The Commissioner Of Income-Tax, Tamil Nadu-V Madras v. Mr.k.jeelani Basha Trichy

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 04.03.2002 CORAM THE HONOURABLE MR.JUSTICE V.S.SIRPURKARANDTHE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN TAX CASE NO.357 OF 1996(Reference No.346 of 1996) The Commissioner of Income-Tax,Tamil Nadu-VMadras. ... Applicant Versus Mr.K.Jeelani BashaTrichy. ... Respondent Prayer: Case referred by the Income-Tax Appellate Tribunal, Madrasunder Section 256(1) of the Income Tax Act, 1961 for decision in R.A.No.296/M/95 in I.T.A.No.570/ Mds/ 1994. ! For Applicant : Mrs.Chitra VenkataramanSr.Standing Counsel for Income Tax For Respondent : Mr.C.V.Rajan forM/s.D.Padma Prakash andS.Swarnambikai : JUDGMENT(Judgment of the Court was delivered by V.S.SIRPURKAR,J.) 1. The interesting question of law on the backdrop of moreinteresting facts was referred to us. 2. The question is, "whether on the facts and in circumstances of thecase, the Appellate Tribunal was right in law in its interpretation of theprovisions of Section 2(47)(v) of the Income Tax Act and not upholding theassessment for the entire capital gains in the assessment for the assessmentyear 1992-93." 3. Few facts of the case are: The assessee is an individual. Heheld a large property. The relevant assessment year is 1992-93 for which therelevant previous year ended on 31.3.1992. The assessee had entered into an agreement on 10.11.1990 with one M/s. Reliance Developments, Coimbatore forthe sale of property at No.13, VOC Road, Cantonment, Trichy. The property wasvacant land with a building within the Municipal limits. Obviously, the wholeidea was to develop the property. The total area of the property was about36,837 sq.ft and the total consideration agreed was Rs.57 lakhs. Thepurchaser( hereinafter referred to as "developer") paid a sum of Rs.2 lakhs asadvance on the date of agreement and agreed to pay a sum of Rs.15 lakhs withintwo months from the date of the agreement and further sum of Rs.10 lakhswithin a further period of six months. It seems that the developer could notkeep up the schedule. Therefore, some modifications were effected with themutual understanding in the terms of the agreement. As per the modifiedagreement, the assessee parted with the possession of approximately 1/3rd ofthe total property on or about 15.6.1 991. He also agreed that he wouldpurchase a residential apartment bearing the area of 4400 sq.ft, which wouldbe eventually put up on the sold property at the consideration ofRs.15,47,000/-. He also agreed that the developer/purchaser would construct aseparate building in an area of 5,600 sq.ft at the cost of Rs.8 lakhs and thissum of Rs.15,40,000/- plus Rs.8 lakhs totaling to Rs.23,40,000/- was to beadjusted out of the total consideration. But this adjustment was to be fromthe last instalment of the consideration payable by the developer to theassessee. The assessee it seems received an amount of Rs.2 2 lakhs out of theconsideration on his having parted with approximately one third of the totalproperty. He also added in this Rs.22 lakhs the cost of the building of 8lakhs, which the developer agreed to construct over an area of 5,600 sq.ft.Thus, the capital gains for 1992-93 were initially calculated on the basis ofthis Rs.30 lakhs. However, the Assessing Authority calculated the wholecapital gains on the basis of the total consideration of the transaction andnot on Rs.22 lakhs received by him and after making the adjustments the totalcapital gains were assessed at Rs.4,74,765/-. 4. Eventually, the assessee moved the Tribunal. (Eventually the assessment has undergone a change inasmuch as the assessee has successfullyconvinced the Tribunal to ignore Rs.8 lakhs and has paid the capital gainsonly on the basis of the cash amount of Rs.22 lakhs received by him.)Therefore, we would proceed today only on the basis of Rs.22 lakhs as theconsideration received for 1/3rd of the property which was parted with by theassessee in favour of the developer during the assessment year 1992-93. 5. Against the initial assessment made, the assessee carried an 4. Eventually, the assessee moved the Tribunal. (Eventually the assessment has undergone a change inasmuch as the assessee has successfullyconvinced the Tribunal to ignore Rs.8 lakhs and has paid the capital gainsonly on the basis of the cash amount of Rs.22 lakhs received by him.)Therefore, we would proceed today only on the basis of Rs.22 lakhs as theconsideration received for 1/3rd of the property which was parted with by theassessee in favour of the developer during the assessment year 1992-93. 5. Against the initial assessment made, the assessee carried an appeal before the Commissioner of Income Tax, because the Assessing Authorityhad calculated the capital gains on the basis of the total consideration ofRs.57 lakhs. 6. It was the contention of the assessee that in that assessment year, he had received only Rs.22 lakhs and therefore the calculation has to bemade taking into account that payment alone. He also pointed out that he hadparted with the possession of 1/3rd of the property only and not the wholeproperty. Relying on Section 2(47)(v) of the Income Tax Act, he contendedthat the transfer was only in respect of the 1/3rd of the property and he hasreceived the consideration of Rs.22 lakhs only and therefore the capital gainsshould be calculated on that basis. The Commissioner of Income Tax did not 7. However, the Tribunal ultimately accepted this contention anddirected that the capital gains would be chargeable during the year only forthe immovable property handed over to the purchaser Reliance Developments.Since the sale price had been fixed for the entire property, it was onlyappropriate that the sale proceeds is allocated pro rata for the possessionhanded over and the capital gains computed. Accordingly, the AssessingOfficer was directed to re-compute the capital gains in the light of theobservations made. 8. It is this judgment of the Tribunal, which has been called inquestion at the instance of the Revenue before us by way of the aforementionedreference. 9. The learned Senior Counsel for the Department urged that even if there was a transfer of 1/3rd of the property by way of handing over thepossession thereof to the purchaser, the capital gains of the same have to becalculated on the basis as if the whole property was transferred and thereforethe total consideration in the transaction would be the basis for calculationof capital gains. The learned counsel invites our attention to the languageof Section 2(47)(v) and points out that thereunder, if the possession isparted with in terms of Section 53A of the Transfer of Property Act, then alsosuch transfer of possession amounts to a transfer within the meaning ofSection 45 of the Income Tax. The Section is as under:"2(47). Transfer in relation to a capital asset includes: (i) ..... (ii) ..... (iii) ..... (iv) .... (v) Any transaction involving the allowing of the possession of anyimmovable property to be taken or retained in part performance of a contractof the nature referred to in Section 53A of the Transfer of Property Act, 1882(4 of 1882)" 10. Relying on this language in the Section, the learned counsel suggests that in this case there was actually a transfer of the capital asset,because the assessee had parted with the possession of the property. Onceeven a part of the property was given in possession of the vendee, then forthe purpose of calculating the capital gains, it would amount to the transferof the whole property and eventually, the calculation would have to be madenot for the consideration actually received for the transferred part, but onthe basis of the total consideration agreed to between the parties for thewhole transaction. 10. Relying on this language in the Section, the learned counsel suggests that in this case there was actually a transfer of the capital asset,because the assessee had parted with the possession of the property. Onceeven a part of the property was given in possession of the vendee, then forthe purpose of calculating the capital gains, it would amount to the transferof the whole property and eventually, the calculation would have to be madenot for the consideration actually received for the transferred part, but onthe basis of the total consideration agreed to between the parties for thewhole transaction. 11. The thrust of the argument of the learned counsel is that thecontract could not be dissected as was tried to be done by the Tribunal, inpart and it has to be treated as one whole contract and therefore even if theassessee gave a part of the property in possession of the vendee, it should bedeemed as if the contract was over and then the capital gains would be liableto be calculated on the total consideration and not on the consideration 12. On the other hand, Mr.Rajan, the learned counsel for the assesseecontended that the Tribunal had correctly arrived at the legal position andthere was nothing to suggest that a contract would not have dissected,particularly, where the intention of the parties was apparent from theagreement. He pointed out that it would be only proper to rely on thedelivery of the property and if there is a part delivery of the property, thenthe proportionate consideration should only be taken into consideration forcalculating the capital gains. 13. In this case, the learned counsel points out that in the year 1992-93, the assessee received Rs.22 lakhs for 1/3rd of the property, which wasRs.3 lakhs more than the proportionate cost of 1/3rd of the property.According to the learned counsel, the proportionate cost would be only Rs.19lakhs. He however points out that the assessee was assessed on the basis ofRs.22 lakhs by the Tribunal. He then points out that in 1993-94 and 1994-95,the assessee received Rs.7,25,00 0/- and Rs.4,35,000/- respectively, but theassessee did not part with possession of the property and therefore there wasno transfer within the meaning of Section 45 in those assessment years. Hefurther points out that in the year 1995-96, the assessee parted with theother 1/3rd part of the property and put the developer in possession and hadactually not received even a single farthing, but he was later on assessed asif he had received 1/3rd consideration i.e., Rs.19 lakhs. The same story wasrepeated for the assessment year 1997-98 also, where the remaining 1/3rd ofthe property was put in possession of the developer/purchaser. Again, theassessee had not received the single farthing and yet he offered Rs.19 lakhsfor the purpose of calculating capital gains. Therefore, the contention ofthe learned counsel is that in the years 1995-96 and 1997-98, when he partedwith 1/3rd of the property in each year, he had offered to pay the capitalgains on the moneys which he had never received for those years. Ultimately,the learned counsel argues that all this will show that there is no escapingof any income, because the assessee had offered Rs.22 lakhs in the year1992-93 and Rs.19 lakhs in the year 1995-96 and Rs.19 lakhs in the year1997-98 totalling to Rs.60 lakhs treating which as a consideration, thecapital gains would be calculated. The learned counsel therefore says thatthis is not the case where the assessee has escaped or has taken undueadvantage of the provisions. 14. The learned counsel also urged that where it could be seen fromthe terms of the agreement, there was no reason not to dissect the contractand to calculate the capital gains on the basis of the proportionateconsideration for the portion of the property which was transferred by way ofgranting the possession thereof to the vendee. On this backdrop, we have tosee as to whether such calculation could be permissible or not. 14. The learned counsel also urged that where it could be seen fromthe terms of the agreement, there was no reason not to dissect the contractand to calculate the capital gains on the basis of the proportionateconsideration for the portion of the property which was transferred by way ofgranting the possession thereof to the vendee. On this backdrop, we have tosee as to whether such calculation could be permissible or not. 15. Our attention was invited by the learned counsel to the decisionof the Delhi High Court in COMMISSIONER OF INCOME TAX, DELHI VIII VS.SHAKUNTALA RAJESHWAR reported in 160 I.T.R. 840. This was a case where the17 vendors had transferred a property, which they had agreed to transfer tothe vendee, in four assessment years by executing the sale deeds in those four years. The question for consideration there was as to whether the entiretransaction was liable to be considered only in the relevant year 1972-73 orwhether the capital gains would be calculated by dissecting the contract asthe sale deeds were executed in four years though in pursuance of a singleagreement of sale. The Division Bench of the Delhi High Court consisting ofYogeshwar Dayal,J and S.Ranganathan, J (as their Lordships then were) heldthat there could be a transfer of property only when the relevant sale deedswere executed and registered. It was noted that on the terms of each saledeed, what was transferred was only 1/4th of the interest in property. Theentirety of interest of each of the transfers was transferred in four portionsin the four sale deeds, which became effective in four different years. Therewas also no transfer of interest earlier to these deeds. There was thereforeno tenable ground at all for suggesting that the capital gains in respect ofthe entire property could be taxed in only one of the assessment years viz.,assessment year 1972-73. Their Lordships held the answer to the question asto whether the capital gains were assessable only in the first year orproportionately in the four years was obvious, clear and self evident and noreference was called for on that question. 16. The learned counsel points out that the principle involved in this reported decision is that the capital gains would be calculated only onthe transfer having been effected. Even if there is one transaction and onlypart of the property is transferred in a particular assessment year, then thecapital gains would be calculated on the basis of such part transfer and alsoof the part consideration received by the transferee. This decision was givenwhen Section 2(47) was not amended. Therefore, their Lordships obviously wentby the word " transfer" in strict sense thereof and since there were completedfour sale deeds, their Lordships accepted the four transfers to have takenplace in four years and therefore eventually held that the capital gains couldnot be calculated on the basis of the whole transaction or the wholeconsideration involved therein. The only difference, which is to be perceivedtoday is that the definition of the "transfer" itself has undergone a change.Therefore, what applies to a completed transfer in the aforementioned DelhiHigh Court judgment would also apply if the transaction in the present casecan be covered under Section 2(47) and our finding is, that it can be socovered. 17. In this case, the possession was parted with whereas the 17. In this case, the possession was parted with whereas the assessee/vendor received the consideration therefor. Once the possession,even a part of the property was handed over to the transferee for the purposeof Section 2(47)(v) read with Section 45, the transfer was complete andtherefore the tax authorities and more particularly, the Tribunal wasjustified to calculate the consideration received in that particular year forthat part of the property which was parted with. In fact, a reference can bemade to the judgment of the Supreme Court in ALAPATI VENKATARAMAIAH VS.COMMISSIONER, INCOME TAX reported in 57 I.T.R. 185, which Mr.Rajan reliedupon and pointed out that before the amendment, the transfer was very strictlyconstrued. In the said decision, the Supreme Court refused to accept theagreement to sell or the entries made in the account for the receipt of theconsideration by the transferor as a completed transfer for the purpose ofthen Section 12(b). The Supreme Court observed that the transfer meanseffective conveyance of capital asset to the transferee and delivery of possession of immovable could not by itself be treated as equivalent toconveyance of the immovable property. Relying on this judgment, the learnedcounsel pointed out that the amendment has effected a sea change in law,inasmuch as under Section 2(47), the delivery of possession provided it is inthe nature as contemplated in Section 53 A of the Transfer of Property Act,would be enough to bring the transaction into the mischief of the word"transfer". The argument is undoubtedly correct. 18. Section 2(47)(v) has probably been introduced to meet the lawlaid down in this Judgment, wherein there used to be a transfer for all thepractical purposes, but the tax could be avoided only on the sole ground thatthe transaction was not completed by way of a sale deed. Now, the law havingundergone the change, it would be clear that where there would be a transferof possession in the nature as contemplated under Section 53A of the Transferof Property Act, the transaction would be covered as a transfer. By thenecessary logic then, that transaction would be coverable in that particularassessment year as has been done by the Delhi High Court. The only questionwas as to whether a transaction could be considered for the purpose ofcalculation of capital gains in parts. The position in law has been indicatedby the Delhi High Court that it can be so treated in parts, we respectfullyagree with the Delhi High Court judgment. However, the only conditions wouldbe that (1) such a delivery of possession should be in the nature of adoctrine of part performance under Section 53A for which there should be anagreement between the parties, (2) such agreement should be in writing, (3) acomple ted contract has to be spelt out from that agreement, and the mostimportant (4) the transfer of possession of the property in pursuance of thesaid agreement. All these conditions undoubtedly and admittedly are completedhere. If that is so, then there would be no question of interfering with theTribunal's judgment. In our opinion, the Tribunal has correctly held that theassessee would have to be assessed on the basis of the transfer of thepossession in proportionate to the consideration.Accordingly, the question is answered against the revenue. (V.S.S.,J.) (K.R.P.,J.)04.03.2002 Index:yes/NoWebsite: Yes To:1. The Assistant RegistrarIncome Tax Appellate TribunalIII Floor, Rajaji Bhavan,Besant NagarMadras.2. The Secretary, Central Boardof Revenue, New Delhi 3. The Asst.Commissioner of Income Tax, Commercial Circle,Tiruchirapalli.4. The Commissioner of Income Tax(Appeals) VIII,Madras-34.5. Commissioner of Income TaxTamil Nadu V,Madras. UskV.S.SIRPURKAR,J.ANDK.RAVIRAJA PANDIAN,J T.C.No.357 of 1996 4.3.2002 �