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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI D.T. GARASIA & SHRI ASHWANI TANEJA
Date of hearing : 24-01-2017 Date of order : 15 -02-2017 O R D E R Per Ashwani Taneja, AM:- These appeals pertain to different assessees involving common issue, therefore, these were heard together and being disposed of by this common order.
First, we shall take up appeal in the case of Shri Ashok M Seth filed by the assessee against the order of Commissioner of Income-tax (Appeals)-37, 2 ITA 187 & 188/Mum/2015 Mumbai against the assessment order dated 20-03-2013 u/s 143(3) of the Act for AY. 2010-11 on the following grounds:- “
The Hon'ble Commissioner of Income Tax (Appeal) has 1. erred in confirming the made by the learned assessing officer with regards to the addition of Long Term Capital gains of Rs.40,00,000/- by alleging sale of property alongwith co-owner Nirmala Seth during F.Y. 2009-10 based on agreement registered and part payment received against such agreement instead of the being accrued on handing over of the possession of said flat being handed over in F.Y. 2011-12 to the concerned buyer and based on which capital gain has been offered for tax in A.Y. 2012-13 by the appellant. It is therefore submitted that the Hon'ble Commissioner of Income Tax (Appeal) has erred in confirming the taxing of such long term capital gain without considering facts and circumstances of the case and it is therefore prayed that such addition should be deleted. Accordingly, necessary direction should be given in this regard.
2. The Hon'ble Commissioner of Income Tax (Appeal) has erred in confirming the taxing of Rental Income to the extent of Rs.2,40,000/- as Income from other Sources instead of Income from House Property. It is submitted that such Rental Income has arose from the Flat given on rent and accordingly, as per law, the Income from such house property should be taxed as Income from House Property only. Accordingly, necessary direction should be given in this regard. Without prejudice, if such Income has been taxed as Income from other sources than maintenance charges and other allied expenses incurred of Rs.1,59,600/- in relation to such property has to be allowed U/s 57 (iii) of Income Tax Act, 1961.”
The solitary issue involved in this appeal is with regard to determination 3. of the ‘year’ of taxability of the capital gains arising on sale of residential Flat. As per the assessee, the sale of the Flat was completed in AY 2012-13, and therefore capital gain was offered to tax in said year. However, as per the AO, the sale of the Flat was done in impugned assessment year, i.e. AY 2010-11 3 ITA 187 & 188/Mum/2015 therefore he brought to tax the amount of capital gain in the year before us i.e. AY 2010-11. The brief background of the facts of the case is that assessee was co- 4. owner along with his wife, Smt. Nimala Seth of a residential Flat, viz. Flat 2201, Earth Castle, V.P. Road, Mumbai. The assessee along with his wife entered into agreement, for sale of the said Flat with Shri Jaywant Hastimal Shah and Mrs. Sapna J Shah. The assessee received advance of Rs. 40 lakhs towards his share against the total sale consideration of Rs. 85 lakhs. The sale agreement was also registered during the year. However, possession of the Flat was given in AY 2011-12 and other formalities were completed in AY 2011-12, therefore, assessee offered to tax the resultant capital gain in AY 2011-12. On the other hand, AO was of the opinion that since agreement was registered in the financial year 2009-10, therefore, sale was complete and resultant gain should be assessed in AY 2010-11 itself. Being aggrieved, assessee filed appeal before Ld. CIT(A) wherein detailed submissions were filed. It was explained that all the ingredients of sale were not completed; therefore the sale of the Flat was not complete in the year before us. It was further submitted that in any case, capital gain has already been offered to tax in AY 2012-13 and ultimately there is no revenue leakage as due tax has already been paid. But Ld. CIT(A) was not in agreement with the contention of the assessee. It was observed by him that substantial amount of consideration was received during the year and there was nothing in the sale agreement to infer any part performance or conditionality in respect of said agreement. It was also observed that the ‘No Objection Certificate’ issued by the society had no bearing on the completion of the transaction or otherwise. Therefore, he endorsed the opinion of the AO and held that sale was complete during the year; therefore resultant capital 4 ITA 187 & 188/Mum/2015 gain is assessable to tax in the ‘year’ before us. Still being aggrieved, assessee filed appeal before the Tribunal. During the course of hearing before us, Ld. Counsel of the assessee made 5. detailed arguments. It was firstly argued by him that there are following three conditions to be fulfilled before it could be said that transaction of sale of immovable property is complete:- (1) There should be passing on of the sale consideration; (2) Handing over of the possession by the seller to the buyer; and (3) There should be conveyance deed, which should be registered. It was submitted that all the conditions are cumulative and all of them must be fulfilled before a transaction of sale of property could be said to be complete. He placed reliance upon the judgement of Hon'ble Patna High Court in the case of Raj Rani Devi Ramna vs CIT 210 ITR 1032 (Pat) wherein it was held that true test for completion of sale is the intention of the parties and registration is only a prima facie proof of an intention of transfer, but it is no proof of an operative transfer if there was a condition precedent as to the payment of consideration or delivery of the deed. He also relied upon the judgement of Hon'ble Calcutta High Court in the case of Calcutta Electric Supply Corporatation Ltd vs CIT 19 ITR 406 (Cal) for the purpose of explaining the meaning of the word ‘sale’. He took us through various pages of the paper book to show that neither the possession was given in the year before us nor full consideration was received nor any No Objection Certificate from the society was received and there were other formalities pending completion before the buyer could have had proper legal title and absolute ownership of the Flat. Per contra, the Ld. DR relied upon the orders of the lower authorities. It 6. was submitted by him that Ld. CIT(A) has analysed in detail all the aspects before reaching to the conclusion that sale was completed in the year under 5 ITA 187 & 188/Mum/2015 consideration. Therefore, resultant capital gain has rightly been assessed by the AO in the impugned year. Therefore, his order should be upheld and appeal of the assessee should be dismissed. We have gone through the orders passed by the lower authorities, 7. submissions made by both the sides as well as documents placed before us. The issue before us is with regard to the determination of point of time when the sale of Flat can be said to have been completed. If the sale was not complete during the year as claimed by the assessee, then AO had wrongly held that the capital gain was taxable in the impugned year, and vice-versa. In this regard, we have analysed the facts of the case. Ld. Counsel has submitted before us chronology of events which reads as under:- S.No. Description Date Paper book reference 1 Date of Purchase of Flat 13/06/2008 - 2 Advance of Rs. 40,00,000 28/05/2009 18 to 23 received by each co-owner against the sale of Flat 3 NOC applied to the Society 02/07/2009 35 4 Sales agreement registered 03/07/2009 24 to 39 5 Balance sale proceeds received 16/06/2011 18 to 23 6 Possession given 26/06/2011 17 7 Buyers write to the society for June 2011 16 Transfer of the Flat 8 Maintenance charges of 01/08/2011 13 to 14 Rs.77,344/- paid on We have gone through the documents shown to us by the Ld. Counsel.
Undoubtedly, the assessee had received during the year advance which constituted substantial part of total sales consideration. It is also true that the assessee had executed the sale agreement during the year on 03-07-2009 and the same was registered also. However, this fact is also on record and not 6 ITA 187 & 188/Mum/2015 disputed by the Revenue that the possession of the Flat was not yet handed over and few other legal formalities for transferring the Flat in the name of the assessee were still pending for execution. As per details available, out of total consideration of Rs .85 lacs, a sum of Rs. 80 lacs was by received by assessee and his wife (being co-owner) on 28-05-2009. However, the balance amount of Rs.5 lacs was received on 16-06-2011 (i.e. in AY. 2012-13). The assessee has also drawn our attention upon the receipts issued by the Earth Castle Residency Co-operative Housing Society Ltd dated 01-08-2011 confirming that maintenance charges of the Flat for the period October, 2010 to June, 2011 amounting to Ras.77,344 was paid by the assessee. Our attention was drawn on the bank statement of the assessee indicating payment of aforesaid maintenance charges of Rs.77,344 by the assessee. Further, our attention was drawn on the possession letter wherein Shah Family (i.e. Buyers) confirmed that possession was obtained by them from the assessee on 26th day of June, 2011. Further, our attention was also drawn on the letter written by Shah Family to the society for transferring the said Flat in their names and also clarifying in the said letter that from this date onwards, i.e. June, 2011 maintenance charges shall be borne by the Shah Family and not by the assessee. Thus, the documents on record duly establish that during this period, i.e. 9. between the date of registration of sale agreement on 03-07-2009 and till the date of handing over of possession on 26th June, 2011, the Flat was in the exclusive possession, enjoyment and custody of assessee only. Though sale agreement was executed and registered, but neither complete consideration was received by the assessee nor did all the legal formalities were complete. Further, the obligation about the maintenance of the property was also 7 ITA 187 & 188/Mum/2015 retained by the assessee till the Flat was transferred by the society in the name of the purchasers. Thus, overall facts of the case indicate that sale could not have been said 10. to be completed in absolute terms in the year 2009. For completion of sale in absolute terms, fulfilment of all the three conditions mentioned above are must, i.e. execution of registration of conveyance deed, handing over of possession and payment of full consideration. In the case before us, only first condition was completed and the remaining two conditions were still pending to be executed and were not completed in the impugned year. In addition to that, all the legal formalities for affecting the transfer of the property in the name of purchaser were also not complied with and the same were completed only after payment of maintenance charges by the assessee to the said society. The said Flat came into full and exclusive control of the new purchaser only after when the possession of the same was handed over to them by the assessee on 26-06-2011. Thus, the said Flat was available for enjoyment by the purchaser only after the said date. Thus, taking into account all the facts and circumstances of the case, the sale of the Flat cannot be said to be completed in the year before us. In this regard our view finds support from the judgment relied upon by Ld. Counsel of the assessee of Hon'ble Patna High Court in the case of Raj Rani Devi Ramna (supra) wherein their lordships opined as under:- “The properties do not necessarily pass as soon as the instrument is registered, for the true test is the intention of the parties. Registration is prima facie proof of an intention to transfer, but it is no proof of an operative transfer if there is a condition precedent as to the payment of consideration or delivery of the deed. Thus the seller may retain the deed pending payment of price and, in that case, there is no transfer until the price is paid and the deed is delivered. In the present case, from the statement of case itself as drawn up by the Tribunal, it is apparent that the parties had clearly intended that despite the execution and registration of sale deeds, 8 ITA 187 & 188/Mum/2015 transfer by way of sale will become effective only on payment of the entire consideration amount and in this background of facts, !t has to be held that there was no transfer of land covered by the three sale deeds in question during the period under consideration making the assessee liable for capital gains tax under s. 45-Nitai Chandra Gavaskar vs. Smt. Champakiata Debi (1919) 29 CL-7 250, Panchoo Sahu vs. Janku Mandar AIR 1952 Pat 263 and Shiva Narayan Sat, vs. Baidya Nath Prasad Tiwary AIR 1973 Pat 386 relied on.”
Thus, if we analyse all the documents and facts of this case and based upon the same gather the intention of the parties, we find that the substance of the transaction show that sale was not intended to be completed in the year before us. Therefore, the resultant gain arising on the sale of the Flat concluded in the subsequent year could not have been brought to tax in the impugned year. Further, in any case, the taxable amount of capital gain has already been offered to tax by the assessee in the assessment year 2012-13 and has been accepted as such by the Revenue as per the information provided to us. Under these circumstances, it would not be justified to adopt a hyper technical approach and tax the same in this year also which will lead to double taxation and avoidable hardship to the assessee. Therefore, keeping in view the peculiar facts and circumstances of this case and in the interest of justice and all fairness we direct the AO to delete the addition. As a result, Ground 1 is allowed. No arguments were made with regard to Grounds 2 & 3, therefore, these 12. are dismissed. Now we shall take appeal in the case of Mrs Nirmala A Seth, L/H Shri 13. Ashok M Seth. Issues involved in this case are identical. The assessee is co- owner of the Flat which was sold to Shri Jaywant Hastimal Shah and Mrs. Sapna J Shah. Therefore, following our order in the case of Ashok M Seth, Ground 1 of the assessee is allowed and Grounds 2 & 3 are dismissed.
9 ITA 187 & 188/Mum/2015 In the result, both the appeals are partly allowed. 14. Order was pronounced in the open court at the conclusion of the hearing.