AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (11) TMI 708
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....d in confirming that capital gain on alleged transfer of two immovable property owned by the appellant at Dadar (E), Mumbai is assessable in the impugned assessment year. 2.1 Facts as emanating from the record are that the assessee being resident individual deriving Business Income, House Property Income and Capital Gain was assessed u/s 143(3) for impugned AY on 13/03/2013 at Rs. 2,49,06,890/- as against returned income of Rs. 1,450/- filed by the assessee on 23/11/2010. 2.2 Pursuant to receipt of Annual Information Return [AIR] information, it was noted that the assessee had sold 2 properties situated at Dadar (East) to Kapil Group [developer] on 16/01/2010. The sale consideration of the same was Rs. 65 Lacs and Rs. 100 Lacs as against market value of Rs. 102.05 Lacs & Rs. 146.91 Lacs. 2.3 The assessee explained that it inherited the two adjoining plots with structures upon demise of his father. One plot with structure was situated at city survey no. 47/26 bearing plot no. 48C ad-measuring about 382 square Yards [First Property] with various tenants and second plot bearing city survey no. 48/26 bearing plot no. 48B ad-measuring about 485 square Yards [Second Property] wi....
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....building or land and could not be applied to development rights being granted by the assessee. However, Ld. AO opined that the assessee through registered agreement, granted absolute, complete and unfettered development rights to the developer to develop the said properties for consideration and further noted that the respective agreements were irrevocable and hence, there was transfer of capital assets chargeable to tax in terms of Section 2(47) and judgment of Hon'ble Bombay High Court rendered in Dwarkadas Kapadia [129 Taxman 497]. The Ld. AO also opined that the provisions of Section 50C were applicable to such transaction. Finally, the Ld. AO computed capital gains of Rs. 2,48,96,500/- after applying the provisions of Section 50C and added the same to the income of the assessee. 3.1 Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 23/03/2015 where the assessee reiterated the said contentions and drew attention to the fact that twin conditions of execution of written agreement and handing over the possession had to be cumulatively satisfied so as to bring the case within the ambit of Section 2(47) of the Income Tax A....
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....against the transfer of development rights. It was further contended that the possession was never parted by the assessee since consent of the respective tenants could never be obtained and suits in this regard were already pending before appropriate court by the developer. Further, the assessee was continuously receiving rent from the tenants and reflecting the same in his tax returns and therefore the transactions could not be assessed to tax in the impugned AY since transfer was not complete. 4.2 Per contra, Ld. DR drew our attention to the fact that the contract was irrevocable and the same could not be backed put by the respective parties and the assessee, by way of said agreement, handed over the complete control over the property to the developer and hence the transactions was rightly brought to tax by Ld. AO. 5. We have heard the rival contentions and perused relevant material on record. A perusal of development agreement dated 16/01/2010 with respect to property bearing Plot No. 48B ad-measuring 485 square Yards as placed on record reveals that the assessee has entered into development agreement with the builder namely Kapil Group. As per Clause-3, the owner has gran....
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.... Certificate or within six months from the date of obtaining the consent of the tenants. 10. All the benefits as are available in respect of the said property or which may be available in future shall belong to the Developers alone and the Owners shall not have any claim or demand in respect thereof. 11. Without prejudice to the responsibility of the Owners to obtain consent/no objection of the Tenants/occupiers to the redevelopment of the said property by the Developers, the Owners agree and confirm that the Developers are entitled to enter into negotiations with Tenants/occupiers with a view to avail vacant possession of such tenements on such terms costs as the Developers may deem fit. 12. The owner covenant and undertake that the owners shall: (i) At the cost of the developers obtain consents of tenants / occupants to redevelopment of the said property by the developer. (ii) Endeavour to effect demolition of the said building on such terms as may be agreed with the tenants / occupants and are acceptable to the developers. (iii) bear and pay fees of Architect, RCC consultant and all other professionals engaged in various acti....
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....ion of a zero coupon bond; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. (emphasis being supplied by us) Upon perusal of the same, we find that case of the assessee, at the most, could fall under sub-clause-(v) i.e. any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882. 7. The prime contention of the Ld. AR is that the assessee has received mere advance against the development agreement whereas no possession has been handed over by him since consent of the respective owners could not be obtaine....
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.... and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.] Income Tax Act Section 2 - Definitions In this Act, unless the context otherwise requires, - (47) "transfer", in relation to a c....
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....rty, or of any part thereof; (5) the transferee must have done some act in furtherance of the contract; and (6) the transferee must have performed or be willing to perform his part of the contract." 19. It is also well-settled by this Court that the protection provided under Section 53A is only a shield, and can only be resorted to as a right of defence. See Rambhau Namdeo Gajre v. Narayan Bapuji Dhgotra (Dead) through LRs. (2004) 8 SCC 614 at 619, para 10. An agreement of sale which fulfilled the ingredients of Section 53A was not required to be executed through a registered instrument. This position was changed by the Registration and Other Related Laws (Amendment) Act, 2001. Amendments were made simultaneously in Section 53A of the Transfer of Property Act and Sections 17 and 49 of the Indian Registration Act. By the aforesaid amendment, the words "the contract, though required to be registered, has not been registered, or" in Section 53A of the 1882 Act have been omitted. Simultaneously, Sections 17 and 49 of the 1908 Act have been amended, clarifying that unless the document containing the contract to transfer for consideration any immovable property....
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.... 17(1A) and Section 49 of the Registration Act shows that in the eyes of law, there is no contract which can be taken cognizance of, for the purpose specified in Section 53A. The ITAT was not correct in referring to the expression "of the nature referred to in Section 53A" in Section 2(47)(v) in order to arrive at the opposite conclusion. This expression was used by the legislature ever since 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 of applicability of Section 53A to the contracts mentioned therein. It is only where the contract contains all the six features mentioned in Shrimant Shamrao Suryavanshi (supra), that the Section applies, and this is what is meant by the expression "of the nature referred to in Section 53A". This expression cannot be stretched to refer to an amendment that was made years later in 2001, so as to then say that though registration of a contract is required by the Amendment Act of 2001, yet the aforesaid expression "of the nature referred to in Section 53A" would somehow refer only to the nature of contract mentioned in Section 53A, which would then in turn....
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....n alone is given under the agreement, and that too for a specific purpose -the purpose being to develop the property, as envisaged by all the parties. We are, therefore, of the view that this clause will also not rope in the present transaction. 24. The matter can also be viewed from a slightly different angle. Shri Vohra is right when he has referred to Sections 45 and 48 of the Income Tax Act and has then argued that some real income must "arise" on the assumption that there is transfer of a capital asset. This income must have been received or have "accrued" under Section 48 as a result of the transfer of the capital asset. 25. This Court in E.D. Sassoon & Co. Ltd. v. CIT, (1955) 1 SCR 313 at 343 held: "It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendu....
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.... follow s from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. 18. Insofar as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement passbook, there was no corresponding liability on the Customs Authorities to pass on the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is, therefore, not the income of the assessee." 27. In the facts of the present case, it is clear that the income from capital gain on a transaction which never materialized is, at best, a hypothetical income. It is admitted that, for want of permissions, the entire transaction of development envisaged in the JDA fell through. In point of fact, income did not result at all fo....