Ita/200/2013 Of C.s. Atwal v. Commissioner Of Income Tax Ludhiana And Anr.( Main Disposed Of 22.7.15)

ITA No.200 of 2013 (O&M) IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.200 of 2013 (O&M)Date of decision: July 22, 2015 C.8.Atwal Vs, .....- Appe The Commissioner of Income Tax, Ludhiana and another ....mespondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’ BLE MR. JUSTICE FATEH DEEP SINGH Present: Mr. Ajay Vohra, Sr. Advocatewith Mr. Rohit Jain, Advocate(in ITA Nos.200 and 201 of 2013),Ms. Radhika Suri, Sr. Advocate with.Mr. Tey Mohan Singh, Advocate andiMs. Rinku Dahiya, Advocate.(in ITA Nos.254,234,251, 306, 305, 240, 238, 242, 248, 244, 253,255, 239, 236, 252, 271, 298, 294, 356, 333, 357, 304, 308, 237,332, 233, 243, 361, 358, 232, 235, 286, 290, 287, 250, 307, 249,288, 273, 272 and 303 of 2013 andITA Nos.10 to 16, 25, 26, 90 & 192 of 2014) Mr. B.S.Sewak, Advocate (in ITA No.398 of 2014). Mr. Keshav Kataria, Advocate (in ITA Nos.295 & 296 of 2013)Mr. Rishab Kapoor, AdvocateMs. Divya Suri, Advocate andMr. Sachin Bhardwaj, Advocate (in ITA No.110 of 2014)for the appellant(s). Ms. Urvashi Dhugga, Advocate. | ITA No.200 of 2013 (O&M) Mr. Ashish Kashyap, Advocate forMr. Dinesh Goyal, Advocate, Mr. Rajesh Katoch, Advocate,Ms. Savita Saxena, Advocate(in ITA Nos.307, 308 and 243 of 2013 and 278, 398 of 2014) and Mr. G.S.Hooda, Advocate. (in ITA Nos.332, 296, 295, 292, 289, 284, 285, 272, 314, 315,244, 245, 297, 313, 316 and 247 of 2013 and 11, 13, 15, 25, 26,74, 110 and 136 of 2014) for the Revenue. Ajay Kumar Mittal,J. l.This order shall dispose of a bunch of 85 appeals bearing ITANos. 200, 201, 232 to 255, 271 to 273, 283 to 298, 303 to 308, 310 to 316,332 to 334, 356 to 358 and 361 of 2013, 10 to 16, 25, 26, 73, 74, 90, 110,136, 191, 192, 253, 254, 278 and 398 of 2014, as learned counsel for theparties are agreed that common substantial questions of law are involvedtherein 1n all these appeals. However, the facts are being extracted from ITANo.200 of 2013, |ITA No.200 of 2013 has been preferred by the appellant-assessee under Section 260A of the Income Tax Act, 1961 (in short, “theAct’) against the order dated 29.7.2013 passed under Section 254(1) of theAct by the Income Tax Appellate Tribunal, Chandigarh ‘B’ Bench,Chandigarh (in short, “the Tribunal’) in ITA No.448/Chd/2011 for theassessment year 2007-08. On 30.5.2014, these appeals were admitted whichraise the following substantial questions of law:- 1) “Whether the transactions in hand envisage a “transfer”exigible to tax by reference to Section 2(47)(v) of the IncomeTax Act, 1961 read with Section 53-A of the Transfer ofProperty Act, 1882?exigible to tax by reference to Section 2(47)(v) of the IncomeTax Act, 1961 read with Section 53-A of the Transfer ofProperty Act, 1882? 11) Whether the Income Tax Appellate Tribunal, has ignoredrights emanating from the JDA, legal effect of nonrights emanating from the JDA, legal effect of non ITA No.200 of 2013 (O&M) S registration of JDA, its alleged repudiation etc.? 111) Whether “possession” as envisaged by Section 2(47)(v) andSection 53-A of the Transfer of Property Act, 1882 wasdelivered, and 1f so, its nature and legal effect?Section 53-A of the Transfer of Property Act, 1882 wasdelivered, and 1f so, its nature and legal effect? iv) Whether there was any default on the part of the developers,and if so, its effect on the transactions and on exigibility totax’and if so, its effect on the transactions and on exigibility totax’ v) Whether amount yet to be received can be taxed on anhypothetical assumption arising from the amount to bereceived?”hypothetical assumption arising from the amount to bereceived?” ITA No.200 of 2013 (O&M) S registration of JDA, its alleged repudiation etc.? 111) Whether “possession” as envisaged by Section 2(47)(v) andSection 53-A of the Transfer of Property Act, 1882 wasdelivered, and 1f so, its nature and legal effect?Section 53-A of the Transfer of Property Act, 1882 wasdelivered, and 1f so, its nature and legal effect? iv) Whether there was any default on the part of the developers,and if so, its effect on the transactions and on exigibility totax’and if so, its effect on the transactions and on exigibility totax’ v) Whether amount yet to be received can be taxed on anhypothetical assumption arising from the amount to bereceived?”hypothetical assumption arising from the amount to bereceived?” 3.A few facts relevant for the decision of the controversyinvolved as narrated in ITA No.200 of 2013 may be noticed. The appellant-assessee 1S an individual and one of the members of the Punjabi CooperativeHousing Building Society Limited (hereinafter referred to as “the Society’).The Society consisting of 95 members 1s owner of 21.2 acres of land inVillage Kansal. It had allotted plots measuring 500 square yards to its 65)members, 1000 square yards to its 30 members and four plots of 500 squareyards each were retained by it. It entered into a tripartite Joint DevelopmentAgreement dated 25.2.2007 (in short, “JDA’’) with Hash Builders PrivatLimited, Chandigarh (for brevity “HASH”) and Tata Housing DevelopmentCompany Limited, Mumbai (THDC). Under the JDA, it was agreed thatHASH and THDC ("the developers') shall undertake development of 21.2acres of land owned and registered in the name of the society 1n respect ofwhich it would give development rights in lieu of consideration. The agreedconsideration was to be disbursed by THDC through Hash to eachindividual member of the society having plot size of 500 square yards partly in monetary terms (=a82.50 lacs in cash) and balance in terms of built up provided the following schedule:- a) Payment ofL3 lacs per plot holder of 500 square yards and}=6 lacs per plot holder of 1000 square yards upon execution ofthe JDA as adjustable advance. b) Payment of<12 lacs per plot holder of 500 square yards and424 lacs per plot holder of 1000 square yards to be made uponexecution of the JDA against execution of a registered sale deedby the society in favour of THDC for land of equivalent valuebeing 3.08 acres having specific Khasra nos. as mentioned inthe JDA. c) Payment of<18 lacs per plot holder of 500 square yards and<a36 lacs per plot holder of 1000 square yards to be madewithin two months of execution of the JDA against execution ofanother registered sale deed by the society in favour of THDCfor land of equivalent value being 4.62 acres. d) Payment of LT24.75 lacs per plot holder of 500 square yardsand=a49.50 lacs per plot holder of 1000 square yards to bemade within six months from the date of execution of the JDAor within two months from the date of the approval of theplans/design and drawings and grant of final licence to developwhereupon construction can commence, whichever was later,against execution of another registered sale deed by the societyin favour of THDC for land of equivalent value being 6.36aCres. e) Balance payment of“a24.75 lacs per plot holder of 500square yards and|a49.50 lacs per plot holder of 1000 squareyards to be made within two months from the date of paymentas per clause (d) above, towards full and final settlement ofpayments after adjustment of the advance/earnest moneyagainst execution of another registered sale deed by the societyin favour of THDC for land of equivalent value being 7.14aCIcs. 1) Each member having plot of 500 square yards was entitled to e) Balance payment of“a24.75 lacs per plot holder of 500square yards and|a49.50 lacs per plot holder of 1000 squareyards to be made within two months from the date of paymentas per clause (d) above, towards full and final settlement ofpayments after adjustment of the advance/earnest moneyagainst execution of another registered sale deed by the societyin favour of THDC for land of equivalent value being 7.14aCIcs. 1) Each member having plot of 500 square yards was entitled to receive one built up apartment having super area of 2250 squarefeet and each member having plot of 1000 square yards wasentitled to two built up apartments having super area of 2250square feet after transfer of land in the name of THDC.Allotment letters were to be issued by THDC within twomonths from the date of obtaining approval to commenceconstruction at the site. Copies of the minutes of the ExecutiveCommittee of the society dated 4.1.2007 and JDA dated25.2.2007 are attached as Annexures A.1 and A.2 respectivelywith the appeal. Clause 14 of the agreement further providedthat in case of termination of the JDA, lands registered in thename of THDC upto the date of termination shall remain withTHDC and the balance lands to be transferred shall not betransferred in favour of THDC. 4The developers made payments only upto clause (c) above 1.e,upto second installment and till date only part of the land measuring 7.7acres 1.e. 3.08 acres plus 4.62 acres having specific khasra nos. asmentioned in the JDA and plan attached thereto have actually beenregistered in the name of THDC. Copy of the sale deed dated 2.3.2007 1sattached as Annexure A.3 with the appeal. Subsequently, substantialdisputes arose between the society on the one hand and the developers onthe other with regard to further payments to be made in terms of the JDA 1.e,from clause (d) onwards. The appellant, who had been allotted 1000 squareyards of plot in the society was, as per the JDA, entitled to receive monetaryconsideration ofv1,65,00,000/- and two furnished flats of 2250 square feeteach. The appellant actually received proportionate amount of a66 lacs ofwhichLy30 lacs was received during the year under consideration and the balance amount ofa36 lacs was received in the subsequent year relevant to ITA No.200 of 2013 (O&M) 4 For the previous year relevant to the assessment year 2007-08,the appellant filed original return of income on 7.12.2007 declaring incomeotzy2,50,171/-. In the original return, the appellant did not offer to tax anyamount under the JDA on the ground that there was no transfer to THDCduring the year under consideration and also because ownership as well aspossession of the land still vested in the society. The return of income forthe relevant assessment year 2007-08 was later revised by the appellant on7.10.2009 declaring income of|Ly30,08,606/- which included capital gainsot=a27,58,436/-. In the said return, the appellant offered to taxv30 lacsunder the head ‘capital gains' recetved by him during the year underconsideration qua that portion of land in respect of which sale deed wasregistered in favour of the developers. The Assessing Officer, however,treated the revised return filed by the appellant asnon est. Copies of thereturn of income originally filed and revised return for the assessment year2007-08 are attached as Annexures 4 (colly) with the appeal. According tothe appellant,zy36 lacs received in the subsequent year relevant to theassessment year 2008-09 were also offered for tax in the year under thehead ‘capital gains’ (Annexure A.5). 6.The Assessing Officer vide order dated 30.12.2009, AnnexureA.6 passed under Section 143(3) of the Act held that since as per the JDA,there was grant and assignment of various rights in the property by theappellant in favour of THDC alongwith handing over physical and vacantpossession, the same tantamount to “transfer”. The Assessing Officerapplied the provisions of Section 2(47)(v) of the Act read with Section 53Aof the Transfer of Property Act, 1882 (in short, “the 1882 Act’) which ITA No.200 of 2013 (O&M) | 6.The Assessing Officer vide order dated 30.12.2009, AnnexureA.6 passed under Section 143(3) of the Act held that since as per the JDA,there was grant and assignment of various rights in the property by theappellant in favour of THDC alongwith handing over physical and vacantpossession, the same tantamount to “transfer”. The Assessing Officerapplied the provisions of Section 2(47)(v) of the Act read with Section 53Aof the Transfer of Property Act, 1882 (in short, “the 1882 Act’) which ITA No.200 of 2013 (O&M) | provides that any transaction involving allowing the possession of anyimmovable property to be taken or retained 1n part performance of contractof the nature referred to in Section 53A of the 1882 Act shall be treated as“transfer” for purposes of the Act. Since the JDA was signed on 25.2.20071.e. during the previous year relevant to assessment year 2007-08, theAssessing Officer computed chargeable capital gains 1n that year. It was alsoheld that there was ‘transfer’ within the meaning of sub sections (11) and (v1)of Section 2(47) of the Act. The Assessing Officer held that the followingconsideration receivable by the members of the society having plot size of500 square yards under the JDA was to be taxable under the head ‘capitalgains’ 1n the assessment year 2007-08 since JDA was signed in the said year; a) monetary consideration receivable at =a82.50 lacs (thoughonlyTL15 lacs received during the relevant year) and; b) fair market value of 2250 square feet flat (to be received infuture) at the rate of|LT4500 per square feet =|L1,01,25,000/-. The Assessing Officer accordingly held that the appellant was liable to taxduring the assessment year under consideration on the entire amountreceivable in future under the head ‘capital gains’ and thus made net additionof|<3,54,68,276/- on account of long term capital gains taxable in the handsof the appellant in terms of the JDA as under:- Monetary consideration (TL82.50 lacs x2)TL1,65,00,000Two flats of 2250 square feet eachTL2,02,50,000valued at the rate of LT4500 square feet. TL3,67,50,000 Total considerationLess Indexed cost of acquisitionNet addition 412,381,724L3,54,68,276 7 Agegrieved by the order, the appellant filed appeal before th ITA No.200 of 2013 (O&M) 23.2.2011, Annexure A.7, the CIT(A) dismissed the appeal upholding theorder passed by the Assessing Officer. The appellant filed appeal before theTribunal. The appellant also produced following additional evidence underRule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 (in short, “theRules’) :- 1) THDC failed to strictly comply with the payment schedulein as much as it did not make payment of the installmentsmentioned in clauses (d) to (1) above;in as much as it did not make payment of the installmentsmentioned in clauses (d) to (1) above; 11) THDC further failed to discharge their part of obligation byfailing to obtain various’ sanctions’ like _ splan/drawings/designs etc. from appropriate authorities inorder to commence and carry out development as stipulatedunder the agreement;failing to obtain various’ sanctions’ like _ splan/drawings/designs etc. from appropriate authorities inorder to commence and carry out development as stipulatedunder the agreement; 11) Order dated 20.1.2011 passed by this Court staying theexecution of the project under the JDA;execution of the project under the JDA; iv) Refusal by THDC vide letter dated 4.2.2011 to makepayment of third installment,payment of third installment, v) Resolution dated 13.6.2011 passed by the societyterminating the JDA and revocation of power of attorney on31.10.2011, Annexure A.8 (Colly)..terminating the JDA and revocation of power of attorney on31.10.2011, Annexure A.8 (Colly).. 11) Order dated 20.1.2011 passed by this Court staying theexecution of the project under the JDA;execution of the project under the JDA; iv) Refusal by THDC vide letter dated 4.2.2011 to makepayment of third installment,payment of third installment, v) Resolution dated 13.6.2011 passed by the societyterminating the JDA and revocation of power of attorney on31.10.2011, Annexure A.8 (Colly)..terminating the JDA and revocation of power of attorney on31.10.2011, Annexure A.8 (Colly).. It was further pointed out by the appellant that in the case of Shri SatpalGosain, one of the co-members of the society, the CIT(A) in his appeal forthe assessment year 2007-08 had admitted the aforesaid evidence and afterconsidering the same deleted the addition made by the Assessing Officer onsimilar grounds. The Tribunal admitted the additional evidence. Vide order dated 29.7.2013, Annexure A.9-A impugned herein upheld the order passed by the Assessing officer bringing to tax the entire consideration receivableunder the JDA as liable for tax under the head ‘capital gains’. The Tribunalheld that the provisions of section 2(47)(v) of the Act read with section 53A ITA No.200 of 2013 (O&M) of the 1882 Act were applicable for the following reasons:- a) possession and original title deeds of the land were actuallyhanded over by the society to the developers; b) irrevocable power of attorney granting substantial rights tothe developers was executed on 26.2.2007 which having beenregistered, it was not necessary to register the JDA; c) through various clauses of the JDA and irrevocable power ofattorney, the developer was in complete control of the propertyand was in possession thereof as contemplated in the aforesaidsection; d) there was no force in the contention of the assessee thatpossession was given only as permissive licensee under section52 of the Indian Easement Act, 1882 since in the present case,all possible rights in the property including right to sell etc.had been given to the builder; e) requirement of registration of agreement under section 53Aof the TPA cannot be read into section 2(47)(v) of the Act sincethe said section only refers to the contract of the nature referredto in section 53A of the TPA without going into controversywhether such agreement 1s registered or not. In nut shell, the Tribunal held that technically there was transfer in terms of Section 2(47)(v) of the Act read with Section 53A of the 1882 Act. Theentire consideration receivable under the JDA was thus held to be taxable 1nthe hands of the appellant. The Tribunal also affirmed the determination ofnotional value of flat by applying rate ofL4500 per square feet. The issueof allowability of exemption under section 54F of the Act was however not considered as the grounds raised before the Tribunal referred to sections 54and 54EC and not to section 54F of the Act. Hence the instant appeal by theassessee- appellant. We have heard learned counsel for the parties and perused the ITA No.200 of 2013 (O&M) record. Q |The following issues emerge for consideration and adjudication:- (1) scope and legislative intent of Section 2(47)(11), (v) and (v1) of the Act; (11) the essential ingredients for applicability of Section 53A of1882 Act;(111) meaning to be assigned to the term “possession’’(1v) whether in the facts and circumstances, any taxable capitalgains arises from the transaction entered by the assessee? 10.|Taking up first issue, it may be noticed that Section 2(14) of theAct defines “capital asset’ whereas Section 45 of the Act is the chargingsection 1n regard to capital gains. Section 48 of the Act provides for mode ofcomputation of capital gains. Before delving into the controversy involvedin the present case, 1t would be advantageous to refer to the relevant portionof Section 2(47) of the Act defining ‘transfer’, which reads thus:- Section 2(47) of Income Tax Act, 1961=Definition ofTransfer In this Act, unless the context otherwise requires-"transfer", in relation to a capital asset, includes,— 10.|Taking up first issue, it may be noticed that Section 2(14) of theAct defines “capital asset’ whereas Section 45 of the Act is the chargingsection 1n regard to capital gains. Section 48 of the Act provides for mode ofcomputation of capital gains. Before delving into the controversy involvedin the present case, 1t would be advantageous to refer to the relevant portionof Section 2(47) of the Act defining ‘transfer’, which reads thus:- Section 2(47) of Income Tax Act, 1961=Definition ofTransfer In this Act, unless the context otherwise requires-"transfer", in relation to a capital asset, includes,— 777777777(11) the extinguishment of any rights therein ; or77777777(111), (1v) & (iva) x xx(v) any transaction involving the allowing of the possession ofany immovable property to be taken or retained in partperformance of a contract of the nature referred to in section533A of the Transfer of Property Act, 1882 (4 of 1882) ; o(v1) any transaction (whether by way of becoming a member of,or acquiring shares in, a co-operative society, company or otherassociation of persons or by way of any agreement or anyarrangement or in any other manner whatsoever) which has the 11 effect of transferring, or enabling the enjoyment of, anyimmovable property. Explanation |.—For the purposes of sub-clauses (v) and (v1),"immovable property" shall have the same meaning as 1n clause(d) of section 269UA. Explanation 2.—For the removal of doubts, it is herebyclarified that "transfer" includes and shall be deemed to havealways included disposing of or parting with an asset or anyinterest therein, or creating any interest in any asset in anymanner whatsoever, directly or indirectly, absolutely orconditionally, voluntarily or involuntarily, by way of anagreement (whether entered into in India or outside India) orotherwise, notwithstanding that such transfer of rights has beencharacterized as being effected or dependent upon or flowingfrom the transfer of a share or shares of a company registeredor incorporated outside India.” Clause (d) of Section 269UA of the Act which defines '1mmovable property” for the purposes of Sub-clauses (v) and (v1) of Section 2(47) of the Act 1s inthe following terms:- “269UA. Definitions In this Chapter, unless the contextotherwise requires,- 777777777777(1) to (c) xx (d)"immovable property" means- (1)any land or any building or part of a building, andincludes, where any land or any building or part of a buildingis to be transferred together with any machinery, plant,furniture, fittings or other things, such machinery, plant,furniture, fittings or other things also. Explanation.- For thepurposes of this sub- clause," land, building, part of albuilding, machinery, plant, furniture, fittings and otherthings” include any rights therein; (11) any rights in or with respect to any land or any building or a part of a building (whether or not including anymachinery, plant, furniture, fittings or other things, therein)which has been constructed or which is to be constructed,accruing or arising from any transaction (whether by way ofbecoming a member of, or acquiring shares in, a co-operative society, company or other association of persons orby way of any agreement or any arrangement of whatevernature), not being a transaction by way of sale, exchange orlease of such land, building or part of a building;(e) & (f) xx777777777777= (11) any rights in or with respect to any land or any building or a part of a building (whether or not including anymachinery, plant, furniture, fittings or other things, therein)which has been constructed or which is to be constructed,accruing or arising from any transaction (whether by way ofbecoming a member of, or acquiring shares in, a co-operative society, company or other association of persons orby way of any agreement or any arrangement of whatevernature), not being a transaction by way of sale, exchange orlease of such land, building or part of a building;(e) & (f) xx777777777777= 11.Finance Act, 1987 introduced Clauses (v) ands (v1) 1n Section 2(47) of the Act with effect from April 1, 1988. It provides that ‘transfer’includes (1) any transaction which allows possession to be taken/retained inpart performance of a contract of the nature referred to in Section 53A of the1882 Act and (11) any transaction entered into in any manner which has theeffect of transferring or enabling the enjoyment of any immovable property.Therefore, in these two eventualities, profits on account of capital gainswould be taxable in the year in which such transactions are entered into,even if the transfer of the immovable property is not effective or completeunder the general law. Under Section 2(47) (v) of the Act, any transactioninvolving allowing of possession referred to in Section 53A of the 1882 Actwould come within the ambit of ‘transfer’. Even arrangements confirmingprivileges of ownership without transfer of title could fall under Section 2(47)(v) of the Act. Section 2(47)(v) read with Section 45 of the Act indicatesthat capital gains 1s taxable in the year in which such transactions areentered into even if the transfer of 1mmovable property is not effective orcomplete under the general law. The purpose of introducing clause (v) in ITA No.200 of 2013 (O&M) is to widen the net of taxation of capital gains so as to include transactionsthat closely resembles transfers but are not treated as such under the generallaw. Avoidance or postponement of tax on capital gains by adopting devicessuch as the enjoyment of property in pursuance of irrevocable power ofattorney or part performance of a contract of sale is also sought to bearrested by introducing the two clauses, clause (v) and (v1) 1n section 2(47)of the Act. According to Explanation to Section 2(47) of the Act, operativefrom 1.4.1988 (numbered as Explanation | by Finance Act, 2012) for thepurposes of sub clauses (v) and (v1), the expression “immovable property”shall have the same meaning as in Section 269UA(d) of the Act, 12.The Central Board of Direct Taxes (CBDT) Circular No.495dated 23.9.1987 (168 ITR (St.) 87 at Page 92) provides an insight into thebackground and objectives of the said clauses. The relevant portion 1sreproduced as under:- “Definition of ‘transfer’ widened to include certain transactions— 11.1 The existing definition of the word “transfer” 1n section 2(47) does not include transfer of certain rights accruing to apurchaser, by way of becoming a member of or acquiring sharesIn a cooperative society, company or association of persons orby way of any agreement or any arrangement whereby suchperson acquires any right in any building which 1s either beingconstructed or which 1s to be constructed. Transactions of thenature referred to above are not required to be registered underthe Registration Act, 1908. Such arrangements confer theprivileges of ownership without transfer of title in the buildingand are a common mode of acquiring flats particularly in|multistoreyed constructions in big cities. The definition alsodoes not cover cases where possession 1s allowed to be taken orretained 1n part performance of a contract, of the nature referred to in section 53A of the Transfer of Property Act, 1882. Newsub clauses (v) and (vi) have been inserted 1n section 2(47) toprevent avoidance of capital gains liability by recourse totransfer of rights in the manner referred to above. to in section 53A of the Transfer of Property Act, 1882. Newsub clauses (v) and (vi) have been inserted 1n section 2(47) toprevent avoidance of capital gains liability by recourse totransfer of rights in the manner referred to above. 11.2 The newly inserted sub clause (vi) of section 2(47) hasbrought into the ambit of “transfer”, the practice of enjoymentof property rights through what is commonly known as Powerof Attorney arrangements. The practice in such cases 1s adoptednormally where transfer of ownership is legally not permitted. Aperson holding the power of attorney is authorised the powersof owner, including that of making construction. The legalownership 1n such cases continues to be with the transferor. 11.3 These amendments shall come into force with effect fromIst April 1988 and will accordingly apply to the assessment year1988-89 and subsequent years (Section 3(g) of the Finance Act,1987).” 13...The legislative intent behind incorporating clause (v) to Section2(47) of the Act from assessment year 1988-89 as discernible from CBDTcircular 1s to embrace within its ambit those transactions of sale of propertywhere assessee enters into agreements for developing properties withbuilders and the seller confers the rights and privileges of ownership to thebuyer without executing/registering a formal conveyance deed in order toavoid capital gains tax. In order to thwart such tendencies, transactionswhere the possession 1s given or allowed to be retained in part performanceof contract of the nature referred to in Section 53A of 1882 Act is held to be“transfer” by fiction of law though under general law it would not beconsidered to be “‘transfer’’. In other words, by deeming fiction, “transfer” assigned extended meaning for taxation purposes by incorporating andincluding that where possession of any immovable property is taken or ITA No.200 of 2013 (O&M) 15 retained in part performance of a contract of the nature referred to inSection 53A of 1882 Act. 14.|In|CIT ys.K.Jeelani Basha,(2002) 256 ITR 282, the MadrasHigh Court held that once possession, even of a part of the property washanded over to the transferee, for the purpose of section 2 (47) (v) read withsection 45 of the Act, the transfer was complete. It was held thus:- “In this case, possession was parted with whereas theassessee/vendor received the consideration therefor. Once thepossession, even of a part of the property was handed over tothe transferee for the purpose of section 2(47)(v) read withsection 45, the transfer was complete and, therefore, the taxauthorities and more particularly, the Tribunal was justified tocalculate the consideration received in that particular year forthat part of the property which was parted with. In fact, areference can be made to the judgment of the Supreme Courtin Alapati Venkataramaiah v. CIT (1963) 57 ITR 185 (SC),which Mr. Rajan relied upon and pointed out that before theamendment, the transfer was very strictly construed. In thesaid decision, the Supreme Court refused to accept theagreement to sell or the entries made in the account for thereceipt of the consideration by the transferor as a completedtransfer for the purpose of then section 12(b). The SupremeCourt observed that the transfer means effective conveyanceof capital asset to the transferee and delivery of possession ofimmovable could not by itself be treated as equivalent toconveyance of the immovable property. Relying on thisjudgment, the learned counsel pointed out that the amendmenthas effected a sea change in law, inasmuch as under section 2(47), the delivery of possession provided it is in the nature ascontemplated in section 53A of the Transfer of Property Act,would be enough to bring the transaction into the mischief ofthe word "transfer". The argument 1s undoubtedly correct, ITA No.200 of 2013 (O&M) ITA No.200 of 2013 (O&M) 18. Section 2(47)(v) has probably been introduced to meetthe law laid down 1n this judgment, wherein there used to bea transfer for all the practical purposes, but the tax could beavoided only on the sole ground that the transaction was notcompleted by way of a sale deed. Now, the law havingundergone the change, it would be clear that where therewould be a transfer of possession in the nature ascontemplated under section 53A of the Transfer of PropertyAct, the transaction would be covered as a transfer. By thenecessary logic then, that transaction would be coverable inthat particular assessment year as has been done by the DelhiHigh Court. The only question was as to whether atransaction could be considered for the purpose of calculationof capital gains in parts. The position in law has beenindicated by the Delhi High Court that 1t can be so treated inparts, we respectfully agree with the Delhi High Courtjudgment. However, the only conditions would be that (1)such a delivery of possession should be in the nature of adoctrine of part-performance under section 53A for whichthere should be an agreement between the parties, (2) suchagreement should be in writing, (3) a completed contract hasto be spelt out from that agreement, and the most important(4) the transfer of possession of the property 1n pursuance ofthe said agreement. All these conditions undoubtedly andadmittedly are completed here. If that 1s so, then there wouldbe no question of interfering with the Tribunal's judgment. Inour opinion, the Tribunal has correctly held that the assesseewould have to be assessed on the basis of the transfer of thepossession 1n proportionate to the consideration.” 14)Similar provisions were considered by the Bombay High Court InChaturbhu} Dwarkadas Kapadia vs. Commissioner of Income Tax, (2003) 260 ITR 491, wherein it was held that Section 2(47)(v) read with ITA No.200 of 2013 (O&M) Section 45 of the Act indicates that capital gains was taxable in the year inwhich such transactions were entered into even 1f the transfer of 1mmovableproperty is not effective or complete under the general law. The relevantfindings read thus:- 7. Under Section 2(47)(v), any transaction involving allowingof possession to be taken over or retained in part performance of4 contract of the nature referred to in Section 53A of theTransfer of Property Act would come within the ambit ofSection 2(47)(v). That, in order to attract Section 53A, thefollowing conditions need to be fulfilled. There should be acontract for consideration ; it should be in writing ; it should besigned by the transferor ; 1t should pertain to transfer ofimmovable property ; the transferee should have takenpossession of the property ; lastly, the transferee should beready and willing to perform his part of the contract. That evenarrangements confirming privileges of ownership withouttransfer of title could fall under Section 2(47)(v). Section 2(47)(v) was introduced in the Act from the assessment year 1988-89because prior thereto, in most cases, it was argued on behalf ofthe assessee that no transfer took place till execution of theconveyance. Consequently, the assessees used to enter intoagreements for developing properties with the builders andunder the arrangement with the builders, they used to conferprivileges of ownership without executing conveyance and toplug that loophole, Section 2(47)(v) came to be introduced inthe Act. 8. It was argued on behalf of the assessee that there was noeffective transfer till grant of irrevocable licence. In thisconnection, the judgments of the Supreme Court were cited onbehalf of the assessee, but all those judgments were prior tointroduction of the concept of deemed transfer under section 2(47)(v). In this matter, the agreement in question is a 16. 8. It was argued on behalf of the assessee that there was noeffective transfer till grant of irrevocable licence. In thisconnection, the judgments of the Supreme Court were cited onbehalf of the assessee, but all those judgments were prior tointroduction of the concept of deemed transfer under section 2(47)(v). In this matter, the agreement in question is a 16. development agreement. Such development agreements do notconstitute transfer in general law. They are spread over a periodof time. They contemplate various stages. The Bombay HighCourt in various judgments has taken the view in several mattersthat the object of entering into a development agreement is toenable a professional builder/contractor to make profits bycompleting the building and selling the flats at a profit. That theaim of these professional contractors was only to make profitsby completing the building and, therefore, no interest in the landstands created in their favour under such agreements. That suchagreements are only a mode of remunerating the builder for hisservices of constructing the building (see Gurudev Developersv. Kurla Konkan Niwas Co-operative Housing Society |2000] 3Mah LJ 131). It 1s precisely for this reason that the Legislaturehas introduced Section 2(47)(v) read with Section 45 whichindicates that capital gains 1s taxable in the year in which suchtransactions are entered into even 1f the transfer of 1mmovableproperty 1s not effective or complete under the general law. Inthis case that test has not been applied by the Department. Noreason has been given why that test has not been applied,particularly when the agreement in question, read as a whole,shows that it 1s a development agreement. There is a differencebetween the contract on the one hand and the performance onthe other hand. In this case, the Tribunal as well as theDepartment have come to the conclusion that the transfer tookplace during the accounting year ending March 31, 1996, assubstantial payments were effected during that year andsubstantial permissions were obtained. In such cases ofdevelopment agreements, one cannot go by_ substantiaperformance of a contract. In such cases, the year ofchargeability is the year in which the contract 1s executed. Thisis in view of Section 2(47)(v) of the Act.” Further, the Madras High Court inCommissioner of Income Lax vs. G.Saroja, ©(2008) 301 ITR 124 had noticed as under:- “Section 2(47)(v) of the Income-tax Act comes into the aid ofthe Department only 1f the conditions of Section 53A of theTransfer of Property Act are satisfied. From a reading of theabove provisions, it is clear that unless there 1s a writtenagreement, Section 53A of the Transfer of Property Act will notcome into operation. In the present case, there 1s no writtenagreement and no sale consideration was received during therelevant period. The Revenue is also unable to prove that theassessee had put the developer in possession of the property byreceiving the consideration partly or in full. The fact remainsthat there is no sale agreement between the assessee and thebuilder and also the assessee had not received the saleconsideration. Hence, the Tribunal is right in holding that thereis no transfer of property, as contemplated under Section 2(47(v)of the Act. The reasons given by the Tribunal are based on validmaterials and evidence and we do not find any error or legalinfirmity in the order of the Tribunal so as to warrantinterference.’ 17.Adverting to clause (v1) of Section 2(47) of the Act, it may benoticed that the scope and ambit of this clause as explained by CBDT in itscircular No.495 dated 23.9.1987 has already been reproduced above. Onperusal of this clause, it would be clear that it was intended to cover thosecases of transfer of ownership where the prospective buyer becomes ownerof the property by becoming a member of a company, cooperative societyetc. In the present case, JDA was executed between the society and thedevelopers and there was no transaction involving the developer becomingmember of a cooperative society/company etc. in terms of Section 2(47) (v1) ITA No.200 of 2013 (O&M) 20 no change in the membership of the society as contemplated under Section 2(47)(v1) of the Act. Equally Clause (11) of Section 2(47) of the Act has noapplicability in as much as there was no extinguishment of any rights of theassessee 1n the capital asset at the time of execution of JDA in the absenceof any registered conveyance deed in favour of the transferee in view ofjudgments in.Alapati Venkataramiah vs. CIT,(1965) 57 ITR 185 (SC) andAdditional CIT vs. Mercury General Corporation (P) Limited,(1982) 133ITR 525 (Delhi), 18.|For determining the ingredients for applicability of Section|S3A of 1882 Act, it would be essential to reproduce the relevant provisionwhich reads as under:- section 53A of Transfer of Property Act, 1882 “SSA.Part performance.—Where any person contracts totransfer for consideration any immoveable property by writingsigned by him or on his behalf from which the terms necessaryto constitute the transfer can be ascertained with reasonablecertainty, and the transferee has, in part performance of thecontract, taken possession of the property or any part thereof, orthe transferee, being already in possession, continues inpossession in part performance of the contract and has donesome act in furtherance of the contract, and the transferee hasperformed or is willing to perform his part of the contract, then,notwithstanding that where there 1s an instrument of transfer,that the transfer has not been completed in the mannerprescribed therefor by the law for the time being 1n force, thetransferor or any person claiming under him shall be debarredfrom enforcing against the transferee and persons claimingunder him any right in respect of the property of which thetransferee has taken or continued in possession, other than aright expressly provided by the terms of the contract: Provided ITA No.200 of 2013 (O&M) that nothing in this section shall affect the rights of a transfereefor consideration who has no notice of the contract or of thepart performance thereof.” 19|Analyzing the scope of Section 53A of 1882 Act, necessarily,the legislative history of the provision is required to be scrutinized. Section53-A was inserted in 1929 by the Transfer of Property (Amendment) Act,1929, and imports into India in a modified form the equity of partperformance as it developed in England over the years. Doctrine of partperformance as enshrined in Section 53-A of the 1882 Act is an equitabledoctrine which creates a bar of estoppel in favour of the transferee againstthe transferor. Section 53A of 1882 Act provides protection to a transfereeto retain his possession where in part performance of the contract, he hadtaken possession of the property even 1f the limitation to bring a suit forspecific performance had expired. But there are certain conditions which arerequired to be fulfilled if a transferee wants to defend or protect hispossession under Section 53-A of the 1882 Act. The Supreme Court inShrimant Shamrao Suryavanshit and another vs. Pralhad BhairobSuryavanshi (dead) by LRs and others,AIR 2002 SC 960 had reiterated thefollowing to be necessary conditions for applicability of Section 53A of1882 Act: 1) there must be a contract to transfer for consideration anyimmovable property; 2) the contract must be in writing, signed by the transferor, orby someone on his behalf; 1) there must be a contract to transfer for consideration anyimmovable property; 2) the contract must be in writing, signed by the transferor, orby someone on his behalf; 3) the writing must be in such words from which the termsnecessary to construe the transfer can be ascertained; 4) the transferee must in part performance of the contract takepossession of the property, or of any part thereof; 5) the transferee must have done some act in furtherance of thecontract; and 6) the transferee must have performed or be willing to performhis part of the contract.” 20. Following the aforesaid pronouncement, the Apex Court in Rambhau Namdeo Gajre vs. Narayan Bapujit Dhgotra (dead) throug Lrs,(2004) 8 SCC 614 observed as under:- “Protection provided under Section 53-A of the Act to theproposed transferee is a shield only against the transferor. Itdisentitles the transferor from disturbing the possession of theproposed transferee who 1s put in possession 1n pursuance tosuch an agreement. It has nothing to do with the ownership ofthe proposed transferor who remains full owner of the propertytill it is legally conveyed by executing a registered sale deed infavour of the transferee. Such a right to protect possessionagainst the proposed vendor cannot be pressed in serviceagainst a third party. An agreement of sale which fulfilled the ingredients of Section 53A of 1882Act was not required to be executed through a registered instrument eitherunder 1882 Act or the Indian Registration Act, 1908 (in short, “the 1908Act’) as originally enacted. D1|The Registration and Other Related Laws (Amendment) Act,2001 (an short, “the 2001 Act’) has brought about a radical change in therights flowing on the basis of agreements executed in part performance ofthe contract under Section 53A of the 1882 Act. The amendments have beenmade in Section 53A of 1882 Act and Sections 17 and 49 of the 1908 Act.The amendment vide 2O0O]1 Act which stood enforced with effect fro24.9.2001, the words “the contract, though required to be registered, has ITA No.200 of 2013 (O&M) 23 not been registered, or’ in Section 53A of 1882 Act have been omitted.Simultaneously, Sections 17 and 49 of the 1908 Act have been amendedclarifying that unless the document containing contract to transfer forconsideration any immovable property for the purpose of Section 53A of1882 Act is registered, it shall not have effect for purposes of Section 53Aof 1882 Act. Section 17(1A) as incorporated and Section 49 of the 1908 Actas amended read thus:- 1 7(1A),The documents containing contracts to transfer forconsideration, any immovable property for the purpose ofsection 53A of the Transfer of Property Act, 1882 (4 of 1882)Shall be registered 1f they have been executed on or after thecommencement of the Registration and Other Related laws(Amendment) Act, 2001 and if such documents are notregistered on or after such commencement, then, they shallhave no effect for the purposes of the said section 53A.”consideration, any immovable property for the purpose ofsection 53A of the Transfer of Property Act, 1882 (4 of 1882)Shall be registered 1f they have been executed on or after thecommencement of the Registration and Other Related laws(Amendment) Act, 2001 and if such documents are notregistered on or after such commencement, then, they shallhave no effect for the purposes of the said section 53A.” AQ,Effect of non-registration of documents required to beregistered.—No document required by section 17 or by anyprovision of the Transfer of Property Act, 1882 (4 of 1882)], tobe registered shall—registered.—No document required by section 17 or by anyprovision of the Transfer of Property Act, 1882 (4 of 1882)], tobe registered shall— (a)affect any immovable property comprised therein, or (b)confer any power to adopt, or (c)be received as evidence of any transaction affecting suchproperty or conferring such power, unless it has beenregistered; AQ,Effect of non-registration of documents required to beregistered.—No document required by section 17 or by anyprovision of the Transfer of Property Act, 1882 (4 of 1882)], tobe registered shall