1. This appeal of the Revenue is directed against CIT(A)’s order dated 18th July, 2002.
2. The only ground of appeal raised by the Revenue is against the order of the CIT(A) deleting the addition of Rs. 1,16,81,766 made by the Assessing Officer on account of capital gain arising out of the transfer of property.
3. Brief facts of the case are that the assessee was a co-owner of the property at Plot No. 423, Chitrakar Dhahanukar Marg, Khar (W), Mumbai along with three other lady co-owners. The assessee and the co-owners executed an agreement of sale-cum-development with one Shri Thakurdas K. Chawla and others under which the assessee and her co-owners were to be paid the following consideration : (i) four flats of 1500 sq. ft. carpet area each and four car parkings in the proposed building to be constructed; (ii) Rs. 4,21,50,000 in cash for the right to use the balance FSI. Pursuant to the said agreement, the developer paid Rs. 30 lakhs towards earnest/deposit money on 29th March, 1994. As per the agreement, the developer was to pay Rs. 156.50 lakhs within 15 days of receiving the no objection certificate from the competent authority under the IT Act. The application for no objection certificate was made on 19th March, 1994. The power of attorney was executed on 2nd April, 1994. The commencement certificate was issued by the Bombay Municipal Corporation on 3rd November, 1997. After obtaining the same, the developer paid the balance consideration and the assessee and other co-owners handed over the vacant possession of the premises to the developer on 10th April, 1998. Therefore, the assessee offered the tax on long-term capital gain during assessment year 1999-2000. The Assessing Officer reopened the assessment under section 147 of the Act and sought an explanation from the assessee as to why the capital gain should not be taxed in assessment year 1994-95. The assessee filed its explanation submitting that the transfer was not complete during the assessment year 1994-95 and the possession of the property was handed over to the purchasers during the previous year relevant to the assessment year 1999-2000. The Assessing Officer did not accept the same and held that the transfer is complete on the date the deed was executed, i.e. , on 29th March, 1994 and, therefore, the assessee was required to declare the capital gains for assessment year 1994-95 and accordingly, taxed the same.
4. Aggrieved, assessee filed an appeal before the CIT(A) who deleted the addition holding that the capital asset in question was not transferred in the year in which it has been taxed because the possession was not handed over to the purchases during the previous year relevant to assessment year 1994-95. Aggrieved, the Revenue is in appeal before us.
5. The learned Departmental Representative submitted that the issue is now covered in favour of the Revenue by the decision of the jurisdictional High Court in the case of Chaturbhuj Dwarkadas Kapadia… v. Commissioner Of Income-Tax, Bombay City-Viii… [2003] 260 ITR 491 (Bom.), wherein it has been held that in the case of development agreement, the date of contract is the date of transfer in view of section 2(47)(v) of IT Act. According to him, the facts and circumstances are similar to the case on hand and hence the issue is covered in favour of the Revenue.
6. The learned counsel for the assessee however tried to distinguish the said decision on the ground that the facts and circumstances of the case are different. The learned counsel submitted that section 2(47)(v) clearly provides that a transaction involving allowing of the possession of any immovable property to be taken or retained in part performance of the contract of the nature referred to in section 53A of the Transfer of Property Act, would amount to transfer. Thus, according to him, though the agreement of sale-cum-development was executed on 29th March, 1994, the possession was given on 10th April, 1998 as the assessee and the co-owners were in fact residing in the premises (at the time of the agreement of sale) and as per the agreement, the possession was to be handed over after the purchasers obtained the BMC’s permission which was granted on 3rd November, 1997. Thus, according to him, it cannot be contemplated or even presumed that the assessee and the co-owners could have vacated the premises within two days of agreement of sale and handed over the possession to the purchasers before 31st March, 1994. He relied upon the various documents filed by him in the paper book in support of his contentions that the possession was handed over on 10th April, 1998. He also relied upon the decision of ‘E’ Bench of this Tribunal in the case of Megji Mathradas v. Jt. CIT [2000] 75 ITD 52 (Mum.), wherein it was held that mere payment of a part consideration would not attract doctrine of part performance contemplated by section 53A of the Transfer of Property Act. He also placed reliance upon the decision of the Gauhati High Court in the case of Assam Vegetables & Oil Products Ltd. v. CIT [2003] 264 ITR 47, wherein the handing over of possession of the property was held to be one of the requisite ingredient for application of section 53A of the Transfer of Property Act for a deemed transfer within the meaning of section 2(47)(v) of the IT Act.
7. Heard both the parties and considered their rival submissions. The undisputed facts of the case are that the agreement of sale was entered on 29th March, 1994 and the possession was given to the purchasers subsequent to 31st March, 1994. The agreement of sale which is placed at pp. 5 to 43C of the paper book filed by the assessee provides for various clauses under which the purchasers have agreed to develop the property by using the floor space index remaining after the 6000 sq.ft. of the proposed construction has been allocated to the co-owners and the mode of payment of sale consideration for the development rights is also provided. At p. 15 of the agreement at para 6 the mode of payment is mentioned as under :
(a)Rs. 30,00,000 (Rupees thirty lakhs only) paid on the execution hereof;
(b)Rs. 1,56,50,000 (Rupees one crore fifty six lakhs fifty thousand only) to be paid within 15 days of the receipt of the no objection certificate from the appropriate authority under the provisions of Chapter XXC of the Income-tax Act, 1961.
(c)Balance of Rs. 2,35,00,000 (Rupees two crores thirty-five lakhs only) within four months from the receipt of no objection certificate from the appropriate authority under the provisions of Chapter XX-C of the Income-tax Act, 1961. The time for payment of each of the abovementioned instalments shall be of the essence of the contract and in the event of the purchasers committing default in payment of the instalments in sub-clause (b) above, this agreement shall forthwith come to an end on such default and the amount paid by the purchases to the owners or other amounts which may have been paid by the purchasers to the owners, in addition to the said amount, shall stand forfeited to the owners.
From the above, it is seen that only a meagre amount of Rs. 30 lakhs has been paid on 29th March, 1994 as earnest/deposit money and also the clause further provides for cancellation of the agreement if the said amount is not paid within the specified date.
8. Clause (8) of the agreement also provided that the owners shall vacate the premises occupied by them in the structure standing on the said property on the payment of the balance consideration amount to the owners within the stipulated time and thereafter shift to the temporary alternate accommodation to be provided by the purchasers as mentioned in the agreement and thereafter permit the purchasers to enter upon the said property as the licensees of the owners for the purpose of carrying out development on the said property in terms of the agreement.
9. Clause (14) also provided that the purchasers to the agreement shall complete the investigation of the owners title to the said property within a period of 3 months from the date of agreement or before the receipt of the no objection certificate from the appropriate authority under Chapter XX-C of the IT Act, and in the event if the owners title is not accepted within the stipulated period, the agreement shall forthwith stand terminated or cancelled in which event the owners will refund the said earnest amount or deposit paid by the purchasers to the owners.
10. Clause (24) provides for the execution of the limited power of attorney in favour of the purchasers for the purpose of enabling the purchasers to procure and submit the building plan for approval of Municipal Corporation of Greater Bombay subject to the terms and conditions in the agreement. From the above it is clear that the assessee and the co-owners could not have given the possession of the said property on or before 31st March, 1994. Section 53A of Transfer of Property Act clearly speaks of handing over of possession in part performance of the contract. In the case there is an agreement of sale-cum-development executed in writing and the purchasers have paid a part of the consideration on 29th March, 1994 and the possession was handed over on 10th April, 1998 and the transferee was willing to perform his part of the contract. Thus, the transfer could be said to be have taken place in the year 1998 when the possession was handed over to the purchasers under section 2(47)(v) of the IT Act.
11. A lot of emphasis has been laid down on Hon’ble Bombay High Court’s judgment in the case of Chaturbhuj Dwarkadas Kapadia (supra) in support of Revenue’s contention that the capital gains are chargeable in the year in which the development agreement is entered into. In Chaturbhuj Dwarkadas Kapadia’s case (supra) their Lordships were in seisin of a situation in which almost entire sale consideration of Rs. 1,85,63,220, except for a small amount of Rs. 9,98,000, was received by the assessee in the very previous year in which the Revenue sought to tax it. However, the facts of the case before us are materially different. The development agreement was entered into by the assessee on 29th March 1994, i.e., just two days before the relevant previous year was to come to an end. Out of a total sale consideration of Rs. 4,21,50,000 plus four flats of carpet area of 1,500 sq.ft. each plus four car parking areas, the assessee had received only a sum of Rs. 30,00,000 as earnest/deposit money in the previous year in which development agreement was entered into. The assessee was to receive Rs. 156.50 lakhs within 15 days of receiving the no objection certificate from the appropriate authority under the provisions of Chapter XX-C of the IT Act, and Rs. 235 lakhs within four months of the issuance of the said certificate, but the application for the said NOC, as evident from the copy of the NOC at pp. 3 and 4 of the paper book, was filed on 29th March, 1994. It is thus clear that only a very small portion of the cash consideration was received in the relevant previous year. Even according to the observation relied upon by the Revenue, "if the contract, read as a whole, indicates passing of or transferring of complete control over the property in favour of the developer, then the date of contract would be relevant to decide the year of chargeability". However, in a case in which not even 10 per cent of the cash consideration is paid by the developer, and, as such, no rights have accrued to the developer, it cannot be said that "complete control" over the property has passed to the developer. In our humble understanding, unless the developer has existing possession and other controlling rights under the contract, whether he exercises such rights or not, there cannot be any question of passing of, or transferring of, complete control over the property which is a sine qua non for chargeability of capital gain. Under clause 9 of the development agreement, it is provided that developer shall get the right to enter upon the property as the licensee of the owner, for the purpose of carrying out development of the said property, only on payment of balance consideration amount within the stipulated time and on providing temporary alternative accommodation to the owners. It is thus clear that even to enter as a licencee, the developer has to first make the payment of the consideration for transfer. In a situation in which less than 10 per cent of the cash consideration is paid by the developer to the assessee and in which no part of consideration in kind is paid by the assessee, it cannot be said that the developer had ‘complete control’ over the property. When the control or right to control is not passed, there cannot be any question of transfer of property.
12. As regards the possession, we have taken note of the copies of bills for telephone and water charges, placed before us at pp. 74 to 78, which evidence the fact that the assessee continued to be in possession of the premises even in the financial year 1996-97. A copy of possession letter dated 10th April, 1998, at p. 57 of the paper book, shows that the possession was handed over to the developer on 10th April 1998. In any event, in terms of clause 9 of the development agreement, the possession was to be delivered only after the complete payment was made. Admittedly, this condition was not complied with till the end of the relevant previous year. In these circumstances, when only a small portion of sale consideration was received as earnest/deposit money and when the developer could not have, therefore, exercised his rights under the contract which were to crystallize on making the payments after the receipt of no objection certificate from the authorities, it cannot be said that there is anything to indicate, leave aside establish, "passing of or transferring of complete control over the property in favour of the developer" which is sine qua non for taking the date of contract as relevant for the purpose of deciding the year of chargeability of capital gains. Therefore, on the facts of the present case, the date of development agreement would not really be relevant to decide the year of chargeability.
13. For the reasons set out above, we are unable to uphold the objections so strenuously argued by the learned Departmental Representative. Even as we do so, we make it clear that whether or not complete control or right to control over the property has passed to developer in the relevant previous year essentially depends on the facts of each case and on, inter alia, the rights which have accrued to the developer under the agreement which, in turn, would also depend upon the extent to which developer has discharged his obligations under the contract. This question is thus to be decided on the totality of facts of each case and in the light of the guidance by the binding precedents. With these observations, and in the light of the above discussions, we confirm the conclusions arrived at by the CIT(A) and decline to interfere in the matter.
14. The appeal is dismissed.