Ita/93/2010 Of The Commissioner Of Income Tax v. M/S. Cochin Stock Exchange Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE WEDNESDAY, THE 1ST DAY OF JANUARY 2014/11TH POUSHA, 1935 ITA.No. 93 of 2010 -------------------------- [AGAINST THE ORDER ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, IN I.T.A. NO.522/COCH/2008 DATED 17-06-2009. ASST. YEAR 2004-05] ............... APPELLANT/RESPONDENT: ---------------------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.JOSE JOSEPH, S.C. RESPONDENT: --------------------- M/S. COCHIN STOCK EXCHANGES LIMITED, 36/1565, 4TH FLOOR, JUDGES AVENUE, KALOOR, KOCHI – 17. BY SRI.JOSEPH KODIANTHARA, SENIOR ADVOCATE, SRI.JOSEPH MARKOSE, SENIOR ADVOCATE, ADVS. SRI.V.ABRAHAM MARKOS, SRI.B.J.JOHN PRAKASH SRI.TERRY V.JAMES SRI.TOM THOMAS (KAKKUZHIYIL). THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 01-01-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. NO.93/2010: APPENDIX PETITIONER'S ANNEXURES: ANNEXURE A: COPY OF THE REASSESSMENT ORDER U/S. 143 (3) R.W.S. 147,DTD. 29/10/2007 FOR THE ASSESSMENT YEAR 2004-05. ANNEXURE B: COPY OF THE ORDER DTD. 14/03/2008 OF THE COMMISSIONER OF INCOME TAX (APPEALS).ANNEXURE C: COPY OF THE ORDER DTD. 17/06/2009 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN I.T.A. NO.522/COCH/2008. RESPONDENT'S ANNEXURES: NIL. //TRUE COPY// P.A. TO JUDGE. MANJULA CHELLUR, CJ & A.M.SHAFFIQUE, J. * * * * * * * * * * * * * I.T.A.No.93 of 2010 ---------------------------------------- Dated this the 1[st] day of January 2014 J U D G M E N T SHAFFIQUE,J This appeal is filed by the Revenue against the orderpassed by the Income Tax Appellate Tribunal, Cochin Benchwith reference to I.T.A.No.522/Coch/2008 relating to theassessment year 2004-05. The issue involved is withreference to the assessment of capital gains. 2.The assessee, by virtue of an agreement dated14/04/2003 handed over possession of 55.219 cents of landto M/s.Abad Builders for a consideration of Rs.8,83,50,400/-.The consideration was paid in a deferred manner startingfrom April 2003. M/s.Abad builders had constructed anapartment complex in the said property and on the basis of a power of attorney issued by the assessee the undividedshare of land and the apartments were sold. The assesseedeclared a consideration of Rs.3.81 crores during theassessment year for the purpose of computation of longterm capital gain. The Assessing Officer held that the totalconsideration of the transaction was Rs.8,83,50,400/- andthe entire consideration should be taken into account for thepurpose of long term capital gains and not the installmentalone. The assessment was completed under Section 143(3)on 29/10/2007 determining long term capital gain atRs.2,22,65,601/-. Assessee preferred an appeal before theCIT (Appeals) which came to be dismissed. On furtherappeal before the Tribunal, the same came to be allowedwhich is impugned in the present appeal. The Tribunaldeleted the addition of long term capital gain on the findingthat the transfer takes place only when the assesseeexecutes the sale deed. The revenue raises the followingquestions of law for consideration: “1.Whether, on the facts and in thecircumstances of the case and also in thelight of section 2(47)(v) read with section 45,the Tribunal is right in law in holding that thecapital gains assessment made for theimpugned assessment year is not sustainablein law? 2. (a) Whether, on the facts and in thecircumstances of the case does section 53Aof the T.P.Act contemplates satisfaction oftwin conditions, namely transfer ofpossession of property and payment ofsubstantial portion of the consideration? “1.Whether, on the facts and in thecircumstances of the case and also in thelight of section 2(47)(v) read with section 45,the Tribunal is right in law in holding that thecapital gains assessment made for theimpugned assessment year is not sustainablein law? 2. (a) Whether, on the facts and in thecircumstances of the case does section 53Aof the T.P.Act contemplates satisfaction oftwin conditions, namely transfer ofpossession of property and payment ofsubstantial portion of the consideration? (b)If the answer to the above questionis in the negative, is not the finding of nonsatisfaction of conditions perverse and theresultant conclusion and order against law.” 3.Heard learned Standing Counsel appearing onbehalf of the appellant and the learned senior counselappearing on behalf of the respondent. 4.The main contention urged by the learned counselfor Revenue is that the agreement in question clearly fixes the consideration for the land transferred in favour of the builder and it also clearly indicates transfer of possession.When property is transferred after receiving substantialportion of consideration, the builder is entitled to invokeSection 53A of the Transfer of Property Act. Hence itamounts to a transfer as defined under Section 2(47) of theIncome Tax Act and therefore the entire amount is liable tobe taxed during the said assessment year itself. TheTribunal came to a finding that in order to attract Section53A of the Transfer of Property Act, two conditions are to befulfilled namely transfer of possession and secondlypayment of substantial provision of consideration. Sinceonly a part of the consideration was paid, the conditionshave not been fulfilled and therefore it does not amount to atransfer. 5.of the Income Tax Act which reads as under: Transfer is specifically defined under Section 2(47) 6. as under: “2(47) (i)“transfer”, in relation to a capitalasset, includes,- (ii)the extinguishment of any rightstherein; or (iii)x x x x x (iv)x x x x x (iva) x x x x x (v)any transaction involving theallowing of the possession of any immovableproperty to be taken or retained in partperformance of a contract of the naturereferred to in section 53A of the Transfer ofProperty Act, 1882(4 of 1882); or (vi)x x x x x” Section 53A of the Transfer of Property Act reads “53A. Part Performance.- Where any person contracts to transfer for considerationany immovable property by writing signed byhim or on his behalf from which the termsnecessary to constitute the transfer can beascertained with reasonable certainty, and the transferee has, in part performance of the contract, takenpossession of the property or any partthereof, or the transferee, being already inpossession, continues in possession in partperformance of the contract and has donesome act in furtherance of the contract, and the transferee has performed or iswilling to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transferhas not been completed in the mannerprescribed therefore by the law for the timebeing in force, the transferor or any personclaiming under him shall be debarred fromenforcing against the transferee and personsclaiming under him any right in respect ofthe property of which the transferee hastaken or continued in possession, other thana right expressly provided by the terms ofthe contract: Provided that nothing in this sectionshall affect the rights of a transferee forconsideration who has no notice of the contract or of the part performance thereof.” and the transferee has performed or iswilling to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transferhas not been completed in the mannerprescribed therefore by the law for the timebeing in force, the transferor or any personclaiming under him shall be debarred fromenforcing against the transferee and personsclaiming under him any right in respect ofthe property of which the transferee hastaken or continued in possession, other thana right expressly provided by the terms ofthe contract: Provided that nothing in this sectionshall affect the rights of a transferee forconsideration who has no notice of the contract or of the part performance thereof.” 7.It is therefore clear that if a transaction involvesallowing of possession of any immovable property to beretained in part performance of a contract of a naturereferred to in Section 53A of Transfer of Property Act itamounts to transfer. The only question is whether such atransfer is evident from the agreement executed betweenthe assessee and Abad Builders. A copy of the agreementhas been placed before us. Clauses 1 and 2(i) of theagreement reads as under: “1. The parties hereto agree that thisagreement is entered into between theparties with the specific understanding byboth parties that necessary approval will begranted by GCDA, Governmental, statutory,local authorities for the construction of amulti storied building, in the said property,with a built up area of at least 14,511 squaremeter as per GCDA Control Drawings. Theparties further agree that the project itself will not be commercially viable in the eventof any of the above authorities not agreeingto the above construction, and in such eventboth parties agree that the terms of thisagreement hereinafter provided will not bebinding on either party and both parties willproceed as if this agreement was not enteredinto and CSE will return all monies will thenreceived from ABAD, and ABAD will handover the possession of the said property toCSE in as near a condition as is reasonablypossible to that in which ABAD was put inpossession of the said property by CSE. Inthe aforesaid event neither party is liable topay or entitled to claim from the other partyany amounts by way of damages, cost,interest or of such other or similar kind. 2.In consideration of ABAD makingpayments to CSE in the manner hereinafterspecified, the said consideration being thetotal consideration to be paid by ABAD forbeing granted the right to construct and sellthe built up space in the proposed building,CSE undertakes the following: (i)that CSE will hand over possession ofthe said property to ABAD, free of allencumbrance,charges,liensetc,immediately on receipt of the first instalmentof payment from ABAD for the purpose ofconstruction and sale of the multi storiedbuilding as per this Agreement.” 8.On a reading of the above provision itself, it isclear that possession of the property has been handed overto the builder immediately on receipt of the first installmentof the payment from the builder. As per clause (3), the totalconsideration is mentioned as Rs.8,83,50,400/- andRs.3,00,00,000/- was to be paid as advance on the date ofthe agreement. The balance amounts were to be paid ininstalments. These provisions categorically indicate theexistence of an agreement by which the substantial portionof sale consideration is paid and possession of the propertyis handed over to the builder. 8.On a reading of the above provision itself, it isclear that possession of the property has been handed overto the builder immediately on receipt of the first installmentof the payment from the builder. As per clause (3), the totalconsideration is mentioned as Rs.8,83,50,400/- andRs.3,00,00,000/- was to be paid as advance on the date ofthe agreement. The balance amounts were to be paid ininstalments. These provisions categorically indicate theexistence of an agreement by which the substantial portionof sale consideration is paid and possession of the propertyis handed over to the builder. 9.It is argued on behalf of the respondent that this isnot a sale agreement at all. It is an agreement betweenowner of the land and the builder. It is argued thatClause (1) itself would show that if the project is not viablethe property has to be returned back and the assessee willreturn all the money till then received. That apart, when apower of attorney is executed, the factum of sale arises onlywhen the property is sold by the builder in favour of thirdparties. Only at that stage, that is when the sale deeds areexecuted, transfer as defined under Section 2(47) takesplace. 10.On going through the materials on record and thedocuments made available, we do not think that the Tribunalhas correctly appreciated the question on hand. Whentransfer is defined under the Income Tax Act and it includesa transaction involving possession to be handed over in partperformance of a contract in the nature referred to inSection 53A of Transfer of Property Act, it amounts to transfer. Section 53A clearly explains the concept of partperformance of a contract of sale of immovable property. Ifa buyer is put in possession of a property in partperformance of the obligations under the agreement on thebuyer paying a substantial portion of the sale consideration,the contract of sale is treated to be in part performance.Perusal of the agreement in the case clearly indicates such acontract of part performance. The assessee cannot take acontention that the builder is not the buyer. In fact, theterms and conditions of the agreement clearly indicates thatthe intention of the parties is to sell the property as such tothe buyer, or their nominees and a power of attorney isgiven to enable the buyer to sell the undivided share of landin favour of purchasers of apartments to be constructed bythe buyer of the land. The execution of the sale deed isdeferred as at the time when the possession of the propertyis transferred to the builder, there is no purchaser for theproperty. In other words, the builder himself has crept into the shoes of the purchaser of the property and the registered instruments were created subsequently and theidea of keeping alive the agreement and execution of powerof attorney in favour of the builder is only for the purpose ofavoiding duplication of registered instruments and paymentof stamp duty. In this case, the assessee themselvesexecutes the sale deed after several years on the request ofthe builder. Therefore, in principle, the actual transfer takesplace between the assessee and the builder and it isthereafter the builder transfers possession to the purchaserof the apartments. 11.In the said circumstances, we are of the opinion,capital gains is to be computed at the time when thetransfer takes place which has to be during the assessmentyear when a substantial portion of the amount was receivedby the assessee, that is when Rs.3.81 crores was receivedby the assessee during the assessment year 2004-05.Hence the said question is to be answered in favour of the department. 11.In the said circumstances, we are of the opinion,capital gains is to be computed at the time when thetransfer takes place which has to be during the assessmentyear when a substantial portion of the amount was receivedby the assessee, that is when Rs.3.81 crores was receivedby the assessee during the assessment year 2004-05.Hence the said question is to be answered in favour of the department. 12.The learned senior counsel appearing for therespondent however would contend that they are entitled forexemption under Section 11 (1A) of the Act. The AssessingOfficer granted exemption under Section 11(1A) of the Actfor the investment made under Section 11(1A)(a)(ii) forRs.3,73,14,836/-. It is argued that in subsequent years also,depending upon the amount received, appropriateinvestments have been made by the assessee. 13.Having regard to the aforesaid factual situation,we are of the view that the order passed by the AssessingOfficer has to be confirmed. However, if the assessee isentitled for any further benefit arising under Section 11A ofthe Act, necessary provision shall be made in accordancewith law. With the above observation, the appeal is allowed. The order passed by the Tribunal is set aside thereby confirmingthe computation of capital gains made by the Assessing Officer. The Assessing Officer is therefore directed to passappropriate orders after considering whether the assessee isentitled for any further benefit with reference to the claim ofthe assessee under Section 11A of the Income Tax Act. (sd/-) (MANJULA CHELLUR, CHIEF JUSTICE) (sd/-) jsr (A.M.SHAFFIQUE, JUDGE) I.T.A.No.93/2010 I.T.A.No.93/2010