Tca/697/2013 Of Late R.krishnaswamy v. Commissioner Of Income Tax

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 26.11.2013 Coram The Honourable Mrs.Justice CHITRA VENKATARAMAN and The Honourable Mr.Justice T.S.SIVAGNANAM Tax Case (Appeal) Nos.697 and 698 of 2013--- Late R.Krishnaswamyrep.by the legal heirK.Sridhar ... Appellant in both TC(As).-vs- Commissioner of Income TaxCompany Circle, Chennai ...Respondent in both TC(As.) Tax Case Appeals filed under Section 260A of the Income Tax Act,1961 against the order of the Income Tax Appellate Tribunal, Chennai'C' Bench dated 30.03.2012 in ITA Nos.1029 of 2009 and 1030 of 2009for the assessment years 2003-2004 and 2004-2005.ITA No 1/08-09 and 230/07-08 dated 16.3.2009 on the file of theCommissioner of Income Tax (Appeals)-VIII Chennai againstPA/GIR.No.33P115/AAKPK5243M dated 6.9.2007 on the file of the IncomeTax Officer (OSD) Company Circle III (3) Chennai 34 and GIR/PANAAKPK5243M dated 30.11.2006 on the file of the Income Tax Officercompany circle III(1) Chennai. For appellant: Mr.S.Sridharanin both TC(As). For Respondent : Mrs.Hema Muralikrishnanin both TC(As). Standing Counsel for Income Tax Department COMMON JUDGMENT (The Judgment of the Court was made byCHITRA VENKATARAMAN, J.) Raising the following questions of law, 1. Whether in the facts and circumstance of the case,the Appellate Tribunal was right in coming to the conclusionthat even though the vacant possession of the property washanded over only on 25.03.2004 the capital gains will arisefor the assessment year 2003-2004 and not for the assessmentyear 2004-2005? 2. Whether in the facts and circumstances of the casethe Appellate Tribunal was right in coming to the conclusionthat the part of the sale consideration was received on21.12.2002 hence the capital gains will arise only for theassessment year 2003-2004 and not for the assessment year2004-05? 3. Whether in the facts and circumstances of the casethe Appellate Tribunal was right in coming to the conclusionthat the sale consideration was received on 21.12.2002 andthe property was handed over on the same day even though thepossession of the property was handed over only on25.03.2004? the assessee seeks admission of these tax case (Appeals). Theassessment year under consideration is 2003-2004 and 2004-2005. 2. The assessee, now represented by his legal representative,entered into an agreement of sale on 7.12.1999 with M/s.AlacrityHousing Limited, a company registered under the Companies Act,1956for the sale of his property situated at 18/1, Unnamalai AmmalStreet, T.Nagar, Chennai for a total consideration of Rs.75,78,750/-.The agreement states that the assessee had received an advance ofRs.7,00,000/-. Thus the balance of sale consideration came toRs.68,78,750/-. The agreement stated that the assessee agreed tosell the subject land under several sale deeds for a specifiedundivided share for the total consideration as mentioned above. Onreceipt of the balance sale consideration, the assessee covenantedwith the agreement holder to handover vacant possession of theproperty and the title deeds relating to the property to the company.Clause 8 of the agreement provided for payment of interest at 12%, inthe event of a delay in payment of the balance of sale consideration.The agreement further stipulated various activities to be undertakenby the agreement holder like getting clearance certificate from the Income Tax Department, plan approval etc. Thus the agreementcontemplated sale of undivided share to the company or to itsnominees and the total consideration would remain at Rs.75,78,750/-.Admittedly, the assessee received the full consideration as early as21.12.2002. Further the sale deeds were registered on various datesviz., Income Tax Department, plan approval etc. Thus the agreementcontemplated sale of undivided share to the company or to itsnominees and the total consideration would remain at Rs.75,78,750/-.Admittedly, the assessee received the full consideration as early as21.12.2002. Further the sale deeds were registered on various datesviz., "21.12.2002Final payment was received27.02.2003Sale deed 127.02.2003Sale deed 207.03.2003Sale deed 307.03.2003Sale deed 411.04.2003Sale deed 511.04.2003Sale deed 611.04.2003Sale deed 728.04.2003Sale deed 828.04.2003Sale deed 914.05.2003Sale deed 1014.05.2003Sale deed 1114.05.2003Sale deed 1223.03.2004Sale deed 1323.03.2004Sale deed 1423.03.2004Sale deed 1523.03.2004Sale deed 1625.03.2004Possession handed over"It is stated by the assessee that possession was handed over to theagreement holder on 25.03.2004 and the construction was completed inOctober 2005 and the completion certificate by CMDA was given on12.06.2006. It is further seen from the order of remand on thecapital gains arising on the transfer of his immovable property, theassessee claimed deduction under Section 54EC of the Income Tax Act,1961 investing the entire sale consideration of Rs.75,78,750/-. Asregards capital gain of Rs.64,84,545/- arising out of the saletransaction, the assessee claimed deduction under Section 54EC of theIncome Tax Act, 1961 by investing the entire sale consideration ofRs.73,00,000/- in the notified bonds, the details of which are asfollows: 1. NABARD CAPITAL GAINS BONDS: NATIONAL HOUSING BANK BONDS: 17.07.2004Rs. 3,00,00028.07.2004Rs. 5,50,00009.09.2004 Rs. 1,90,00009.09.2004Rs. 5,00,00028.07.2004Rs. 70,00025.08.2004Rs. 2,00,00025.08.2004Rs. 2,30,00025.08.2004Rs. 2,00,000--------------- Rs.22,40,000 --------------- REC 54EC BONDS- SERIES-IV13.08.2004Rs. 1,10,00013.08.2004Rs. 5,00,00018.09.2004 Rs. 4,90,00010.09.2004Rs. 1,00,000---------------Rs.12,00,000--------------- In the light of the investment thus made, the assessee claimedexemption from payment of capital gain tax. The Assessing Officer,however rejected the said claim and pointed out that the assessee hadtransferred the capital asset in favour of the nominees of theagreement holder by way of separate individual registered sale deedson different dates. As per clause 9 of the agreement to sell, theassessee had agreed to hand over vacant possession of the property tothe company immediately on receipt of the entire sale considerationand the assessee admitted the receipt as early as on 21.12.2002itself. In the circumstances, the Assessing Officer viewed that thetransactions, which took place between 27.02.2003 and 07.03.2003would be liable to capital gains for the assessment year 2003-04 andin respect of sales effected relating to Sl.Nos.5 to 16, would beliable to capital gains during the assessment year 2004-2005. Outof these transactions, Sl.Nos.5 to 12 would fall outside the scope ofSection 54EC of the Income Tax Act, 1961, since the investment hadbeen made beyond the time limit given under the said Section.Further Sl.Nos.13 to 16, the four sale deeds effected on 23.03.2004would be eligible for benefit of Section 54EC of the Income Tax Act,1961. Thus the Assessing Officer brought to tax those sale deeds,which were registered between 27.02.2003 and 14.05.2003, consideringthe fact that investments had been made beyond six months period.The position is same as regards the assessment year 2003-2004. 3. Aggrieved by this, the assessee went on appeal before theCommissioner of Income Tax (Appeals) for the assessment years 2003-04and 2004-05. On a consideration of the facts and the terms of theagreement, the Commissioner of Income Tax (Appeals) called for a https://hcservices.ecourts.gov.in/hcservices/ 3. Aggrieved by this, the assessee went on appeal before theCommissioner of Income Tax (Appeals) for the assessment years 2003-04and 2004-05. On a consideration of the facts and the terms of theagreement, the Commissioner of Income Tax (Appeals) called for a https://hcservices.ecourts.gov.in/hcservices/ remand report from the Assessing Officer in the context of theaffidavit filed by the builder, viz., the agreement holder dated08.05.2008 and the completion certificate dated 12.06.2006 issued bythe Chennai Metropolitan Development Authority. The remand reportpointed out clause (9) of the agreement and the receipt of theconsideration on 21.12.2002 and defended his assessment made for theassessment years. The First Appellate Authority, however, rejectedthe report and held that the capital gains accrued only in the yearending 31.03.2004 relating to the assessment year 2004-2005 and notfor the assessment year 2003-2004 on account of clause (8), whichrepresented payment of interest on belated payment. In thecircumstances, the First Appellate Authority allowed the appeals anddirected the Income Tax Officer to accept the income tax return foraccepting the claim under Section 54EC of the Income Tax Act, 1961. 4. Aggrieved by this order, the Revenue went on appeal beforethe Income Tax Appellate Tribunal. 5. On going through the various clauses in the agreement,particularly, clause (9) and terms of the individual sale agreement,the Income Tax Appellate Tribunal came to a conclusion that therespective sale deeds made no mention about the agreement enteredinto between the assessee and the builder nor there was any referenceof the buyers, being nominees of the builder/agreement holder. TheIncome Tax Appellate Tribunal held that going by the conveyancedeeds, date of handing over of possession would have to be consideredas the date of sale deed registered. Thus, going by the various saledeeds executed by the assessee in favour of 16 persons, the onlypossible conclusion that one could arrive at was that on the date ofpayment of full consideration, i.e., on 21.12.2002, possession wasalso handed over to the builder. 6. Referring to the affidavit filed by the assessee executed bythe builder apart from the letter given by the builder, the IncomeTax Appellate Tribunal viewed that they were self serving exercisedone by the assessee in an effort to escape from the rigours ofcapital gain liability. Applying the definition of Section 2(47) ofthe Income Tax Act, 1961, the Income Tax Appellate Tribunal referredto the decision of the Apex Court reported in (2002) 3 SCC 676[Shrimant Shamrao vs. Prahlad] and came to the conclusion that thetransfer as contemplated under Section 2(47)(v) of the Income TaxAct, 1961 took place as early as 21.12.2002. Hence, capital gainswas exigible even in the assessment year 2003-2004, the assesseewould not be entitled to claim any deduction under Section 54EC ofthe Income Tax Act, 1961. In the circumstances, the Income TaxAppellate Tribunal directed the Assessing Officer to tax the entirecapital gain in the assessment year 2003-2004 and not in the year2004-2005. 7. Aggrieved by this the present appeals have been preferredby the assessee for the assessment years 2003-2004 and 2004-2005. 7. Aggrieved by this the present appeals have been preferredby the assessee for the assessment years 2003-2004 and 2004-2005. 8. Learned counsel appearing for the assessee pointed out thateven though respective sale deeds were executed in favour of thepurchasers of the undivided shares, those purchasers were handed overpossession giving the extent of the undivided share in the property.The possession was handed over by the assessee on 25.03.2004. Theassessee deposited the entire consideration within six monthsthereon. Consequently, the question of denying the benefit of 54ECis not correct. He further pointed out that the builder couldcomplete the construction only after taking full possession of theproperty and that the completion certificate issued by the ChennaiMetropolitan Development Authority dated 12.06.2006 pointed out thatthe construction got completed only in the year 2005. Thus, learnedcounsel for the assessee pointed out that mere payment of theconsideration on 21.12.2002 would not lead to the completion of thetransfer. The sale was completed only when the sale deeds wereexecuted and possession handed over thereon. Thus, the Income TaxAppellate Tribunal committed serious error in invoking Sub clause (v)of Section 2(47) of the Income Tax Act, 1961 in this case. 9. In this connection, learned counsel for the assessee placedreliance on the decision of the Supreme Court reported in [2012] 340ITR 1 [Suraj Lamp and Industries Pvt.Ltd., vs. State of Haryana andanother] to contend that the limitation on the investment has to beworked out from the date of handing over of possession as per theregistered sale deed and not as per the agreement with the developer. 10. Contradicting the claim of the assessee, learned Standingcounsel appearing for the Revenue submitted that the assessee doesnot deny the fact that sale deeds executed by the assessee containedthe recital that possession was handed over on the date when the saledeeds were registered. If that be the case, the time limit forinvestment had to be construed as falling within the very respectivesale deed dates. In the circumstances, going by the agreementclause, the possession thus to be handed over on the payment of thesale consideration on 21.12.2002 as per Section 53-A of the Transferof Property Act, 1882 r/w 2(47)(v) of the Income Tax Act, 1961, theassessee was not entitled to claim deduction in respect of thoseinvestments made beyond six months period and she placed reliance onthe decision of this Court reported in [2010]323 ITR 40 (mad)[Smt.D.Kasturi vs. Commissioner of Income Tax and another] and (2007)294 ITR 196 (AAR) [Before the Authority for Advance Rulings (IncomeTax) Jasbir Singh Sarkaria,In re]. 11. We have heard learned counsel appearing for the assessee andlearned Standing counsel appearing for the Revenue. 12. As already seen in the preceding paragraphs, the assesseeentered into an agreement to sell as early as 07.12.1999. Clause (2)of the agreement referred to the advance received by the assessee ofa sum of Rs.7,00,000/-, which would be reduced from the considerationpayable under the agreement, which was stated to be a sum ofRs.75,78,750/-. Clause (6) of the agreement pointed out that onreceipt of intimation of the Income Tax Clearance within 15 dayspertaining to the list of nominees, the company had to present therelated sale deeds to the assessee to have the sale deeds registered.Simultaneous to the presenting of the deeds before the RegisteringOfficer, the company had to pay a sum of Rs.68,78,750/- being thebalance sale consideration. Clause (9) stipulated that the vendorshould hand over possession of the property immediately on receipt ofthe balance sale consideration by the vendor, viz., the assessee.Clause (8) provides for the default clause. In the event of anydelay in payment, the assessee would be compensated by payment ofinterest. 13. In the background of this agreement, we may have to see therespective sale agreement executed by the assessee, which is referredto by the Income Tax Appellate Tribunal. A reading of clause (4) ofthe sale agreement executed in favour of the 16 purchasers recite asfollows:"4. VENDOR has handed over to said representative allavailable original deeds/papers of title to B-PROPERTY, andphysical/vacant possession of property would be handed overto said representative as agreed, on payment of saleconsideration, when this DEED is presented/admitted forregistration". From this clause, it is difficult for any one to draw an inference asto that part of the undivided share in the property purchased by therespective purchasers being given possession thereof. In consideringthe subject matter of sale, the date of sale and the totalconsideration for the sale, one cannot lose sight of the agreementthat the assessee had, had with the Company-the agreement holderentered into on 07.12.1999. The company was given variousresponsibilities in the matter of finalising the sale and as alreadypointed out in clause (9) it was specifically stated that thecompany would have the vacant possession of the property only onreceipt of the balance of sale consideration, viz., Rs.68,78,750/-. 14. Thus, even though individual sale agreement mention aboutgiving vacant possession of the property, the same has to be readwith in continuation of clause (9) of the original agreement that theassessee had had with the company through whom the sale wasfinalized. We may also note that the individual sale was onundivided share to the various buyers and given the nature of thesale, it is difficult for anyone to pinpoint, which portion of the property was in fact handed over possession. Thus, clause (4) has tobe read with in the context of clause (9) in the original agreementwith the builder and the fact that even though as per clause (9) onreceipt of final payment on 21.12.2002, the assessee had to put thecompany in full possession of the property, the assessee handed overpossession of the property only on 25.03.2004. We do not think thisdate of handing over of possession on 25.03.2004 would not in any wayalter the decision that we are making in this case. 15. As seen in the details given in the preceding paragraphs,the assessee executed documents in favour of 16 persons on variousdates from 27.02.2003 to 25.03.2004. The assessee does not disputethe fact that even though it had received the final payment as earlyas 21.12.2002 for reasons best known the registered sale deeds weremade only on various dates starting from 27.02.2003 and admittedlypossession was given only on 25.03.2004. Thus, in the eye of law,the sale got completed when sale deeds were registered pertaining tothe undivided share of the immovable property. 16. In the context of this fact, the decision relied on bylearned counsel for assessee reported in [2012] 340 ITR 1 [citedsupra] has to be seen. The Apex Court pointed out that immovableproperty can legally and lawfully transferred or conveyed only by theregistered deed of conveyance, and without this, the Court will nottreat such transactions as completed or concluded transfers or asconveyances as they neither convey title nor create any interest inimmovable property. Except to the limited extent of Section 53-A ofthe Transfer of Property Act, 1882, we do not think that the decisionrelied on by the assessee would be of any assistance to the assesseein the case on hand to accept the assessee's case that the investmentmade on the entire capital gain based on the last date of the saledeed as indicating the completion of the sale, Section 54EC of theIncome Tax Act, 1961 would be of benefit to the assessee. 17. Learned Standing Counsel for the Revenue placed reliance onthe decision of this Court reported in [2010] 323 ITR 40(Mad) [citedsupra]. This decision dealt with the case of part performance.There, the assessee after receipt of full consideration, handed overpossession to the developer and this Court held that the subsequentact of the assessee in executing the power of attorney and the saledeeds executed by the power holder on the basis of such power ofattorney would not in any way alter the status of the parties to theagreement for the applicability of the doctrine of part performance. 18. In yet other decision relied on by the Revenue reported in(2007) 294 ITR 196 (AAR) in the case of [Jasbir Singh Sarkaria, Inre] the Authority for Advance Rulings (Income Tax) held that when thedeveloper is given possession enabling to exercise general controlover the property so as to make use of it for the intended purpose,that would be sufficient to attract Section 2(47)(v) of the Income Tax Act, 1961. 19. Both the decisions relied on by the Revenue has no relevanceas far as the present case is concerned. 20. On the facts found by the Authorities, the AssessingOfficer as well as the other Authorities, even though the assesseehad received the final payment on 21.12.2002, there being no evidencethat the assessee had put the company into vacant possession as onthe date of the full payment as contemplated under clause (9) of theagreement and that possession admittedly, being handed over only on25.03.2004 and some of the sale deeds registered even prior to thisdate, the starting point for the purpose of limitation could neitherbe on the date of receipt of full consideration nor the date ofhanding over of possession. On the other hand, the date on which,the registered documents were executed alone could be taken in thiscase as the starting point for limitation. 21. In the absence of any part performance as contemplated underSection 53A of the Transfer of Property Act, 1882 and as pointed outin the decision reported in 340 ITR 1 (cited supra), registration ofsale deed alone completes the transfer. Thus, read in the context ofthe decision of the Apex Court if, on 27.02.2003, 27.02.2003,07.03.2003 and 07.03.2003, four sale deeds came to be registered, onthe consideration received for the purposes of Section 45 and Section54EC of the Income Tax Act, 1961, capital gains arising on the saleunder those deeds would be considered only in the assessment for theassessment year 2003-2004. As regards the sale deeds executedbetween the dates, 11.04.2003 and 23.03.2004, we find there are atleast 12 sale deeds executed on various dates. Sale Deed Nos.13, 14,15 and 16 were executed on 23.03.2004 and on the same date, theassessee admits that the capital gains arising thereon not beinginvested in REC 54EC bonds from 30.04.2004 onwards. Considering thefact that sale deeds were executed on 11.04.2003 [3 deeds];28.04.2003 [2 deeds]; 14.05.2003 [3 deeds]; the consideration inrespect of these deeds not being invested within the time limit ofsix months from the date of transfer, we have no hesitation inholding that the capital gains would fall itself within the scope ofSection 54EC of the Income Tax Act, 1961. In other words, theliability would be assessed for the assessment year 2004-05. Thus,the sale deeds executed on 23.03.2004 (4 deeds) alone would have thebenefit of Section 54EC of the Income Tax Act, 1961 and not any othersale deed. 22. The Tabular column given by the assessee as contained inpara No.5 of the assessment order thus, gives us the dates on whichthe deposits were made. However, for the purpose of re-computing therelief to the assessee to grant the relief in respect of the saledeeds executed on 23.03.2004, the matter demands a remand back to theAssessing Officer to re-work the liability of the assessee. 22. The Tabular column given by the assessee as contained inpara No.5 of the assessment order thus, gives us the dates on whichthe deposits were made. However, for the purpose of re-computing therelief to the assessee to grant the relief in respect of the saledeeds executed on 23.03.2004, the matter demands a remand back to theAssessing Officer to re-work the liability of the assessee. 23. Accordingly, while disposing of these Tax Case (Appeals) ,we direct the Assessing Officer to re-work the liability in respectof the assessment years 2003-2004 and 2004-2005. We make it clearthat the assessee would not be entitled to the relief for theassessment year 2003-04 and as far as the assessment year 2004-2005is concerned, in the light of the four sale deeds executed on23.03.2004 alone, the assessee is entitled to exemption under Section54EC of the Income Tax Act, 1961. 24. As far as the view of the Income Tax Appellate Tribunal,based on the individual sale deed is concerned, we do not find anyjustification to accept the said reasoning in the context of clause(9) of the agreement that the assessee had had with the agreementholder and we do not also think that we need to go into thegenuineness or otherwise of the same. 25. With the above direction, both these Tax Case (Appeals) aredisposed of. No costs. Consequently, the connected miscellaneouspetition is closed. Sd/Assistant Registrar /True Copy/Sub Assistant Registrar vj2 To 1. The Assistant Registrar, Income Tax Appellate Tribunal, Chennai Bench 'C'.Rajaji Bhavan, III Floor Besant Nagar, Chennai 600 090. 2. The Commissioner of Income Tax (Appeals-VIII), Nungambakkam, Chennai-34 3. The Commissioner of Income Tax Company Circle, Chennai. 4. The Income Tax Officer (OSD), Company Circle III(3), Chennai-34. 5. The Income Tax Officer, company Circle III(1) Chennai. 2ccs to Mr.S.Sridharan,Advocate, Sr.61352 1cc to Mr. T.Ravi Kumar,Senior IT Dept, Standing counsel, Sr.61344 Tax Case (Appeal) Nos.697 and 698 of 2013 jrg(CO)GKG/20.1.14