Commissioner of Income-tax-II, Kanpur v. Shri Ziauddin Ahmad
[Citation -2014-LL-1218-4]

Citation 2014-LL-1218-4
Appellant Name Commissioner of Income-tax-II, Kanpur
Respondent Name Shri Ziauddin Ahmad
Court HIGH COURT OF ALLAHABAD
Relevant Act Income-tax
Date of Order 18/12/2014
Assessment Year 2006-07
Judgment View Judgment
Keyword Tags memorandum of understanding • transfer of capital asset • explanation of assessee • cost of construction • transfer of property • interest in property • rights of ownership • additional evidence • validity of notice • immovable property • deeming provision • business premises • physical delivery • transfer of land • capital gain tax • opening ceremony • nursing home
Bot Summary: The argument of the assess that he hand transferred land on 24.06.1999 is not tenable in any way because even the assessee himself did 4 not paid any tax on transfer of land in A.Y. 2000- 01 relevant to this period. Learned counsel has also read out Section 53A of transfer of property Act, 1882 which is as under :- Where any person contract 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. 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 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. On conjoint reading of above 2 provisions 2(47)(v) of IT Act and 53A of TP Act, it transpires that for an act of transfer resulting in the capital gain under the deeming provision of Section 2(47), the transaction leading to the transfer of capital asset shall:- allow the transfer of possession of the capital asset to the transferee of if the transferee is already in the possession of capital asset, it must be retained by him in part performance of contract of transfer. According to learned counsel, no capital gain on transfer of land by the assessee to M/s. Shilpi Builders is applicable during the assessment year under consideration, for the reason that the land in question got transferred from the assessee to M/s. Shilpi Builders on execution of original agreement on 24.6.1999 or on 24.10.2001, when the building plan was sanctioned by the Kanpur Development Authority. The development agreements for the land provided the transfer of land to builder. In the present case, the assessee's all other rights, except title, stood transferred and therefore, the capital gain was to be computed on the basis of transfer and in the year of the transfer.


1 AFR RESERVED Court No. - 33 Case :- INCOME TAX APPEAL No. - 467 of 2010 ASSESSMENT YEAR 2006-07 Appellant :- Commissioner Of Income Tax-Ii, Kanpur Respondent :- Shri Ziauddin Ahmad Counsel for Appellant :- Sc/Shambhu Chopra,R.K.Upadhyay,Shambhu.Chopra Counsel for Respondent :- A. Bansal,S.K. Garg AND Case :- INCOME TAX APPEAL No. - 242 of 2010 Appellant :- Ziauddin Ahmad Respondent :- Commissioner Of Income Tax - Ii Counsel for Appellant :- S.K. Garg,Ashish Bansal Counsel for Respondent :- C.S.C,R.K.Upadhyay,Shambhu Chopra Hon'ble Tarun Agarwala,J. Hon'ble Dr. Satish Chandra,J. Both cross appeals have been filed against order dated 5 March 2010 passed by Income Tax Appellate Tribunal, Lucknow in I.T.A. No. 499/LUC/2094 for assessment year 2006- 07. On 22.01.2013, coordinate Bench has admitted appeal filed by Department-appellant (ITA 467 of 2010) on following substantial questions of law : (a) Whether ITAT was correct in law in canceling assessment framed u/s 143(3)/147 on account of validity of notice u/s 143(2) in absence of any return, ignoring fact that assessee himself had offered in writing for treating one of its earlier returns to be in response to notice u/s 148 of Income Tax Act, 1961? (b) Whether ITAT was correct in law in holding that no capital gain accrued or arose to 2 assessee in A.Y. 2006-07 as transfer did not take place on 30.04.2005 without properly appreciating facts narrated by A.O. which wee clearly born out from records? brief facts of case are that assessee is individual and running Excel Hospital Limited. On 13.09.2007, survey, under Section 133(A) was carried out at business premises of assessee. assessee was examined under Section 131 of Act as per notice dated 22.09.2007 and his submissions were recorded on 03.08.2007. assessee was served with notice under Section 148 on 20.03.2008. In response, assessee has furnished necessary documents. On 11.7.2008, A.O. has intimated assessee about reasons recorded for initiating proceedings under Section 148 of Act. Finally, on 22.12.2008, assessment was completed under Section 143(3)/147 of Act where capital gain was levied. assessee has assailed assessment order pertaining to capital gain in appeal before CIT(A), which was dismissed. Being aggrieved, assessee filed appeal before Tribunal, who has granted relief by observing that capital gain is not chargeable for assessment year under consideration. Being not satisfied, Department has filed appeal. assessee has also filed cross appeal to assail validity of proceedings under Section 147 of Act. With this background Shri Shambhu Chopra, learned counsel for revenue-appellant relied on order of A.O. He submits that assessee was owner of Plot Nos. 14/138 and 14/143 Chunniganj, Kanpur measuring 3569 sq. yards and 277 sq. yards. assessee had entered into agreement with M/s. Shilpi Builders Limited for development/construction of Nursing Home/residential complex and commercial complex without forfeiting his title rights. land of his brother was also included in development of entire project called Ratan Esquire 3 and Excel Nursing Hospital. agreement was entered in year 1999, while supplementary agreement was also entered in year 2002 with brother. He further submits that since, on basis of said agreements, conditions of chargeability of capital gains tax were found to be attracted on basis of completion agreement dated 30.04.2005, so capital gain was charged during assessment year under consideration. He further submits that proceedings under Section 147 was rightly initiated for assessment year 2006-07, as completion agreement is dated 30.04.2005 and falling within assessment year 2006-07. learned counsel for Department has read over following passage from assessment order : assesse had entered into agreement on 24.06.1999 with M/s. Shilpi builders for development of his land. Subsequently, after obtaining sanctioned map from KDA, parties entered into supplementary agreement dated 29.04.2002 and possession of land was also handed over to M/s. Shilpi Builders on 01.05.2002 for development of residential cum commercial complex. perusal of agreement dated 24.06.1999 and 29.04.2002 makes it quite clear that rights of ownership of land was with assessee only and both these agreements were subject to completion of project. project was completed and agreement of completion of project was signed by two parties on 30.04.2005, when respective shares were handed over and taken over by M/s. Shilpi Builders and assessee. argument of assess that he hand transferred land on 24.06.1999 is not tenable in any way because even assessee himself did 4 not paid any tax on transfer of land in A.Y. 2000- 01 relevant to this period. Thus, intention of assessee is very clear that assesse did not desires to pay any capital gain tax. In this case, assessee has given license to developer i.e. M/s. Shilpi Builders for development of residential cum commercial complex on its land within period of three years from date of possession or from date of obtaining sanctioned map from KDA whichever is later. assessee did not surrender any of his right of ownership to developer till completion of project. assesse has filed copy of three agreements dated 24.06.1999 [agreement], 29.04.2002 [supplementary agreement] and 30.04.2005 [completion agreement]. perusal of above three agreements makes it abundantly clear that rights of ownership in respect of share of developers were transferable to developer only on completion of project as discussed above in gist of agreements given above. Learned counsel for Department also read over Para-1 of page-4 of completion agreement dated 30.04.2005, which is as under : AND WHEREAS since Building is completed and in order to make proper utilization of shares in Building Complex has been reallocated and accordingly possession of portion fallen into share of First Party has been delivered to him in same manner area fallen into share of Second Party is with Second Party, hence this COMPLETION AGREEMENT. 5 Learned counsel for Department submits that from above, it is very clear that possession was handed over and taken over by First and Second Party respectively on 30.04.2005 i.e. date of completion agreement. According to learned counsel, chargeability of capital gain tax require three basic ingredients : 1. Ownership of capital asset. Here assesse is in owenership of plot no. 14/138 and 14/143 Chunniganj, Kanpur. 2. Transfer of capital asset. assessee sold/transferred part of his land to M/s. Shilpi Builders as per its completion agreement dated 30.04.2005 as discussed above. 3. Receipt of consideration. assesse also received consideration in form of constructed area on 30.04.2005 as per completion agreement discussed above. Thus, condition of chargeability of capital gain tax are being competed on 30.04.2005 in F.Y. 2005-06 relevant to A.Y. 2006-07. Thus, proceedings initiated u/s 148 are valid and capital gain is chargeable in case of assessee during A.Y. 2006-07. It is also submission of learned counsel that basis to charge Tax in Assessment Year 2006-07 is that consideration for transfer of capital is cost of construction, as specified by principal agreement executed on 24.06.1999, has been received in year of completion of construction as evidenced by completion agreement is 30.04.2005. As per law, capital gain on transfer of land is chargeable at point of time of completion on development on 30.04.2005, which is taxable and is falling within assessment year 2006-07. Learned counsel for Department has also relied on provision of Section 2(47)(v) of Income Tax Act which is 6 reproduced as under : Any transaction involving the allowing of possession of any immovable property to be taken or retained in part performance of contract of nature referred to in section 53A of Transfer of Property Act, 1882 (4 of 1882). Learned counsel has also read out Section 53A of transfer of property Act, 1882 which is as under :- Where any person contract to transfer for consideration any immovable property by writing signed by him or on his behalf from which terms necessary to constitute transfer can be ascertained with reasonable certainty. And transferee as, in part performance of contract, taken possession of property or any part thereof, or transferee, being already in possession, continues in possession in part performance of contract and has done some act in furtherance of contract. And transferee has performed or is willing to perform his part of contract, Then notwithstanding that where there is instrument of transfer, that transfer has not been completed in manner prescribed therefore by law for time being in force, transferor or any person claiming under him shall be debarred from enforcing against transferee and persons claiming under him any right in respect of property of which transferee has taken or continued in possession, other than right expressly provided by terms of contract. Shri Shambhu Chopra, learned counsel further submits that 7 these two provisions relate to transfer of immovable property without execution and registration of conveyance deed. On conjoint reading of above 2 provisions 2(47)(v) of IT Act and 53A of TP Act (transfer or Property Act), it transpires that for act of transfer resulting in capital gain under deeming provision of Section 2(47) (v), transaction leading to transfer of capital asset shall:- (i) allow transfer of possession of capital asset to transferee (ii) of if transferee is already in possession of capital asset, it must be retained by him in part performance of contract of transfer. In instant case, transaction is principal agreement, which was executed on 24.06.1999 followed by power of attorney simultaneously executed on same date which together constitute principal documents of transfer. terms of these documents allowed builder to take possession of capital asset by conferring upon builder substantial control over land to be developed including transferred land. builder had undertaken various activities which tantamount to deemed transfer within purview of sec 2(47)(v) of Act. Though physical delivery of land to builder was declared by supplementary deed executed on 29.04.02, however, as explained, hereinabove, same had been actually delivered to builder much before it immediately after sanction of building plan on 24.10.01. It is copiously evidenced by activities under taken by builder for excavation of site of land, booking of flats on opening ceremony performed on 21.04.02 on which date construction commenced. But complete ownership was transferred only on 30.04.2005, which falls during Assessment Year 2006-07 and capital gain was rightly charged during assessment year under consideration. To support his arguments, learned counsel for 8 appellant has relied upon ratio laid down in case of Jasbir Singh Sarkaria, In re [2007] 294 ITR 196 (AAR), where it was observed that : ...Possession contemplated by clause(v) of section 2(47) need not necessarily be sole and exclusive possession. So long as transferee is, by virtue of possession given, enabled to exercise general control over property so as to make use of it for intended purpose, mere fact that owner has also right to enter property to oversee development work or to ensure performance of terms of agreement does not introduce incompatibility. concurrent purpose of owner who can exercise possessory rights to limited extent and for limited purpose and that of buyer/developer who has general control and custody of land can very well be reconciled. Clause(v) will have its full play even in such situation. There is no warrant to postpone operation of clause(v) and resultant accrual of capital gains to point of time when concurrent possession will become exclusive possession of developer/transferee after he pays full consideration. Possession given to developer need not ripen into exclusive possession on payment of instalments in entirety for purpose of determining date of transfer. It is enough if transferee has, by virtue of that transaction, right to enter upon and exercise acts of possession effectively pursuant to covenants in contract. That amounts to legal possession. Similarly, he relied upon ratio laid down in case of Chaturbhuj Dwarkadas Kapadia vs. CIT (260) ITR 491 9 (Bom), where it was observed that : .Section 2(47)(v) read with section 45 indicates that capital gains was taxable in year in which such transactions were entered into even if transfer of immovable property is not effective or complete under general law... Lastly, he justified order passed by CIT(A). On other hand, Sri S.K. Garg assisted by Shri A. Bansal, learned counsel for assessee has produced copy of agreement, where it was shown that total area was transferred in year 1999. learned counsel submits that possession of property was given in year 1999 as per agreement. To this effect, CIT(A) has asked remand report from Assessment Officer. Assessment Officer has filed contradictory remand report where admissiblility of additional evidence adduced under Income Tax Rule 46A was discussed. Section 156(A). A.O. has not contradicted written submission adduced by assessee despite opportunity given by him by CIT(A). Nevertheless CIT(A) upheld addition, but Tribunal has examined material on record and rightly deleted addition. According to learned counsel, no capital gain on transfer of land by assessee to M/s. Shilpi Builders is applicable during assessment year under consideration, for reason that land in question got transferred from assessee to M/s. Shilpi Builders on execution of original agreement on 24.6.1999 or on 24.10.2001, when building plan was sanctioned by Kanpur Development Authority. It is also submission of learned counsel for assessee that original agreement was executed on 24.6.1999. Memorandum of understanding between assessee and M/s. Shilpi Builders Limited was also executed on 24.6.1999. Power of Attorney was executed by assessee in favour of Shri Atma Ram Khatri on 24.6.1999 itself and supplementary agreement between 10 assessee and M/s. Shilpi Builders Limited drafted on 29.4.2002, but executed on 1.8.2002 and claiming same as executed only for confirming handing over of land to M/s. Shilpi Builders Ltd. prior to drafting of supplementary agreement and pleaded that so far as transfer of land from assesse to builder is concerned, assesse having handed over physical possession of land as well as having executed power of attorney in favour of builder and having received substantial amount in consequence of original agreement, assessee had transferred almost all rights in land, except title, to transferee and therefore, capital gain had not accrued or earned during period relevant to assessment year 2006-07. He also read out clause 2 of agreement, which is as under : ...the words used in this clause are has delivered and not is being delivered or is delivered which confirms assessee's claim that this agreement was only to confirm acts having been done in past and not acts doe in present. He, therefore, submitted that possession of land covered by plot No. 14/138 and part of land covered by plot No. 14/143 had been transferred to builder on 24.6.1999.... To support his arguments, he relied upon ratio in case of Sanjeev Lal vs. CIT and Another [2014] 365 ITR 389(SC), where it was observed that : Date of agreement to sell to be taken as date of transfer of original asset He further relied upon ratio in case of Sunil Siddharthbhai vs. CIT [1985] 156 ITR 155 (SC), where it was observed that : ....In its general sense, expression transfer of property connotes, passing of rights in 11 property from one person to another. In one case, there may be passing of entire bundle of rights from transferor to transferee. In another case, transfer may consist of one of estates only out of all estates comprising totality of rights in property. In third case, there may be reduction of exclusive interest in totality of rights of original owner into joint or shared interest with other persons. exclusive interest in property is larger interest that share in that property. To extent to which exclusive interest is reduced to shared interest, it would seem that there is transfer of interest.... Lastly, he justified impugned order passed by Tribunal. We have heard both parties at length and perused material available on record. From record, it appears that there was succession on death of assessee's father Late Khaliluddin Ahmad thereafter by partition with his brother became owner of following two immovable properties 14/138 and 14/143 Chunniganj, Kanpur, having land area 3569 sq. yard and 277 sq. yard respectively. Both lands are adjoining and situated within prime location of city. Two separate development agreements were executed with builder for development of above land and to gain maximize its economic return. Assessee entered into development agreements with builder originally with M/s. Shilpi Builder Limited which subsequently, before completion of development project, converted into Ratan Housing Development Ltd. Two separate development agreements had been executed with builder on same date i.e. on 24.06.1999 for each of above lands in question. development agreements for land provided transfer of land to builder. As per agreements, Plot No. 14/138 involved transfer of 60% land to builder. 12 On remaining 40% shares of land to be retained for construction of Nursing Home and three residential flats had to be made by builder at his cost. Thus, there was transfer of land to builder in lieu of cost of construction as per specification of agreement for Plot No. 14/138. Thus, there was transfer of capital assets. This transfer had taken place at time of execution of development agreement on 24.06.1999, whereby builder had been vested with extensive powers by execution of power of attorney executed on same day i.e. on 24.06.1999 to deal with property for purpose of development as stipulated by principal development agreement. So far as Plot No. 14/143 is concerned, it did not provide any transfer of land, but this plot was in name of brother of assessee. This aspect is supported by fact that builder had launched its scheme of booking of flats by advertising in various well know newspaper on 20.04.2002 from 1.4.2002. This evidence has also remained uncontroverted by Revenue before us and therefore, explanation of assessee being plausible, we are of opinion that had possession not been given prior to reasonable period, then date of launching of scheme, builder could not have been in position to launch scheme on 21.4.2002 and here we are further of opinion that demolition of old building and acquiring of land for construction being not childish job, was to take sufficient time and therefore, assessee's plea is that possession of land was handed over latest by 23.11.2001 is liable to be accepted. From record, it also appears that land was transferred in all manner except title to builder by assessee. word transfer has been defined in Section 2(47) of Income Tax Act. clause (v) and (vi) were introduced in Section 2(47) of Income Tax Act, 1961, with effect from April 1, 1988. They provided that transfer includes (i) any transaction which allows possession to be taken/retained in part performance of contract of nature referred to in section 53A of Transfer of Property 13 Act, 1882. Tribunal in its impugned order has observed that as per terms and conditions of agreement date 24.06.1999 transfer was effective from that very day and not in year of 2005 as wrongly observed by A.O. We are of view that capital gain is applicable in year when possession was handed over by assessee. In present case, assessee's all other rights, except title, stood transferred and therefore, capital gain was to be computed on basis of transfer and in year of transfer. It is evident in present case that partial possession was given in year 1999. title was transferred on 30.04.2005, so no capital gain could have been accrued on 30.04.2005 for assessment year 2006-07, as wrongly claimed by revenue. In view of above, we are of view that transfer of land under reference did not take place on 30.04.2005 as claimed by A.O. or arose during assessment year 2006-07. Hence, we find no reason to interfere with order passed by Tribunal, same is hereby sustained alongwith reasons mentioned therein. Thus, answer to substantial question of law (No. 2) is in favour of assessee and against revenue. When we have decided matter strictly on merit, then technical issue has become academic. Therefore, no answer is required to be answered to first substantial question of law. For same reason, cross appeal filed by assessee has only academic value and has become infructuous. In result, both appeals filed by revenue as well as assessee are hereby dismissed. Order Date :- 18.12.2014 (Dr. Satish Chandra, J.) (Tarun Agarwala, J.) Commissioner of Income-tax-II, Kanpur v. Shri Ziauddin Ahmad
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