ITO, WARD - 42(3), KOLKATA, KOLKATA vs SHRI SUSHIL SARKAR, KOLKATA

Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA

Before: Shri Mahavir Singh & Shri Waseem Ahmed

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

This appeal by the Revenue is arising out of order of Commissioner of Income Tax (Appeals)-XII, Kolkata in appeal No.536/CIT(A)-XII/42(3)/07-08 dated 24.01.2011. Assessment was framed by ITO Ward-42(3), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.12.2007 for assessment year 2005-06.

This common issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition of ₹57,82,912/- made by Assessing Officer on account of provision of Sec. 50C of the Act.

ITO Wd-42(3) Kol. V. Shri Sushil Sarkar Page 2 3. Briefly stated facts are that assessee is an individual and has income from business and other sources. During the year under consideration, assessee along with his wife has purchased two pieces of land for an amount of ₹8.44 lacs and 6.35 lacs respectively. Both the lands were purchased in the month of April 1999. Both assessee and his wife are having the equal ownership in the said land. The assessee along with his wife has transferred the land by way of an agreement to sale to M/s Pragma Tech India Pvt. Ltd. (PTIPL in short) for an amount of ₹ 29.20 lacs on dated 26.05.2004. M/s PTIPL did not get the registry in its name. Now again M/s Pragma Tech India Pvt. Ltd. sold both the pieces of land within the same financial year to the following parties. S.No. Name of the party date of sale Amount of sale 1) Aarti Mitra 16-12-2004 Rs. 10.00 Lacs 2) Acknit Knitting Ltd. 10-02-2005 Rs. 19.20 Lacs The registry of the said land was done by Mr. Shiv Ratan Agarwal being power of attorney holder of Mr. & Mrs. Sarkar after taking the confirmation of M/s PTIPL. The AO invoked the provisions of section 50C of the Act and found the stamp duty valuation of the assessee share in the above stated transaction for an amount of Rs. 75,37,100.00. Accordingly the AO worked out the tax liability of long term capital gain by taking the sale consideration as stamp duty valuation minus the indexed cost of acquisition. The assessee demonstrated before the AO that property was sold to M/s PTIPL and possession was also handed over by assessee on receipt of full consideration, so provision of Sec. 50C of the Act are not applicable in this case. However, AO disregarded the claim of assessee on the ground that the registry was done by Mr. & Mrs. Sarkar as vendors in favour of the buyers namely Aarti Mitra and Acknit Knitting Ltd. and framed the assessment accordingly. Aggrieved, assessee preferred appeal before Ld. CIT(A) who deleted the addition made by AO by observing in para-6.1 and 6.2 of his order, which reproduced below:-

ITO Wd-42(3) Kol. V. Shri Sushil Sarkar Page 3 “6.1 On careful consideration of the facts and in law, I find force in the submission of appellant. As per the definition of transfer u/s. 2(47) of the I.T. Act, ‘transfer’, in relation to a capital asset, includes any transactions 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 Sec. 53A of the Transfer of Property Act, 1882. In the case of appellant, he along with his wife had transferred their property to M/s. Pragma Tech India Pvt. Ltd. vide agreement dated 26- 05-2004. The sale consideration was received from the purchaser party and possession of the property was also handed over on 27-05-2004. Thus, in the case of appellant the transfer was completed on 27-05- 2004. As per the Clause-(iia) of Sec. 27 of the Act, for the purposes of Sec. 22 to 26, a person who is allowed to take or retained possession of any building or part thereof in part performance of a contract of the nature referred to in Sec. 53A of the Transfer of Property Act shall be deemed to be the owner of that building or part thereof. In the case of appellant the possession of the property was handed over to the purchaser company on 27-05-2004 and hence with effect from that date, M/s Pragma Tech India Pvt. Ltd., became the deemed owner of that property. In the case of Electro Zavod (India) Pvt. Ltd. Vs. CIT reported in 278 ITR 187 (Cal), the issue was that the assessee had entered into an agreement for purchase of two flats on 29-04-1997. As per agreement the consideration of these flats was Rs.21,50,500/-. The assessee paid the entire consideration to the seller of the property and the possession was taken on 07-05-1997. However, the conveyance deed was not executed in favour of assessee. In the mean time due to certain tax demand by the Income Tax Department on seller of the property, the flats purchased by the assessee were attached u/s. 281B of the Act. The said action was challenged by the assessee on the ground that it was the owner of the flats as the entire consideration has been paid to the seller and that the possession of the flats was also taken by him. However, the Departments view was that the assessee M/s. Electrro Zavod (India) Pvt. Ltd. was not the legal owner of the property because the deed of conveyance was not executed by the seller in the name of assessee. The Department was of the view that still the seller of the property was the legal owner of those flats. In a writ petition filed by the assessee, it was held by his lordship of Calcutta High Court that since the assessee has paid entire consideration and has also taken possession of flats, for the purpose of Sec. 2(47) of the Act, the transfer of property is completed and within the terms of Clause (iiia) of Sec. 27 of the I.T. Act, the assessee became the deemed owner of those flats even if the deed of conveyance were not executed in the name of assessee. It was held by the Hon'ble court that aforesaid properties cannot be attached u/s. 281B of the Act against the tax liability of the seller of the property./ While delivering the aforesaid decision, the Hon'ble High Court relied on the decisions of Hon'ble ITO Wd-42(3) Kol. V. Shri Sushil Sarkar Page 4 Hon'ble Supreme Court in the case of CIT vs. Podder Cement Pvt. Ltd. reported in 226 ITR 625 (SC) and decision in the case of Mysore Minerals Ltd. Vs. CIT reported in 239 ITR 775 (SC). The similar view was taken by the Hon'ble ITAT D-Bench, Kolkata in the case of Sharad Kr. Goenka, HUF Vs. ITO, Ward-36(2), Kolkata in dated 20-12-2007. The Hon'ble ITAT relied on the decision of Hon'ble Kolkata High Court in the case of Elecdro Zavod (India) Pvt. Ltd. (supra). In the case of appellant the consideration of Rs.29,20,000/- was received by him on or before 25-05-2004 and the possession of the property was handed over to M/s Pragma Tech India Pvt. Ltd. on 27-05-2004. In fact on perusal of agreement dated 26-05- 2004 it is observed that the consideration of Rs.29-20,000/- was received by the appellant on or between 23-8-2003 to 25-05-2004. Thus, for all the practical purposes M/s. Pragma Tech India Pvt. Ltd., became the owner of the property w.e.f. 27-05-2004.

6.2 As mentioned above, the conveyance deed executed by the appellant and his wife in favour of M/s Pragma Tech India Pvt. Ltd., was not registered and hence the value of the property was not assessed by the stamp valuation authority for the purpose of stamp duty. The value assessed by the stamp valuation authority for the transaction between M/s Pragma Tech India Pvt. Ltd., and M/s Acknit Knitting Ltd., cannot be taken a basis for invoking provisions of Sec. 50C in the hands of appellant. The assessable value of the property for the purpose of stamp duty can also be not applied in the case of appellant because the assessment year involved in the case of appellant is A.Y 2005-06 and the assessable value of the property can be adopted for the purpose of computation of capital gain as per provisions of Sec. 50C w.e.f. 01-10- 2009 only has held by the Hon'ble ITAAT, A-Bench, Kolkata in the case of ITO, Ward-29(4), Kolkata, Vs. Poonam Malhan in dated 01-04-2010 for A.Y. 2006-07. In view of above, it is to be held that in the case of appellant the provisions of Sec.. 50C are not applicable. The A.O is directed to compute the capital gain by adopting total sale consideration of the property at Rs.29,20,000/- as declared by the appellant. The ground no. 1 is allowed.”

Now aggrieved by this order of Ld. CIT(A), Revenue is in appeal before us on the following grounds of appeal:- “1. The CIT(A) has erred in deleting the addition of Rs.57,82,912/- which was added as per provision of section 50C of the IT Act misconceiving the fact that the property in question though had been shown to have been transferred to M/s. Pragma Tech India (P) Ltd., had actually been registered as transferred keeping the assessee and his wife as Vendors to the ultimate purchaser M/s Acknit Knitting Ltd in a ITO Wd-42(3) Kol. V. Shri Sushil Sarkar Page

5. Registered deed and the value thereof adopted for the stamp duty purpose had rightly been taken by the AO for the computation of Capital Gains in the hands of the assessee as one of the vendors.

2. That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that the Conveyance Deed dated 27-08-2004 between the assessee-Sri Sushil Sarkar (&Smt. Arati Sarkar) and the purchaser – M/s Acknit Knitting Ltd., was duly registered as per the provisions of Registration Act & Transfer of Property Act and thus it had its own legal sanctity.

3. That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that Sri Sushil Sarkar (Smt. Arati Sarkar) was, therefore, a legal vendor / seller of the impugned property as per the said Registered Conveyance Deed dtd. 27-08-04 as per ground No. 2 above.

4. That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that the assessee, Sri Sushil Sarkar (&Smt. Arati Sarkar) could not therefore, have legally sold the property again later as per a duly Registered Conveyance Deed dtd. 27-08-04, had he already in reality sold/transferred legally the same property earlier vide a mere unregistered agreement dt. 26-05-2004 to Pragma Tech India (P) Ltd. as the CIT(A) himself had concluded at the last two lines of para 6.1 page 11 of his order.

5. That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that the ‘General Power of Attorney’ given by the assessee (and his wife) on 28-05-2004 to Sri Shiv Ratan Agarwal in his individual capacity without any reference to his being director of Pragma Tech India (P) Ltd. and of any agreement dated 26-05-2004 between the assessee (and his wife) and the company was under a preconceived plan to evade the application of section 50C of the Income Tax Act, 1961, on the assessee;’ actual sale of the impugned property vide agreement dated 27-08-2004 to M/s. Acknit Knitting Ltd.

6. That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that the possession letter dated 02.06.2004 (copy enclosed –Annexure-A) states the possession of impugned property given by the assessee Sri Sushil Sarkar (&Smt. Arati Sarkar) to Pragma Tech India P Ltd in pursuance of an agreement dated 02nd June, 2004 between them as against some Agreement deed dtd. 26- 05-2004 as mentioned in the appellant order (line 10, para 6, page 7).

7. That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that the assessee did not produce the said ITO Wd-42(3) Kol. V. Shri Sushil Sarkar Page 6 agreement dated 02.06.2004 between him (and his wife) and M/s Pragma Tech India Pvt. Ltd., for transfer of the same impugned property either before AO or before the CIT(A) and this agreement deed is also obviously unregistered.

8. That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that the possession of the impugned property to Pragma Tech India Pvt. Ltd. could, therefore, be given only on or after 02nd June, 2004 as against the date 27-05-2004 as mentioned in the appellant order.

9. That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that the assessee (and his wife) could not have entered into another agreement on 02-06-2004 (as mentioned in the possession letter -Annexure-A) with Pragma Tech India Pvt. Ltd. and hence could not have give possession to the company on or after 02-06-2004 after already having entered into an agreement with the company on 26-05-2004 and after having handed over possession to the company on 27-05-2004 as mentioned in the appellant order.

10. That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that the assessee, Sri Sushil Sarkar (&Smt. Arati Sarkar) and Pragma Tech India P Ltd. did not register their Agreement deed dt. 26-05-2004 and on agreement deed dated 02.06.2004 deliberately under a preconceived plan to evade the application of section 50C of thee Income Tax Act, 1961, on the assessee’s actual sale of the impugned property vide agreement dated 27-08-2004 to M/s. Acknit Knitting Ltd.

11. That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that the transaction vide the Agreement Deed dt. 26-05-2004 between the assessee (and his wife) and Pragma Tech India Pvt. Ltd., which was not registered was therefore, a sham transaction entered into by the assessee obviously under a pre-conceived plan to evade the application of provisions of Section 50C of the Income Tax Act on his actual sale of the impugned property to M/s. Acknit Knitting Ltd. 12 That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that the Hon'ble Hon'ble Supreme Court reiterating the ratio decidendi of its own decision in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 (SC)] at page 806 of the reported judgment that –“ the apparent must be considered the real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to ITO Wd-42(3) Kol. V. Shri Sushil Sarkar Page 7 look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities”.

13 That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that the said unwillingness of Pragma Tech India P Ltd. to register the property in their own name without any known reasons the very next day after taking possession on 27-05-2004 (as mentioned in the appellant order) and the next to next day after entering into agreement to sale on 26-05-2004 with the assessee (and his wife) and the issue of ‘General Power of Attorney’ by the assessee (and his wife) on 28-05-2004 to Shiv Ratan Agarwal in his individual capacity are the surrounding circumstances against the human probabilities as envisaged by the Hon'ble Supreme Court in the cases referred to ground No.9.

14 That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that that all the apparent is not real as envisaged by the Hon'ble Hon'ble Supreme Court in the cases of referred to ground No.9 in the assessee’s transactions with Pragma Tech India P Ltd and its director Shri Shiv Ratan Agarwal in view of the foregoing grounds specially ground nos 4, 6 & 13 above.

15 That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to appreciate that the unsaid reason for unwillingness of Pragma Tech India P Ltd to register the impugned property in their own name emerging to them only the next day after taking the possession of the property on 27-05-2004 (as mentioned in the appellant order) and the next to next day after entering into the agreement to sale with the assessee (and his wife) on 26-05-2004 could only be a hidden plan of the assessee to avoid application of section 50C of the IT Act on his actual sale of the impugned property to M/s Acknit Knittig Ltd. (contd to pg-6)

16 That the Ld. CIT(A) failed in law and on the facts and circumstances of the case that an unregistered agreement dtd. 26-05- 2004 between Sri Sushil Sarkar (&Smt. Arati Sarkar) and Pragma Tech India P Ltd was, therefore, liable to be only discarded in view of the foregoing grounds No.1 to 15.

17 That the Ld. CIT(A) failed in law and on the facts and circumstances of the case to hold at para 6.2., lines 14 & 15 of page 11 of his order that the provisions of Section 50C of the IT Act are not applicable in the assessee’s case in view of the foregoing grounds taken together.

ITO Wd-42(3) Kol. V. Shri Sushil Sarkar Page 8 18 That the Ld.CIT(A) failed in law and on the facts and circumstances of the case to direct the AO at para 6.2, lines 15, 16 & 17 of page 11 of his order to compute the capital gains by adopting the total sale consideration of the property at Rs.29,20,000/- as declared by the assessee in view of the facts mentioned in the foregoing grounds.”

Smt. Varsha Jalan, Ld. Authorized Representative appearing on behalf of assessee and Shri Niloy Baran Som, Ld. Departmental Representative appearing on behalf of Revenue.

We have heard rival parties and perused the materials available on record. Ld. DR relied on the order of AO whereas Ld. AR relied on the order of Ld. CIT(A) and submitted that assessee had sold property to PTIPL and received the consideration from the said company and handed over its possession to the PTIPL and transaction got closed only on 26.05.2004. However, the registry for the property was not done by the first buyer namely M/s PTIPL in its favour, but the agreement for sale was made between the parties namely assessee and M/s PTIPL and which is a transfer within the meaning of Section 2(47) of the Act. It was also requested by the Ld. AR that whatever amount of profit arising from the subsequent sale made by PTIPL to Acknit Kinitting Ltd. and Smt. Arati Mitra are subject to taxes in the hands of PTIPL. He also requested without prejudice to the above that the matter was also not referred to DVO as required u/s. 50C of the Act. The assessee also requested to refer the matter to DVO in case tax arising in the hands of assessee from the transaction of sale made by assessee to PTPIL. Careful analysis of the orders of the authorities below and submissions made by Ld. AR reveals that AO has invoked the provision of Sec. 50C of the Act in taxing the transaction of sale-purchase of said property. However, Ld. CIT(A) has deleted the addition made by AO on the ground that provision are not applicable as section 50C was amended by Finance Act 2009 w.e.f. 01.10.2009, wherein the word “assessable” was inserted and it means that in case of transfer of property on or after 01.10.2009 even if sale deed is not ITO Wd-42(3) Kol. V. Shri Sushil Sarkar Page 9 registered the value of the property assessable by Stamp Value Authority for the purpose of stamp duty can be taken as deem sale value for on the purpose of computation of capital gains. The said amendment in section 50C is prospective in nature and applicable w.e.f. from 1.10.2009 and the dispute in this case pertains to the AY 2005-06 hence section 50C does not apply in the present case. However, we find that the decision of Hon'ble jurisdictional High Court has passed order in the case of Bagri Impex (P) Ltd. v. ACIT (2013) 31 taxmann.com 39 (Cal) that the provision of Section 50C, wherein the word “assessable” was inserted is applicable with the retrospective effect from year 2003. The relevant portion of the judgment is reproduced below:- • It is true that ‘Transfer’ has been defined in section 2(47). But the aforesaid definition was made before section 50C was introduced to the Income-tax Act. After section 50C was introduced in the year 2003, the value of the land or building or both sold or otherwise transferred has to be the value assessed by the authority of the State Government for the purpose of stamp valuation. • The intention of the parliament is that where the land or building or both are sold or otherwise transferred, such transfer shall be deemed to have taken place only after the stamp duty has been assessed by the State Government, because it is on the valuation made for the purpose of stamp duty that the tax is payable under the Income-tax Act. The amendment made in the year 2009 may have made the things simpler, but the intention of the Legislature was very clear from the beginning that the value for the purpose of income tax shall be the same as the value for stamp duty. • By adopting devices to defeat the provision, the assessee cannot be heard to contend that section 50C would not be applicable merely because the Deed of Conveyance had not at that time been executed or registered. • The contention that the property stood transferred in the financial year 2005-06 when the sale proceeds were received on the basis of the definite appearing from section 2(47)(v) is without any substance. • The assessee itself did not follow section 2(47)(v) because it did not offer the transfer for taxation in the year 1996 when the possession is claimed to have been made over on the basis of the agreements for sale in accordance with section 2(47)(v). • Designs to evade tax cannot be permitted. The Assessing Officer on the date of assessment for the assessment year 2006-07 had before him the valuation made by the Sate for the purpose of stamp duty and rightly applied the same.[Para 7] ITO Wd-42(3) Kol. V. Shri Sushil Sarkar Page 10 So from the aforesaid discussion it is clear that the contention of Ld. CIT(A) does not apply in the instant case. Accordingly, provision of Section 50C is very much attracted to this transaction. So the value as per stamp duty has to be worked out when the property was sold by assessee to PTIPL and subsequent sale by the PTIPL to M/s Acknit Knitting Ltd. and Smt. Aarti Mitra, and profit thereon is to be taxed in the hands of PTIPL and not in the hands of assessee. On this basis, we are setting aside this matter to the file of AO to ascertain the valuation as per DVO for the relevant year when the property was transferred by assessee to PTIPL and worked out the capital gains tax liability accordingly as per law. However it is also important to note that while determining the stamp duty valuation for the first transfer between the assessee to PTIPL, the matter should also be referred to the DVO for the ascertainment of the true value of the property. Hence this ground of Revenue’s appeal is allowed for statistical purpose.

ITO, WARD - 42(3), KOLKATA, KOLKATA vs. SHRI SUSHIL SARKAR, KOLKATA