In High Court of Judicature at Madras Dated: 03.11.2014 Coram Honourable Mr.JUSTICE R.SUDHAKAR and Honourable Mr.JUSTICE R.KARUPPIAH Tax Case (Appeal) No.840 of 2014 Commissioner of Income Tax Chennai. .... Appellant Vs. Shri.C.Sugumaran T2/2 Cauvery Salai, Besant Nagar, South Chennai - 600 090. .... Respondent APPEALs under Section 260A of Income Tax Act against order dated 21.02.2014 made in I.T.A.No.518/Mds/2013 on file of Income Tax Appellate Tribunal 'A' Bench, Chennai. For Appellant : Mr.T.Ravikumar Standing counsel for Income Tax JUDGMENT (Delivered by R.SUDHAKAR,J.) This Tax Case (Appeal) is filed by Revenue as against order of Income Tax Appellate Tribunal raising following substantial questions of law: "i) Whether on facts and in circumstances of 2 case, Tribunal was right in holding that assessee could not be treated as owner of property sold on 23.10.2008 while computing capital gains in his hands? 2. Whether Tribunal was legally justified in not taking cognizant of letter of seller of property to M.Viswanathan to effect that he had received sum of Rs.25 lakhs for executing power of attornery on 01.09.2006 in favour of assessee? 3. Whether finding of Tribunal is correct especially when Section 2(47)(vi) of Incometax Act brings within its ambit of transfer, enjoyment of property right through power of attorney agreements?" 2. assessment in this case relates to assessment year 2009-10. assessee is individual. He is power agent of one Mr.M.Viswanathan, who is actual owner and vendor of property. said Viswanathan entered into registered power of attorney on 01.09.2006 in favour of assessee without any consideration. For deciding this case, relevant clauses in power of attorney agreement, as extracted by Tribunal, reads as follows: 01) to negotiate sale of schedule mentioned property in whole or undivided shares. 02) to execute any agreement/s for sale or other document/s necessary to effectuate aforesaid purposes to cause same to stamped registered or authenticated including purchase of stamp paper as case may be. 03) to receive or agree to receive consideration for 3 said sale or sales in respect thereof. 04) to appear before sub registrar, Registrar or other authority for purpose of said sale or transfer. 05) to cause mutation where necessary effected in revenue records and to make such statements personally or through pleader or other agents to effectuate aforesaid purpose. 06) to deliver vacant possession of property sold to purchaser/s to be sold. 07) to apply for demolition and demolish existing building in schedule mentioned property. 08) to execute sale deed/s in favour of purchaser/s for said property as whole or undivided shares and also rectification deed/s if necessary. 09)....... 10) to sign patta transfer forms, land ceiling forms and other declarations etc., that may be necessary and incidental fee effectively transferring land in favour of purchaser/s. 11 to 16...... 17) in case of any dispute to institute legal proceedings and or defend suits or cases filed and in that connection to engage advocate, to sign vaklaths, plaints, affidavits, petitions, pleadings, statement and also to give evidence before competent court. 18 & 19..... 20) to advertise for sale of schedule mentioned property either as whole or as undivided share 21) to do all things necessary and essential for proper management of our property including disposal and completion of sale of schedule property. And generally 4 to do such act are necessary and incidental in this regard. No consideration is received from power agent for giving this power of Attorney. power agent shall maintain proper accounts and render same. property right has not been handed over Power Agent." 3. After execution of power of attorney, property was registered in name of assessee's wife Dr.Meera Bai for sum of Rs.25.00 lakhs by sale deed dated 23.10.2008. Assessing Officer took view that it is assessee who sold plot to his wife Dr.Meera Bai for sum of Rs.25.00 lakhs, whereas, guideline value of property was Rs.60.00 lakhs at that point of time by adopting fair market value of property at Rs.60.00 lakhs based on index cost at Rs.11.00 lakhs as on 01.04.1981. 4. assessee/power of attorney holder contested assessment of capital gains at his hands by pleading that he had acted only as power of attorney holder of actual owner Mr.Viswanathan, which plea was rejected by Assessing Officer and total income was computed at Rs.61,25,290/- resulting in demand of tax at Rs.16,94,560/-. Aggrieved by said order of Assessing Officer, assessee has filed appeal before Commissioner of Income Tax (Appeals), who rejected plea of assessee, thereby dismissed appeal. As against said order, assessee filed appeal before 5 Income Tax Appellate Tribunal. 5. Tribunal placing reliance on various clauses in power of attorney, relevant portion of which we have referred supra and also after considering letter of owner Mr.Viswanathan, who had stated in his letter that he had received sum of Rs.25.00 lakhs from Mr.C.Sugumaran, in year 2006 itself, held that recital contained in registered power of attorney dated 01.09.2006 does not show that any consideration was paid to actual owner and assessee had acted merely as agent. letter of owner that he had received only Rs.25.00 lakhs at time of executing power of attorney, which is subsequent statement by said owner did not inspire confidence of Tribunal to accept Department's plea. Tribunal laid emphasis on registered document, namely, Power of Attorney, in letter and spirit holding that there was no consideration paid at time of executing power of attorney. Tribunal also gave finding that there was no supporting evidence except letter of said owner to disbelieve claim of assessee. One other factor that Tribunal relied upon was that owner had earlier executed power of attorney and revoked same, meaning thereby, that it was transaction entered into by land owner to his own benefit by choosing appropriate person as power of attorney to suit his requirement. Tribunal was of view that assessee could not be treated as owner of property sold on 23.10.2008 and therefore there was no question 6 of computing capital gains in hands of assessee. Accordingly, Tribunal allowed appeal filed by assesee. As against said order of Tribunal, present Tax Case (Appeal) has been filed by Revenue. 6. short issue involved in this Tax Case (Appeal) is whether capital gains should be assessed at hands of assessee, who is power of attorney holder. 7. We have heard Mr.T.Ravikumar, learned standing counsel appearing for Revenue at length. 8. Learned standing counsel appearing for Revenue laid emphasis on definition of word 'transfer' as contained in sub- clause (vi) of Section 2(47) of Income Tax Act, which reads as follows: Definitions. 2. In this Act, unless context otherwise requires- ........ (47) "transfer", in relation to capital asset, includes- ....... (vi) any transaction (whether by way of becoming member of, or acquiring shares, in co-operative society, company or other association of persons or by way of any 7 agreement or any arrangement or in any other manner whatsoever) which has effect of transferring, or enabling enjoyment of, any immovable property." 9. To support his plea, he also relied upon circular No.495 dated 22.9.1987, to submit that arrangements by way of power of attorney would also come within purview of Section 2(47) of Income Tax Act. relevant portion of circular reads as follows: "11.1 existing definition of word "transfer" in s.2(47) does not include transfer of certain rights accuring to purchaser, by way of becoming member of or acquiring shares in co-operative society, company, or association of persons or by way of any agreement or any arrangement whereby such person acquires any right in any building which is either being constructed or which is to be constructed. Transactions of nature referred to above are not required to be registered under Registration Act, 1908. Such arrangements confer privileges of ownership without transfer of title in building and are common mode of acquiring flats particularly in multi-storeyed constructions in big cities. definition also does not cover cases where possession is allowed to be taken or retained in part performance of contract, of nature referred to in s.53A of Transfer of Property Act, 1882. New sub-cls.(v) & (vi) have been inserted in s.2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in manner referred to above. 11.2 newly inserted sub-cl.(vi) of s.2(47) has brought into ambit of "transfer", practice of enjoyment of 8 property rights through what is commonly known as Power of Attorney arrangements. practice in such cases is adopted normally where transfer of ownership is legally not permitted. person holding power of attorney is authorised powers of owner, including that of making construction. legal ownership in such cases continues to be with transferor." 10. careful reading of sub-clause (vi) of Section 2(47) of Income Tax Act reveals that any transaction by way of agreement or arrangement or in any manner whatsoever, which has effect of transferring or enabling enjoyment of any immovable property would get character of transfer. 11. In present case, we find that there is no transfer to or enabling enjoyment of property in favour of assessee in any manner and therefore, sub-clause (vi) of Section 2(47) of Income Tax Act does not get attracted. Clause 21 of power of attorney, which has been already referred to supra, clearly reveals that no consideration was received from power agent for appointing him as power of attorney. It also emphasised therein that property right has not been handed over to power agent. We are, therefore, unable to accept plea of Revenue that there was element of transfer or enabling enjoyment in favour of assessee. letter of land owner subsequently issued does not come to aid of Department. It is 9 duty of power of attorney holder to deliver amount received for purpose of transfer of property. Therefore, no fault could be found on part of assessee. Assuming that he had delivered certain sum to land owner, it is but lawful duty of power of attorney to deliver payment to land owner. sale to Dr.Meera Bai is also for same value. Hence, nothing turns on letter of erstwhile owner, in favour of Department. 12. We, therefore, now proceed to analyse meaning behind circular No.495 dated 22.9.1987. interpretation of circular as put forward by Sri.T.Ravikumar, learned standing counsel appearing for Revenue, we are not in agreement. provisions of sub-clause (vi) of Section 2(47) of Income Tax Act make it clear that transaction, which has effect of transferring or enabling enjoyment of immovable property alone would come within ambit of transfer. circular reads something more into provision. We are not inclined to accept such interpretation. circular also states that legal ownership would continue with transferor; but property rights if it is transferred by way of power of attorney would come within ambit of sub-clause (vi) of Section 2(47) of Income Tax Act. Assuming we accept intention behind circular, then there should be element of transfer or enabling enjoyment of property right as stated in paragraph 11.2 of circular by power of attorney holder. 10 13. We find no such recital in power of attorney as extracted by Tribunal and referred to by us. On contrary, terms of power of attorney clearly show that property rights has not been transferred to power of attorney holder and there is also no provision for enabling enjoyment. It is not case of Department that power of attorney is sham. If they accept power of attorney is valid, then plea of capital gains at hands of assessee has no legs to stand. Accordingly, we find no merits in this Tax Case (Appeal). 14. In result, this Tax Case (Appeal) stands dismissed. No costs. Index :Yes/No (R.S.,J) (R.K.,J) Internet:Yes/No 03.11.2014 sl To 1. Income Tax Appellate Tribunal 'A' Bench, Chennai. 2. Commissioner of Income Tax (Appeals)-VIII, Chennai. 3. Assistant Commissioner of Income-tax, Business Circle V, Chennai. 11 R.SUDHAKAR,J. AND R.KARUPPIAH,J. Sl Tax Case (Appeal) No.840 of 2014 03.11.2014 Commissioner of Income-tax, Chennai v. C. Sugumaran