Dr. Joao Souza Proenca, Porbavaddo, Calangute, Goa v. Income Tax Officer, Ward-2(2), Panaji

IN THE HIGH COURT OF BOMBAY AT GOA (PANAJI) INCOME TAX APPEAL NO. 05 OF 2012 Dr. Joao Souza Proenca,Porbavaddo, Calangute, Goavs.Income Tax Officer,Ward-2(2), Panaji ...Appellant ...Respondent INCOME TAX APPEAL NO. 06 OF 2012 Ms. Sara Proenca w/o.Dr. Joao Souza Proenca,Porbavaddo, Calangute, Goavs.Income Tax Officer,Ward-2(2), Panaji ...Appellant ...Respondent Mr. R. Srinivasan a/w. Mr. P. Karpe, Advocate for the Appellants.Ms. Amira Razzaq, Advocate for the Respondent. JUDGMENT RESERVED ON : 10TH JANUARY, 2018JUDEGMENT PRONOUNCED ON: 17th JANUARY, 2018 CORAM:SHANTANU KEMKAR &NUTAN D. SARDESSAI, JJ. JUDGMENT (Per Shantanu Kemkar, J.) . These Appeals are filed under Section 260A of the Income Tax Act, 1961 (for short “the Act”) challenging the common order dated 29thJune, 2011 passed by the Income Tax Appellate Tribunal (for short “theTribunal”), Panaji Bench in Income Tax Appeal Nos. 185 and 186/PNJ/2007. 2.Both these Appeals were admitted on following substantial questions of law. (i)Whether on the facts and in the circumstances of the case,the Appellate Tribunal is right in reversing the order of theCommissioner (Appeals) and holding that the transfer within themeaning of Section 2(47)(v) had taken place only in 2002-03assessment year ignoring the development agreement by way ofPower of Attorney, based on which transfer of possession anddevelopment have taken place much earlier and when the order ofthe Tribunal is contrary to facts and law ? (ii)Whether the Appellate Tribunal is right in reversing theorder of the Commissioner (Appeals) based on incorrectappreciation of facts and law and so its order is perverse innature ? 3.The Appellants are husband and wife. Briefly stated, for the Assessment Year 2002-03 the Appellant of Appeal No. 5 of 2012 returnedIncome of Rs. 1,34,516/- on 2nd July, 2002 whereas the Appellant of AppealNo. 6 of 2012 returned income of Rs. 92,698/-. The returns were processedunder Section 143 (1) of the Act. The Assessing Officer (for short “A.O.”)having in possession of the information entertained a belief that theAppellants (assessees) who are the owners of the property bearing SurveyNo. 186/6 situated at Nayakwada, Calangute, Bardez, Goa measuring 14,875sq. mtrs. have entered into agreement on 30th April, 2001 with M/s. BraganzaConstruction, a partnership firm, for development and sale of property andflats for a consideration of Rs. 80 lacs and allotment of three flats onownership basis having total built-up area of 170 sq. mtrs. According to the I.T.A. Nos.5 & 6 of 2012 A.O. income of these assessees have escaped assessment as income from thecapital gains which was not disclosed in the original return filed by them on2nd July, 2002. In the circumstances, the A.O. issued notice under Section 148of the Act of which reply was submitted by the Appellants. The notice underSection 142(1) of the Act was also issued of which also reply was submittedby the assessees/Appellants. After considering the material on record and thereply to the notice, the A.O recorded a finding vide order dated 11th March,2004 to the effect that there is transfer of property on 30th April, 2001 videwritten agreement between the Appellants and the Developer viz. M/s.Braganza Construction within the meaning of Section 2(47)(v) of the Act ason the basis of the said agreement in writing, the possession of the propertyin question has been handed over by the Appellants to the Developer as alsothe part consideration was received by them and as such there was partperformance of the contract within the meaning of Section 53A of theTransfer of Property Act. 4.Feeling aggrieved by the said common order passed by the A.O.on 11th March, 2004 under Section 148 of Act, the Appellants filed Appealsbefore the Commissioner of the Income Tax Appeals (for short “theCommissioner”), Panaji, Goa. The case of the Appellants was that no transferwas effected in the Assessment Year 2002-03. The same was effected in the I.T.A. Nos.5 & 6 of 2012 financial year 1993-94 when the two Power of Attorneys dated 14th March,1993 and 29th April, 1994 were executed into by the Appellants in favour ofM/s. Braganza Construction. It was also the case of the Appellants that theconsideration was also received out of the agreed sum of Rs. 80 lacs in termsof the said two Power of Attorneys which according to the assessee are theDevelopment Agreements. 5. The Commissioner accepted the contention of the Appellantsand set aside the order of the A.O. vide order dated 10th August, 2007. Thesaid order of the Commissioner was challenged by the Revenue by filingAppeals before the Tribunal. The Tribunal vide impugned order dated 29thJune, 2011 allowed the Appeals filed by the Revenue and rejected the crossobjections filed by the Appellants/assessees. Feeling aggrieved, the assesseeshave filed these Appeals. In regard to the dispute about the adoption of fairmarket value, as decided in the Appeals by the Tribunal, we have beeninformed that separate Appeals have been filed by both the Appellants beforethis Court. In the circumstances, that question is not involved and is notdecided in these Appeals. 6.We have heard the learned counsel for the parties. I.T.A. Nos.5 & 6 of 2012 7.Shri R. Srinivasan, learned counsel for the Appellants has arguedthat the Tribunal has failed to consider that two Power of Attorneys enteredbetween the Petitioner and the Developer M/s. Braganza Construction bywhich the possession was also handed over by the assessees to the Developerin addition to the power to develop the property. He also argued that in termsof the said Power of Attorneys, the Developer carried out part of thedevelopment of the property and the Appellants have received substantialamount out of the agreed sum of Rs. 80 lacs. In the circumstances, accordingto him the Tribunal had committed grave error in holding that the transferwithin the meaning of Section 2(47)(v) of the Act had taken place only in theAssessment Year 2002-03 when the agreement dated 30th April, 2001 wasexecuted. He submits that the reliance of the A.O. as also by the Tribunal onthe agreement dated 30th April, 2001 to hold that on the basis of the saidagreement, the physical possession of the property was handed over by theAppellants to the Developer and therefore the tax liability accrued for theAssessment Year 2002-03 is misconceived. According to him as there wasdispute between the Appellants and the Developer M/s. BraganzaConstruction, the Appellants had issued a public notice revoking the Power ofAttorneys, but then the dispute between them was settled and thereforeanother agreement was executed on 30th April, 2001. Thus according to thelearned counsel for the Appellants, the Tribunal having misconstrued theVishal...5 I.T.A. Nos.5 & 6 of 2012 agreement dated 30th April, 2001 as also the Power of Attorney executed inthe year 1993 and 1994, the impugned order deserves to be set aside and theorder of the Commissioner be maintained. I.T.A. Nos.5 & 6 of 2012 agreement dated 30th April, 2001 as also the Power of Attorney executed inthe year 1993 and 1994, the impugned order deserves to be set aside and theorder of the Commissioner be maintained. 8. On the other hand, Ms. Amira Razzaq, learned counsel for the Revenue has supported the order passed by the Tribunal. She has taken usthrough two Power of Attorneys dated 14th December, 1993 and 29th April,1994. She has also drawn out attention to the reply of the Appellants to thenotice issued by the Respondent-Revenue stating therein that the Power ofAttorneys were executed only for the purpose of empowering the holder ofPower of Attorney to do the necessary acts for constructing the buildings,shops and garriages and for furtherance of the same. She read over the Powerof Attorney to demonstrate that there was specific mention that theAppellants are in possession of the property and that it nowhere records thatthe possession has been handed over to the Developer. By pointing out to thereply filed by the Appellants to the notice as extracted at page 7 of the orderpassed by the A.O, Ms. Amira Razzaq, learned counsel has argued that thespecific case of the Appellants before the A.O was to the effect that they havenot given possession of the property to the Developer but only an access to dosurvey on their behalf was given and that they continued to be the owner ofthe property and that there is no transfer of property under the liberalized I.T.A. Nos.5 & 6 of 2012 definition of “transfer” under Section 2(47)(v) of the Act. Thus according toher, in view the aforesaid specific mention in the Power of Attorney about thepossession being not handed over and the Appellants' reply making a clearstatement that the possession has not been given and the recital in theagreement dated 30th April, 2001 about giving of the possession on the basisof this agreement, learned counsel for the Revenue submits that theimpugned order passed by the Tribunal is based on correct appreciation ofthe evidence and needs no interference. 9.For deciding the controversy involved in the matter, we feel itproper to extract the relevant portions of the Power of Attorneys dated 14thDecember, 1993 and 29th April, 1994. The agreement dated 30th April, 2001and the reply filed by the Appellants to the notice issued by the A.O underSection 148 of the Act are also need to be extracted. The relevant portion of the Power of Attorney dated 14thDecember, 1993 reads thus : “Know All Men By These Presents, that we, (1) Mr. JoaoDe Souza Proenca alias Joao Proenca, son of Antonio Proenca,landlord, of 65 years of age, residing at Calangute, Bardez, Goaand (2) Mrs. Maria Sara Proenca alias Sara Proenca wife ofJoao Proenca of 57 years of age, housewife, residing atCalangute, Bardez, Goa do hereby nominate, constitute andappoint Mr. Mathew Braoanza, major of age, married,businessman residing at Mapusa, Bardez, Goa to be our trueand lawful attorney with respect to the property described in the Schedule herein below, for the purpose of constructing abuilding/s with flats, shops and garages thereon and in thisconnection in our names and on our behalf do the followingacts, deeds and things, that is to say.” The portion of the Power of Attorney dated 29th April, 1994 which is relevant for the purpose of deciding the questions, reads as under: “Whereas we are the owners in possession of theproperty registered in the Record of Rights under Survey No.186 sub division 6 of Calangute, Bardez, Goa and betterdescribed in the Schedule annexed hereunder.” The relevant portion of the agreement dated 30th April, 2001 is as under: “Whereas the First party herein is the owner inpossession of a property known as Rampachem Batta, bearingsurvey No. 186/6 situated at Naikvado, Calangute, Bardez, Goaand more particularly described in the Schedule hereunderwritten.” The relevant portion of the reply filed by the Appellants/assessees before A.O. reads thus: The portion of the Power of Attorney dated 29th April, 1994 which is relevant for the purpose of deciding the questions, reads as under: “Whereas we are the owners in possession of theproperty registered in the Record of Rights under Survey No.186 sub division 6 of Calangute, Bardez, Goa and betterdescribed in the Schedule annexed hereunder.” The relevant portion of the agreement dated 30th April, 2001 is as under: “Whereas the First party herein is the owner inpossession of a property known as Rampachem Batta, bearingsurvey No. 186/6 situated at Naikvado, Calangute, Bardez, Goaand more particularly described in the Schedule hereunderwritten.” The relevant portion of the reply filed by the Appellants/assessees before A.O. reads thus: “I have entered into an agreement with M/s. Braganzaconstructions on 30th April, 2001, but this is to be examined inthe light of the earlier documents regarding power of attorneyetc. The agreement if read, fairly would show that, I have notgiven up any of my rights in the impugned land. I have given apower of attorney of the same type as I did earlier i.e.revocable in case of breach. The power of attorney dated 30thApril, 2001 is exactly on par and as the conditions imposed onBraganza have not been fulfilled particularly regardingpayments of Rs. 80 lacs, actual receipts till to date being only 56.75 lacs, the agreement dated 30th April, 2001 cannot besaid to have resulted in transfer of any of my rights even afterconsidering the impact of section 2(47)(v) of the Income TaxAct, 1961. Kindly note that I have not given possession to thecontractee, but only an access to enable him to do certain jobson my behalf. In spite of the agreement, I continued to be theowner even deriving income from the land, which I have shownin the respective returns. The first condition for applyingsection 2(47)(v) is not fulfilled (possession). The secondcondition of the said section is that the agreement should be inthe nature of part performance as provided in section 53A ofthe Transfer of Property Act. The said section clearly providesthat proposed buyer if he could be so called, should havefulfilled all the conditions including the payment. The saidsection 53A is applicable, if I am barred from repudiating thecontract. In my case, I am not so barred and hence thiscondition is also not fulfilled. I continue to be the full owner ofthe property and consequently there is no transfer even underthe liberalized definition of transfer under Section 2(47)(v).The question of assessing the capital Gains does not arise. Theamount of Rs. 56.75 lacs received till today retains thecharacter of originally debt owned by me. The factum ofreceipt mentioned in para 3 of your letter does not change thebasic situation. Again it is not correct to day that, I haveallowed to construct. I have not allowed, but directedBraganzas to proceed with the construction on my behalf. Thereference is made to the decision of the Bombay High Court inthe case of Dwarkadas Kapadia. The ratio of this judgment isnot applicable. In fact the Hon'ble High Court has allowed theappeal in favour of the original holder of the land. This is notonly on the basis of the date of transfer falling outside theaccounting period, but also on the basis of other facts. Theobservations are as under; Para 8 – Taking into consideration the totality ofcircumstances the appeal of the assessee was allowed. The judgment does not deal with ingredient of section 2(47)(v)of the Income Tax Act, 1961 regarding possession. Besides asmentioned above no possession in the eyes of law has beengiven the right upto the end of the accounting period and evenlater till this date. There is thus no transfer. It may bementioned here that on 30th April, 2001 section 230A of the Para 8 – Taking into consideration the totality ofcircumstances the appeal of the assessee was allowed. The judgment does not deal with ingredient of section 2(47)(v)of the Income Tax Act, 1961 regarding possession. Besides asmentioned above no possession in the eyes of law has beengiven the right upto the end of the accounting period and evenlater till this date. There is thus no transfer. It may bementioned here that on 30th April, 2001 section 230A of the Income Tax Act, 1961, was a condition precedent for all typesof transfer of immovable properties and no such certificate wasapplied for or given. Further all transfers even in part, requirecompulsory registration and as the above agreement has notbeen registered, that is one more reason, why there is notransfer on any date during the accounting year viz. 1st April,2001 to 31st March, 2002. For all the above reasons, I request not to change capital gainsin the accounting period for which notice under Section 148 ofthe Income Tax Act, 1961 was issued. As I have already filed thereturn, I request you to kindly supply me the reasons recordedin terms of section 148(2) of the Income Tax Act, 1961 so as toenable me to make further submissions, if necessary.Further it is urged that not to change any capital gain in theaccounting period for which notice u/s. 148 was issued.” 10.On a close scrutiny of the Power of Attorneys, agreement and thereply, the A.O recorded a finding that only the agreement dated 30th April,2001 gives rise to the transfer within the meaning of Section 2(47)(v) of theAct, attracting the capital gain arising out of the said transfer. This finding offact though set aside by the Commissioner but upheld by the Tribunal afterelaborate discussion. 11.The agreement dated 30th April, 2001 no doubt refers to someoral agreement and Power of Attorneys executed between the Appellants andthe Developer but the fact remains that the agreement dated 30th April, 2001in clear terms records that the Appellants are the owner and in possession ofthe property. The Power of Attorney of the year 1993-94 does not disclose I.T.A. Nos.5 & 6 of 2012 that the possession has been given to the Developer in pursuance to the saidPower of Attorney. Moreover, the Appellants in their reply to the notice inunequivocal term have stated that the Appellants have not given possessionto the Developer but had given only access to him to enable to do certain jobson their behalf. It has also been clearly stated in the reply that the Appellantscontinued to be full owner of the property and there is no transfer. 12.At this point of time, it is relevant to refer the Judgment of theDivision Bench of this Court in the case of Chaturbhuj Dwarkadas Kapadiavs. Commissioner of Income Tax, (2003) 180 CTR 0107 on which reliancehas been placed by Ms. Amira Razzaq, learned Counsel for the Revenue as alsothe judgment dated 20th November, 2017 passed by the Division Bench ofthis Court in the case of The Commissioner of Income Tax-111, Pune vs.Dr. Arvind S. Phake, (2003) 260 ITR 491. In the case of Chaturbhuj Kapadia(supra) it has been held as under: “Under Section 2(47)(v), any transaction involving allowingof possession to be taken over or retained in part performance of acontract of the nature referred to in Section 53Aof the Transfer ofProperty Act would come within the ambit of Section 2(47)(v). That,in order to attract Section 53A, the following conditions need to befulfilled. There should be a contract for consideration ; it should bein writing ; it should be signed by the transferor ; it should pertainto transfer of immovable property ; the transferee should have In the case of Chaturbhuj Kapadia(supra) it has been held as under: “Under Section 2(47)(v), any transaction involving allowingof possession to be taken over or retained in part performance of acontract of the nature referred to in Section 53Aof the Transfer ofProperty Act would come within the ambit of Section 2(47)(v). That,in order to attract Section 53A, the following conditions need to befulfilled. There should be a contract for consideration ; it should bein writing ; it should be signed by the transferor ; it should pertainto transfer of immovable property ; the transferee should have taken possession of the property; lastly, the transferee should beready and willing to perform his part of the contract. That evenarrangements confirming privileges of ownership without transferof title could fall under Section 2(47)(v).Section 2(47)(v)wasintroduced in the Act from the assessment year 1988-89 becauseprior thereto, in most cases, it was argued on behalf of the assesseethat no transfer took place till execution of the conveyance.Consequently, the assessees used to enter into agreements fordeveloping properties with the builders and under the arrangementwith the builders, they used to confer privileges of ownershipwithout executing conveyance and to plug that loophole, Section2(47)(v)came to be introduced in the Act.” It is precisely for this reason that the Legislature hasintroduced Section 2(47)(v)read with Section 45which indicatesthat capital gains is taxable in the year in which such transactionsare entered into even if the transfer of immovable property is noteffective or complete under the general law. In this case that testhas not been applied by the Department. No reason has been givenwhy that test has not been applied, particularly when theagreement in question, read as a whole, shows that it is adevelopment agreement. There is a difference between the contracton the one hand and the performance on the other hand. In thiscase, the Tribunal as well as the Department have come to theconclusion that the transfer took place during the accounting yearending March 31, 1996, as substantial payments were effectedduring that year and substantial permissions were obtained. In suchcases of development agreements, one cannot go by substantialperformance of a contract. In such cases, the year of chargeability isthe year in which the contract is executed. This is in view of Section2(47)(v)of the Act.” In the case of Dr. Arvind Phake (supra) the Division Bench of this Court in Paragraph 6 has observed thus: “We have carefully considered the submissions. What bindsthis Court is that the judgment of the Division Bench in the case ofChaturbhuj Dwarkadas Kapadia v/s. Commissioner of Income Tax(2003) 260 ITR 491 (Bom). The Division Bench held that the date ofcontract is relevant provided the terms of the contract indicatepassing off or transferring of complete control over the property infavour of the developer. The Division Bench laid down the test fordetermining the date which should be taken into account for In the case of Dr. Arvind Phake (supra) the Division Bench of this Court in Paragraph 6 has observed thus: “We have carefully considered the submissions. What bindsthis Court is that the judgment of the Division Bench in the case ofChaturbhuj Dwarkadas Kapadia v/s. Commissioner of Income Tax(2003) 260 ITR 491 (Bom). The Division Bench held that the date ofcontract is relevant provided the terms of the contract indicatepassing off or transferring of complete control over the property infavour of the developer. The Division Bench laid down the test fordetermining the date which should be taken into account for determining the relevant accounting year in which the liabilityaccrues. In the present case, the Appellate Tribunal has taken intoconsideration various clauses in the development agreement. Subclause (d) of clause (3) of the agreement provides that after fullpayment of consideration, the construction shall be undertaken bythe developer. Admittedly, on the date of execution of thedevelopment agreement, the entire consideration was not receivedby the respondent assessee. The physical possession of the propertysubject matter of development agreement was parted with by therespondent assessee on 1st March, 2008. It was held that on thatday, complete control over the property was passed on to thedeveloper. After having perused the various clauses in theagreement and the aforesaid factual aspects, the Tribunal has taken1st March, 2008 as the date of transfer. This finding is fullyconsistent with the law laid down by the Division Bench in the caseof Chaturbhuj Dwarkadas Kapadia (supra). Therefore, no fault canbe found with the impugned judgment of the Tribunal when it washeld that the investment made in the sum of Rs.50,00,000/by therespondent assessee on 22nd August. 2008 was within the periodspecified under Section 54EC of the said Act. 13.Keeping in view the aforesaid clear factual aspect of the matterand the legal position emerging, we have no hesitation to hold that theTribunal has committed no illegality in reversing the order of theCommissioner by holding that the transfer within the meaning of Section2(47)(v) had taken place only in the Assessment Year 2002-2003 as we findthat vide agreement dated 30th April, 2001, the actual possession was givento the Developer and it was not given the basis of Power of Attorneys and socalled oral agreement entered into between the Appellants and the Developerin the year 1993-94. I.T.A. Nos.5 & 6 of 2012 correctly appreciated and interpreted the Power of Attorney/s the agreementdated 30th April, 2001 and the stand taken by the Appellants in reply to thenotice under Section 148 of the Act. 15.In the circumstances, we affirm the order passed by the Tribunalby holding that the Tribunal has rightly reversed the order of theCommissioner and while reversing the order of the Commissioner, it hascorrectly appreciated the facts and law and there is no illegality or perversityin the order of the Tribunal warranting interference. 16. In view of the aforesaid, both the Appeals are dismissed. (Nutan D. Sardessai, J.) (Shantanu S. Kemkar, J.)