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AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • S. Sridhar
Judges
  • Shamim YahyaVIJAY PAL RAO
Acts
  • section 2(47)( v) of the Income-tax Act, 1961, read with section 45,
  • clause (v) of section 2(47) of the Income-tax Act,
  • TRANSFER OF PROPERTY ACT
  • section 2(47)( v) of the Income-tax Act.12.
  • section 2(47)( v) of the Income-tax Act.
  • section 143(1) of the Income-tax Act
  • section 147, read with section 143(1),
  • section 2(47)( v). Section 2(47)(
  • Clause (v) of section 2(47 )
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • S. Sridhar
Judges
  • Shamim YahyaVIJAY PAL RAO
Acts
  • section 2(47)( v) of the Income-tax Act, 1961, read with section 45,
  • clause (v) of section 2(47) of the Income-tax Act,
  • TRANSFER OF PROPERTY ACT
  • section 2(47)( v) of the Income-tax Act.12.
  • section 2(47)( v) of the Income-tax Act.
  • section 143(1) of the Income-tax Act
  • section 147, read with section 143(1),
  • section 2(47)( v). Section 2(47)(
  • Clause (v) of section 2(47 )
See more information ...
Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The assessee inherited a residential house (No. 51, Murugappa Mudali Street, Purasawakkam, Chennai) by will dated 12-8-1988 and sold it on 25-7-1994 for Rs. 7.80 lakhs. The sale proceeds were used to purchase property at 4/2, Gandhi Avenue on 24-8-1994 for Rs. 10,78,039. The assessee had earlier purchased another property at 4/1, Gandhi Avenue on 30-4-1990 for Rs. 6,39,353.

The assessee filed a return for AY 1995-96 on 14-8-1995 claiming exemption under section 54 of the Income-tax Act for capital gains arising from the sale of No. 51, on the ground that the entire sale consideration was invested in purchasing the property at 4/2. The return was processed under section 143(1).

The Assessing Officer (AO) noticed that the assessee had sold properties 4/1 and 4/2 during the relevant accounting period and that the exemption under section 54 might be inapplicable because the property at 4/2 was sold within three years of purchase. The AO reopened the assessment under section 147 by issuing notice under section 148 (with approval of the Jt. CIT) and completed the reassessment on 28-3-2003 withdrawing the section 54 exemption and assessing capital gains. The assessee appealed to the CIT(A), who dismissed the appeal by order dated 31-3-2004. The assessee filed the present appeal before the Tribunal.

Legal Issues Presented

  1. Whether the transaction between the assessee and the developer under the Development Agreement falls within the definition of "transfer" as per section 2(47)(v) of the Income-tax Act.
  2. If the transaction is a "transfer" under section 2(47)(v), whether the withdrawal of exemption under section 54 of the Act was justified.

Arguments of the Parties

Appellant's Arguments

  • The Development Agreement does not constitute a "transfer" within the meaning of section 2(47)(v) of the Income-tax Act.
  • The CIT(A) failed to follow legal principles governing construction of documents when interpreting the Development Agreement.
  • On the substance, the agreement does not amount to a transfer and therefore the exemption under section 54 was not violated; the authorities below erred in treating the transaction as a transfer and withdrawing the exemption.

Respondent's Arguments (Revenue)

  • The Departmental Representative relied on and supported the findings and orders of the lower authorities (Assessing Officer and CIT(A)).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Chaturbhuj Dwarkadas Kapadia v. Commissioner of Income-Tax, Bombay [2003] 260 ITR 491 (Bombay High Court) The court held that transactions allowing possession to be taken or retained in part performance (as referred to in section 53A of the Transfer of Property Act) fall within clause (v) of section 2(47). It set out conditions for attracting section 53A: (i) a contract for consideration; (ii) in writing; (iii) signed by the transferor; (iv) pertaining to transfer of immovable property; (v) transferee has taken possession; and (vi) transferee is ready and willing to perform the contract. The Tribunal/Court followed this decision and relied on it to support the conclusion that allowing possession in part performance brings the transaction within section 2(47)(v).
Commissioner of Income-Tax v. K. Jeelani Basha [2002] 256 ITR 282 (Madras High Court) Held that once possession, even of part of the property, is handed over to the transferee, for the purpose of section 2(47)(v) read with section 45, the transfer is complete and capital gains can be computed on the consideration received in that year for the part of the property parted with. The Assessing Officer relied on this decision; the Tribunal noted and applied the principle that handing over possession of a part can constitute a transfer for capital gains computation.
Shivram Co-operative Housing Society Ltd. v. Dy. CIT [1999] 70 ITD 8 (Mumbai Bench of the Tribunal) The Tribunal dealt with transfers occurring in various stages and held that computation of capital gains should be on the basis of sale consideration actually received during the relevant year for the portion of land transferred in that year. The assessee relied on this decision; the Court distinguished it as not applicable because, in the present case, the alleged transfer was a one-time event coincident with execution of documents and handing over possession, unlike staged transfers in Shivram.
Jasbir Singh Sarkaria, In re — Authority for Advance Ruling [2007] 294 ITR 196 (New Delhi) The AAR stated that "possession" under clause (v) need not be exclusive. Concurrent possession (developer exercising general control while owner retains limited rights to enter/oversee development) can attract clause (v); purposive construction supports not postponing clause (v)'s operation until exclusive possession is obtained. The Tribunal relied on paragraphs 26–27 of this ruling to support the proposition that non-exclusive or concurrent possession can still satisfy clause (v) and bring about the accrual of capital gains without waiting for exclusive possession.

Court's Reasoning and Analysis

The Tribunal examined the factual matrix and documentary record and proceeded in a stepwise manner:

  1. Documentary and transactional facts: The assessee had entered into two separate agreements for properties No. 4/1 and 4/2, whereby an undivided share of each property was transferred, possession was handed over to the vendee for construction of flats, and the parties had agreed the total consideration (Rs. 8,25,000 and Rs. 67,500 respectively). The assessee also received earnest money (Rs. 1 lakh each) by cheque, and executed a Power of Attorney authorizing the purchaser to execute sale/conveyance deeds and perform acts necessary for construction and sale of one half of the respective properties.
  2. Central legal question: Whether the combination of (a) agreement to develop/sell, (b) power of attorney in favour of the purchaser/developer, and (c) handing over possession of half the share, together amount to a "transfer" within section 2(47)(v) of the Income-tax Act.
  3. Precedential guidance: The Tribunal relied on Chaturbhuj (Bombay HC) which interprets clause (v) to include transactions allowing possession in part performance under section 53A of the Transfer of Property Act and sets out conditions for attracting section 53A. The Tribunal also noted Jeelani Basha (Madras HC) that handing over possession even of a part completes the transfer for the purposes of section 2(47)(v) read with section 45. The Tribunal considered and distinguished Shivram (ITD) relied on by the assessee as addressing staged transfers, whereas the present case involved a single transaction with handing over of possession. The Tribunal further cited the AAR in Jasbir Singh Sarkaria for the proposition that possession under clause (v) need not be exclusive and concurrent possession can attract clause (v).
  4. Application of law to facts: The Tribunal concluded that the documents and acts by the assessee (agreements, handing over of possession, agreed total consideration, receipt of earnest money, and execution of Power of Attorney authorizing conveyance and sale acts) transferred material rights and interest in the properties and allowed the purchaser to enjoy and exercise control consistent with part performance under section 53A. On that basis the Tribunal held that the transaction satisfied the conditions contemplated by section 53A and thus fell within the definition of "transfer" under section 2(47)(v).
  5. Outcome of reasoning: Because the transaction was a "transfer" under section 2(47)(v), the exemption previously claimed under section 54 was not available; the Tribunal therefore found no merit in the assessee's appeal and confirmed the CIT(A)'s order.

Holding and Implications

HOLDING: The appeal of the assessee is DISMISSED. The Tribunal confirmed the order of the CIT (Appeals) which withdrew the exemption under section 54 and assessed capital gains.

Implications:

  • Direct effect on the parties: The reassessment stands; the exemption under section 54 claimed by the assessee was withdrawn and capital gain was assessed as per the assessment order that was affirmed by the CIT(A) and confirmed by the Tribunal.
  • Broader implications: The opinion applies and relies on existing authorities interpreting clause (v) of section 2(47) and section 53A of the Transfer of Property Act. The opinion does not state that it is laying down a new precedent or departing from existing law; it confirms the view that agreements involving handing over possession, power of attorney and agreed consideration can constitute "transfer" under section 2(47)(v). The text does not discuss any broader policy consequences beyond the direct effect on the appeal before the Tribunal.

End of summary based exclusively on the provided opinion.

Show full summary ...

    R. Kalanidhi v. Income-tax Officer, Business Ward-XIII(3), Chennai

    ORDER

    Per Vijay Pal Rao, Judicial Member. - This appeal by the assessee is directed against the order of the CIT (Appeals) dated 31-3-2004. The only issue raised in this appeal for consideration and determination is whether the transaction between the assessee and the developer under the Development Agreement will fall within the definition of 'transfer' as per section 2(47)( v) of the Income-tax Act and if so, the withdrawal of exemption under section 54 of the Act is justified.

    2. The brief facts of the case are that the assessee has inherited residential house property bearing No. 51, Murugappa Mudali Street, Purasawakkam, Chennai from his mother vide will dated 12-8-1988. The said property was sold by the assessee on 25-7-1994 for a consideration of Rs. 7.80 lakhs and the sale proceeds was utilised for purchasing the property situated at 4/2, Gandhi Avenue, Purasawakkam, Chennai on 24-8-1994 for a total consideration of Rs. 10,78,039. The assessee also purchased another property bearing No. 4/1, Gandhi Avenue, Purasawakkam, Chennai on 30-4-1990 for a sum of Rs. 6,39,353. The assessee filed his return of income for the assessment year 1995-96 on 14-8-1995 admitting a total income of Rs. 39,590 after claiming exemption under section 54 of the Act on the capital gain arising out of sale of the house property at No. 51, Murugappa Mudali Street, Purasawakkam, Chennai, on the ground that the entire sale consideration was invested for purchase of house property at 4/2, Gandhi Avenue, Purasawakkam, Chennai. The return was completed under section 143(1) of the Income-tax Act on 15-7-1997. Subsequently, the Assessing Officer noticed that the assessee sold two properties, i.e., 4/1, Gandhi Avenue, Purasawakkam, Chennai and 4/2, Gandhi Avenue, Purasa-wakkam, Chennai, during the accounting period relevant for the assessment year under consideration. It was also noticed by the Assessing Officer that the exemption claimed and allowed under section 54 of the Act in respect of capital gain arising out of the sale of property at No. 51, Murugappa Mudali Street, Purasawakkam, Chennai earlier was not correct since the pro-perty at No. 4/2, Gandhi Avenue, Purasawakkam, Chennai was also sold within the period of three years from the date of purchase of the new asset. Accordingly, the Assessing Officer reopened the assessment under section 147 of the Act by issue of notice under section 148 on 21-3-2002, after obtaining the approval of the Jt. CIT. The assessment was completed vide assessment order dated 28-3-2003 whereby the exemption under section 54 was withdrawn and capital gain was assessed. Aggrieved by this order under section 147, read with section 143(1), the assessee filed appeal before the CIT (Appeals), who has dismissed the appeal of the assessee vide his impugned order dated 31-3-2004.

    3. While dismissing the appeal of the assessee, the CIT (Appeals), after following the decision of the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia… v. Commissioner Of Income-Tax, Bombay City-Viii… [2003] 260 ITR 491 has confirmed the order of the Assessing Officer. Further aggrieved by the order of the CIT (Appeals), the assessee filed this present appeal before us.

    4. Before us, the learned counsel for the assessee submitted that the Development Agreement under consideration would in no way result in transfer as envisaged in the definition of the same term in-built in the Act. He further contended that the CIT (Appeals) has failed to appreciate that the legal principles governing the construction of a document was not followed while understanding the document of development under consideration. He submitted that the development agreement under consideration does not amount to transfer of the property and the provisions of section 54 of the Act has not been violated. The main thrust of the argument of the learned counsel for the assessee is that the substance of the agreement, in question, does not amount to transfer within the meaning of section 2(47)( v) of the Act. Therefore, the authorities below have committed illegality and error in treating the transaction as transfer and withdrawing the exemption under section 54 of the Act.

    5. The ld. Departmental Representative, on the other hand, heavily relied on the orders of the lower authorities.

    6. We have considered the rival submissions carefully in the light of the material on record. We note that the assessee has entered into two separate agreements with respect to property at No. 4/1, Gandhi Avenue, Purasawakkam, Chennai and No. 4/2, Gandhi Avenue, Purasawakkam, Chennai whereby one of the shares of the property was transferred and possession was also handed over to the vendee for construction of flats on both the properties. After construction of all the flats, the vendee was to retain half of the constructed portion and half portion will remain with the assessee. In the agreement itself, the total consideration of sale of the said undivided share in the property bearing Nos. 4/1 and 4/2, Gandhi Avenue, Purasawakkam, Chennai are agreed by the parties at Rs. 8,25,000 and Rs. 67,500 respectively. The earnest money of Rs. 1 lakh each in respect of these properties was also received by the assessee from the vendee by means of two cheques though the same was to be returned to the purchaser after handing over of the built-up portion to the assessee. Apart from these agreements, a Power of Attorney was also executed by the assessee in favour of the purchaser. The purchaser was authorised to execute the sale deed, sale transfer, conveyance deed, and do all necessary acts and deeds for construction and sale of one half portion of the respective properties. Now, the question arises whether the agreement to sell/develop the property with power of attorney in favour of the purchaser/developer coupled with handing over of the possession of half of the share in the respective properties constitute transfer of the properties or not.

    7. In the case of Chaturbhuj Dwarkadas Kapadia's case (supra), the Hon'ble Bombay High Court has held that :—

    "Under section 2(47)( v), any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act would come within the ambit of section 2(47)( v). That, in order to attract section 53A, the following conditions need to be fulfilled. There should be a contract for consideration; it should be in writing; it should be signed by the transferor; it should pertain to transfer of immovable property; the transferee should have taken possession of the property; lastly, the transferee should be ready and willing to perform his part of the contract. That even arrangements confirming privileges of ownership without transfer of title could fall under section 2(47)( v). Section 2(47)( v) was introduced in the Act from the assessment year 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of the conveyance. Consequently, the assessees used to enter into agreements for developing properties with the builders and under the arrangement with the builders, they used to confer privileges of ownership without executing conveyance and to plug that loophole, section 2(47)( v) came to be introduced in the Act."

    8. The Assessing Officer also relied upon the judgment of the Hon'ble Jurisdictional High Court in the case of Commissioner Of Income-Tax v. K. Jeelani Basha [2002] 256 ITR 282 (Mad.) , wherein the High Court has held that :—

    ". . . once possession, even of a part of the property was handed over to the transferee, for the purpose of section 2(47)( v) of the Income-tax Act, 1961, read with section 45, the transfer was complete and, therefore, the Tribunal was justified in calculating the capital gains on the basis of the consideration received in that particular year for that part of the property which was parted with."

    9. During the course of argument, the learned counsel for the assessee has relied upon the order of the Mumbai Bench of the Tribunal in the case of Shivram Co-operative Housing Society Ltd. v. Dy. CIT [1999] 70 ITD 8 . In that case, the issue before the Tribunal was that the transfer has taken place in various stages and, therefore, the computation of capital gain was to be worked out on the basis of the sale consideration actually received during the year in respect of the portion of land transferred in that year only. In our view, the said decision is not applicable to the facts of the present case because the issue involved is clearly different, as in the present case, the alleged transfer of the property in question is only one time at the time of execution of documents and handing over possession of the property.

    10. As per the ruling of the Authority for Advance Ruling in the case of Jasbir Singh Sarkaria, In re [2007] 294 ITR 196 (New Delhi) , in paragraphs 26 and 27, it has been ruled as under:—

    "26. On a fair and reasonable interpretation and on adopting the principle of purposive construction, it must be held that possession contemplated by clause (v) need not necessarily be sole and exclusive possession. So long as the transferee is, by virtue of the possession given, enabled to exercise general control over the property and to make use of it for the intended purpose, the mere fact that the owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of agreement does not introduce any incompatibility. The concurrent possession of the owner who can exercise possessory rights to a limited extent and for a limited purpose and that of the buyer/developer who has a general control and custody of the land can very well be reconciled. Clause (v) of section 2(47 ) will have its full play even in such a situation. There is no warrant to postpone the operation of clause (v) and the resultant accrual of capital gain to a point of time when the concurrent possession will become exclusive possession of developer/transferee after he pays full consideration.

    27. Further, if "possession" referred to in clause (v ) is to be understood as exclusive possession of the transferee/developer, then, the very purpose of the amendment expanding the definition of transfer for the purpose of capital gains may be defeated."

    11. Keeping in view the nature of the transaction between the assessee and the so-called Developer, coupled with the transfer and the possession of the immovable properties, we find that the transaction amounts to conveyance in favour of the purchaser of the properties and the transfer was completed on the date when the purchases were executed and possession was handed over. By means of these documents executed by the assessee, the assessee had transferred all material rights and interest in the property, coupled with possession in favour of the purchaser which by no means is other than the transfer of the properties. As per clause (v) of section 2(47) of the Income-tax Act, transfer includes any transaction which allows possession to be taken/ retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, and any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property. Therefore, any transaction involving allowing of possession to be taken over or retained in part performance as referred to in section 53A of Transfer of Property Act would come within the ambit of section 2(47)( v) of the Income-tax Act.

    12. In the present case, when the possession was handed over and total consideration was also agreed upon by the parties and the vendor was allowed to enjoy and entertain the property for the purpose it was taken over, then the transaction has fulfilled the conditions required under section 53A of the Transfer of Property Act and, therefore, it is covered under the definition of 'transfer' under section 2(47)( v) of the Income-tax Act. We are of the considered view that the assessee has failed to establish any case in its favour and, accordingly, the appeal of the assessee is devoid of merit. Hence, we confirm the order of the CIT (Appeals).

    13. In the result, the appeal filed by the assessee is dismissed.

    44/523

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    Comments

    R. Kalanidhi v. Income-tax Officer, Business Ward-XIII(3), Chennai
    (Mar 7, 2008)