SHRI. ANAND DAGA,NAGPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE 2(2), NAGPUR

IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SANDEEP GOSAIN, JM & SHRI ARUN KHODPIA, AM ITA No. 133/NAG/2021 Assessment Year: 2017-18 Shri Anand Daga Vs. The ACIT 601/602, B Wing, 6th Floor Central Circle 2(2) Lokmat Bhawan,Ramdaspeth, Nagpur Nagpur PAN No.:AEDPD 1144B Appellant Respondent Assessee by: Shri Mahavir Atal, CA Revenue by :Smt. Agnes P Thomas (CIT-DR) Date of Hearing: 27/04/2022 Date of Pronouncement: 28 /06/2022 ORDER PER: SANDEEP GOSAIN, J.M. This is an appeal filed by the assessee against the order of the ld. CIT(A)- 3, Nagpur dated 09-08-2021 for the assessment year 2017-18 wherein the assessee has raised the following grounds.

‘’1. That on the facts and in law the ld.CIT(A) erred in rejecting the year of taxability of the capital gain in the A.Y. 2017-18 by misinterpreting the provisions of Section 53 of the Transfer of Properties Act, 1882. 2. That on the facts and in law the ld. CIT(A) erred in misinterpreting the provisions of Section 54 of the Income Tax Act, 1961 in respect of use of property constructed. 3. The appellant denies his liability to pay interest u/s 234A, 234B and 234C without prejudice to levy of interest u/s 234A, 234B and 234C are unjustified and bad in law.’’

2 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur 2.1 At the outset of hearing of the appeal, the Bench noted that there is delay of 18 days in filing the present appeal by the assessee for which the assessee has filed an application dated 20-12-2021 praying therein condonation of delay as under. ‘’Date : 20-12-2021 To, Assistant Registrar, Income Tax Appellant Tribunal Nagpur Bench Subject: - Regarding Defect in appeal to Income Tax Appeal Tribunal Dear Sir , This is with reference to defect notice served upon me for communicating defects in appeal submitted to Hon. Appellant Tribunal. The Hon. ITAT has considered appeal filled by me as time barred by 18 days. In this regard, I hereby submit that I have been duly served with order of Hon. Commissioner of Income Tax (APPEALS) on 09/08/2021 pertaining to Assessment Year 2017-18 against which I Preferred appeal to Hon. Appellate Tribunal. Appeal to Appellate Tribunal was filled by me online on 5th October 2021 ie within 60 days of order of Hon. CIT (Appeals) which is in due time along with prescribed fees. Physical copy of the appeal acknowledgment along, Form No.35, Form No.36 and required documents were submitted to office of Appellant Tribunal, Nagpur Bench on 22nd October 2021. After such submission as required by office Superintendent, Triplicate copies of Appeal acknowledgement, Form No.36 and challan copies were submitted to office Superintendent on 26th October 2021. Therefore as per my knowledge, The Appeal filed to Hon. ITAT is due in time and not time barred. Further I Humbly request that, if the Hon. ITAT consider the same as delayed filed appeal I beg to condone the delay and accept the appeal filed by me and obliged. Kindly, consider the above submission.’’ Thanking you, Yours faithfully,

3 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur Sd/- (Anand Daga) Appellant PAN AEDPD 1144 B’’ 2.2 On the other hand, the ld CIT- DR opposed the condonation application but submitted that the Court may decide the issue as deem fit and proper in the case.

2.3 We have heard the rival contentions and pursued the material available on record. It reveals from the application dated 20-12-2021 of the assessee that he has filed an appeal before the Tribunal through online on 5th Oct. 2021. However, Physical copy of the appeal acknowledgment along, Form No.35, Form No.36 and required documents were submitted to office of Appellant Tribunal, Nagpur Bench on 22nd October 2021. The Bench noted that the assessee should have physically submitted the required documents in time in the office. However, in the interest of natural justice and seeing the peculiarity of the case, the delay observed by the office in filing the appeal by the assessee is condoned. 3.1 Brief facts of the case are that the return of income was e-filed by the assesseon 17-11-2019 showing total income at Rs.13,06,600/-. The assessee is engaged in profession of Chartered Accountant and as a partner in the firm M/s. A.S. Daga & Company. During the course of assessment proceedings, the AO noted that the appellant had sold his residential property on 30-03-3017 for total

4 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur sale consideration of Rs.1,62,00,000/- but has not declared any long term capital gains from the same. The issues raised in this appeal are that the appellant claimed an exemption of Rs 1,31,54,698/- under section 54 vis-à-vis the construction of a residential house, against the transfer of another residential house. The total sale consideration agreed for the transfer of the residential house, was Rs. 1,62,00,000/-. Out of total sale consideration an amount of Rs 62,00,000/- was received at the time of a registered agreement to sell and the balance amount was received at the time of execution of the conveyance deed. The case of the appellant was opted for limited scrutiny to verify the veracity of the exemption claimed by the appellant. During assessment proceedings, the appellant was directed to submit the evidence related to the cost of construction. However, as the appellant could not submit requisite details in time, the learned AO disallowed the entire exemption by stating that "In the absence of proper and sufficient evidence the deduction/exemption claimed by the appellant under section 54 of the Income Tax Act, 1961 cannot be considered as genuine”.

3.2 The Appellant preferred an appeal before the First Appellate Authority. During the appellate proceedings, the appellant submitted additional evidence under Rule 46A of the Income Tax Rules. The additional evidences submitted by the appellant were accepted by the learned CIT(A). (Para 4.1, page 22 of the CIT(A) order).The list of additional evidences submitted by the appellant

5 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur (Appellant’s Submission) is reproduced on page 5 of the Appellate Order. The appellant submitted bills of construction of house from vendors, ledgers account of land development and building construction, bank statements, etc. During the remand proceedings, the Assessing Officer directed the appellant, to appear in person and explain all details. The appellant submitted the requisite details. The sanctity and the veracity of the bills and vouchers were accepted by the Assessing Officer. However, in the remand report, the Assessing Officer raised two new concerns. That the appellant has erred in considering the date of registered agreement to sale as the date of transfer and the appellant has not handed over possession. The appellant has invested in the construction of the residential house since A.Y. 2012-13 and only a small amount was invested after the date of transfer of the asset. (Para 6 & 7 of the remand report dated 03/06/2021, reproduced on page 6 of the appellate order). The appellant submitted a rejoinder in response to the remand report. The appellant relied on the judgment of the Hon'ble Supreme Court in the case of Sanjeev Lal Vs CIT 365 ITR 389 (SC), to support his view that transfer as per the Income Tax Act, got effected on the date of agreement to sale. The appellant also submitted a photocopy of the possession letter to buttress his submission, that the possession was already handed over by the appellant on the date of the registered agreement to sale. With respect to the second concern, the appellant

6 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur relied on plethora of judicial precedents, which have held that the only condition vis-à-vis section 54 exemption is that the construction should be completed within three years. As in the case of the appellant, undisputedly the construction was completed after the date of execution of the registered agreement, the appellant pleaded for allowance of exemption. The ld CIT(A), negated the first submission of the appellant, that the point of taxation should be considered as the date of the registered agreement. The ld CIT(A) opined that the date of conveyance deed is the only point of taxation as per section 2(47)(i).

3.3 We have considered the facts of the case as well as the submission of the counsel of the assessee and the department representative. The sole issue before us is regarding allowabilty of exemption under section 54. Apparently the AO as well as ld.CIT(A) have denied the exemption by opining that the assessee has not fulfilled the condition of section 54, as the investment in the residential house was made before the transfer of the impugned asset. As the issue involved is regarding disallowance of section 54, the bare provision of section 54 is reproduced as under;

Profit on sale of property used for residence. 54. [(1)] [[Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset [***], being buildings or 44lands appurtenant thereto, and being

7 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of [one year before or two years after the date on which the transfer took place purchased], or has within a period of three years after that date [constructed, one residential house in India], then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,— (i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45 and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain: [Provided that where the amount of the capital gain does not exceed two crore rupees, the assessee may, at his option, purchase or

8 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur construct two residential houses in India, and where such option has been exercised,— (a) the provisions of this sub-section shall have effect as if for the words "one residential house in India", the words "two residential houses in India" had been substituted; (b) any reference in this sub-section and sub- section (2)to "new asset" shall be construed as a reference to the two residential houses in India: Provided further that where during any assessment year, the assessee has exercised the option referred to in the first proviso, he shall not be subsequently entitled to exercise the option for the same or any other assessment year.] [***] [(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised53 by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme54 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

9 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid. The bare reading of the section, provides few important condition to claim exemption under section 54.  Exemption can be claimed only by the Individual or HUF.

 The said exemption can be claimed only against long term capital gain.

 The assessee is under obligation to purchase a residential house within two years or construct a residential house within three years from the date of transfer. In the given case the main dispute is regarding whether the investment was made within three years from the date of the transfer. The impugned property which is subject matter of taxation was transferred by way of conveyance deed (sell deed) on 01/09/2017, however, the agreement to sell the said property was executed and registered in previous year on 31/03/2017. The property which has been constructed by the appellant stood completed on 13/06/2017. (As per architect certificate). Therefore, if the point of taxation of capital gain is

10 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur considered as the date of the agreement to sell, the assessee is eligible for exemption, however, if the date of execution of the sale deed is considered as a point of taxation, then the assessee is not eligible for section 54 exemption. Relevant dates are as under;

Registered Agreement to Sale :- 31/03/2017 Transfer of possession :- 30/03/2017 Date of construction of completion :- 13/06/2017 Date of sale deed (Conveyance deed) :- 01/09/2017 As the issue finally falls back on the point of taxation (i.e.) the date of transfer, the bare provision of section 2(47) of the Statute, defines the term 'Transfer'. There are 6 clauses in this section. As clause (i), (ii) and clause (v) are relevant, the same is reproduced as under;

2(47) Transfer, in relation to a capital asset, includes-

(i) The sale, exchange or relinquishment of the asset; (ii) the extinguishment of any rights therein;

(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)

As per clause (i) of the section 2(47) it covers the case of sale simpliciter, which

11 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur the ld CIT(A) has stressed upon. As per the ld CIT(A) as, the case of the assessee falls under first clause of section 2(47) the point of taxation will be the date of execution of the sell deed. On the contrary the learned AR, stated that the section 2(47) is an inclusive definition and covers not just the case of sale simplicities but also encapsulates the transfer by way of extinguishment of rights. The AR stressed upong the fact that if any rights relating to capital asset is transferred same will fall within the extended definition of transfer. In the present appeal, the appellant has transferred the entire bundle of rights attached to the property on the date of execution of the agreement to sell. Therefore, as per the AR the immovable property stands transferred on the date of execution of the agreement to sell. It was in pursuant to this agreement, the purchaser parted off his rights to transfer the land. The appellant cannot enter into an agreement with a third party for the sale or transfer of the land. Barring the right to specific performance of the contract, (i.e.) receiving the agreed consideration, the appellant has transferred all his rights. Therefore, appellant pleaded that his case squarely falls within the second clause of the definition of transfer [2(47)]. Therefore, as the land stands transferred in F.Y. 2016-17, the capital gain will arise only in A.Y. 2017-18 and not in the succeeding year i.e when the conveyance deed is registered. For this proposition the appellant relied on the landmark judgment of the Apex Court in the case of case Sanjeev Lal Vs CIT

12 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur (2014) and jurisdictional Nagpur ITAT judgment of DashrathPunjajiGujar, Amravati Vs ITO ITA 231/Nag/2013 (2016) dated 15/01/2016. Both the judgments relied by the appellant has been perused and it is found that the Hon’ble Supreme Court has held that on the date of agreement to sell, a right in personam is created in favour of the vendee and therefore, to that extent the rights in the property stands transferred by way of extinguishment. It is a trite law that the property is a bundle of rights and the section 2(47) does not only encapsulates sale simplicitor but also transfer by way of exchange, extinguishment and relinquishment of rights. No doubt the definition of the transfer as provided in the Income Tax Statute is broader than the one used in the Transfer of Property Act. For sake of completeness, we are reproducing the relevant operating paragraphs of the Supreme Court judgment in the case of Sanjeev Lal and jurisdictional Nagpur ITAT judgment in case of DashrathPunjajiGujar.

Sanjeev Lal Vs CIT 365 ITR 389 (SC) 20. The question to be considered by this Court is whether the agreement to sell which had been executed on 27th December 2002 can be considered as a date on which the property i.e. the residential house had been transferred. In normal circumstances by executing an agreement to sell in respect of immovable property, a right in personam is created in favor of the transferee/vendee. When such a right is created in favor of the vendee, the vendor is restrained from selling the said property to someone else

13 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur because the vendee, in whose favor the right in personam is created, has a legitimate right to enforce the specific performance of the agreement, if the vendor, for some reason is not executing the sale deed. Thus, by virtue of the agreement to sell some right is given by the vendor to the vendee. The question is whether the entire property can be said to have been sold at the time when an agreement to sell is entered into. In normal circumstances, the aforestated question has to be answered in the negative. However, looking at the provisions of Section 2(47) of the Act, which defines the word "transfer" in relation to a capital asset, one can say that if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred. 21. Now in the light of the definition of "transfer" as defined under Section 2(47) of the Act, it is clear that when any right in respect of any capital asset is extinguished and that right is transferred to someone, it would amount to transfer of a capital asset. In the light of the aforestated facts and in view of the definition of the term "transfer", one can come to a conclusion that some right in respect of the capital asset in question had been transferred in favour of the vendee and therefore, some right which the appellants had, in respect of the capital asset in question, had been extinguished because after execution of the agreement to sell it was not open to the appellants to sell the property to someone else in accordance with law. A right in personamhad been created in favour of the vendee, in whose favour the agreement to sell had been executed and who had also paid Rs.15 lakhs by way of earnest money. No doubt, such contractual right can be surrendered or neutralized by the parties through subsequent contract or conduct leading to no transfer of the property to the proposed vendee but that is not the case at hand.

14 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur 23. Consequences of execution of the agreement to sell are also very clear and they are to the effect that the appellants could not have sold the property to someone else. In practical life, there are events when a person, even after executing an agreement to sell an immovable property in favour of one person, tries to sell the property to another. In our opinion, such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed.

The judgment of the Supreme Court in the case of Sanjeev Lal (supra) clarifies the legal proposition that by entering into an agreement to sale, the appellant has created a right in personam over the transferee. Therefore, the date of transfer as provided in section 2(47) will be the date of the agreement. The said judgment of the Supreme Court was also followed by the Nagpur Tribunal in the case of DashrathPunjajiGujar, Amravati Vs ITO ITA 231/Nag/2013 (2016) dated 15/01/2016. The relevant extract is reproduced (W.S. Vol.II Page 174 & 175)

Para 7, Page 7; “The above exposition of the Hon’ble Apex Court is quite clear and learned D.R’s plea that it is not applicable on the facts of this case is totally unsustainable. In the present case also an agreement to sell in respect of capital asset has been executed on 05-01-2004 and possession of the land has also been given to the purchaser. Thus a right has been created in favour of the vendee and the vendor i.e.

15 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur the appellant is restrained from selling the said property to someone else because the vendee in whose favour the right in personam is created as a legitimate right to enforce a specific purpose of agreement if the vendor for some reason is not executing the sale deed. Thus on the anvil of Hon’ble Apex Court exposition as above it can be concluded that looking at the provisions of section 2(47) of the Act which defines the word “transfer” in relation to a capital asset it can be said that since the right in the property is extinguished by execution of an agreement to sell on 05-01- 2005 coupled with granting of possession of the land, the capital asset can be deemed to have been transferred. In this view of the matter, it is clear that since the transfer is complete in assessment year 2004-05 the capital gain, if any, is exigible to tax in assessment year 2004-05 itself.” We also draw support from the recent judgment of the Hon'ble Gujarat High Court in the case of KishorbhaiHarjibhai Patel v/s ITO (107 taxmann.com 295) (2019) wherein the Hon'ble Gujarat High Court has extensively discussed the judgment of Hon'ble Supreme Court in case of Sanjeev Lal (Supra) vide para 16 to 17 of this judgment. After the discussion on the judgment of Sanjeev Lal (supra), the Hon'ble Gujarat High court stated:-

16 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur are only concerned with the principle of law as laid down in Sanjeev Lal (supra). 19. In our opinion, the Revenue authorities were not justified in distinguishing the case of Sanjeev Lal (supra) on facts.

Considering the binding judgment of the Hon’ble Supreme Court as well as the Jurisdictional Nagpur Tribunal, we concur with the view that the transfer defined in section 2(47) is broad enough to cover cases of extinguishment of rights and therefore, the assessee rightly reported the capital gain on the date of registered agreement to sell.The Another clause which is also relevant for the case is that of the part performance of contract, provided in section 2(47)(v).

2(47)(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) The above sub-clause stipulates that, in order to constitute 'transfer' within the meaning of the Income-tax Act, the transaction should be the one as stipulated in section 53A of the Transfer of Property Act, 1882. For sake of brevity relevant extract of Section 53A of Transfer of Property Act is reproduced as under

"53 A. Part performance.- Where any person contracts to transfer for consideration any immovable 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

17 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur 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, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore 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."

Therefore, to fall within the realm of section 2(47)(v) read with section 53A of TOPA, 1882 following conditions should be cumulatively satisfied;

(a) There should be a contract in writing signed by both the parties from which terms necessary to constitute the transfer can be ascertained. (b) The transferee has taken possession of the property. (c) The transferee has performed or is willing to perform his part of his contract. (d) The transferor shall be debarred from claiming any right in respect of the property in possession of the transferee. If all the above conditions are satisfied, such transaction would constitute a transfer within the meaning of the Income Tax Act. Even, the Registration, Act 1908, specifically section 17(1A) provides that, “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

18 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur 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 (48 of 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.” Therefore, the combined reading of the Section 53A of TOPA and Section 17(1A) of the Registration Act mandates, that any transaction involving allowing of the possession of the immovable property to be taken or retained in part performance of a contract of the nature referred to in s.53A shall not result in transfer if the agreement is not registered. In other words, even if a particular transaction is in pursuance of a contract of the nature referred to in s. 53A, yet the same may not be taxable u/s. 45 of the Act as capital gains if the agreement between the parties has not been registered. Even Hon’ble Supreme Court in the case of CIT v. Balbir Singh Maini [2017] 86 taxmann.com 94/251 Taxman 202/398 ITR 531, had an occasion to analyze and interpret, the said provisions of section 53A of TOPA and section 17(1A) of the Registration Act in the context of the Income Tax Act, 1961. The Hon’ble Supreme Court held that if the agreement is not registered, then it will not have any effect, in law, for the purpose of s. 53A. The Court further observed that in absence of registration of the agreement, there is no agreement in the eyes of law that can be enforced u/s. 53A. Since in order to qualify as a transfer of a capital asset u/s. 2(47)(v) of

19 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur the Income-tax Act, there should be a contract which can be enforced, in law, u/s. 53A. The commentary on the Income Tax statute by acclaimed SampathIyengar’s in book “Law of Income Tax” 12th edition, volume 1, page 1108, opines that

Page 1108 “From a review of the above it appears that if possession of immovable property is given pursuant to an agreement for sale which is covered by section 53A, such possession would itself fall within the definition of “transfer” notwithstanding the fact that there is no conveyance. In terms of these decisions, transfer of immovable property was considered to have taken place upon conveyancing and not on the date of the agreement for sale. Now a question would arise as to whether the insertion of sub clause (v) would mean that the transfer of the same immovable property in terms of section 2(47) would take place once at the time of giving of possession in terms of the newly inserted sub clause (v) and once again also when the conveyance is completed in terms of the abovementioned Supreme Court’s decisions? The answer to this question appears to be obvious, viz, that if in terms of sub clause (v), transfer have construed to have taken place at the first stage of giving possession of immovable property, there cannot be a second transfer of the same property at the time of execution of conveyance.” Page 1109 “Section 45 enacts that the capital gains shall by fiction ‘be deemed to be the income of the previous year in which the transfer took place’. Since this is a statutory fiction, the actual year in which the sale price was received, whether it was one year, two years, three years, four years, etc. previous to the previous year of transfer, is beside the point. The entirety of the sum or sums

20 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur received in any earlier year or years would be regarded as the capital gains arising in the previous year of transfer

In the present case, the agreement to sell was duly registered on 31/03/2017, on this same date the appellant has also parted off with his possession. (Possession letter was submitted during appellate proceedings and the sanctity of same was accepted by the ld CIT(A)). Therefore, by virtue of both clause (ii) & clause (v) of section 2(47) said land stands transferred on the date of registered agreement to sell (i.e) on 31/03/2017 in A.Y 2017-18. Therefore, the opinion of the ld CIT(A) that the said transaction should be brought to tax in the subsequent year, is not in accordance with the law as well as settled jurisprudence. The ld CIT(A) stated in the appellate order that the appellant has failed to prove that the old house was demolished and the new residential house was constructed. During the hearing the learned AR drew reference to the 142(1) notices, to highlight the fact that the AO has never asked appellant to submit proof of demolition of the house. He further submitted that as the new house was constructed on the said land after new permit from the local authority, it can be very well presumed that the old house was demolished and new house was constructed. In this regard we find that the observation of the ld. CIT(A) are unfounded, because the fact that the house was constructed is accepted by the ld. CIT(A), the only bone of contention was regarding point of

21 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur taxation of the capital gain. As far as proof of construction of the new house the appellant has submitted all relevant bills and vouchers related to construction during the appellate proceeding and the ld CIT(A) accepted the additional evidence. Even the AO accepted the sanctity and veracity of the bills or vouchers submitted by the appellant. The ld CIT(A) has also called remand report of the Assessing Officer on the additional evidences. During the remand proceedings, the appellant appeared before the learned Assessing Officer and he submitted all requisite details, bills, vouchers, bank statements, etc. (This fact is mentioned in the remand report dated 03/06/2021 at para 5. The said remand report is also reproduced by the ld CIT(A) in the appellate order at page 6). In the same remand report, the Assessing Officer has categorically stated that the appellant has made payments of building sanction and demand note of Rs 11,26,570/- on 18/11/2021 and Rs 45,212/- to Maharashtra State Imarat and Bandhkam, Kalyankari Mandal. (Page 7 of the appellate order). Therefore, the fact that the house was demolished and the new house was constructed after the due sanction is borne on the record and the Assessing Officer has accepted the same in the remand report. Therefore, the observation of the ld CIT(A) that the appellant has not constructed a new residential house are in a realm of conjecture and surmises and does not align with the facts of the case. The ld CIT(A) also observed in the appellate order, that the residential house was used

22 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur by the appellant for the purpose of his office. The said observation is inconsequential, as the act mandate purchase or construction of a residential house, and the fact that the appellant has constructed a residential house is not in dispute. During the hearing the ld AR submitted that in the Maharashtra State, professionals like Chartered Accountants or Advocates are permitted to practice from their residential houses and the appellant resides in the same building on the second and third floor. The said fact has not been controverted by the ld. DR. During the appellate proceedings before ld.CIT(A), the appellant submitted a photocopy of the possession letter given by him to the purchasers. The said fact is discernible from page 19 of the appellate order, wherein the appellant's submission is reproduced verbatim. (Relevant para is (d) on page 20 of the appellate order). The ld CIT(A) has accepted the fact that the appellant has parted with the possession on 30/03/2017 and there is no dispute about the same. The ld CIT(A) has highlighted certain contradictions in the Architect Certificate as well as the Valuers report. During the hearing the ld. AR submitted that the architect report was taken to document the factum of completion of the contract and the valuation report from the valuer was obtained to value the property. In our opinion the said fact is inconsequential as both the architect as well as valuer has given the date of completion after the registered agreement to sell. Therefore, as the appellant's appeal is allowed on the first legal issue of

23 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur point of taxation, then the appellant automatically gets eligible for exemption as the construction was completed after the date of execution of the registered agreement to sell. The ld First Appellate Authority has relied on the judgment of the Hon'ble Supreme Court in the case of Suraj Lamp & Industries (P) Ltd Vs State of Haryana (SLP No 13917 of 2009). The said judgment was delivered by the Hon'ble Supreme Court in October 2011 and it was not in reference to the Income Tax Act, 1961 but with reference to the Transfer of Property Act, 1882.

 The Supreme Court examined section 54 of the Transfer of Property Act and held, that an agreement of sale did not, by itself, create any interest in or charge on such property.  In that case, the Hon'ble Apex Court was dealing with the cases of Part Performance, the Court explained that in India, the word 'transfer' is defined with reference to the word 'convey'. The word 'conveys' in section 5 of the Transfer of Property Act is used in the wider sense of conveying ownership that only on execution of conveyance ownership passes from one party to another.  The Court held that a transfer of immovable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title, or interest in an immovable property can be transferred.  Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of sections 54 and 55 of TP Act and will not confer any

24 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur title nor transfer any interest in immovable property (except to the limited right granted under section 53A of TP Act).  Therefore, accordingly, it was held that in the Transfer of Property Act, an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of the Transfer of Property Act enacts that the sale of immovable property can be made only by a registered instrumentand an agreement of sale does not create any interest or charge on its subject matter.

In fact the above judgment is infavor of the appellant, as it has held that the mandatory condition for transactions in nature of Section 54 of Transfer of Property Act, 1822 is the registration of the instrument. In the appellant's case, the agreement was duly registered. Moreover, the landmark Judgment of the Supreme Court, in the case of Sanjeev Lal, which is referred to above was rendered after the judgment of Suraj Lamps. In the case of Sanjeev Lal (Supra), the Hon'ble Supreme Court has categorically held that the execution of the agreement to sell, will lead to the extinguishment of rights and accordingly the transaction will be treated as a transfer as per section 2(47) of the Income Tax Act, 1961. Therefore, relying on the above-mentioned judgments and facts of the case we are of the opinion that the assessee has rightly claimed exemption under section 54. Accordingly, the appeal of the assessee stands allowed.

25 ITA NO.133/NAG/2021 Shri Anand Daga vs ACIT, CC-2(2), Nagpur 234B and 234C of the Act which is consequential in nature.

Nagpur DATED: 28 /06 /2022 *Mishra Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. True Copy By Order

Assistant Registrar ITAT, Nagpur