fact no sale took place in that case no capital gain accrued which could be assessed to income-tax. If the assessee, even in the face of the registered sale deed, is able to Indraprasth Grih Nirman Shakari Sanstha Maryadit prove by cogent evidence and satisfy the Tribunal that no sale in fact took place, in that case, the Tribunal has to come to the conclusion that there was no capital gain. As is apparent from the observations made in the order of the Tribunal, the Tribunal was under the misapprehension that the registered sale deed was final and, therefore, refused to look into the other material produced by the assessee with a view to prove its case that the sale transaction was a sham transaction. It is, however, a different matter that the Tribunal may not feel convinced that the sale transaction was a sham transaction and refuse to rely on the material produced by the assessee for good reasons, but the said material had to be taken into consideration and could not be ignored. As already observed, the enquiry before the Tribunal was to be directed to find out whether there had been a sale and if the Tribunal comes to the conclusion that the sale had taken place, in that case, the capital gains tax would become payable. The matter can be viewed from another angle. It is a matter of daily happening that people, who want to avoid payment of tax, would sell the property by getting the sale deeds registered at an under-estimated value. If it is held that the sale deed is final, in that case, the Income-tax authorities will be debarred from looking into as to how much sale consideration passed under the transaction, which is not the law. The factum of sale and the sale proceeds are the real questions to be determined by the Income-tax authorities. From what has been stated above, it is clear that the Tribunal fell into an error in refusing to examine the material put forth by the assessee to prove that the sale was a sham transaction."

We refer to the decision of the Hon'ble Patna High Court in case of Smt. Raj Rani Devi Ramna (supra) where the questions framed for consideration before the Hon'ble High Court read as under:

The legal proposition which emerges from reading of aforesaid decisions is that that a registered sale deed does carry an evidentiary value. At the same time, where the assessee is able to prove by cogent evidence brought on record that no sale has in fact taken place, then, in such a scenario, the taxing and appellate authorities should consider these 19 Indraprasth Grih Nirman Shakari Sanstha Maryadit evidences brought on record by the assessee and basis examination thereof, decide as to whether sale has taken place or not in the given case. Further, it has been held that the title in the property does not necessarily pass as soon as instrument of transfer is registered and the answer to the question regarding passing of title lies is the intention of the parties executing such an instrument. The Registration is no proof of an operative transfer and where the parties had intended that despite execution and registration of sale deed, transfer by way of sale will become effective only on payment of the entire consideration amount, then in such a scenario, the transfer will be effected only on payment and receipt of full sale consideration and not at the time of execution and registration of sale deed.

Applying the above legal proposition in the facts of the present case, we find that the first sale deed dated 24-12-2012 is for transfer of 3.71 hectares of land situated at village Rampura, Tehsil Ladpura, Kota district, Rajasthan for a sale consideration of Rs. 4.63 crores. The sale consideration has been stated to be discharged by issue of cheque no. 912806 for Rs. 63 lacs, cheque no. 912807 dated 2-1-2013 for Rs. 2 crores and cheque no. 912808 dated 2-1-2013 for Rs. 2 crores drawn on Punjab National Bank. The assessee received the first payment of Rs. 63 lacs through RTGS on 31-12-2012. However, the other two cheques were returned unpaid by the bank on 25-3-2013 stating that the payment has been stopped by the issuer of the cheque i.e, Shri Rajeev Singh and basis his instructions of stop-payment, the cheques have not been cleared and returned unpaid to the assessee. What is therefore relevant to note is that out of total consideration of Rs. 4.63 crores as stated in the aforesaid sale deed, no payment has been actually made to or received by the assessee either prior to or at the time of execution of the sale deed. What has been apparently done at the time of execution of the sale deed is thus, the handing over the three cheques to the assessee and that too, post dated cheques which could not have been encashed at the time of execution of the sale deed. The intention of the parties which is therefore gathered and is clearly discernable from the reading of the sale deed and the conduct of the parties is that the operative transfer of the property shall happen only on encashment of all the three post-dated cheques and not at the time of execution and registration of the sale deed. Out of three cheques, one cheque has been cleared through RTGS on 31-12-2012 and other two cheques have however been returned back unpaid by the bank on 25-3- 2013. Therefore, mere handing over the post dated cheques which have Indraprasth Grih Nirman Shakari Sanstha Maryadit been subsequently dishonored and returned unpaid to the assessee cannot be held to be discharge of full sale consideration as intended and agreed upon between the parties and there is clearly a violation of the terms of sale deed by Shri Rajeev Singh where he has failed to discharge the full sale consideration so agreed and stated in the sale deed. Further, the matter has been contested under the Negotiable Instruments Act for dishonor of cheques and separately before the Civil Court for cancellation of sale deed due to breach of contract which further proves that at the time of entering into the sale deed, the intention was that the transfer of title in the land will be effective only on receipt of the full sale consideration.

Similar fact pattern is observed in respect of second sale deed dated 2-1-2013 for transfer of 2.57 hectares of land situated at village Rampura, Tehsil Ladpura, Kota district, Rajasthan for sale consideration of Rs. 3.40 crores. The sale consideration has been stated to be discharged by issue of cheque no. 912809 dated 2-1-2013 for Rs. 40 lacs and cheque no. 912810 dated 2-1-2013 for Rs. 3 crores drawn on Punjab National Bank. Both these cheques were presented for clearing by the assessee and returned unpaid by the bank on 25-3-2013 stating that the payment has been stopped by the issuer of the cheque i.e, Shri Rajeev Singh and basis his instructions of stop-payment, the cheques have not been cleared and returned unpaid to the assessee. What is therefore relevant to note is that out of total consideration of Rs. 3.40 crores as stated in the aforesaid sale deed, no payment has been actually made to or received by the assessee either prior to or at the time of execution of the sale deed. What has been apparently done at the time of execution of the sale deed is thus, the handing over the two cheques to the assessee which have been returned back unpaid by the bank on 25-3-2013. The intention of the parties which can therefore be gathered from the reading of the sale deed and the conduct of the parties is that the effective transfer of title in the land shall happen only on encashment and clearance of both the cheques and not at the time of execution and registration of the sale deed. Therefore, mere handing over the cheques which have been subsequently dishonored and returned unpaid to the assessee cannot be held to be discharge of full sale consideration at the time of execution of the sale deed and there is clearly a violation of the terms of sale deed by Shri Rajeev Singh where he has failed to discharge the full sale consideration so agreed and stated in the sale deed. Further, the matter has again been contested under the Negotiable Instruments Act for dishonor of cheques and separately before the Civil Court for cancellation of sale deed due to breach of contract which Indraprasth Grih Nirman Shakari Sanstha Maryadit further proves that at the time of entering into the sale deed, the intention was that the transfer will be effective only on receipt of the full sale consideration.

We are therefore of the considered view that though the sale deed has been registered, given that the terms of the sale deed and the intention of the parties at the time of entering into the said sale deed have not be adhered to whereby full sale consideration has not been discharged, there is no transfer of the impugned land and no income accrues and consequently, no liability towards capital gains tax arises in the hands of the assessee. This brings us to the concept of real income which can only be brought to tax and there cannot be any levy of tax on hypothetical income which has neither accrued/arisen or received by the assessee and useful reference can be drawn to the decision of the Hon'ble Supreme Court decision in case of CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC) wherein it was held as follows: "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 a l, there cannot be a tax, even though in book-keeping, 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 a l, 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."

And the latter decision of Hon'ble Supreme Court in case of CIT v. Balbir Singh Maini [2017] 86 taxmann.com 94/251 Taxman 202/398 ITR 531 where the Hon'ble Supreme Court has reiterated the principle of real income in context of section 45 and 48 and has held as under:- "24. The matter can also be viewed from a slightly different angle. Shri Vohra is right when he has referred to Sections 45 and 48 of the Income-tax Act and has then argued that some real income must "arise" on the assumption that there is transfer of a capital asset. This income must have been received or have "accrued" under section 48 as a result of the transfer of the capital asset. 22 Indraprasth Grih Nirman Shakari Sanstha Maryadit 25. This Court in E.D. Sassoon & Co. Ltd. v. CIT AIR 1954 SC 470 at 343 held: "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 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."

The above passage was cited with approval in Morvi Industries Ltd. v. CIT [Morvi Industries Ltd. v. CIT, (1972) 4 SCC 451 : 1974 Indraprasth Grih Nirman Shakari Sanstha Maryadit SCC (Tax) 140 : (1971) 82 ITR 835] in which this Court also considered the dictionary meaning of the word "accrue" and held that income can be said to accrue when it becomes due. It was then observed that: (SCC p. 454, para 11) "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."

This Court further held, and in our opinion more importantly, that income accrues when there "arises a corresponding liability of the other party from whom the income becomes due to pay that amount".

It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee.

Insofar as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement passbook, there was no corresponding liability on the Customs Authorities to pass on the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is, therefore, not the income of the assessee.' 27. In the facts of the present case, it is clear that the income from capital gain on a transaction which never materialized is, at best, a hypothetical income. It is admitted that, for want of permissions, the entire transaction of development envisaged in the JDA fell through. In point of fact, income did not result at all for the aforesaid reason. This being the case, it is clear that there is no profit or gain which arises from the transfer of a capital asset, which could be brought to tax under section 45 read with Section 48 of the Income-tax Act.

In the present case, the assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained. This being the case, in the circumstances, there was no debt owed to the assessees by the 24 Indraprasth Grih Nirman Shakari Sanstha Maryadit developers and therefore, the assessees have not acquired any right to receive income under the JDA. This being so, no profits or gains "arose" from the transfer of a capital asset so as to attract Sections 45 and 48 of the Income-tax Act."

In the instance case, given that the sale transaction fell through in view of non-fulfillment of the terms of sale deed whereby cheques have been dishonored by Sh. Rajeev Singh and he has failed to discharge the full sale consideration, there is no transfer and no income which has accrued or arisen to the assessee besides the fact that there is no receipt of sale consideration, thus no real income in hand of the assessee and in absence thereof, the assessee is not exigible to capital gains tax. Similar view has been taken by the Coordinate Bench in case of Appasaheb Baburao Lonkar v. ITO [2019] 104 taxmann.com 130/176 ITD 115 (Pune - Trib.) and the relevant findings reads as under: "9. From the perusal of above said facts, it is clear that though an agreement was entered into between the parties on 16-9-2010 which was also registered with the authorities, but admittedly total consideration was not paid to the assessee as the cheques which were handed over by the purchaser, were stopped for payment. The dispute arose between the parties, wherein the sellers i.e. assessee and his family filed an Injunction against the purchaser restraining him from creating any third party interest in the suit property till the decision of suit and an interim order was passed, which was challenged and subsequently, Civil Suit between the parties was decided, under which the suit of assessee and co-owners for cancellation of sale deed was dismissed. The co-owners of the property filed an appeal before the Hon'ble Bombay High Court. In the said appeal, it has been clearly mentioned that the possession of immovable property had not been parted with till the date and also the assessee had not received complete consideration for the purported sale transaction. Though the case of purchasers was that they had entered into sale transaction with the understanding that the assessee would get no objection from the other co-owners and for this reason, sale deed was executed and the cheques were handed over. The claim of purchasers before the Civil Courts was that they were put in possession since they had handed over the cheques, however, the said cheques were stopped for payment by the purchasers only, as it is clear from the communication placed on record by the assessee. 25 Indraprasth Grih Nirman Shakari Sanstha Maryadit 10. The issue which arises in such circumstances is that in view of the dispute between the parties, can it be said that the assessee has completed sale transaction and hence is eligible for assessability of capital gains in his hands.

Section 2(47) of the Act lays down that transfer in relation to capital asset includes various modes of transfer in which under clause (v) it involves a transaction wherein allowing of possession of any immovable property is taken or retained in part performance of the contract of the nature referred to in section 53A of the Transfer of Property Act, 1882. Under section 53A of the Transfer of Property Act, where any person contracts to transfer for consideration any immovable property in writing, from which the terms necessary to constitute the transfer can be ascertained and the transferee has in part performance of the contract, taken possession of the property or any part thereof, and the transferee has performed or is willing to perform his part of contract, then it is called 'Part Performance'. So, in part performance, there has to be willingness to perform his part of contract by the transferee and the transferee should have been put in possession in such part performance of the contract and the transferor has agreed to transfer the property for consideration. However, in the facts of the case before us, though there is a contract in writing between the parties but there is dispute between the parties as to the possession of the said property, wherein the transferor claims that possession has not been given and the transferee claims that the possession has been given but the said possession was subject to encashment of cheques which were issued by the transferee. Since the transferee had stopped payment of cheques issued by him, then the parties approached the Court to decide differences arising between them and the matter is pending before the Hon'ble High Court of Bombay in this regard. In such scenario, it cannot be said that part performance of the contract has been completed.

The Hon'ble Apex Court in CIT v. Balbir Singh Maini [2017] 86 taxmann.com 94/251 Taxman 202/398 ITR 531 and bunch of other appeals arising from the order of Hon'ble High Court of Punjab & Haryana CIT v. Balbir Singh Maini [2015] 123 DTR 49 has deliberated upon the relevant sections i.e. section 53A of the Transfer of Property Act and sections 2(47), 45 and 48 of the Income- tax Act and also took note of the provisions of section 2(47)(vi) of the 26 Indraprasth Grih Nirman Shakari Sanstha Maryadit Act and vide para 27 held that the income from capital gains on a transaction which never materialized was at best, a hypothetical income. In the facts of the case before the Apex Court, the entire transaction of development envisaged in the JDA fell through because of want of permission and hence, the Apex Court in such circumstances, held that In point of fact, income did not result at all for the aforesaid reason. This being the case, it is clear that there is no profit or gain which arises from the transfer of a capital asset, which could be brought to tax under section 45 read with Section 48 of the Income-tax Act.

The assessee in the affidavit explaining the delay in filing the appeal late before the Tribunal has also mentioned the factual aspects and the legal dispute and has stated on oath that sellers had never parted with the possession of said land, for which litigation was pending before the Hon'ble High Court. In such circumstances, where the assessee has not received sale consideration and where the possession of land having not been transferred to the purchasers, provisions of section 45 of the Act are thus, not attracted.

Now, applying the ratio laid down by Apex Court to the facts of present case, wherein the initial contract was between the parties on the ground that the assessee would get permission of other co- owners numbering about 13 so as to transfer immovable asset to the purchasers. This was the basic condition of the said agreement between the parties. Admittedly, the said permission could not be obtained by the assessee and though sale deed was registered, transaction could not be culminated. It is further evidenced by the fact that only sum of Rs. 15 lakhs was paid as against total consideration of Rs. 2,75,73,600/-settled between the parties. As per sale deed, sale consideration was to be paid as per Schedule A to the said agreement, for which postdated cheques were issued, which were to be encashed as per the conditions mentioned for encashment of cheques. As per clause 8 of the sale deed, the purchasers had given postdated cheques to sellers and it was their responsibility to see that the postdated cheques get cleared for payment. In view of the said cheques being stopped for payment and the dispute arising between the parties and even the dispute being who is in possession of the said property, reflects that even part performance of the contract has not been settled. In such 27 Indraprasth Grih Nirman Shakari Sanstha Maryadit circumstances, we find guidance from the ratio laid down by the Apex Court in Balbir Singh Maini (supra) that where the transaction has not materialized, then no profit or gain which arises from the alleged transfer of capital asset could be brought to tax under section 45 read with section 48 of the Act. We hold so. The grounds of appeal

Though the assessee has also challenged the validity of reopening of assessment however, in view of our finding on the merits of the matter we do not propose to go into the issue of validity of reopening of the assessment as the same becomes academic in nature.

The appeal of the assessee is allowed.