DR. DEVENDRA H. DAVE,MUMBAI vs. ITO WD 11(2)(2), MUMBAI

Per Ramit Kochar, Accountant Member:-

1) No valid and legal notice was served on AOP/BOI/co-owner. 2) Impugned assessment order is passed without legal and proper jurisdiction.

3) On the facts and in law, learned CIT(A) has erred in sustenance of “assumed Long Term Capital Gains” of Rs. 1,00,26,763/- made by the AO “on substantive basis” in the hands of the appellant without taking cognizance of various documents/ statements/

3 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 submissions of the Appellant filed before the AO and before the learned CIT(A).

4) On the facts and in law, learned CIT(A) has erred in sustenance of “assumed Long Term Capital Gains” of Rs. 1,00,26,763/- made by the AO “on protective basis” in the hands of the appellant without taking cognizance of various documents/ statements/ submissions of the appellant filed before the AO and before the said CIT(A).

5) You are kindly requested to delete impugned aggregate additions of “assumed long term capital gains” of Rs. 200,53,526/- as per the provisions of the Act and oblige.”

6.During the course of assessment proceedings u/s. 143(3) read with section 143(2) of the Act, it was observed by the AO that the assessee has disclosed loan on the liability side in respect of Gold Coin Builders(Hereinafter called “the GCB”) at Rs. 1,65,00,000/- in the Balance Sheet annexed to the Return of Income filed by the assessee with the Revenue. The assessee was asked to explain the same by the AO. In response thereto , the assessee has submitted that the assessee has received Rs.1,65,00,000/- from the GCB and the same is shown as interest free loan from the said builder. The said builder GCB had given the said deposit of Rs.1.65 crores to the assessee as the assessee had given the redevelopment work of their self-occupied property being bungalow named 'Udgith" at Vile Parle , Mumbai. The assessee submitted that the dispute arose between the assessee and the said builder GCB and the matter is still pending with the Court of law and said amount is kept as it is and it shall be repaid or otherwise as per the decision of the Hon’ble Supreme Court. The assessee submitted that no interest is paid or provided with 4 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 respect of the said deposit. The assessee has furnished unsigned copy of the Memorandum of Understanding(MOU) dated December, 2004.

Since the assessee has not furnished signed copy of the MOU, notice dated 10.12.2010 u/s 133(6) of the Act was issued by the AO to the GCB requesting to furnish the details of payment made to the assessee and the details connected with the redevelopment of bungalow ‘Udgith’.

The said GCB vide reply dated 16.12.2010 in response to notice u/s 133(6) of the Act, confirmed to the AO that Rs. 1.65 crores was paid to the assessee by account payee cheque and it was the cost of the project by way of compensation to owners in connection with construction of seven storey building at Plot No.35, Vallabh Nagar Co-op Housing Society Ltd., North South Road No. 3, J.V.P.D Scheme, Vile Parle(W), Mumbai-400 56. The said builder GCB submitted to the AO that it is entitled to 4th and 5th floors in the said building as per the agreement dated 29th December 2004 with the assessee and his family members. The said builder GCB submitted to the AO in reply to notice u/s 133(6) of the Act, that the possession of the said property was handed over to GCB by the assessee vide letter dated 16th October 2005, with effect from 16th October 2005 for the purpose of demolition of the bungalow standing on the said plot of land and for construction of seven storied building. The Copy of the MOU dated 29-12-2004 entered into by the builder GCB and the assessee and his family members, was submitted by the builder GCB to AO and it was confirmed that the 4th and 5th floors are physically independent, joined by common staircase to all seven floors and not interconnected from within.

The AO on perusal of the MOU dated 29-12-2004 observed that the said bungalow was leased to Dave family on long term lease and as per the records of rights, the ownership of the property is in the name of one Shri Harivallabh

5 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 Parmanand Dave & Dr. Devendra Harivallabh Dave. But it is contended by Dave family that now (after the death of Shri Harivallabh Parmanand Dave) , the property belongs to all the four signatories to the MOU dated 29-12- 2004 namely Shri Devendra H. Dave-50%, Shri Rajiv Devendra Dave-16 1/3%, Shri Alok Devendra Dave- 16 1/3% and Ms. Anusuya H. Dave- 16 1/3% respectively ever since the demise of Shri Harivallabh Parmanand Dave.

The AO observed that the assessee as per the MOU along with the other co- owners will through their agents or contractor will cause to demolish the existing bungalow and remove the debris. The assessee along with other co- owners will be entitle to proceeds from sale of debris from the demolition of the said bungalow and the expenses on demolition will be to the account of assessee and the other co-owners. The MOU is for demolition and reconstruction of bungalow no. 35, Udgith, M S Road No. VI , Vallabh Nagar Society, Mumbai-400 056. The said builders namely GCB have constructed and redeveloped the said bungalow after its demolition by construction of seven floors, out of which 4th & 5th floors are to be retained by the said builders. The assessee along-with the other co-owners were entitled to floors 1,2,3,6 &7 in the reconstructed building & to the future FSI , if any. In addition to the above, the assessee and the other co-owners were compensated in monetary term with sum of Rs.1,65,00,000/-. The entire cost of construction has to be borne by the builders except to the exclusion of the cost to be incurred by assessee and the other co-owner’s stated at page 9 Schedule B of MOU. The AO observed that the possession of the property was handed over for demolition and reconstruction by the assessee & co-owners to the builders with effect from 16.10.2005 .

The AO forwarded the reply of the GCB dated 16.12.2010 to the assessee and the assessee was show-caused as to why the amount of Rs. 1.65 crores received by the assessee from the GCB should not be treated as assessee’s

6 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 income from Capital Gain for the assessment year 2008- 09. The assessee was issued another letter dated 24.12.2010 by the AO requesting as to why the sale consideration received of Rs.1.65 crores alongwith cost of construction of 5 floors pertaining to, should not be treated as capital gains on sale of 2/7th of the land.

In reply to the show-cause notices dated 16.12.2010 and 24.12.2010, the assessee submitted the explanation vide letter dated 28.12.2010 and after considering the same , the AO held that the assessee’s contention that there was no transfer of land as provided in Sec 2(47) of the Act is not acceptable as the assessee has allowed the peaceful possession of the land in question to the GCB with the condition that they have to construct 7 storey building and to hand over 5 floor to assessee as free of cost. As per the MOU, the assessee has received the fixed amount of Rs.1,65,00,000/- on various installment and the last such installment was received by the assessee on 2/4/2007 and hence the AO held that there is a transfer of capital asset as envisaged in Sec 2(14) of the Act. Since, the assessee has part performed the contract as per the provisions of Sec 53(2)(sic. to be read as Sec. 53A) of the Transfer of Property Act,1882 even though the agreement in question is not registered or executed as the possession of the land was given to the builder and the assessee has received sale consideration including the outer construction of the 5 storey, the transfer is complete and assessable to tax in the assessment year 2008-09.

The said consideration of Rs.1,65,00,000/- together with the cost of construction of 5 floors to be retained by the assessee constructed free of cost by the GCB , is to be the share of the assessee and the legal heirs of Mr. Harivallabh Parmanand Dave. The assessee being entitle to 50% of share. The assessee has not furnished any details quantifying cost of construction of the five floors retained by the assessee. The total constructed area of the plot is 7 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 1702 sq. Mtrs. which is equal to 5584 square feet , Of this, the assessee has retained 5 floors along with the legal heirs of Mr. Harivallabh Parmanand Dave which comes to 3989 square feet. In the absence of cost of construction been quantified by the assessee and after going through the schedule A to MOU dated 29-12-2004 , the AO estimated the cost of construction at Rs. 1100/- per square feet, which comes to Rs. 43,87,900/-. Thus, the total sale consideration was worked out by the AO at Rs.2,08,87,900/- (being aggregate of lump sum sale consideration of Rs.1,65,00,000/- received from the builders and cost of construction of 5 floor being Rs.43,87,900/- ).

The assessee submitted vide letter dated 24.12.2010 that the cost of acquisition of the entire building is Rs.5,30,000/- . The assessee submitted that the cost of further amount spent after 1.4.2006 to 31.3.2010 as cost of improvement at Rs. 1,18,38,947/- towards cost relating to the 5 floor retained by the assessee, which was rejected by the AO as it cannot be said that Rs.1,18,38,947/- constitute cost of improvement . Therefore, the cost of improvement was taken as Nil. Hence, the long term capital gain chargeable to tax works out to Rs. 2,00,53,526/- ( sale consideration being Rs.2,08,87,900 less the indexed cost of acquisition being Rs. 8,34,374/- (Rs.1,51,429/- being cost of acquisition as on 01-04-1981 and Cost inflation index being 551 in the financial year 2007-08).

As per the AO , the assessee did not submit the documentary evidence to show who are the legal heirs of Sh. Harivallabh Parmanand Dave. Therefore 50% of the long term capital gain was assessed by the AO in the hands of the assessee on substantive basis and the balance 50% is assessed in the assessee’s case on protective basis with the direction that the same is assessable on substantive basis in the hands of the legal heirs of Shri Harivalabh Parmanand Dave, vide assessment orders dated 31.12.2010 passed by the AO u/s. 143(3) of the Act.

8 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015

8.Before the CIT(A), the assessee contended that four family members termed as co-owners of immovable property have entered into MOU dated 29.12.2004 for development of their property by the GCB, but due to certain breach of contract, the MOU was terminated, hence incomplete work was carried out by the Association of Person(AOP) which is not completed till date. The assessee submitted that the additions being made by the AO in the hands of the assessee is bad in law , as the same should be assessed in the hands of the AOP as the assessee being the co-owner of the property and is thus AOP. The assessee contended that the AO has no jurisdiction over the AOP and hence the assessment made is without jurisdiction and should be quashed.

The AO in his remand report dated 11/06/2012 submitted that there was no such claim/submission made by the assessee during the assessment proceedings before the AO regarding existence of AOP and further no documentary evidence whatsoever nature was also filed to substantiate the status of the assessee as AOP and merely because certain person have inherited property after death of a person that does not constitute an AOP.

The CIT(A) rejected the contentions of the assessee. The CIT(A) observed that the MOU has been entered in to with the GCB by the assessee and his family members as one of the co-owners. The property was inherited by the family members of the assessee and the ownership in property was vested because of inheritance and not because of the formation of any AOP as a legal body. The inheritance of the property does not lead to the formation of AOP but give different shares held by the legal heirs of the deceased. The CIT(A) relied upon section 26 of the Act and came to the conclusion that income is to be assessed in the hands of the co-owners. As nothing is on agreement about the existence

9 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 of AOP and no such claim was made in the assessment proceedings by the assessee and return of income was also filed by the assessee as in an individual capacity. The assessee itself has shown a liability payable to GCB of Rs.1.65 crores as of 31-3-2008 in its Balance Sheet in individual capacity and not as liability of AOP. The shares of the respective co-owners are definite and ascertainable . The assessee himself has stated vide letter dated 24.12.2010 addressed to the AO that the share in property as Ms. Ansuya Harivallabh Dave (sister) at 16 1/3rd, Sh. Rajiv Devendra Dave 16 1/3rd , Sh.Alok Devendra Dave 16 1/3rd and 50% share of the assessee. Thus the CIT(A) held that the income there-of could not be assessed as AOP in respect of the said property , vide orders dated 10.12.2012.

With respect to the claim of the assessee on merit the assessee reiterated the submissions as were made before the authorities below. During the course of proceedings before the CIT(A) , it was claimed by the assessee that submissions made by the assessee before the AO was made as part of assessment order as Annexure-A but the AO did not make any specific comments thereon, hence the AO was asked to make her comments on the same vide letter dated 16.9.2011 by the CIT(A).

The AO in its remand report noted the claim of the assessee that the GCB were allowed to enter the premises as contractor/agent/trustees only for the purpose of demolition of bungalow and construction of ‘Khoka’ of 7 storied thereon. The AO referred to reply dated 16.12.2010 of GCB wherein they have clearly stated that for the purposes of demolition of bungalow extending on the said plot of land and construction of seven storied building, the property was handed over to them w.e.f. 16.10.2005 by Dave’s letter dated 16.10.2005. Thus , the entire property was in the possession of GCB till the termination of the MOU and the GCB have applied to the statutory authorities for approval of the plan and other permissions and therefore it is clear that the property for all

10 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 practical purposes was with M/s.GCB. With respect to the claim of the assessee that the transfer is complete only when the conveyance deed is executed as per decision in the case of Allapatti Venkatramiah v. CIT (1965) 57 ITR 185. The AO submitted that the assessee has received compensation as mentioned in the MOU and the developer has taken the possession of the property from the owner’s as per section 53A of the Transfer of the Property Act ,1882 . The transfer is complete even though the conveyance deed is not executed by relying upon provisions of Section 2(47)(v) of the Act as it involves the possession of immovable property to be taken in part performance of the contract. The arguments of the assessee were rejected by the AO in remand report. The AO also noted that the MOU did not state that a deposit of Rs.1.65 crores is to be made by the GCB in response to contentions of the assessee that the amount was received as deposit and not as sale consideration. The AO also submitted that the GCB has debited in their books of account an amount of Rs. 1.65 crores as a cost of project and not as a land/advance/deposit and hence it is not an earnest money. The assessee has extinguished his right of 2/7 portion of the property with regard to 2 floors which are allotted to the builder. Therefore , there is transfer and contention of the assessee that occupation certificate is not received till date and matter being sub-judice is not acceptable as there is transfer u/s. 2(47) of the Act, vide remand report submitted by the AO to the CIT(A).

As the cost of acquisition was not specified in remand report, the CIT(A) asked the AO to submit details and comments regarding cost of acquisition of the property for the purposes of computation of capital gains.

The AO submitted second remand report dated 11-06-2012 wherein it was noted by the AO that the builder/developer GCB has confirmed that they applied for occupation/completion certificate from the BMC and also BCC, stability certificate , site supervision completion certificate, RCC plan , and 11 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 building plan with BMC for getting a occupation certificate . The details were collected such as copy of returns of income, Profit and Loss account , Balance Sheet, audit report wherein the GCB has made entries in their books of accounts as cost of project, which substantiated that the assessee had actually handed over the possession of the property to the developer . The AO further collected TDR agreement dated 31.01.2005 with Rehab Housing Private Limited for acquiring 850 meters purchased by GCB in the name of Dr D.H.Dave and final agreement for transfer/utilization of FSI between M/s. Rehab Housing P. Ltd. and the assessee i.e. Dr. D.H. Dave. Similarly, letter written to BMC by the assessee for engagement of consulting architect and structural engineer photographs of front and side elevation and backside elevation of the new building constructed by the GCB were collected The agreements for transfer/utilization of FSI(TDR) between Rehab Hosing Private Limited and assessee and all these documents contains the signature of the assessee and no signature of other co-owners were seen which also proved that it is not the AOP and the assessee has also handed over the peaceful possession of the land in question to the GCB to construct seven storied building and handover five floors to the assessee as free of cost as per the MOU, which clearly establish the fact that there is transfer of asset as envisaged in section 2(14) r.w.s. 2(47) of the Income Tax Act and since the assessee has performed the contract as per the provisions of section 53(2)(sic. To be read as Section 53A) of the Transfer of Property Act,1882 even though the agreement is not registered but the possession of the land in question was given to the builder and sale consideration has been received by the assessee including the outer construction of the 5 storied, which amounts to transfer of property and hence as per the AO in his remand report , it was held that the income was rightly brought to tax in the assessment year 2008-09 as long term capital gains. It was also submitted in the remand report by the AO that the assessee was not able to furnish any details quantifying the cost of construction of the five floors retained by him. The assessee has also not 12 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 furnished documentary evidences to show that who are the legal heirs of the assessee and their sharing ratio. Therefore, 50% of long term capital gain was assessed to tax in the hands of the assessee on substantive basis and balance 50% in the assessee case on protective basis.

The assessee submitted that there is no capital gain which accrued to the co- owners and till today the whole property is under the control of the assessee and the other co-owners only and said M/s.GCB is not permitted and restrained to enter the premises and/or to occupy or acquire impugned fourth and fifth floors and the corresponding parking space in the said building. So,the assessee submitted that there is no transfer of capital asset by the assessee and the other co-owners and no question of computing capital gain. Thus, taxing the impugned capital gain is redundant and bad in law. The assessee submitted that as per the oral will of Shri H.P.Dave , his 50% share in the property devolved equally upon his daughter and his two grandsons. The said builder i.e. M/s. GCB has given Rs. 1.65 crores as deposit only, which cannot be brought to tax as income of the co-owners, as the said fixed sum is to be utilised for various amenities to be provided on 1,2,3,6 and 7th floors, the contractor has restricted its cost of project and only khoka of the building is constructed by GCB. The whole property is in the control of the co-owners and said GCB is not permitted and restrained by the Hon'ble Supreme Court to enter the premises and/or to occupy or acquire impugned floors and the corresponding parking space in the said building. No exclusive possession of the property was given to GCB, no possession is allowed to GCB either of the plot or structure thereon. The said MOU has been terminated and matter is sub-judice. No occupation certificate is issued and the assessee and other co- owners are in exclusive possession of the said plot of land and structure thereon and construction work is pending to be carried on by the assessee and the said other co-owners. The assessee also submitted that no protective assessment can be made in the hands of the assessee without any valid and 13 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 legal substantive assessment in the case of other co-owners. The AO has failed to pass speaking and reasoned order and hence the AO cannot be allowed further opportunity to cover up illegal action of passing impugned nonspeaking and without reason assessment order.

The CIT(A) considered submissions of the assessee and rejected the contentions of the assessee.The CIT(A) held that remand report called from the AO is for the benefit of the assessee , hence the objection of the assessee with respect to reference to AO for remand report was rejected. It is seen that the assessee is having land bearing CTS No. 204 admeasuring 852.50 sq. meter with bungalow named ‘Udgith’ on plot No. 35 on lease ownership basis at Vallabh Nagar CHS, Vile Parle( West), Mumbai in the name of Shri Harivallabh Parmanand Dave (father of the assessee) and Shri Devendra Dave (the assessee) with 50% shares of each. On the death of Shri Harivallabh P Dave on 11.11.1985, 50% shares of his share devolved upon Ms. Anusuya H Dave (sister of the assessee), Shri Rajiv H Dave and Shri Alok D. Dave (with 16 1/3rd share each). The said bungalow was owned by four co-owners with definite shares in which the assessee’s share was 50% and other three persons had 16 1/3rd each. The co-owners of the bungalow No. 35 were taken on record by the society as inherited property on 12.09.1989. The said plot was acquired in the name of the assessee and his father vide conveyance deed dated 21.09.1971. The said plot No. 35 was assigned by Shri D.H. Dave and his family vide MOU dated 29.12.2004 to the GCB for construction of seven storied building on which the GCB is entitled to retain fourth and fifth floors as per the said MOU. The GCB vide letter dated 16.12.2010 submitted that they have paid Rs. 1.65 crores to Shri Devendra H. Dave i.e. the assessee towards cost of project by way of compensation to owners in connection with the construction of seven stories building in which the GCB were entitled to fourth and fifth floor of the said building. The GCB submitted that the possession of the property was handed over to them on 16.10.2005 by Sh D H Dave i.e. the assessee for the 14 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 purpose of demolition and construction of seven storied building. The assessee was entitled for debris of demolition of bungalow. The entire property was in the possession of GCB till the termination of MOU. It is noticed that the GCB have applied to the statutory authorities for approval of plan and other premises and compensation of Rs. 1.65 crores was received by the assesssee from the GCB in lieu of handing over the possession of the property from the owner as per provisions of section 53A of the Transfer of Property Act, 1882. Therefore, the transfer of the property is complete even though the conveyance deed is not executed. As per provisions of section 2(47)(v) of the Act, transfer is defined in relation to transaction involving the possession of immovable property is transfer in part performance of the contract. The money which has been paid by GCB to the assessee is not an earnest money but towards the cost of project as the assessee has extinguished his right of 2/7 portion of the property with regard to two floors allotted to the builder i.e. GCB. The GCB also applied for occupation certificate from BMC and also filed documents for completion certificate as mentioned in the AO remand report from BMC such as stability certificate, site supervision completion certificate, RCC plan and building plan with the BMC for getting an occupation certificate. The TDR agreement dated 31.01.2005 with M/s Rehab Housing Private Limited for acquiring 850 meters purchased by the GCB in the name of the assessee , Mr. D H Dave and final agreement for transfer / utilization of FSI between Rehab Housing Private Limited and Mr. D H Dave. These evidences shows that the assessee has handed over the peaceful possession of the afore-stated land being Bungalow No. 35 to the GCB to construct 7 storied building and hand over 5 flats to the assessee as free of cost as per the MOU dated 29-12-2004. Thus , the CIT(A) held that the transfer is complete and the AO has rightly brought to tax income from transfer of property as capital gains , keeping in view the provisions of section 2(47) of the Act and section 53A of the Transfer of Property Act,1882. Thus , the assessment order dated 31.12.2010 of the Assessing Officer passed u/s 143(3) of the Act was upheld by the CIT(A) vide

15 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 orders dated 10.12.2012. The CIT(A) directed the AO to intimate the concerned AO having jurisdiction over the other co-owners of the property for considering long term capital gain on substantive basis in their cases.

17 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 storey’s of the building were not complete when the MOU was terminated on 15.10.2007 and the property being re-possessed by the assessee and the co- owners (page 75 of paper book) and the matter is sub-judice with the Hon’ble Bombay High Courts who is seized of the matter and the details of suit no 189 of 2008 pending with Hon’ble Bombay High Court is placed in the paper book page 22-54. The assessee submitted that the two floors being 4th and 5th floor constructed by the GCB was to be given to the GCB provided it strictly complied with all the terms and condition of the MOU and no encumbrance of 4th and 5th floor whatsoever was created in favour of the GCB by the assessee and the co-owners. The assessee submitted that the possession of the entire property is still with the assessee and the co-owners , although undertaking has been given before the Hon’ble Supreme Court not to alienate the property. He drew our attention to the MOU dated 29.12.2004 which is placed at pages No. 94 to 102. The assessee placed on record orders of the Hon’ble Bombay High Court where by the Commissioner was appointed by the orders of the Hon’ble Bombay High Court to visit the afore-stated property(paper book page 25) . The Commissioner report dated 31/01/2008 (paper book page 23-24) whereby the court appointed commissioner has reported that the Dave family had the keys of the flats and opened the flats in the presence of the court appointed commissioner and the representative of GCB . The photographs during the court appointed commissioner visit are placed at page 26-30. It is stated by the assessee that they have to incur huge amount to complete the construction after termination of the MOU and re-possessing of the property from GCB . The assessee also placed on record the municipal taxes receipt of February 2014 and electricity bills which are in the name of Dave’s to contend that the Dave family is the owner of the said property seized of possession also even as of the year 2014. The Hon'ble Supreme Court vide its orders dated 22- 3-2010 in SLP to Appeal (Civil) No(s). 7354/2010 have disposed off the SLP as under :

18 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015

“We have heard learned counsel for the parties.

Mr. Mukul Rohtagi , learned senior counsel appearing for the Respondent gives an undertaking that flats on fourth and fifth floors and the corresponding parking space shall not be alienated or dealt with in any manner till the disposal of the suit. We request the learned judge to dispose of the suit as expeditiously as possible in any event with a within one year.

In view of this order, nothing survives in this appeal of the Division Bench and the same is disposed of.

The special leave petition is, accordingly disposed of.”

The copy of Hon’ble Supreme Court above orders are placed in paper book page 76-78.

The ld. Counsel for the assessee submitted without prejudice that the MOU was entered into in the assessment year 2005-06 and if it is to be considered that the possession is given by the assessee, then without prejudice the same was given on 16-10-2005 by Sh. D. H. Dave i.e. in the assessment year 2006- 07 and not in the instant assessment year 2008-09 under appeal, then the income being long term capital gain on the transfer of the afore-stated property can only be brought to tax for the assessment year 2006-07 keeping in view the provisions of Section 2(47) of the Act read with Section 53A of the Transfer of Property Act, 1882 and not for the instant assessment year under appeal i.e. 2008-09. He also drew our attention to various inquiries made by the Assessing Officer u/s. 133(6) of the Act with the tenants of the flats in the said building which is placed in page No. 67 to 100 of the Paper Book-II to verify

19 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 the possession of the afore-stated property. The assessee also relied upon number of case laws as per case law paper book filed with the Tribunal.

20 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 taxman.com 359(P&H HC)] and submitted that no capital gains can be brought to tax in this case.

21 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 and the assessee being 50% owner of the said property by virtue of original purchase of land and construction thereof the said bungalow , we hold , that the income being capital gains arising on transfer of the afore-stated property which is co-owned by the four co-owners namely the assessee, Ms Ansuya H Dave, Rajiv D Dave and Sh. Alok D Dave shall be brought to tax in the hands of the co-owners respectively, and not as income of the AOP/BOI as contended by the assessee as there is no association of person or body of individual formed on death of Harivallabh Parmanand Dave rather the property is co- owned by the family members of the assessee and hence this contention of the assessee is rejected.

We have also observed that the assessee along with other co-owners has entered into an MOU dated 29.12.2004 with GCB for redevelopment of this property by constructing seven stories of residential building on the afore- stated property. The said existing bungalow was to be demolished by the GCB for constructing the seven storied residential building on the said plot. The proceeds thereof of debris shall belong to the assessee and the other co- owners, similarly cost of demolition shall be borne by the assessee and the other co-owners. In consideration of the GCB constructing seven storeys of residential building on this property and payment of Rs.1.65 crores to be made by the GCB to the assessee and the co-owners, the GCB shall be entitled for two floors namely 4th and 5th floor along with corresponding parking space in the stilt as earmarked in the plan attached. We have carefully perused the terms of the afore-stated MOU dated 29.12.2004. The said MOU is an unregistered MOU. The documents in connection with the transfer of share certificate showing registration of change of ownership of the property w.e.f. 12.09.1989 in favour of the assessee, Sh Rajiv D. Dave, Sh. Alok D. Dave and Ms. Ansuya H Dave , pursuant to the death of Mr.Harivallabh P. Dave on 11.11.1985 is placed in paper book page 019-21. The copy of NOC dated 19/12/2003 from the society in favour of the assessee, Sh Rajiv D. Dave, Sh.

22 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 Alok D. Dave and Ms. Ansuya H Dave for development of property is placed in the paper book page no 021. The assessee and the other co-owners are stated to have received Rs. 1.65 crores from GCB spread over four years starting from the financial year 2004-05. First payment being Rs. 5 lacs was stated to be received in the assessment year 2005-06, Rs.25 lacs was stated to be received in assessment year 2006-07, Rs.70 lacs was stated to be received in assessment year 2007-08 and the balance final payment of Rs.65 lacs were stated to be received in the assessment year 2008-09. It is contended that the possession of the said property was always with the assessee and only for the limited purpose of demolition of the bungalow and reconstruction of the building , the property was handed over to the GCB, which is stated to be evidenced from the terms of MOU dated 29.12.2004 which is placed in the paper book filed with the Tribunal at pages No. 94 to 102. We have observed that the parties have agreed that post successful reconstruction, the ownership, control and right of perpetual occupation or enjoyment and right of transferability of units comprised in two floors (viz. fourth and fifth floors) and the corresponding parking space in the stilt as earmarked in the attached plan will belong to the GCB strictly in terms of the MOU. The GCB was under an obligation to re-construct the property by constructing seven storeys of residential building and secure building occupation/completion certificate and it is clearly stated in clause 10 that the GCB has to fulfill his entire obligations i.e. constructing seven stories of residential building and also paying the assessee and the other co-owners Rs.1.65 crores and till the successful compliance of all the terms of the MOU, the assessee and the other co-owners will continue to be in exclusive possession of the property. The access of the GCB to the property was as licensee only for the limited purposes of demolition of the bungalow and construction thereon of seven stories of residential building. It is also stipulated in clause 11 of the said MOU dated 29.12.2004 that material breach of agreement on the part of the GCB without there being any reasonable cause will permit the assessee and other co-owners to 23 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 terminate the agreement if the breach is not remedied within three months. It is also stipulated in the MOU clause 12 that once the building is completed and full payment has been made by the GCB, the GCB will take possession of flats on fourth and fifth floors including corresponding right to parking as earmarked in the attached plan. On perusal of various clauses of the MOU between the GCB on the one hand and the assessee & co-owners on the other hand , it is observed that allegedly the GCB has not fulfilled its commitment with respect to the performance of the MOU whereby there was discrepancy and deficiencies in the construction of the seven storyed residential building as to the time in completion of the construction as also as to the quality of the construction . The said MOU was terminated by the assessee and the co- owners on 15.10.2007 and the matter is sub-judice with the Hon’ble Bombay High Court vide suit no 189 of 2008 filed by the GCB whereby the assessee and other co-owners are defendents. It was contended before us that various defects and discrepancies in the performance of the builder with respect to terms and conditions as stipulated in the MOU were communicated to the GCB before terminating the MOU on 15-10-2007, whereby the construction of the project suffered as to the quality and also with respect to delay in terms of time of execution of the work, the correspondence with the GCB is placed in paper book pages 69-75. Various notices were issued to the GCB requesting to comply with the terms of the MOU but the said GCB did not comply and ultimately the MOU was terminated as per clause 11 of the MOU vide letter dated 15.10.2007 and the possession of the property given to GCB for limited purposes of demolition of existing structure and construction of seven storey’s on the said land was re-possessed by the assessee from said GCB. The said deficiencies by the builder in the compliances as per terms of the MOU were placed at page No. 69 to 75 of the paper book. The construction of seven stories were not complete when the MOU was terminated on 15.10.2007 and the property being re-possessed by the assessee .The afore-stated MOU dated 29.12.2004 has already been cancelled and terminated vide letter dated

24 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 15.10.2007 (page 75 of paper book) and the matter is sub-judice with the Hon’ble Bombay High Court who are seized of the matter and the details of suit pending with Hon’ble Bombay High Court is placed in the paper book page 22-54. The assessee submitted that the two floors being 4th and 5th floor was to be given to the GCB provided it strictly complied with all the terms and condition of the MOU and no encumbrance of 4th and 5th floor whatsoever was created in favour of the GCB by the assessee. It was contended before us that the possession of the entire property is still with the assessee although undertaking has been given before the Hon’ble Supreme Court not to alienate the property. The Hon’ble Bombay High Court had appointed Commissioner to visit the afore-stated property(paper book page 25) . The Commissioner report dated 31/01/2008 (paper book page 23-24) whereby the court appointed commissioner has reported that the Dave family had the keys of the flats and opened the flats in the presence of the court appointed commissioner and the representative of GCB . The photographs during the court appointed commissioner visit are placed at page 26-30. The representative of GCB on the other hand had however claimed that they had the keys and the assessee has removed the locks and replaced the same with their own locks which is stated in the said commissioner report dated 31/01/2008. The Hon’ble Bombay High Court in its order dated 17-08-2009 in suit no. 189 of 2008 has recorded the contentions of GCB that 90% of the work was complete when the assessee along with other co-owners terminated the MOU and the delays were due to the assessee non-co-operation . It is stated by the assessee that they have to incur huge amount to complete the construction after termination of the MOU with GCB. It was also contended that occupation certificate was also obtained by the assessee and the co-owners directly from BMC The assessee also placed on record the municipal taxes receipt of February 2014 and electricity bills which are in the name of Dave’s to contend that the Dave family is the owner of the said property seized of possession also even as of 2014. The Hon'ble

25 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 Supreme Court vide its orders dated 22-3-2010 in SLP to Appeal (Civil) No(s). 7354/2010 have disposed off the SLP as under :

“We have heard learned counsel for the parties.

Mr. Mukul Rohtagi , learned senior counsel appearing for the Respondent gives an undertaking that flats on fourth ad fifth floors and the corresponding parking space shall not be alienated or dealt with in any manner till the disposal of the suit. We request the learned judge to dispose of the suit as expeditiously as possible in any event with a within one year.

In view of this order, nothing survives in this appeal of the Division Bench and the same is disposed of.

The special leave petition is, accordingly disposed of.”

The copy of Hon’ble Supreme Court above orders are placed in paper book page 76-78.

We have also observed that the Assessing Officer has made enquiries u/s. 133(6) of the Act with the tenants of the flats in the said building which is placed in page No. 67 to 100 of the Paper Book-II with respect to verifying the possession of the property.

We have also observed that there has been an amendment in Section 17 of the Registration Act,1908 whereby Section 17A was introduced and added to the statute w.e.f. 24.9.2001 by the Registration and Other Related laws (Amendment) Act, 2001, whereby it is clearly stipulated that a contract to be a valid contract under section 53A of the Transfer of the Property Act, 1882, it

26 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 has to be agreement in writing which is to be an registered agreement and otherwise the same shall have no effect for the purposes of the said section 53A of the Transfer of Property Act,1882 . The said section 17(1A) of the Registration Act , 1908 as added and introduced to the statute w.e.f. 24.9.2001 by the Registration and Other Related laws (Amendment) Act, 2001 is reproduced hereunder:

“[(1A) The documents containing contracts to transfer for consideration, any immovable property for the purpose of section 53A of the Transfer of Property Act, 1882 (4 of 1882) shall be registered if they have been executed on or after the commencement of the Registration and Other Related laws (Amendment) Act, 2001 and if such documents are not registered on or after such commencement, then, they shall have no effect for the purposes of the said section 53A.]”

As per Section 49 of the Registration Act,1908 , in the absence of registered agreement as contemplated u/s 17 of the Act of 1908, the same shall not affect any immovable property comprised there-in or confer any power to adopt or be received in evidence of any transaction affecting such property or conferring such power. The said section 49 of the Registration Act,1908 is reproduced hereunder :

“49. Effect of non-registration of documents required to be registered.—No document required by section 17 [or by any provision of the Transfer of Property Act, 1882 (4 of 1882)], to be registered shall—

(a) affect any immovable property comprised therein, or (b) confer any power to adopt, or 27 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015

(c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered:

[Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (3 of 1877) [***] or as evidence of any collateral transaction not required to be effected by registered instrument.]”

Section 53A of the Transfer of the Property Act,1882 provides as under:

“Section 53A in The Transfer of Property Act, 1882 [53A. Part performance.—Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, 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.]”

28 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 Section 2(47) of Income Tax Act,1961 stipulates as under: (47) ["transfer", in relation to a capital asset, includes,— ****** *******

[(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 ****** ****** [Explanation 1].—For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA.] [Explanation 2.—For the removal of doubts, it is hereby clarified 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 characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;]

29 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 In this instant case , the MOU dated 29.12.2004 entered with GCB is not registered and hence it does not convey any title or ownership rights u/s. 53A of the Transfer of Property Act,1882 in respect of the property as per the newly inserted section 17(1A) of the Registration Act,1908. Thus with regard to the transfer of the property in the instant case as per factual matrix of the case as set out above, there is no valid transfer u/s. 53A of the Transfer of Property Act,1882 had taken place as contemplated u/s. 2(47) of the Act as the MOU dated 29.12.2004 is an unregistered document , no title has been transferred in part performance of the contract as it had not affected the immovable property comprised there-in, hence capital gain cannot be brought to tax. The similar view has been taken in the case of C.S. Atwal (supra) by the Hon’ble Punjab and Haryana High Court. We have also noticed in the instant case that possession is handed over for the limited purpose of demolition and reconstruction of the property for constructing seven storey’s of residential building on this property , and it is not that the assessee and the other co- owners of the property in execution of the MOU have handed over the possession of the property in lieu of the part consideration received from GCB in the capacity of the buyer of the said property, rather the possession of the afore-stated property was handed over to GCB as licensee only for limited purpose of demolition of the existing bungalow and for reconstruction of the said property by constructing seven storey’s residential building on the said property. The assessee and the co-owners continue to enjoy the possession as and in the capacity as the owners of the afore-stated property while concurrent possession was with GCB as licensee for limited purposes of demolition of bungalow and for construction of seven stories and hence in our considered view, income there-of cannot be brought to tax in the hands of the assessee and the co-owner during the impugned assessment year as transfer as contemplated u/s 2(47) of the Act read with Section 53A of the Transfer of Property Act ,1882 is not been effected as the possession in fact was never been transferred from the assessee and the co-owners to the GCB in its 30 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 capacity as buyer of the fourth and fifth floor to be constructed in lieu of constructing rest of five floors for the assessee and the other co-owners as also on payment of Rs.1.65 crores by GCB to the assessee and other co-owners as per facts and circumstances of the case as set out above. The agreement has already been terminated by the assessee and the co-owners on15.10.2007 for deficiency and discrepancies in performance by GCB in terms of the MOU dated 29.12.2004 with respect to the quality of construction and time of completion and the matter being sub-judice whereby Hon’ble Bombay High Court is seized of the suit no. 189 of 2008 filed by GCB with respect to the dispute between the assessee and co-owners on the one hand and the GCB on the other hand. Complete performance of the MOU has not allegedly been done by the builder as it is also on record that only 90% of the work was claimed to have been finished by GCB and no conveyance deed or registered agreement for sale has been registered in favour of GCB by the assessee and the other co- owners. The additions made by the AO and as confirmed by the CIT(A) in view of our above reasoning and discussions as set out above are not sustainable , the same is ordered to be deleted. We order accordingly.

With respect to challenge to the reopening of assessment by issuance of notice u/s 148 of the Act in these two appeals, it is observed that the AO has received fresh and tangible incriminating material being information from the AO of Dr Devender H Dave that these two respective assessee’s have not disclosed their share of long term capital gain on transfer of the afore-stated property which 31 Dr. Devendra H. Dave & Others 155/M/2015 & 156/M/2015 shall be considered for addition on substantive basis in their respective hands. The AO recorded the reasons for re-opening of the assessment and the AO re- opened the assessment u/s 147/148 of the Act and the afore-said new and tangible material coming to possession of the AO has in our considered view direct and live link/nexus with the formation of belief that the income has escaped assessment and the re-opening has been done within four years from the end of the assessment year. In the case of Ms Ansuya H Dave in , even the said assessee did not filed any return of income u/s 139 of the Act on the grounds that the income of the said assessee, Ms Ansuya H Dave is below the taxable limit of the income which is not chargeable to tax as per the Act. Thus, we uphold the reopening of the assessment u/s 147/148 of the Act by the AO as valid and proper in both these appeals. The contentions of both the respective assessee’s to this effect covered under both these appeals are hereby rejected . We order accordingly.

Order has been pronounced in the Open Court on 2nd May, 2016.