Ita/66/2017 Of A.t.sheriff v. Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BECHU KURIAN THOMAS MONDAY, THE 29TH DAY OF MARCH 2021 / 3RD AGRAHAYANA, 1939ITA NO 66 OF 2017 ITA NO.312/Coch/2015 of the I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/RESPONDENT/ASSESSEE A.T.SHERIFF S/O. SRI. K.AHMED AMAL, KANOOKARA ROAD, THANA, KANNUR-2. BY ADV.ARUN RAJ S. ADV.SUJA C.T. ADV.DANIEL P. RESPONDENT/APPELLANT/REVENUE: COMMISSIONER OF INCOME TAX AAYAKAR BHAVAN, MANANCHIRA, CALICUT-673001. BY SRI.CHRISTOPHER ABRAHAM, SC THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON29.3.2021, THE COURT ON THE SAME DAY DELIVERED THEFOLLOWING: JUDGMENT “C.R.” Dated this the 29[th] day of March, 2021 Bechu Kurian Thomas, J. In this appeal filed under section 260A of the Income Tax Act,1961, (for short, 'the Act') the main issue raised for considerationthrough the six questions of law framed is whether an unregisteredagreement for joint development of a property could be deemed to bea contract under section 53A of the Transfer of Property Act, andtreat the same as a transfer of a capital asset under section 2(47)(v)of the Act. 2. The issue involved in the instant case arises from the assessment year 2008-09. Pursuant to a notice under section 148 ofthe Act, alleging income escaped assessment, the assessing officerheld, that, an unregistered joint development agreement entered intobetween the assessee and another entity for development of aproperty belonging to the assessee, as a transfer of a capital asset I.T.Appeal No.66/17 -:3:- as defined in section 2(47)(v) of the Act and exigible to capital gains tax under section 45 of the Act. The Appellate Authorities, includingthe Tribunal, concurred with the finding of the assessing officer. TheTribunal found that the property was handed over to the developer on17-07-2007 and in turn, as contemplated in the agreement, thedeveloper constructed residential apartments and had independentrights to sell the same on the basis of the power of attorney executedin favour of the key personnel of the builder. On the basis of theafore factual findings, it was concluded that as per the jointdevelopment agreement, the parties to the contract have performedor are willing to perform their part of the contract and hence theIncome Tax Authorities were justified in bringing to tax the short-termcapital gains for the assessment year 2008-09. 3. Aggrieved by the order of the Tribunal, the assessee preferred this appeal, which was admitted on six questions of law:However after hearing the Counsel, we reframe the questions of lawinto a single question as follows: whether an unregistered agreementfor joint development of a property could be deemed to be a contractunder section 53A of the Transfer of Property Act, for treating thesame as a transfer of a capital asset under section 2(47)(v) of the Act. 4. We have heard Adv. Arun Raj S. learned counsel for theappellant as well as Adv. Christopher Abraham, the learned StandingCounsel for Income Tax Department. 5. From the nature of the joint development agreement, as discernible from the orders of the assessing officer as well as theappellate authorities, it is understood that possession was handedover by the assessee to the developer on 17-07-2007 on the basis ofthe unregistered agreement. Pursuant to the said agreement, theacts of management, control, and supervision of the property weregiven to the developer for the purpose of developing the property byconstructing a multi-storied residential building thereon, with a totalbuilt-up area of 11,116 ft². In consideration of the alleged transfer, itwas found that 2779 ft² of the total built-up area will be handed overto the owners of the property, on completion of the building and theremaining extent could be sold to the respective purchasers. 5. From the nature of the joint development agreement, as discernible from the orders of the assessing officer as well as theappellate authorities, it is understood that possession was handedover by the assessee to the developer on 17-07-2007 on the basis ofthe unregistered agreement. Pursuant to the said agreement, theacts of management, control, and supervision of the property weregiven to the developer for the purpose of developing the property byconstructing a multi-storied residential building thereon, with a totalbuilt-up area of 11,116 ft². In consideration of the alleged transfer, itwas found that 2779 ft² of the total built-up area will be handed overto the owners of the property, on completion of the building and theremaining extent could be sold to the respective purchasers. 6. It can be understood from the aforesaid that, theunregistered agreement provided for an agreement to facilitate thedevelopment of the property by the developers building a multi-storied residential building at their own cost and thereafter handover I.T.Appeal No.66/17 -:5:- the same to the owners of the property and also sell part of the building to the respective purchasers. The short question that arisesis whether the said unregistered joint development agreement can betreated as a transfer of a capital asset for the purpose of imposingcapital gains. 7. The liability for capital gains under section 45 of the Act arises only when there is a transfer of a capital asset effected in theprevious year. The word 'transfer' is defined in section 2(47) of theAct as encompassing six different types of transactions. The relevanttransaction for the present case referred to in the said definitionprovision is the fifth clause. Accordingly, section 2(47)(v) is extractedas below: “S.2(47). “Transfer”, in relation to a capital asset, includes- (v) any transaction involving the allowing of thepossession of any immovable property to betaken or retained in part performance of acontract of the nature referred to in section 53Aof the Transfer of Property Act, 1882 (4 of 1882). 8. It is apposite to note in this context that until 2001, the agreements, contemplated under section 53A of the Transfer ofProperty Act, 1882 (for short 'the TP Act') were not required to beregistered. However, by the Registration and Other Related Laws(Amendment) Act, 2001, section 17 and section 49 of the Registration Act, 1908 were amended, apart from section 53A of theTP Act. By virtue of the amendments, a document, contemplatedunder section 53A of the TP Act will not have any effect for thepurpose of the said section, unless the same is registered. Ofcourse, an exception could be discerned from the proviso to section49(c) of the Registration Act, 1908 for the limited purpose of using thesaid agreement as evidence of a contract in a suit for specialperformance or as evidence of any collateral transaction, not requiredto be effected by a registered instrument registration. 9. The effect of the amendments mentioned above is that, after 2001, an unregistered agreement cannot be treated as an agreementin the eye of law, as one referred to under section 53A of the TP Act.Section 53A of the TP Act, having been incorporated into section2(47)(v) of the Act, by legislation, all essential ingredients of Section53A of the TP Act are liable to be fulfilled to render such anagreement as transferring a capital asset. 10. As rightly contended by the learned counsel for theappellant, the issue involved in the case has already beenconsidered in the decision in Commissioner of Income Tax v.Balbir Singh Maini (398 ITR 531), [(2018) 12 SCC 354]. In the said -:7:- 9. The effect of the amendments mentioned above is that, after 2001, an unregistered agreement cannot be treated as an agreementin the eye of law, as one referred to under section 53A of the TP Act.Section 53A of the TP Act, having been incorporated into section2(47)(v) of the Act, by legislation, all essential ingredients of Section53A of the TP Act are liable to be fulfilled to render such anagreement as transferring a capital asset. 10. As rightly contended by the learned counsel for theappellant, the issue involved in the case has already beenconsidered in the decision in Commissioner of Income Tax v.Balbir Singh Maini (398 ITR 531), [(2018) 12 SCC 354]. In the said -:7:- decision, possession transferred pursuant to a tripartite jointdevelopment agreement was treated by the Income Tax Authoritiesas a transfer of a capital asset, and capital gains were imposed onthe transaction. The Punjab and Haryana High Court held that thepossession delivered was as a licensee for development of theproperty and not in the capacity of a transferee and that in theabsence of registration of the agreement, it cannot be treated as onefalling under section 53A of the TP Act. On appeal, the SupremeCourt while affirming the judgement, declared that, after 2001, unlessa contract is registered, there is no contract in the eye of law in forcefor attracting S.53A of the TP Act. 11. The observations inparagraph 20 of the judgment in BalbirSingh Maini (supra) are relevant and the same is extracted asfollows “20. The effect of the aforesaid amendment is that, on and afterthe commencement of the amendment Act of 2001, if an agreement, likethe JDA in the present case, is not registered, then it shall have no effectin law for the purposes of S.53A. In short, there is no agreement in theeyes of law, which can be enforced under S.53A of the Transfer ofProperty Act. This being the case, we are of the view that the High Courtwas right in stating that in order to qualify as a “transfer” of a capital assetunder S.2(47)(v) of the Act, there must be a “contract” which can be I.T.Appeal No.66/17 -:8:- enforced in law under S.53A of the Transfer of Property Act. A reading ofS.17(1A) and S.49 of the Registration Act shows that in the eyes of law,there is no contract which can be taken cognizance of, for the purposespecified in S.53A. The ITAT was not correct in referring to the expression“of the nature referred to in section 53A in S.2(47)(v) in order to arrive atthe opposite conclusion. This expression was used by the legislature eversince sub-section (v) was inserted by the Finance Act of 1987 w.e.f 01-04-1988. All that is meant by this expression is to refer to the ingredients ofapplicability of S.53A, to the contracts mentioned therein. It is only wherethe contract contains all the six features mentioned in Shrimant ShamraoSuryavanshi (supra), that the section applies and this is what is meant bythe expression “of the nature referred to in S.53A”. This expressioncannot be stretched to refer to an Amendment that was made years laterin 2001, so as to then say that though the registration of a contract isrequired by the amendment act of 2001, yet the aforesaid expression “ofthe nature referred to in S.53A” would somehow refer only to the nature ofcontract mentioned in S.53A, which would then in turn not requireregistration. As has been stated above, there is no contract in the eye oflaw in force under S.53A after 2001, unless the said contract is registered.This being the case, and it being clear that the said JDA was neverregistered, since the JDA has no efficacy in the eye of law, obviously notransfer can be said to have taken place under the aforesaid document”. I.T.Appeal No.66/17 12. Thus the unregistered joint development agreement in the present case cannot be treated as creating a transfer of a capitalasset. I.T.Appeal No.66/17 12. Thus the unregistered joint development agreement in the present case cannot be treated as creating a transfer of a capitalasset. 13. In view of the discussions as above and in view of thebinding pronouncement of the Supreme Court, we answer thequestion of law raised in this appeal in favour of the assessee.Consequently, the order of assessment, as confirmed by the Tribunalin ITA No.312 of 2015, shall stand set aside and the appeal isallowed. Sd/- S.V.BHATTI, JUDGE Sd/- vps BECHU KURIAN THOMAS, JUDGE APPENDIX PETITIONER'S/S' EXHIBITS: ANNEXURE ATRUE COPY OF THE OBJECTION DATED 3.9.2012 FILED BYTHE APPELLANT BEFORE THE INCOME TAX OFFICER, WARD-1, KANNURTHE APPELLANT BEFORE THE INCOME TAX OFFICER, WARD-1, KANNUR ANNEXURE BTRUE COPY OF THE ASSESSMENT ORDER DATED 7.3.2013 PASSED UNDER SECTION 144 R.W.S. 147 OF THE ACT FOR THE AY 2008-09PASSED UNDER SECTION 144 R.W.S. 147 OF THE ACT FOR THE AY 2008-09 ANNEXURE CTRUE COPY OF THE ORDER DATED 3.3.2015 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS), KOZHIKODE FOR THE AY 2008-09THE COMMISSIONER OF INCOME TAX (APPEALS), KOZHIKODE FOR THE AY 2008-09 ANNEXURE DTRUE COPY OF THE ORDER DATED 5.6.2017 IN ITA 312/COCH/2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN FOR THE AY 2008-09312/COCH/2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN FOR THE AY 2008-09