The Commissioner Of Income Taxchennai v. Shri.c.sugumarant2/2 Cauvery Salai,Besant Nagar, Southchennai - 600 090

In the High Court of Judicature at Madras Dated: 03.11.2014 Coram The Honourable Mr.JUSTICE R.SUDHAKARandThe Honourable Mr.JUSTICE R.KARUPPIAH Tax Case (Appeal) No.840 of 2014 The Commissioner of Income TaxChennai. Vs. .... Appellant Shri.C.SugumaranT2/2 Cauvery Salai,Besant Nagar, SouthChennai - 600 090. .... Respondent APPEALs under Section 260A of the Income Tax Act against theorder dated 21.02.2014 made in I.T.A.No.518/Mds/2013 on the file ofthe Income Tax Appellate Tribunal 'A' Bench, Chennai. For Appellant : Mr.T.Ravikumar Standing counsel for Income Tax------J U D G M E N T(Delivered by R.SUDHAKAR,J.) This Tax Case (Appeal) is filed by the Revenue as against theorder of the Income Tax Appellate Tribunal raising the followingsubstantial questions of law: "i) Whether on the facts and in the circumstances ofthe case, the Tribunal was right in holding that theassessee could not be treated as owner of the propertysold on 23.10.2008 while computing capital gains in hishands? 2. Whether the Tribunal was legally justified innot taking cognizant of the letter of the seller of theproperty to M.Viswanathan to the effect that he hadreceived a sum of Rs.25 lakhs for executing a power ofattornery on 01.09.2006 in favour of the assessee? https://hcservices.ecourts.gov.in/hcservices/ 3. Whether the finding of the Tribunal is correctespecially when Section 2(47)(vi) of the Incometax Actbrings within its ambit of the transfer, enjoyment of theproperty right through power of attorney agreements?" 2. The assessment in this case relates to the assessment year2009-10. The assessee is an individual. He is a power agent of oneMr.M.Viswanathan, who is the actual owner and vendor of the property.The said Viswanathan entered into a registered power of attorney on01.09.2006 in favour of the assessee without any consideration. Fordeciding this case, the relevant clauses in the power of attorneyagreement, as extracted by the Tribunal, reads as follows: “01) to negotiate the sale of the schedule mentionedproperty in whole or undivided shares. 02) to execute any agreement/s for sale or otherdocument/s necessary to effectuate the aforesaid purposesto cause the same to the stamped registered orauthenticated including purchase of stamp paper as the casemay be. 03) to receive or agree to receive the considerationfor the said sale or sales in respect thereof.04) to appear before sub registrar, Registrar or otherauthority for the purpose of the said sale or transfer. 05) to cause mutation where necessary effected inrevenue records and to make such statements personally orthrough pleader or other agents to effectuate the aforesaidpurpose. 06) to deliver vacant possession of the property soldto the purchaser/s to be sold. 07) to apply for demolition and demolish the existingbuilding in the schedule mentioned property. 08) to execute sale deed/s in favour of thepurchaser/s for the said property as a whole or anundivided shares and also rectification deed/s if necessary. 09)....... 10) to sign patta transfer forms, land ceiling formsand other declarations etc., that may be necessary andincidental fee effectively transferring the land in favourof the purchaser/s. https://hcservices.ecourts.gov.in/hcservices/ 11 to 16...... 17) in case of any dispute to institute legalproceedings and or defend suits or cases filed and in thatconnection to engage advocate, to sign vaklaths, plaints,affidavits, petitions, pleadings, statement and also togive evidence before competent court. 18 & 19..... 20) to advertise for sale of the schedule mentionedproperty either as whole or as undivided share 21) to do all things necessary and essential forproper management of our property including disposal andcompletion of sale of the schedule property. And generallyto do the such act are necessary and incidental in thisregard. https://hcservices.ecourts.gov.in/hcservices/ 11 to 16...... 17) in case of any dispute to institute legalproceedings and or defend suits or cases filed and in thatconnection to engage advocate, to sign vaklaths, plaints,affidavits, petitions, pleadings, statement and also togive evidence before competent court. 18 & 19..... 20) to advertise for sale of the schedule mentionedproperty either as whole or as undivided share 21) to do all things necessary and essential forproper management of our property including disposal andcompletion of sale of the schedule property. And generallyto do the such act are necessary and incidental in thisregard. No consideration is received from power agent for givingthis power of Attorney. The power agent shall maintainproper accounts and render the same. The property righthas not been handed over the Power Agent." 3. After the execution of power of attorney, the property wasregistered in the name of the assessee's wife Dr.Meera Bai for a sumof Rs.25.00 lakhs by a sale deed dated 23.10.2008. The AssessingOfficer took the view that it is the assessee who sold the plot tohis wife Dr.Meera Bai for a sum of Rs.25.00 lakhs, whereas, theguideline value of the property was Rs.60.00 lakhs at that point oftime by adopting the fair market value of the property at Rs.60.00lakhs based on index cost at Rs.11.00 lakhs as on 01.04.1981. 4. The assessee/power of attorney holder contested the assessmentof capital gains at his hands by pleading that he had acted only as apower of attorney holder of the actual owner Mr.Viswanathan, whichplea was rejected by the Assessing Officer and the total income wascomputed at Rs.61,25,290/- resulting in the demand of tax atRs.16,94,560/-. Aggrieved by the said order of the AssessingOfficer, the assessee has filed an appeal before the Commissioner ofIncome Tax (Appeals), who rejected the plea of the assessee, therebydismissed the appeal. As against the said order, the assessee filedan appeal before the Income Tax Appellate Tribunal. 5. The Tribunal placing reliance on the various clauses in thepower of attorney, the relevant portion of which we have referredsupra and also after considering the letter of the ownerMr.Viswanathan, who had stated in his letter that he had received asum of Rs.25.00 lakhs from Mr.C.Sugumaran, in the year 2006 itself,held that the recital contained in the registered power of attorney dated 01.09.2006 does not show that any consideration was paid to theactual owner and the assessee had acted merely as an agent. Theletter of the owner that he had received only Rs.25.00 lakhs at thetime of executing the power of attorney, which is a subsequentstatement by the said owner did not inspire the confidence of theTribunal to accept the Department's plea. The Tribunal laid emphasison the registered document, namely, Power of Attorney, in letter andspirit holding that there was no consideration paid at the time ofexecuting the power of attorney. The Tribunal also gave a findingthat there was no supporting evidence except the letter of the saidowner to disbelieve the claim of the assessee. One other factor thatthe Tribunal relied upon was that the owner had earlier executed apower of attorney and revoked the same, meaning thereby, that it wasa transaction entered into by the land owner to his own benefit bychoosing the appropriate person as power of attorney to suit hisrequirement. The Tribunal was of the view that the assessee couldnot be treated as owner of the property sold on 23.10.2008 andtherefore there was no question of computing capital gains in thehands of the assessee. Accordingly, the Tribunal allowed the appealfiled by the assesee. As against the said order of the Tribunal, thepresent Tax Case (Appeal) has been filed by the Revenue. 6. The short issue involved in this Tax Case (Appeal) is whethercapital gains should be assessed at the hands of the assessee, who isa power of attorney holder. 6. The short issue involved in this Tax Case (Appeal) is whethercapital gains should be assessed at the hands of the assessee, who isa power of attorney holder. 7. We have heard Mr.T.Ravikumar, learned standing counselappearing for the Revenue at length. 8. Learned standing counsel appearing for the Revenue laidemphasis on the definition of the word 'transfer' as contained insub-clause (vi) of Section 2(47) of the Income Tax Act, which readsas follows: “Definitions. 2. In this Act, unless the context otherwiserequires- ........ (47) "transfer", in relation to a capital asset,includes- ....... (vi) any transaction (whether by way of becoming amember of, or acquiring shares, in a co-operativesociety, company or other association of persons or byway of any agreement or any arrangement or in any othermanner whatsoever) which has the effect of transferring,or enabling the enjoyment of, any immovable property." 9. To support his plea, he also relied upon circular No.495 dated22.9.1987, to submit that the arrangements by way of power ofattorney would also come within the purview of Section 2(47) of theIncome Tax Act. The relevant portion of the circular reads asfollows: "11.1 The existing definition of the word "transfer"in s.2(47) does not include transfer of certain rightsaccuring to a purchaser, by way of becoming a member ofor acquiring shares in a co-operative society, company,or association of persons or by way of any agreement orany arrangement whereby such person acquires any right inany building which is either being constructed or whichis to be constructed. Transactions of the naturereferred to above are not required to be registered underthe Registration Act, 1908. Such arrangements confer theprivileges of ownership without transfer of title in thebuilding and are a common mode of acquiring flatsparticularly in multi-storeyed constructions in bigcities. The definition also does not cover cases wherepossession is allowed to be taken or retained in partperformance of a contract, of the nature referred to ins.53A of the Transfer of Property Act, 1882. New sub-cls.(v) & (vi) have been inserted in s.2(47) to preventavoidance of capital gains liability by recourse totransfer of rights in the manner referred to above.11.2 The newly inserted sub-cl.(vi) of s.2(47) hasbrought into the ambit of "transfer", the practice ofenjoyment of property rights through what is commonlyknown as Power of Attorney arrangements. The practice insuch cases is adopted normally where transfer ofownership is legally not permitted. A person holding thepower of attorney is authorised the powers of owner,including that of making construction. The legalownership in such cases continues to be with thetransferor." 10. A careful reading of sub-clause (vi) of Section 2(47) of theIncome Tax Act reveals that any transaction by way of agreement orarrangement or in any manner whatsoever, which has the effect oftransferring or enabling the enjoyment of any immovable propertywould get the character of transfer. 11. In the present case, we find that there is no transfer to orenabling enjoyment of property in favour of the assessee in anymanner and therefore, sub-clause (vi) of Section 2(47) of the IncomeTax Act does not get attracted. Clause 21 of the power of attorney,which has been already referred to supra, clearly reveals that noconsideration was received from the power agent for appointing him aspower of attorney. It also emphasised therein that the property https://hcservices.ecourts.gov.in/hcservices/ 11. In the present case, we find that there is no transfer to orenabling enjoyment of property in favour of the assessee in anymanner and therefore, sub-clause (vi) of Section 2(47) of the IncomeTax Act does not get attracted. Clause 21 of the power of attorney,which has been already referred to supra, clearly reveals that noconsideration was received from the power agent for appointing him aspower of attorney. It also emphasised therein that the property https://hcservices.ecourts.gov.in/hcservices/ right has not been handed over to the power agent. We are,therefore, unable to accept the plea of the Revenue that there was anelement of transfer or enabling enjoyment in favour of the assessee.The letter of the land owner subsequently issued does not come to theaid of the Department. It is the duty of the power of attorneyholder to deliver the amount received for the purpose of transfer ofproperty. Therefore, no fault could be found on the part of theassessee. Assuming that he had delivered certain sum to the landowner, it is but the lawful duty of the power of attorney to deliverpayment to the land owner. The sale to Dr.Meera Bai is also for thesame value. Hence, nothing turns on the letter of the erstwhileowner, in favour of the Department. 12. We, therefore, now proceed to analyse the meaning behindcircular No.495 dated 22.9.1987. The interpretation of the circularas put forward by Sri.T.Ravikumar, learned standing counsel appearingfor the Revenue, we are not in agreement. The provisions of sub-clause (vi) of Section 2(47) of the Income Tax Act make it clear thatthe transaction, which has the effect of transferring or enabling theenjoyment of immovable property alone would come within the ambit oftransfer. The circular reads something more into the provision. Weare not inclined to accept such an interpretation. The circular alsostates that the legal ownership would continue with the transferor;but the property rights if it is transferred by way of power ofattorney would come within the ambit of sub-clause (vi) of Section 2(47) of the Income Tax Act. Assuming we accept the intention behindthe circular, then there should be an element of transfer or enablingenjoyment of property right as stated in paragraph 11.2 of thecircular by the power of attorney holder. 13. We find no such recital in the power of attorney as extractedby the Tribunal and referred to by us. On the contrary, the terms ofthe power of attorney clearly show that property rights has not beentransferred to the power of attorney holder and there is also noprovision for enabling enjoyment. It is not the case of theDepartment that the power of attorney is sham. If they accept thepower of attorney is valid, then the plea of capital gains at thehands of the assessee has no legs to stand. Accordingly, we find nomerits in this Tax Case (Appeal). True Copy Sub-Assitant Registrar To 1. The Asst. Registrar, The Income Tax Appellate Tribunal 'A' Bench, Besant Nagar, Chennai. Besant Nagar, Chennai. 2. The Commissioner of Income Tax (Appeals)-VIII, Chennai. 3. The Assistant Commissioner of Income-tax, Business Circle V, Chennai. Chennai. 4. The Commissioner of Income Tax Chennai. 5. The Director, Central Board of Direct Taxes, New Delhi. + 1 cc to Mr.T.Ravikumar, Advocate SR 52067 msm(co) prk17/11 Tax Case (Appeal) No.840 of 2014